Betting Markets Predict Supreme Court Will Strike Down Individual Mandate

June 23, 2012 -- As America waits for the Supreme Court to rule on Obama's health care law, people around the world are gambling more than their health insurance on the court's decision.

From New York to London, traders on the political stock market Intrade are buying stock to predict how the court will rule. And if the market is any indication, the decision is not going to be pretty for the president.

There is a 75 percent chance the court will rule the individual mandate, or requirement that every American buy health insurance, is unconstitutional, according to the Ireland-based market.

And because the market pulls predictions from a large group of political junkies, financial analysts and people who heavily research the topic, it is probably the "best predictor," said Koleman Strumpf, professor of business economics at the University of Kansas School of Business, who studies political stock markets.

"Decisions by small groups of people in a closed room are hard to forecast," Strumpf said, but "this is probably the best forecast."

In March, before the Supreme Court began hearing the health care challenge, the market was considerably more optimistic that the individual mandate would survive. On March 25, the day before oral arguments began, Intrade put the probability that the court would overturn the mandate at 35 percent. Within two days of the oral arguments, that probability shot above 60 percent.

Betting on event outcomes such as the Supreme Court ruling and political elections is generally not legal in the U.S., although thousands of Americans use European-based markets to make money off political outcomes, Strumpf said.

In the U.K., on the other hand, gambling on politics is "extraordinarily big business," said Mike Smithson, a former BBC journalist and founder of PoliticalBetting.com.

So far Europeans have wagered more than 10 million pounds ($1.6 million dollars) on the U.S. presidential election in gambling houses and political stock markets throughout the UK, Smithson said.

As it stands now, the odds are in Obama's favor. Ladbrokes, a London-based gambling company, has Obama's odds of winning at 8 to 13, or about 62 percent likelihood that he will be reelected. Romney's odds stand at 5 to 4, or about 44 percent.

"The markets are cautiously favorable toward Obama right now, but there is still so much uncertainty," Strumpf said, noting the unstable economies in both the United States and Europe. "That's about as big a lead as any candidate could probably have this far out."

While Obama tends to be more popular in Europe than in the U.S., Smithson said there has been a "very sharp move toward Romney" over the past six weeks.

In early May, if someone had bet $100 that Romney would win, they had the prospect of winning about $220, Smithson said. That same $100 bet today would only yield about $140.

Smithson said Europeans have a "massive interest" in betting on U.S. politics, but few are putting money on the Supreme Court's decision because there is a "complete lack of appreciation for why it should be so politically contentious."

"Being blunt, I think that most Europeans think the U.S. is absolutely mad that it doesn't have a public health care system," Smithson said. "We just can't comprehend the opposition."

Americans looking to tap into the political betting game will have to set their sights overseas. Nadex, a Chicago-based stock exchange, tried to establish an exchange for political event stocks, but it was struck down by federal regulators.

The Commodity Futures Trading Commission ruled in April that "the contracts involve gaming and are contrary to the public interest and cannot be listed or made available for clearing or trading."