Kalshi will offer fee rebates to sportsbooks that lay off risk on its platform, according to a Commodity Futures Trading Commission (CFTC) filing submitted Saturday, as it aims to court more parties that can use the platform to hedge risk from sports events.
The rebate program will be available to “entities that currently offer sportsbook services” who purchase at least 300,000 event contracts for hedging purposes in a single order. An order of 300,000 event contracts will always pay out $300,000 in combined stakes and winnings if they win.
The rule filing says that the rebate will apply to both taker fees and request-for-quote (RFQ) fees, which are primarily used for parlays. However, the minimum order size may limit the ability to hedge all parlays.
Like all rule changes submitted to the CFTC, the filing is subject to a 10-working-day review period, in which the CFTC checks that the rule is consistent with its core principles. Given that Presidents’ Day is next week, that means the rule could come into effect Feb. 24.
Kalshi working with insurance company
The new filing comes as Kalshi aims to increase the use of its platform for hedging risks from sporting outcomes. The New York Times’ Dealbook newsletter reported Tuesday that Kalshi is now working with Game Point Capital, an insurance company that helps college athletics departments, sports teams, and sponsors to hedge the financial risks of having to pay out athletes’s and coaches’s performance bonuses. Game Point expects to hedge about $30 million annually through Kalshi.
Sportsbooks will also be able to go through Game Point to hedge trades on Kalshi or do it themselves, InGame understands.
Kalshi has been hiring for “institutional sales” roles for sports, with people in those roles tasked with convincing “small to mid-sized institutional customers whose revenue is exposed to sports outcomes” to hedge their risks on Kalshi, Dealbook noted.
The platform also submitted a rule filing in January for insurance providers to use the platform to hedge risk on orders of 5,000 or more event contracts. Game Point would appear to qualify for this program.
Kalshi aims to see more hedging partners — for both sports and non-sports markets — take part in its rebate programs.
Kalshi also recently submitted a filing to allow block trades, where users can agree on an especially large trade off-exchange and then place it through Kalshi.
It is not clear whether any businesses that are currently active as sportsbooks lay off risk on Kalshi. As reported by InGame last year, daily fantasy operator Underdog already uses prediction markets including Kalshi to lay off risk. Underdog used to offer sportsbook services, but handed in its only active sportsbook license — in North Carolina — after it started offering prediction market contracts.
Kalshi said the sportsbook hedging program will mean more liquidity on its markets.
“The increased volume and liquidity encouraged by the Program will enhance the competitiveness and efficiency of the market,” the filing said. “The Program is anticipated to be economically sustainable.”
Participants must “regularly attest to their specific volume qualifying as a result of hedging risks from sportsbook services.”
The program may be retroactive, meaning Kalshi could pay rebates to sportsbooks that are already laying off risk on the platform.
Do hedging programs boost legal arguments?
Convincing more parties to use Kalshi to lay off sporting risk may arguably help Kalshi’s legal argument that its sports event contracts are “swaps” — a type of financial instrument traditionally used for hedging — and therefore should be governed only by the federal Commodity Exchange Act (CEA), not state gambling laws.
The CEA says a swap “is dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence.”
Kalshi has argued in court that Underdog’s use of the platform to hedge risk proves that its contracts have a “potential financial, economic, or commercial consequence.”
The U.S. District Court for the District of Nevada dissolved an injunction that it had previously granted to Kalshi in November, after it determined that sports event contracts did not meet the definition of a swap. The question of whether sports event contracts meet this definition has also played a key role in Kalshi’s other lawsuits across the country, such as in Massachusetts and New Jersey.
Already hedging for ‘tokenized predictions’
Kalshi already has a hedging system in place for crypto platforms that offer “tokenized predictions” that are advertised as “powered by Kalshi markets.” When a user buys the token, the crypto platform buys actual contracts on Kalshi in order to hedge the risk of paying out on the token. It then receives a rebate for doing so. The crypto platforms advertise that they have “no contractual or legal relationship with Kalshi.”
On Monday, Bloomberg reported that Wall Street high-frequency trading giant Jump Trading was set to take stakes in both Kalshi and Polymarket in return for trading as a market maker on their platforms.
The pushes for more participants come ahead of what could be a temporary dip in sports activity on the platform, after the Super Bowl. Kalshi set a new record for trading volume and fees taken in on Super Bowl Sunday at $870 million.
