Finance

Michael P. Regan is a Bloomberg Gadfly columnist covering equities and financial services. He has covered stocks for Bloomberg News as a columnist and editor since 2007. He previously worked for the Associated Press.

Much hype has been made about the prophetic powers of Britain's online bookies, making their odds the favored way to gauge the prospects for the nation when it votes Thursday on whether to leave the European Union.

So much hype, in fact, that investors and traders seem to be trusting that the bookies are correct in forecasting a very slim chance that the "leave" campaign will prevail. In doing so, they are simultaneously rejecting opinion polls, which make the vote appear to be too close to call (44 percent for leave and 45 percent for remain, with 11 percent undecided): 

Odd Divergence
The implied probability of a Brexit derived from gambling odds has plummeted, while the consensus of voter polls make the referendum appear too close to call.
Source: based on consensus of opinion polls compiled by Bloomberg and implied probability from betting odds via Oddschecker.com. Bloomberg tickers: BBRXLEAV Index and ODCHLEAV Index, respectively.

The case for favoring the bookies makes logical sense. People willing to bet money on an outcome presumably are taking the decision more seriously than those who happened to be at home when the pollster called, or the whimsical surfers of the internet who happened to click on a link. However, on the eve of the vote, there is intriguing evidence being presented here and there that, in this case, there's a chance it could be a mistake to put too much faith in the bookies. 

When asked how his site sets odds, Ladbrokes head of political betting Matthew Shaddick told CNBC it's "pretty much supply and demand at this stage. The more money we take on remain, the odds come down. And vice versa." 

Here's the most intriguing part: More bets had been placed on leave than remain. But the average bet placed on remain, he said, was 450 pounds, compared with 75 pounds for leave.

It's all a great bonanza for the bookies, with Shaddick telling CNBC that around 100 million pounds had been bet so far. That might make it the biggest political betting event of all time, he said.

That's an interesting figure: 100 million pounds, or about $147.4 million. That's a robust enough market that it appears to be influencing everything from currency exchange rates to stock market moves. 

However, there's so much more to be gained or lost based on the results of the referendum that it makes one wonder whether the corollary could be true simultaneously: If the betting odds are influencing the decisions of market players, couldn't that inspire market players to influence the betting odds?

Even a few well-paid chief executive officers -- Boris Johnson will tell you these "fat cats" in Britain make 150 times the average employee of their companies -- could theoretically throw down enough bets to move the odds to some degree in an attempt to discourage voter turnout on the "leave" side so that they don't have to deal with the headache that an exit would impose on their businesses.

Then there are our beloved players in the global financial markets, where some $5.3 trillion is traded each day in foreign exchange and about a quarter trillion dollars daily in U.S. equities alone.  

Surely these folks have too many scruples to try to do something as duplicitous as place a few big wagers in an effort to influence a $147 million gambling market, right?

Well, personally, I wouldn't bet on it.  

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Michael P. Regan in New York at mregan12@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net