With the last few elections being nail-biters going down to the wire, the 2008 election is getting a lot of betting interest across the world. As of October 5, the democrats have an advantage.

The polls show a moderate lead for the Barack Obama in Michigan, and smaller leads in Ohio and Florida. The betting markets favor the democrats more decisively. Matchbook’s offers of -315/+292 and TheGreek’s prices of -360/280 suggest about a 75% chance of a democratic victory. These prices are consistent with what the polls show – electoral-vote.com indicates that Obama has a lead of 329 to 194 electoral votes if the election happened today.

Just weeks ago the betting markets suggested this election was a toss-up. How did things go so wrong for the republicans? Two factors are swinging voters towards the democrats, the ailing economy is contributing to the failures/mergers of Wachovia, Lehman, Bear Stearns, home foreclosures up 93% since last year, and a 6.1% unemployment rate (the highest since September 2003). These indicators are disastrous for any incumbent party.

Another factor is vice-presidential candidate Sarah Palin. Although she appeals to the conservative Christian right, she is perceived as unqualified to be president. This is significant due do John McCain’s age. At 72, McCain has a life expectancy of another 12 years. According to socialsecurity.gov’s actuarial tables, McCain has a 37% chance of dying of natural causes if he is a two-term president. This risk makes Palin a liability.

Despite the democrats’ advantages, this election is by no means a “lock.” Any number of events could shift public perception in the direction of the republicans. Major geopolitical developments favor the incumbent party. If there were a significant terrorist attack or a new conflict erupted, these would favor McCain as well. Even a non-event such as raising the terror level could frighten some people into voting republican.

There is still one more wild card favoring the republicans – the “fix factor.” There were strong allegations of election fraud in Ohio in 2004 when that election saw something that had never occurred before – the betting markets were wrong on the general election, as well as the Ohio result. The betting markets have always been more accurate than any poll until that time. In late trading, the betting markets were lopsided, indicating that the democrats won in 2004, and the climate is just as ripe for this now as in 2004. While people can debate the impact of voting irregularities in past elections, most people would agree that they occur even if their effect is uncertain. This extra uncertainty means that some undecided states could move unpredictably on Election Day.

If you are thinking about betting on the election (and it is legal to do so where you live), pay close attention to the battleground states. For at least the last 40 years, you could determine the winner by looking at three key states: Michigan, Ohio and Florida. In each of these elections, whichever candidate won at least two of these three states won the election. Although many of the elections were lopsided, this breakdown is critical in closer elections – especially in 2000 and 2004.

If these states are still up for grabs near Election Day, the value will be on the republicans. If you can get them as a decent dog, don’t count McCain out.

© Copyright 2008. Reprinted with permission of the author.

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