When it comes to betting, there are sites that cover seemingly everything. Whether you want to bet on horse racing, football or politics, you can place a wager on most (legal and tasteful things) thanks to the proliferation of online betting sites. Sometimes, it is felt by some that there is a market that deserves its own site, giving more in-depth wagers for people to place on their chosen subject matter. The idea is that such sites will draw in both the casual bettor, as well as those that know the field well enough to be confident about the bets that they place.
One such website was PredictIt, which offered punters the opportunity to place bets on the outcomes of political events. It began operating back in 2014 and, despite its somewhat niche subject matter, soon became quite popular. By 2022, it had 80,000 active users, which was a combination of both casual bettors and those that took politics very seriously. The turned to PredictIt because it allowed them to place wagers that were a touch more niche than standard bookmakers offered, but now the site is shutting down and will be missed by those users.
What Was PredictIt?
The fact that PredictIt became quite popular for people hoping to bet on the minutiae of American politics might have led some to believe that it was a site that was based in the United States of America. In actual fact, it was created for educational purposes by the Victoria University of Wellington in New Zealand and was initially a not-for-profit product. The link to the US comes from the fact that it was supported by Aristotle International, a date provider that offers both data processing and verification services to its users.
Selling itself as a ‘unique and exciting real money site’, PredictIt gave punters the chance to trade shares on everything political. This could wager from major world events, such as the election of a new Prime Minister in the United Kingdom, through to decisions that were made by the United States Supreme Court. Those that got the most out of PredictIt would choose to ‘buy’ shares when they knew something about the event that they were essentially betting on, buying when the price was low and then selling when they got high.
Others chose to hang on to their bets until the result became final, cashing on once the market closed. Rather than being a betting site, it was sold as a ‘prediction market’ that offered people exchanges on both political and financial events. Within two years of its launch, there were 29,000 active traders who were regularly heading to PredictIt in order to make use of their political knowledge. It offered what was known was a ‘double market’, requiring one person to think something will take place and someone else that thought it wouldn’t.
How PredictIt Worked
Those that have used a betting exchange will be familiar with the basic concept. In essence, it was a section of people laying bets and another group of people backing them. Rather than backing and laying, however, punters would either buy ‘Yes’ or ‘No’ shares in a given market, depending on which way they thought it was going to go. The price of shares would range from one cent to 99 cents, going up or down depending on the likelihood of the event in question actually taking place. In other words, you could have bought ‘Yes’ on Donald Trump winning the Presidency and won when he did.
More Complicated Outcomes: Contracts
When a market was a little more complicated than just a yes or no answer, there would be other outcomes available. These were known as a ‘contract’, though they were still bought and sold in much the same way. Punters would head onto the site and enter the price that they wanted and the number of shares that they were after. At that point, they would be offered a Prices table, which told them what offers were available to them on the market that they wanted to bet on, given them the chance to choose the ones that best matched their position.
If the punter didn’t like the look of the market, they could offer a lower one when looking to buy or a higher one when trying to sell, which would then be either picked up by someone else or would go unmatched for the duration of the time that the market is in play. As with all betting exchanges, it requires others to want to offer or take the price that you’re after, which is why it is felt that exchanges are a more realistic sense of the odds of something actually happening. Indeed, the Betfair Starting Price has become the key one for the betting industry, for example.
Markets with multiple contracts were slightly more complex. Buying and selling still worked in the same way, but they weren’t cash markets in quite the same manner. Instead, PredictIt would calculate the worst-case loss scenario and debited or credited accordingly. The company would withhold the amount needed in order to cover the worst possible scenario, releasing any money once the market had been settled. As with any other form of exchange betting, those that didn’t understand how it worked were encouraged not to get involved.
The whole notion of PredictIt was that it encouraged people to be more sensible than traditional bookmakers tended to do. You weren’t able to offer to buy more shares than the funds you had available would allow, for example, nor could you sell more shares than you owned. Any individual contract had a limit of $850 imposes on it, with the site cancelling offers according to their prices on occasions when a punter was trying to register more offers than they were in a position to be able to afford, keeping things sensible.
The key thing to remember is that people could either sell their shares or else wait to see what would happen. Imagine you’d bought a share on Joe Biden winning the US Presidency in 2020, for example, paying 25 cents per share. As the election grew closer, your shares went up to 75 cents. You could sell them, effectively tripling your money, or you could wait and see what happened. If he won, your shares would automatically be bought for a dollar, which is why there was a reason to hold out if you thought you were right.
Why It Was Able to Operate in the United States
One of the key questions that you might well be asking yourself is why it was that PredictIt was allowed to operate in the United States of America. After all, at the time that the website launched, online betting was banned in most states. Not only that, but betting on politics is illegal in the US, which is why many were surprised that PredictIt was able to survive as long as it did operating in a country that is notorious for being quick to shut down anything that goes against what the law says is allowed or the ruling governments think is ok.
There have long been exceptions given in America to non-commercial products, which PredictIt technically was. The fact that bets are capped at $850 and no market can have more than 5,000 users at any one time were both reasons for it be allowed. It was also forbidden for the site to offer sports markets, or tasteless markets on the likes of people dying or being kidnapped. John Aristotle Phillips created it in line with Victoria University as a futures exchange that was tied to political outcomes. This all meant that it was issued with a ‘no-action’ letter.
Why It Is Being Shutdown
In simple terms, the ‘no-action’ letter meant that PredictIt was allowed to keep operating on the condition that the exchange was an ‘academic exercise’ and the university wouldn’t be benefiting from it financially. When the decision was taken by the Commodity Futures Trading Commission to tell the site to wind up, a spokesperson said that it was made because ‘they grew to a point where they violated the terms of the letter’. It was a decision that wasn’t well taken by Phillips, who filed a lawsuit against the decision.
Phillips believed that it was an ‘arbitrary and capricious’ decision to shut the site down, with the CFTC offering no sensible rationale for why it made its choice. In fact, the only thing that approached an explanation that Phillips received came during a video call with the Chairman of the CFTC, Rostin Benham, who said, “I’m tired of getting pressure from others who want to do what you do.” Phillips, meanwhile, believed that there was still a chance that his company would survive, giving it a ’70% chance’ of prevailing.
He, though, had long been a risk taker. During his junior year at Princeton College in 1976, he was given the nickname ‘the A-bomb Kid’ after producing a 43-page plan to make a beachball-sized explosive that could explode with half of the force of the bomb that was dropped on Hiroshima. He also ran for the US House of Representatives twice, losing on both occasions. Working with his brother, he created a company called Aristotle that compiled and sold lists of eligible voters, allowing for targeted campaigning that has now become commonplace.
When PredictIt was launched in 2014, it came under the umbrella of the Aristotle brand, which he has always contended is an academic exercise at its heart. It is this belief that Phillips feels makes PredictIt legal in a country where betting on politics is largely illegal, even whilst other forms of betting have been legalised. The site made a small fee when users cashed out their shares, but that was, according to Phillips, enough to allow the website to break even rather than make an outrageous sum. From the point of view of the Commodity Futures Trading Commission, however, the amount bet by people using the site means that it has broken the terms of the letter.
Could It Work in the UK?
PredictIt was immensely popular with the users that knew about it, with many logging in to see how the markets were behaving almost as regularly as they’d turn in to the likes of C-SPAN. Whilst the CFTC might have deciding that it had pushed the envelope too far and ended up breaking the rules of the ‘no-action’ letter, there is no doubting that it was a popular site to turn to for those that enjoyed betting on politics. The audience in the United Kingdom is a politically engaged one, even if it is led by the nose most of the time by the right-wing press in the country.
As a result, an obvious question to ask is whether a similar site would work in the UK. After all, betting laws are a lot more relaxed over year and it is clear from the success of the likes of Betfair that punters are more than capable of getting their heads around exchange betting. Brexit was one of the most wagered upon events on Betfair, so there is an appetite for something like PredictIt to work over here. The question therefore switched to become: why wouldn’t it work? Don’t be surprised to see the site, or one like it, launch in the United Kingdom sooner rather than later.