This article first appeared at betting.betfair.com on May 27th 2020
Don’t re-fight the previous election
In the previous political betting masterclass, I focused on election betting and mentioned how each particular race is unique. Assuming the dynamics will transfer to the next contest is usually bad strategy – politics changes quickly. The same argument can certainly apply to another popular type of market – leadership contests.
Consider some recent examples. When Jeremy Corbyn announced his resignation as Labour leader, Rebecca Long Bailey was swiftly gambled into odds-on. Why? Because a narrative had grown, simplistically categorising their half-a-million members into rigid factions. Having backed Corbyn twice by big margins, they would back another ‘hard left’ candidate.
As it turned out, RLB never got close and the centrist Keir Starmer won by a landslide. The choices made in previous leadership contests involving different candidates, amidst different conditions, didn’t prove a good guide. Many of the voters weren’t even the same people, given how party members come and go.
There are plenty more famous examples. When Donald Trump and Ted Cruz were leading the Republican primary in 2015/16, the market initially preferred candidates more favourable to the mainstream such as Jeb Bush or Marco Rubio – based on previous contests. In reality, the party had changed in the four years since it picked Mitt Romney – in tone, policy and members.
Beware early leadership polls
The history of leadership contests is littered with bad early favourites. Particularly the Conservative Party, although Boris Johnson broke the mould last year. The recent Democrat primary involved favouritism switching between four candidates before Joe Biden finally won.
A classic mistake is to overstate the importance of early polls. When members or supporters are first asked, name recognition will be uneven. They will be unable to form a considered opinion about several candidates. The dynamics of the race will not yet be clear. Laying the early favourite generally proves a good tactic.
Know the party electorate
A common mistake made in leadership contests is to assume that party members will be in tune with wider public opinion. That is why Corbyn, for example, was the 24-1 outsider of four when I tipped him on these pages back in 2015. For at least a month, the media ridiculed his candidacy, primarily on the grounds that he would prove unelectable with the wider public.
The point they missed was that Labour members (as with all political parties) are, by definition, unrepresentative. Less than 2% of the population are party members and most are nowhere near as engaged or partisan. The key to identifying Corbyn was understanding the mood of the members.
The same could be said of the last Conservative contest, when MPs who voted to Remain in 2016 were at an irreversible disadvantage compared to Leave backers – because the party members were very pro-Brexit.
Indeed this is a recurring lesson with both parties. In Kenneth Clarke, the Conservatives had twice previously rejected a well-known candidate, with wide popular appeal, on the basis of his pro-European stance, in favour of virtually unknown alternatives William Hague and Iain Duncan Smith. Labour picked Ed Miliband over brother David – generally regarded to be more electable – due to their policy differences, not electability.
Know the electoral system and its dynamics
Likewise, this is essential knowledge. The Conservatives operate a multi-round system. First MPs whittle contenders down to two, by eliminating one per round. Then the top-two go forward to members.
This can mean – as with that IDS victory in 2001 – that the candidate best placed to win with the members never gets the chance. On that occasion, Michael Portillo was thwarted by tactical voting among MPs. Tory leadership contests are famous for such shenanigans.
Labour, alternatively, use the Alternative Vote. Here members get to rank the candidates in order of preference. The effect can favour the least offensive candidate – who hasn’t alienated any particular faction. That is how Ed Miliband won.
In US primaries, the voting system involves elections in each state, lasting several months. Therefore, one must constantly think ahead and weigh up the dynamics of each particular electorate.
Buy the rumour, sell the fact
Successful trading in any market involves successfully predicting the trajectory of the odds. In politics, that means staying ahead of the news cycle and looking to predict the future.
This is key to playing side markets such as leader exit dates or when the next election will be held. For example last year there were good profits to be made from predicting how the complicated Brexit process would play out. It was possible to think ahead and work out that a general election would be needed and that Theresa May would be removed as Tory leader before it took place.
Likewise, this is how I prefer to play leadership contests. Whilst they can appear wide open, including dozens of listed candidates, they are not. Usually, only a small number of candidates are realistically well-positioned.