Eric Swalwell Campaign Suspension Sparks Massive Prediction Market Trading Spike on Next California Governor
Credit: Gage Skidmore/Wikimedia Commons
U.S. Rep Eric Swalwell suspended his campaign for the governorship of California after sexual assault allegations by multiple women became public. In response, trading volume intensified on prediction markets speculating on the next governor, as Swalwell had been the favorite.
The allegations emerged on Friday against the 45-year-old Congressman. He apologized for “mistakes in judgment,” but also characterized the allegations as “false” in a social media post.
The San Francisco Chronicle reported that a woman who worked on Swalwell’s staff said that he sexually assaulted her and that they had sexual encounters while she worked under Swalwell. Then, CNN reported that three more women alleged sexual misconduct by Swalwell.
Multiple supporting stakeholders, including several fellow top Democrats and unions that had backed Swalwell, withdrew their support and asked him to drop out of the race. Current Gov. Gavin Newsom is term-limited and will focus on a presidential run in 2028.
Swalwell Falls From Favorite to Afterthought in California Governor Race
Naturally, Swalwell’s odds took a staggering hit on prediction markets.
After peaking around 70% likelihood of winning in late March, Swalwell had already ceded some ground to other candidates in April. Still, he was trading around 50% prior to Friday’s bombshell news.
Friday night, he was in the low single digits. By Monday, his price had hit rock bottom, and he was trading at 0.3%.
Businessman Tom Steyer, who has not held public office, is now the betting favorite at Kalshi, trading around 55%.
Traders Respond to Uncertainty With Furious Volume
Where there is uncertainty in a market, there is potential value, and Kalshi traders responded accordingly. Betting volume intensified by orders of magnitude.
Betting volume on the Kalshi market speculating on the next California governor averaged $90,250 per day over the course of the month prior to Friday’s news. Here was the daily volume over the weekend:
- $1,485,507 on Friday
- $11,426,989 on Saturday
- $2,353,066 on Sunday
Odds spiked on Democrats Steyer, Katie Porter, and Matt Mahan. Some traders also took the opportunity to back massive longshots.
Kalshi lists 15 candidates other than Swalwell with a probability below 1%, meaning potential payouts for these candidates are several hundred-to-one. Many of these were among the highest-traded contracts during the Saturday frenzy. It’s likely that retail traders’ balances accounted for very little of the $11.4M, as they would have been betting on the longshots at fractions of a penny, while liquidity providers would have put up the other 99-plus cents.
Retail traders are attracted to such bets because of the possibility of winning a large amount with a very small investment. And market makers are all too happy to take the other side of these bets, as data from prediction markets shows that large favorites outperform their prices on average, while longshots tend to underperform.
Should a dark horse emerge in the race, some early adopters will stand to profit handsomely, or at least have the ability to trade out of their shares for a guaranteed win.
California’s primary is scheduled for June 2, with the main election on Nov. 3. California runs a nonpartisan primary, so the top two candidates will make it to the November ballot, regardless of party affiliation. With almost two months left until the primary and a massive equity vacuum left by Swalwell’s fall from grace, there’s plenty of time for further movement in the odds.
Image credit: Gage Skidmore/Wikimedia Commons (license)
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