Bar free drinks, housing price hedging, sports insurance... prediction markets support customized demands.

Written by: Planet Daily

Traditionally, the insurance industry has held a monopolistic stance as a "ballast" in the economic system; however, the emergence of prediction markets may change this status quo.

At the beginning of June, the NBA Finals concluded, with the Knicks ultimately defeating the Spurs 4:1 to win the championship, leaving countless participants in the betting delighted or disheartened. Among the happiest individuals may be Andy Freedman, the owner of The Jeffrey bar on the Upper East Side of New York. Before the game started, he launched a marketing campaign stating, "If the Knicks win Game 1, all drinks for customers that night will be free," and simultaneously invested $5,000 on the prediction market platform Kalshi to hedge the risk. Ultimately, the Knicks secured victory in the first game, and The Jeffrey bar used the prediction winnings to cover the drink expenses, while customers enjoyed the benefit of free drinks, resulting in a "triple win" outcome.

This is just a glimpse of how prediction market platforms can play a role in risk hedging and property insurance. With the World Cup attracting participation from hundreds of billions of dollars, the real-world insurance industry faces a "barbarian at the gate."

Can prediction market platforms "sell insurance"? Do you believe it?

Yes, you read that correctly. In a certain sense, several prediction market platforms including Kalshi and Polymarket have begun encroaching on the business territory of insurance companies, involving not only conventional marketing but also sports insurance, weather disaster coverage, and more.

When prediction markets steal sports insurance clients: Kalshi collaborates with Game Point Capital

In February of this year, professional sports insurance broker Game Point Capital announced a partnership with Kalshi, which will provide the latter with performance bonus hedging for NBA teams (such as playoff progression bonuses).

As a professional company issuing hundreds of millions of dollars in sports insurance annually, Game Point Capital's change is clearly not just a reaction to the growth of prediction markets but rather a comprehensive consideration from business and cost perspectives.

From the perspective of market demand, sports insurance has always existed. It is known that since championship bonuses typically need to be paid by the teams themselves, professional sports teams usually purchase insurance in advance to cover these costs. Due to the large amounts involved, teams often prefer to seek support from traditional insurance companies such as Lloyd's, Munich, Swiss, and other conventional firms in the U.S.

From a cost standpoint, prediction market platforms have a pricing advantage. Reports indicate that Kalshi's pricing is significantly lower than that of traditional over-the-counter markets (for example, a certain bonus hedge is at 6% compared to a traditional 12-13%), and it is expected that this partnership will handle tens of millions of dollars in hedging funds, directly illustrating prediction markets’ entry into traditional insurance and reinsurance sectors. Kalshi CEO Tarek Mansour described this as "a better way to hedge risks and achieve insurance" and emphasized that "the pricing method will be more transparent."

When prediction markets become "housing price hedging tools": Polymarket partners with Parcl to initiate a "new model of real estate speculation"

In January this year, on-chain real estate platform Parcl announced a partnership with Polymarket, introducing Parcl's daily housing price index into Polymarket's new real estate prediction market, with the first markets focusing on major U.S. cities (New York, Los Angeles, Miami, Austin, etc.). Users can predict the rises and falls of housing price indices in specific cities on a monthly, quarterly, or yearly basis.

The news drove a rise of over 100% for Parcl's project token PRCL on the same day. For Americans who cannot purchase homes due to high prices, they can now participate in "real estate speculation" without actually buying properties. Realtor senior economist Joel Berner believes that "besides speculating on housing prices, homeowners and potential buyers can use these markets to protect their market interests."

For sellers, if they are concerned about falling housing prices, they can buy a "down" (Under) bet on Polymarket; should the prices indeed drop, the earnings could partially offset actual losses on their properties, serving as an insurance effect; conversely, for buyers—those planning to purchase homes—if they fear rising prices, they can predict a "rise" (Over), and the corresponding earnings can be used to cover home-buying costs.

When NBA games link with free drinks: New York bars and Kalshi's cross-boundary marketing

In early June, Kalshi officially announced that The Jeffrey bar in New York invested $5,000 to predict "the Knicks win Game 1," and launched a banner stating—"If the New York Knicks win, all customers' bills will be covered by the bar." Notably, the wording used in Kalshi's official statement—"place a $5,000 hedge on Kalshi" (Odaily Planet Daily note: insuring $5,000)—emphasizes the insurance value within the prediction market.

In this official press release, Kalshi also revealed greater ambitions—to become "a small business insurance provider," offering services such as sports event predictions, weather forecasts, and predictions regarding the changes of import/export policies for small businesses affected by seasonal variations due to sports events or weather conditions, thus achieving insurance hedging.

Kalshi’s business lead Nicolas Hull believes that "small businesses face various real risks every day—weather, politics, sports, economy, and so on. Traditional insurance methods are both expensive and inefficient and cannot effectively address such operational risks. Kalshi changes that: we provide a liquid and transparent market platform, allowing any business to take corresponding measures against the risks that affect their operational outcomes, marking a fundamental shift in the ways small enterprises manage risks."

Various cases show that the insurance value of prediction markets can be widely applied across multiple fields, not limited to sports events and brand marketing. Moreover, in the actual application cases, traditional sports betting has already seen successful examples.

Old wine in new bottles, but the new bottles are better: The insurance value of prediction markets lies in transparency and liquidity

In 2018, the appliance brand Vatti launched a sensational marketing campaign with the gimmick of "full refund if the French team wins the World Cup." Despite ending in a farce of "tight timings, complex processes, and coupons substituting cash," it left a deep impact on many regarding "free drinks marketing."

Coincidentally, similar things have been played out before.

In 2017, Houston's home industry tycoon Jim McIngvale (AKA "Mattress Mack," nicknamed "Bed Mattress Mike") executed a $12 million "refund marketing" gimmick based on the "Houston Astros winning" theme.

Five years later, in 2022, "Mattress Mack" reused the same tactic, once again initiating a similar campaign. Between May and July that year, he invested $10 million across six different betting companies in Louisiana, Iowa, and Las Vegas, predicting "the Astros win," explicitly stating, "I will refund every penny of the winnings to the 3,000 customers who participated in the previous promotional events at my furniture chain." (Odaily Planet Daily note: It is known that this campaign targeted customers who purchased over $3,000 in furniture, and based on participation time, they could receive full refunds or even double refunds).

Ultimately, at 71 years old, "Old Mattress Mack" once again achieved tremendous success, winning $72.6 million in prize money, which set the record for the highest prize amount in sports betting at the time.

However, compared to sports betting, the "insurance" functionality of prediction markets has seen significant updates.

Firstly, it is a transformation of information monetization, which brings two major benefits: (1) a broader market range; compared to previously single options in narrow niches, the "choice range" in prediction markets is much wider; (2) more flexible exit methods; unlike betting events that can only provide refunds, prediction market events reflect potential impacts of information changes more directly, allowing participants to make timely decisions.

Secondly, the neutral role of the platform. Unlike the "platform," "bookmaker," and "whales" in sports betting events, prediction market platforms exist as neutral entities, providing merely a transaction channel without being direct counterparties with trading users.

Thirdly, trading information transparency. The odds in sports betting are usually set by underlying companies based on their algorithms and internal information; many companies even use "copy trading" models to directly adopt odds fluctuations from other major platforms, making odds changes and order trading information very obscure. Moreover, the criteria for event determination often have disputes or insider buying (similar to end-of-day trading);

Fourthly, the participant admission system. In the U.S., the vast majority of sports betting operators adopt a "ban or bankrupt" model, which is a business model that "restricts high-win-rate customers from trading and entices losers and average players to trade." In 2024, legendary gambler Billy Walters, "Spanky" Kyrollos, and former casino executive Richard Schuetz co-founded a non-profit advocacy organization called American Bettors Voice (ABV), which focuses on opposing the "ban or bankrupt" model, calling for reasonable regulation of betting limits to ensure market fairness.

Compared to traditional sports betting, the insurance value of prediction markets is undoubtedly more attractive and secure. Notably, the CEO of renowned market-making firm SIG, Jeff Yass, previously mentioned in an interview with Forbes: "Prediction markets allow parties to efficiently share risks based on specific parameters. For instance, when Florida homeowners face hurricane risks, they can choose to purchase a 'certainly effective' contract based on the latest meteorological data, so when wind speeds exceed a specified threshold, homeowners receive insurance protection. Compared to buying annual insurance, this method can more effectively respond to potential property loss risks."

Of course, for the time being, the insurance value of prediction markets has yet to be perfected and widely promoted, still facing the following issues:

• Insufficient liquidity. A broader range of options does not mean adequate market trading depth;
• Ambiguous regulatory boundaries. Whether platforms like Kalshi and Polymarket can continuously assume insurance functions remains to be approved by regulatory authorities;
• Risks of decentralized democracy. Previous instances of profit-making through affecting observational machines in Polymarket weather prediction events are examples. Sometimes, criteria for event determination may be influenced by the unpredictability of external forces and various loopholes in platform judgment rules.

However, the first step has been taken. Regardless of whether the insurance industry acknowledges it or not, prediction market platforms threaten not only sports betting platforms but also many traditional insurance businesses.