General Politics Betting / Jack Houghton / 06 January 2012 /

Despite what the markets are saying, Jack Houghton believes Mitt Romney is a weak favourite for the Republican nomination. And whether he becomes his party's candidate or not, the Republicans will struggle to beat Obama in November.

Writing in the Press Gazette in July 2006, I argued that Betfair - and other prediction markets out there - offered the most accurate indicator of the likely outcome of political contests: aggregating, as they do, the knowledge and views of a wide range of people in a more through and efficient way than any opinion poll ever could.

The purpose of that article was to persuade political journalists that Betfair markets were a viable alternative to the staid prediction tools they were used to reporting. It's no surprise, then, that its tone is somewhat evangelical. Reading it back now, against the backdrop of a muddied and muddled US presidential election year, I'm not sure I could have nearly so much faith in what the markets are telling us as I might have done back then.

Take the race to be the Republican nominee. Short-priced favourite at [1.30], the market is telling us that Mitt Romney has around a 77 per cent chance of being chosen by his party to take on Obama in November. And this view is echoed in nationwide opinion polls, which have shown Romney to be holding a significant lead in the last few weeks, having overtaken long-time poll-leader - and one-time Betfair favourite - Newt Gingrich.

Romney hardly delivered on that big polling lead in the first caucus though and, as a result, Santorum, who could hardly have come closer to causing an upset in Iowa, has recently polled much more strongly among Republican voters nationwide. This perhaps tells us that, despite pollsters' carefully worded questions, opinions polls tend to reflect who voters think will win, as opposed to who they will actually end up voting for. With Romney and Santorum leading the way in Iowa, it follows that they will come out on top in the next poll.

This is despite Iowa's lack of any particular prescience when it comes to selecting Republican candidates. Since the Iowa Caucus became the first indicator of early voter preference in 1976, its winner has only gone on to receive the party nomination in half of the contested races. In two of those years, John McCain and George Bush Senior finished way down the Iowa pecking-order before eventually cruising to the eventual nomination and, in the cases of Pat Buchanan and Pat Robertson, a strong early showing in Iowa meant little in terms of establishing them as serious contenders.

Much of Romney's popularity in the markets comes as a result of his huge lead in the amount of money he has been able to raise, and has available to spend, in these primaries. In any election, money can buy you a lot of votes, but it's also true to say that it can't buy you a nomination. Romney spent more than double that of McCain in 2008, but was unsuccessful, and as his supporters react to his lacklustre performance in the Iowa Caucus, some of that money might dry up.

The Republican nomination is far more open than the market suggests. As candidates drop out, allegiances will shift, so for Romney to be trading as short as [1.30] so early looks faintly ridiculous. With plenty of time on our side to trade out for a profit, I'm a layer at that price. And this time could come sooner than expected: a weaker than expected performance in next Tuesday's New Hampshire Primary could all but end Romney's nomination aspirations.

As for the Next President market, Obama looks huge at [1.87] to serve another term in office. It will be difficult for any Republican to emerge from the primaries without significant bloodying, and Obama's campaign team will be able to capitalise on this against the backdrop of an American economy showing signs of recovery.

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