Kalshi is hopeful, InGame has learned, that it will soon see a sports version of one of its newest product types: bespoke block trades, negotiated between two parties off-exchange and then processed on the prediction market.
The prediction market has been adding block trades as it aims to win over big institutional clients, while it also aims to prove that sports event contracts can have a financial purpose. Sports-related block trades may be the synthesis of those two developments.
On May 7, Kalshi self-certified an unusually niche-looking contract.
The template title of the contract reads: “Will the average percentage component of <company>’s <rate category> interchange rates be reduced by <reduction> bps or more in <company>’s next published <schedule> effective on or before <deadline>?” In other words, will credit card issuers reduce the fees that they charge for certain classes of purchase?
That doesn’t immediately seem like something with a lot of interest from typical Kalshi users — probably because it isn’t supposed to.
Instead, it seems like the filing was likely for a bespoke contract that could be offered as a block trade — something Kalshi changed its rulebook in January to allow.
A block trade is a trade between two parties negotiated and agreed to off-exchange but then recorded on the exchange.
On April 28, Kalshi announced that it had cleared its first bespoke block trade, when a Houston-based environmental hedge fund aimed to hedge exposure to California’s May carbon allowance auction.
Those block trades are one part of Kalshi’s continued attempts to court institutional money. At the bottom of its website, Kalshi includes a link for potential institutional clients. On Thursday, Kalshi announced a partnership with financial giant Interactive Brokers, which also owns ForecastEx. Big names in financial market making have also gotten on board recently, with Virtu recently joining the likes of Jump Trading, DRW, and longtime Kalshi market maker Susquehanna as a Wall Street trading giant that is active on the platform.
Kalshi aims to highlight that at least some of its sports contracts could be used to hedge financial risks. Those use-cases help reinforce its legal argument that sports contracts include a “potential financial, economic, or commercial consequence,” and therefore meet the definition of a “swap” in the Commodity Exchange Act. When a business has used sports contracts to hedge risk, Kalshi has often been quick to promote it.
So attempting to facilitate sports-related block trades would make sense.
So far, the platform has not processed any sports-related block trades, InGame has learned. Two businesses that currently benefit from Kalshi’s sports hedging fee rebate programs — daily fantasy sports operator PrizePicks and sports-related insurance firm Game Point Capital — have used Kalshi’s request-for-quote system, the system used for parlays, to hedge their risks, rather than block trades.
But Kalshi apparently expects block trades on sports to become much more commonplace as it attracts more parties with sports risks to the platform.
Who would do it?
So who might agree to a sports-related block trade?
In February, the New York Times’ Dealbook newsletter reported that Kalshi was 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. That listing named “sports bars, restaurant groups, event venues, sportsbooks, media companies” as potential customers.
In theory, these companies could negotiate a deal with a market maker. A sports bar in Chicago could meet with a market maker to negotiate a block deal to hedge its exposure to Bears outcomes — effectively making a big bet on the Bears to miss the playoffs. A sportsbook worried about a specific parlay combination hitting could negotiate a block trade on that outcome to hedge its risk.
But a block trade comes with different features to on-exchange trading. Being negotiated between only two parties, there isn’t the usual competition between market makers to put up better prices.
Even if the market still needs to mature, the trend looks clear: As Kalshi aims to court institutional money and try to prove that its success in sports betting and its financial ambitions are not inconsistent, block trades on sports outcomes feel inevitable. But whether they will become a serious part of companies’ risk-management tools, or just an occasional product for Kalshi to showcase its potential hedging credentials, is harder to predict.
