Underdog Sports plans to turn to well-capitalized favorites in the U.S. predictions market space to manage risk on its own platform in certain cases where exposure on player props or other sports events creates outsized liability, InGame has learned.
This practice is known in the traditional sportsbook realm as a “layoff bet.” Suppose, for example, a sportsbook received an influx of one-way action on the Green Bay Packers against the Detroit Lions and wanted to limit some of that exposure. The sportsbook (through one of its agents) would place a bet at another sportsbook – on the Lions, in this case – to offload some of the risk.
“It’s a real tool for us that didn’t exist before, where we can hedge against volatility, particularly during major events that are drawing huge amounts of sports fan interest,” an Underdog spokesperson explained. “We are going to be offloading risk where appropriate across our sports betting and betting fantasy offerings by utilizing prediction markets like Kalshi, Crypto.com and others.”
For another example, suppose a social media tout caused an avalanche of bettors to pick Josh Jacobs to become that game’s first touchdown scorer at a number around 6/1. Underdog could let it ride and hope for a Lion to cross the goal line first, but the new arrangement would allow it to join the patrons and take some position on Jacobs at, say, Kalshi.
Hypothetically, Underdog or any DFS or sportsbook platform could lay off risk in this manner now, if desired. However, the amount of liquidity available at another gambling firm might be limited, especially in the realm of individual player performances where limits are generally much lower – hundreds or single thousands – than on main markets, such as who will win the game.
The rapid expansion of prediction markets into the sports realm appears to be spurring some additional ideas and outs. Underdog says it has not yet made any of the bets or trades described here.
Status, nature of the arrangement
Reached for comment about the potential tie-up, a Kalshi spokesperson said, “This is not a formal partnership.” Asked whether Underdog would receive any preferential trading terms or rates on the platform, the spokesperson said it would not.
“Underdog will be just another institutional client of Kalshi and participate in the markets like any other trader,” the spokesperson said. “We are having ongoing discussions with similarly situated institutions across the sporting world, many of whom have displayed interest in our prediction markets for this reason. Underdog will be a standard market participant taking directional positions.”
InGame spoke with a pair of sports betting industry veterans serving at traditional sportsbooks to inquire about the practice of making layoff bets, and both opined that it was pretty uncommon in their experiences.
The customary thing to do in cases where a sportsbook receives a wave of one-way action would simply be to adjust the relevant pricing and/or spreads and hold on for dear life.
“I’ve never worked at a book that would [make layoff bets],” said one source. Asked to speculate further, the source, requesting anonymity, said, “However, with prediction markets not taking as much margin as sportsbooks, I don’t see why a book wouldn’t do that. Although it might become difficult, because most of the time, books all have similar liabilities, so you wouldn’t be getting a great price.”
Earlier in the football season, Underdog made other waves of its own in the prediction markets realm, announcing a formal partnership with Crypto.com to serve as a tech supplier. The arrangement has allowed Underdog to offer sports-based event contracts to users in 16 states where online sports betting is not (yet) legal. The company self-restricted to jurisdictions meeting that criteria.
Underdog noted that it may also look to Crypto.com for the risk-management aspect of its business discussed here, but for the time being looks to be growing its portfolio of partners and collaborators.
For Kalshi’s part, the company may be attempting to position this as evidence of markets working effectively.
“Underdog using our contracts to hedge risk — which is only possible due to the efficient, two-sided pricing of Kalshi’s exchange model — is the utility of prediction markets on display,” said Kalshi’s head of corporate development, Sara Slane.
Meanwhile, the battle over the legality of sports events contracts remains white hot.
Most recently, a Nevada federal judge ruled that Crypto.com, holder of the appropriate license to offer derivatives trading under regulation of the Commodity and Futures Trading Commission, was not entitled to a preliminary injunction in a lawsuit where state regulators demanded the company pull its sports markets. In a similar case brought earlier by Kalshi, the same judge granted the injunction. The Crypto.com case is almost certainly headed to the Ninth Circuit soon on appeal.
