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Betting on Bozza for PM?

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Earlier this year we explained to readers how it is possible to treat betting as tax-free investment. The approach we outlined was not, strictly, gambling, but a technique known as "arbitrage". This involves taking advantage of price differentials between different markets – sometimes quite small ones – in order to create a position where whatever the outcome of a particular event, you have laid down bets that ensure a net profit.

Scenarios of this sort emerge where a betting book evolves over time, and the betting view as to most likely outcome shifts. Were a bookmaker to offer odds of 10 to 1 on Labour winning the next election, and simultaneously odds of 10 to 1 on the Tories doing so, you should place bets on both outcomes: your chance of losing is effectively nil.

Whilst such an open goal is unlikely ever to present itself, it is not unthinkable that over a period of time odds of 3 to 1 on each party might arise – though not simultaneously. The principle still applies: if it is possible to cover a book in this way, you cannot lose.

A rather more precarious route to financial satisfaction turns up when you have good reason to suspect that the odds offered on a given outcome are far higher than the risk merits. Bookmakers are currently offering odds of around 1 to 5 on that the Conservatives will be the largest party following the next election. As bets go, this is probably a fairly safe one – but is scarcely going to make you a fortune: for every £100 bet, you could win £20.

In the closing stages of the 2008 US election some individual state results were quoted in terms of 1 to 100 on: they were considered to be so definite for Republican or Democrat that betting on them was hardly worth the bother.

Our own guess is that with a year still to go, the Tory-Labour odds will still fluctuate, but a bet on the Tories to win the largest number of seats is a safe but unexciting way to spend a little bit of money. Should the odds on their being the largest party move to 5 to 1, this would suddenly look like a very good bet indeed.

The reason that even "safe bets" can go awry is that the unexpected CAN always happen, and the more distant the event, the greater the chance that it will. We do not expect to see stories headlined "Cameron, Osborne, German Shepherd in kinky love triangle": following the revelations over "smeargate" and the resignation of Damian McBride, Labour would not dare.

However, the death of John Smith in 1994 was a shock and it is likely that his replacement by Tony Blair as Labour leader did affect the subsequent general election. A serious accident could befall David Cameron in the next 12 months: a scandal could break; Gordon Brown could be hailed as saviour of the world economy. These are all unlikely – but none are impossible.

When it comes to betting, the safest approach remains the simple "back bet": this involves laying money against fixed odds of a particular event occurring. Much more risky – and certainly not a practice for the novice – is spread betting. For instance, a back bet on Labour getting 240-250 seats at the next election might attract odds of 2 to 1 and a £10 bet on that outcome guarantees one of two results: guessing correctly will win £20; getting it wrong will lose £10.

A £10 spread bet on Labour getting 250 seats would win £10 for every seat over 250 that they eventually win: but also attract a loss of £10 for every seat by which they fall short of that tally. In theory, a spread bet of this kind could cost the punter £2,490.

In laying bets, you might want to differentiate between traditional bookmakers, such as Ladbrokes and Coral, where the book is run by the bookmaker, and online sites such as Betfair, where individual books are made up according to the weight of betting placed by all those betting. In general, the latter give slightly better odds - they recoup their costs by making a small deduction from winnings - but are less likely to provide the opportunity to bet on more esoteric outcomes.

As to what you might bet on, the obvious big bets being taken now revolve around the date of the next election (May 2010 is now favourite), largest party (Conservatives), and whether or not there will be a hung parliament (possibly a good bet at present, since despite the known idiosyncracies of the UK electoral system, Conservatives are also favoured to have an overall majority).

Odds on individual constituency results are now available. Sadly, for those looking for a repeat of the shocks that afflicted leading Tories in 1997, most members of Gordon Brown’s current cabinet are sat on majorities that would require major shifts in voting to remove them.

On current figures, Chancellor Alastair Darling and Defence Secretary John Hutton, both with 16% majority, should be only very slightly nervous: but Home Secretary Jacqui Smith, nursing a 6% majority in Redditch looks to be an almost certain loser, as her Tory opponent is now odds-on favourite to take that seat.

Last but by no means least, good news, perhaps for the feminists, as Harriet Harman edges ahead of David Milliband and Alan Johnson in the betting stakes and is now favourite - at 3 to 1 - to succeed Gordon Brown as leader of the Labour Party.

Stranger things have happened. However, when it comes to leadership bets, favourite status can shift rapidly, and this is one instance where our money will not be going anywhere near the bookies. ®

Bootnote

According to the Mail on Sunday, a government Minister has placed a bet on Gordon Brown to lose the next election and to be forced into coalition with the Lib Dems. There are a number of question marks over this story - not least the claim that the Minister in question managed to obtain odds of 66 to 1. We checked the major bookies and canít see anything close to that for such an outcome.

More to the point, the question remains as to whether this is a sensible bet. As the election approaches, the current Tory lead over Labour is likely to be chopped back (probably to half) and the Lib Dem vote will almost certainly rise. The overall Tory majority will therefore be nowhere near the apocalyptic figures quoted. But there are two sorts of hung parliament: the first, where a third party can ally with either party; the second where there is only one party where the electoral math gives them a majority.

There may be a hung parliament. The Tory lead will probably decrease. But we will be putting money on Labour not having enough seats to form a coalition with the Lib Dems.

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