On Thursday, New York City hosted a highly anticipated championship parade that offered a moment of celebration for devoted fans within one of the largest sports markets globally. As throngs of fans gathered along the Canyon of Heroes, New York Knicks guard Jalen Brunson was honored with a key to the city, shortly after leading the team to their first NBA title in over 50 years. The Knicks previously captured the NBA Championship in 1973, but then-mayor John Lindsay opted against a parade, preferring smaller, more intimate gatherings. Back then, sports betting in New York was largely illegal, confined to neighborhood bookies, and Kalshi didn't exist.
The value of the dollar has significantly decreased—by almost 90%—since the Knicks' last championship, while the costs of organizing a championship parade have soared. Hosting such an event generally costs a city between $1 million and $4 million, with several Super Bowl parades in the past decade exceeding $2.25 million. This raises a pertinent question: should a city enter into an event contract to help offset the considerable expenses associated with civic celebrations?
Senator Joseph Addabbo Jr. of New York suggested that cities may consider corporate sponsorship as a means to alleviate costs. For example, Kalshi has established a multi-year partnership with Madison Square Garden, the Knicks' home. Recently, Polymarket sponsored a UFC card held on the White House South Lawn, showcasing its logo around the octagon.
“There are so many moving parts on who’s going to offset the costs,” Addabbo remarked. “It’s a great conversation to have.”
In late 2024, just before Christmas, Crypto.com submitted two event contracts to the Commodity Futures Trading Commission (CFTC), which regulates financial derivatives in the U.S. The product, termed a “Hometown Event Celebration Contract,” is described by Crypto.com Derivatives North America (CDNA) as a “financial instrument” for assessing the economic and commercial effects a city faces when hosting such festivities. Johnny ElHachem, an attorney at Holland & Knight, noted that advocates of these contracts argue they offer “valuable market-based pricing of real-world probabilities.”
According to a letter to the CFTC, CDNA set a notional value of $100 for the contract, with a minimum price fluctuation of $0.25, mirroring other offerings on its platform. Kevin Dan, then-CDNA's chief compliance officer, indicated a position limit of 2,500 contracts for traders. Before a 90-day review period could conclude, the CFTC requested a suspension of the contracts' listing, leading CDNA to withdraw the application.
Dan is now in a similar role at Rothera, a new prediction markets operator supported by Robinhood and Susquehanna International Group. Attempts to reach Dan for comment went unanswered.
As of Thursday, no indications exist of any city making a direct investment of over $1 million in a hometown event contract.
In recent months, various innovative hedging attempts have emerged. For example, a bar on the Upper East Side covered patrons' expenses for Game 1 by wagering on the Knicks at Kalshi. Last week, Betr entered a hedge with a free spin promotion valued at $1.8 million by placing a trade on Polymarket for the U.S. to win the World Cup.
Municipalities, however, face limitations due to a positional limit of less than 3,000 shares, making it challenging to afford even the overtime costs for security during such events. When the Knicks entered the NBA Finals as underdogs against the San Antonio Spurs, Kalshi’s odds were around 37% before Game 1 on June 3. At those odds, a $1.2 million contract on the Knicks provided a potential payout of $2.04 million, fitting within the typical parade budget range.
Institutional players seeking to manage exposure now have access to new prediction market products. In April, Greenlight Commodities executed a private, bespoke trade with Jump Trading Group enabling it to hedge its risk concerning carbon allowance prices at a California auction. This transaction, placed on Kalshi, marked the first institutional prediction market trade recorded. Asset managers increasingly use off-exchange trades linked to real-world events as effective hedging mechanisms, as noted by the Theodore Roosevelt Association, a nonprofit in education and research.
John Conlon, a director at Greenlight Commodities, described this trade as the “shot heard round the world for institutional prediction markets.” He emphasized, “What we proved today is that risk touches every part of the world. Every business. Every person. And now there is a simple, pure, institutional hedge for it.”
Under CFTC regulations, block trades are primarily accessible to Commodity Trading Advisors (CTAs) and institutional investors with over $25 million in assets under management. For municipalities with annual tax revenues exceeding $100 billion, the appropriateness of investing in contracts tied to sports outcomes remains uncertain.
Just before the NBA All-Star Game, Kalshi announced a partnership with Game Point Capital, a sports insurance broker issuing many policies for sporting events annually. Kalshi’s CEO, Tarek Mansour, highlighted that Game Point had hedged performance bonuses for two basketball teams based on playoff qualification and progress.
While brokers like Game Point transfer risk to Over-the-Counter reinsurers such as Lloyd’s of London, Mansour remarked that reinsurers often avoid high-risk contracts, leading to opaque pricing.
In contrast to traditional insurance products, exchanges provide liquidity and foster competition, ultimately offering better prices. Though Lloyd’s does not seem to provide a specific product for parades, it does write special event insurance for scenarios such as float malfunctions or crowd control issues in city centers. Ahead of the 2022 FIFA World Cup, Lloyd’s estimated an insurable value of £22 billion for tournament players, reflecting a nearly £9 billion increase from the previous World Cup. As prediction markets grow, traditional insurers like Lloyd's may find themselves facing new competition.
There are similarities between prediction markets and the insurance industry. Osasuna, a top club in Spain's La Liga, reportedly took out a €1.2 million policy with Howden to safeguard against financial losses from relegation. During the same period, about $600,000 was wagered on Polymarket regarding Osasuna's chances of staying up. Even though Osasuna narrowly avoided relegation after losing to Getafe, club officials denied having placed trades on Kalshi or similar platforms.
The Jeffrey, a popular bar in New York City’s Upper East Side, creatively devised a promotion in collaboration with Kalshi for the NBA Finals’ opening game. The bar offered free food and drink per patron (up to $100) if the Knicks emerged victorious. Andrew Freedman, who owns The Jeffrey and is a corporate lawyer, placed a $5,000 wager on a Knicks win, potentially yielding an $8,000 return on Kalshi and aiding in offsetting a $9,500 bill.
Freedman, who chairs shareholder activism practice at Olshan Frome Wolosky, commented that he likely would not hedge parade costs if he were the mayor of New York. Although hedging might seem financially sound, he noted the challenge in justifying such decisions under public scrutiny. As a business owner, Freedman recognizes his limited accountability compared to that of an elected official.
“We know governments already hedge risks in other areas. But when it comes to a championship parade for a city’s sports team, the lines get blurred and what some may see as insurance against celebration costs, others will call out as government sports gambling,” he explained.
Senator Addabbo expressed a preference for constructing a regulatory framework for prediction markets like Kalshi rather than pursuing prolonged litigation. “Instead of bringing a lawsuit to ban their activity in our state, let's regulate it,” he stated. “It’s a win-win—it’s a win for the entity who gets to do legal business with the state and it’s a win for the state.”
The debate surrounding whether a city or state can invest in sports-event contracts raises broader questions about whether this practice qualifies as wagering or legitimate hedging. Governor Spencer Cox of Utah, a critic of federally regulated prediction markets, questioned whether the CFTC holds any jurisdiction over derivatives pertaining to sporting events, citing examples like LeBron James' rebounds.
In contrast, former CFTC Commissioner Brian Quintenz argued in a 2021 statement that there are substantial economic and hedging purposes for sports-related contracts. He highlighted many athletic events that significantly impact the economy and likened the hedging opportunities for sports to trading mechanisms for oil, corn, or gold production. Recently, Quintenz criticized former CFTC chair Gary Gensler, suggesting that regulating sports event contracts should be a federal issue rather than a state matter. On June 11, Gensler filed an amicus brief against Kalshi on behalf of Ohio, one day following the CFTC's proposed rules on prediction markets. This proposal, spanning 267 pages, pertains to a “Special Rule” within the Dodd-Frank Act that enables modifications of regulations related to event contracts.
Gensler, who oversaw the CFTC during the 2008 Financial Crisis, expressed that sports contracts do not align with the goals of the Commodity Exchange Act, under which the CFTC operates. According to him, sports derivatives contradict “statutory language defining a swap,” emphasizing that the focus should remain on hedging economic risk. Last Wednesday, a federal judge in Michigan denied a preliminary injunction from Polymarket, declaring that sports contracts “are not swaps” under the CEA.
In the lead-up to the parade, multiple reports confirmed that Michelob Ultra, Chase, and Funk Harbor Rum had become main sponsors. It remains uncertain whether Kalshi or Polymarket pursued sponsorship roles, as representatives from both companies did not respond to inquiries.
John Holden, an associate professor at Indiana University’s Department of Business Law and Ethics, commented that championship parades are typically insured to mitigate risk. While the CFTC referenced the public interest test numerous times in its proposed rulemaking, it remains unclear whether the parade contracts satisfy that standard. Holden noted that understanding the implications of the public interest guidelines is complex due to the broadly defined language used.
The New York City mayor's office has not yet disclosed the parade budget, and inquiries to Mayor Zohran Mamdani’s representatives went unanswered. However, Mamdani, an avid Knicks supporter, stated on Sirius NBA Radio that preparations for the parade began even before the Knicks clinched their title on June 13.
In a spirited address outside City Hall, Mamdani reflected on Game 4's dramatic odds, where sportsbooks gave the Spurs a 99.6% chance of leveling the series. The Spurs had a 29-point lead with just over eight minutes remaining in the third quarter when the Knicks pulled off a historic comeback, completing the largest turnaround in NBA Finals history.
“What is New York when you have 99.6% of the world stacked against you?” he asked rhetorically, before concluding, “For 53 years we watched, for 53 years we waited, now we’ve won.”
