In British Vote Too Tight to Call, Gamblers Seek the $150 Million Answer

(Reuters) - If Prime Minister David Cameron forms Britain's next government after the tightest election in a generation, it will not just be the Conservative Party leader who will be smiling. Scott Moorhead will be laughing all the way to the bank.

As part of a record 100 million pounds expected to be gambled on the British election, Moorhead stands to win 250 pounds on a 500 pound bet that the Conservatives will win most parliamentary seats in the May 7 election.

"I think there is a bit of money to be made," Moorhead, 36, who works in advertising in London, told Reuters. "Bookies call it right more often than not so you are backing some fairly odds-on chances."

In the most unpredictable British election in recent times, opinion polls indicate neither the Conservatives nor the Labour Party will win an overall majority as once fringe parties challenge the certainties of the post-1945 two-party system.

The stakes are high. If Cameron wins, he has promised a referendum on European Union membership, while Scottish nationalists have offered to shore up a future Labour minority government in the event of a hung parliament.

In such a tight fight, a clue as to who will govern Britain's $2.8 trillion economy may lie among the gamblers and bookmakers who have risked their cash on the outcome.

Bookmakers currently have the Conservatives as favourite to be the largest single party, although the odds also suggest Labour are most likely to form a minority government.

Odds indicate gamblers expect there to be a late swing to Cameron's Conservatives as polling day nears.

FOLLOW THE MONEY?

"When the betting markets say one thing and the polls say another, the evidence suggests that it is a good idea to go with the markets," said Professor Leighton Vaughan Williams, director of the Betting Research Unit at Nottingham Business School.

"I've interrogated huge data sets of polls and betting markets over many, many years in the U.S. and the UK and basically the betting markets are very, very accurate predictors of the outcome of elections, and certainly compared to polls."

He said he could think of no recent examples of betting markets getting it wrong and cited the Israeli election in March as an example of the prediction market getting it right.

Prediction markets, which make forecasts but without the money involved in betting markets, saw a healthy win for Israeli Prime Minister Benjamin Netanyahu two weeks before he won. The last polls before the vote showed his Likud party trailing.

Prediction market, Predictwise.com, is forecasting that Cameron will be the next prime minister with his Conservatives winning most seats.

With about 300 million pounds gambled on the Grand National steeplechase alone, political betting is still dwarfed by the wagers on horse racing and soccer in Britain.

But with the size of political bets rising, it is now serious business for Britain's 6.3 billion pound gambling industry, dominated by the likes of traditional bookmakers Ladbrokes (LAD.L) and William Hill (WMH.L), but with internet gambling firms such as Betfair (BETF.L) growing as online betting increases.

Vaughan Williams said up to five times as much money could be bet on this election compared to the last national ballot in 2010, and bookmakers said the figure would exceed the previous record amount laid during the U.S. presidential vote in 2012, making it the biggest non-sporting betting event ever.

"If it stops being too close to call, it's the markets which will be the first to tell us," Vaughan Williams said.

According to William Hill, one man bet 900,000 pounds on Scots rejecting independence in a referendum last year - the biggest political bet of all time - giving him winnings of just under 200,000 pounds when Scots voted on Sept. 18 to preserve the United Kingdom.

One London-based gambler has staked 200,000 pounds that there will be hung parliament for which he could win 45,000 pounds. Another has risked 85,000 pounds that the Conservatives will have the most seats, and could win 68,000 pounds.

"There is no doubt that this election is going to be the biggest non-sports betting event of all time," Matthew Shaddick, politics trader for British bookmaker Ladbrokes, told Reuters.

'FRIGHTENING'

Peter Smith, a retired tax consultant who said he makes about 20,000 pounds a year by gambling, is expecting to stake a year's profit on the election, placing as many as 200 bets which he hopes will net him 5,000 pounds.

"If there were more markets I would bet on politics all the time, it is much easier to make money on politics," Smith, who said he won 11,000 pounds backing Barack Obama to win the U.S. presidency in 2008, told Reuters.

"Putting 20,000 pounds on horses would be quite frightening but it is not as frightening to put it on this as you can see the way things are going and I know I am going to make a pretty decent return," he said.

Smith is targeting what he said were bloated odds caused by people betting with their hearts, and what he thinks are nailed-on bets such as there being a hung parliament.

Some clients of spread betting firm IG Group were looking at six-figure wins if certain events happen, said Matt Brief, head of dealing at IG.

One man stands to win 200,000 pounds if Labour wins a majority, although Brief explained the client had placed the bet to hedge any losses he might suffer should financial markets move against his exposure after the election.

Mike Smithson, who runs the www.politicalbetting.com website and is a former Liberal Democrat politician himself, is less convinced that the betting markets always provide the correct answers, at least until the final 24 hours before polling day.

"I'm extremely sceptical of that theory," Smithson, whose websites get some 100,000 hits daily, told Reuters. "If the betting was always the best guide, the favourites would always win which is not the case."

He said he would risk 2,000-3,000 pounds on the election, but trading on the odds rather than making specific bets.

"I'm always betting on the betting. So if I think that the Labour Party (odds) has got too long I'll bet on that in the hope that Labour price will adjust itself and come in, and then get out of that position," he explained.

Smithson said the market had overestimated the impact of Scotland, where Labour are predicted to lose dozens of seats to the Scottish National Party, saying these would be more than offset by Labour taking seats off the Conservatives in England.

"What does seem to happen is Conservative punters are much more optimistic about their chances than Labour punters," he said. "So any good poll for the Conservatives tends to produce a better outcome than a good poll for Labour which tends to get ignored by the markets."