How a Prediction Market Locked in $3 Million in LSU Title Bonuses in 72 Seconds
A third-party insurance company made five transactions on the Kalshi prediction market that could pay out $3 million if LSU wins the national championship this season, a Kalshi spokesperson confirmed to CBS Sports on Tuesday. The number drew attention this week when InGame, a publication that covers sports betting and prediction markets, discovered the trades, which match the exact cash figure LSU would owe coach Lane Kiffin in College Football Playoff bonuses if he wins the national title, according to a contract he signed in November.
The third-party insurance company, which Kalshi did not identify, purchased 837,500 contracts for LSU to reach the College Football Playoff, followed by contracts for LSU to reach the semifinals, the national championship and win a national title. His last contract saw LSU reach the quarterfinals. CBS Sports reviewed Kalshi’s trading data and confirmed the five blocks in which the buyer paid $662,050. The other side of the operation contributed $2,337,950.
LSU spokespeople did not immediately respond to CBS Sports’ requests for comment.
Large athletic departments typically insure the bonus structure in coaches’ contracts through third-party insurance companies. Insurers then transfer that risk to specialist reinsurers, including well-known markets such as Lloyd’s of London.
But among sports insurers, a new trend has emerged to counteract insurer risk: prediction markets.
The New York Times reported on February 10 that Kalshi had begun working with Game Point Capital, which CBS Sports could not confirm. The New York Times described Game Point Capital as an insurance company that helps college athletic departments, sports teams and sponsors manage the financial risk of performance incentives written into athletes’ and coaches’ contracts. Historically, Game Point had ruled out that risk through Lloyd’s of London and later through American suppliers. He told the Times he expected to cover approximately $30 million a year through Kalshi.
“We want to offer the most efficient pricing for teams and other customers,” Will Hall, co-founder and CEO of Game Point, told the Times.
Kalshi filed a reimbursement program with the Commodity Futures Trading Commission in January, allowing members to offset the risk of insurance contracts written on sports results.
LSU trade data at Kalshi (August 13)
Source: Kalshi Public Daily Business Archives
InGame reported that LSU’s transactions in August came from a third party that helps sports organizations cover risks such as bonus payments to coaches, and identified Game Point, a Charleston, South Carolina, firm that lists the SEC, ACC, Big Ten and Big 12 among its clients on its website, as a company known for making such transactions on Kalshi. Game Point neither confirmed nor denied its involvement, InGame reported. Game Point did not immediately respond to CBS Sports’ request for comment on Tuesday.
“The only thing I can confirm is that it is the third-party insurance company,” Kalshi spokesman Jack Such told CBS Sports. He declined to name the company.
The playoff market was not busy on August 13. The contract to get LSU to the quarterfinals and title game was negotiated exactly once all day: a lockout by an unnamed third-party insurance company. In the playoff market, 837,500 of the day’s 837,735 contracts were that one trade in which LSU made the playoffs, according to data CBS Sports reviewed.
More telling, according to trade data CBS Sports reviewed, was that the $343,375 risk value on LSU making the playoffs was the largest in Kalshi’s entire market that day. It also happened off-exchange because the public couldn’t absorb a large trading block of 837,500 contracts at the time, so it found a private counterparty, a Kalshi spokesperson told CBS Sports. Kalshi does not match the sides, Kalshi’s spokesperson said. Companies solicit bids and allow market makers to find the other party willing to participate.
If LSU makes the playoffs, the payout is $837,500, which more than offsets the $750,000 bonus Kiffin would be owed for reaching the postseason event. If the Tigers win it all and reach the top five, Kalshi’s pay (and Kiffin’s separate CFP bonus) increases to $3 million.
Kalshi is not a betting house; It is a federally licensed exchange. With sportsbooks like FanDuel and DraftKings, when a bettor chooses one side, the sportsbook chooses the other side, sets the price and records the risk. Kalshi doesn’t take sides. It matches buyers and sellers and charges a fee, an arrangement that is more like a stock exchange than a casino.
People trade contracts on the Kalshi market with simple yes or no answers on topics such as politics, weather, pop culture, cryptocurrencies, and sports.
Federal regulations require Kalshi to publish trading data daily to the public. The Commodity Futures Trading Commission designated KalshiEX LLC as a contracts exchange in November 2020, the same status as exchanges that trade oil, grain and interest rate futures.
South Carolina’s future was also big in the market
Kalshi confirmed to CBS Sports that similar trades involving the South Carolina football program were made on July 15.
The trade file shows four trades, although InGame confirmed two in its report. Three were on the Gamecocks doing the CFP: 40,000 contracts at 5:33 p.m., then 40,000 more and another 50,000 in the space of 17 seconds just before 6:53 p.m. Nine seconds later came a fourth: 100,000 contracts on South Carolina winning eight or more games.
Together they cost $41,300 and cover up to $230,000.
“The University of South Carolina does not have agreements with Game Point Capital or any other insurer related to coaching bonuses, nor is it aware of any agreements to use the trading markets to protect against future bonus payments,” a South Carolina spokesperson told CBS Sports.
South Carolina Trade Data on Kalshi (July 15)
Source: Kalshi Public Daily Business Archives
Why would an insurance company use Kalshi and not another reinsurer?
Schools typically purchase insurance policies against a large bonus they might owe in the future. The insurance company can reinsure you through another company, but in Game Point Capital’s business plans Kalshi has become the new compensation.
Tal told CBS Sports that the exchange is effectively acting as a reinsurer on these deals.
It already happened in European football. In June, Semafor reported that a top-flight Spanish club facing relegation (and the loss of ticket and broadcast revenue that comes with it) was covered through Game Point, which routed trade through commodities broker Greenlight Commodities to Kalshi. Susquehanna International Group took the other side. Hall told Semafor that the company wanted to see how prediction markets would handle a large binary outcome.
College athletics, however, is different. Kalshi works with integrity firm IC360, which maintains lists of athletes, coaches, trainers and staff provided by the league and the NCAA and excludes them from markets tied to their own sport, according to Kalshi’s market integrity disclosures.
“None of the entities trading on Kalshi have material non-public information about the events that will transpire,” Such said.
Still, many may see this as a bet by the school against its own team. “Betting against yourself is a bit of a strange way to express insurance,” Such said.
The NCAA’s stance on prediction markets like Kalshi further muddies the waters. In December, Kalshi submitted a request to include predictions on college players entering the transfer portal. NCAA President Charlie Baker said at the time that he was “vehemently” opposed to college sports prediction markets. Kalshi stepped back and put the product away.
A month later, Baker asked the CFTC to suspend college sports prediction markets until new safeguards were implemented. In July, he repeated that message to Congress in written testimony, calling for the NCAA to be consulted on which college markets are on the list, along with safely protecting players from harassment.
The NCAA did not immediately respond to CBS Sports’ request for comment for this story Tuesday.
Kalshi is in state or federal court with at least 15 states and three tribal groups, according to InGame. Judges in Michigan, Nevada and Washington have ordered restrictions on the platform.
