Liz’s view
When does a hedge become a bet?
Our story last week about a Spanish soccer team’s hedge against its own relegation to a lower league ending up on Kalshi touched a nerve. The idea of a team betting against itself sits uneasily with fans, and I know because I heard from some of them.
The discomfort is understandable but misplaced. The line between protection against a bad outcome — what the financial world calls a hedge and the rest of us call insurance— and a bet on that bad outcome boils down to intent.
A farmer who sells wheat futures is hedging. A speculator who sells the same contract is betting. A grimmer example: Buying life insurance for yourself is a hedge; buying it for a stranger is going to raise some questions. Discerning intent comes down to whether the party betting on the bad thing happening would also suffer from it. The farmer is long wheat prices but taking out an insurance policy should prices flip. You are long, well, being alive.
The owners of Osasuna, a team in Spain’s La Liga, are long winning soccer matches. But they bought a $7 million insurance policy to protect themselves against the financial hit they’d take if they didn’t win enough of them, got kicked to a lower tier, and lost the money tied to concessions, ticket sales and media.
The fact that the risk ended up on Kalshi instead of at Lloyd’s of London, where sports-insurance policies often land, is a sign of prediction markets’ utility, not their seediness. (After the Semafor story came out, the team confirmed some aspects of the trade but said it took out a standard insurance contract without any knowledge of what happened after that. It told me it “did not place a bet,” nor have a “direct relationship with Kalshi.“)
Still, intent can look murky from the outside. Consider this 2019 Wall Street Journal article about Bridgewater, the world’s biggest hedge fund, buying $1.5 billion worth of options that would pay out if stock prices fell. At the time, Ray Dalio pushed back hard on the framing, saying it was a hedge against the firm’s long positions, not a call on market collapse (a possibility the article allowed for). With Bridgewater’s positions a secret, it’s hard to know which narrative is true or how much weight the word “hedge” is asked to carry.
Insurance’s answer to this problem is to require policyholders to have an “insurable interest.” You can only insure what you stand to lose. It dates back to 1745, when the British Parliament set about cleaning up the age’s death markets — speculation pools on whether ships at sea would return. That doctrine exists in insurance laws today: You can insure your own house, but not your neighbor’s.
There’s no equivalent in Kalshi’s rulebook, or in the CFTC regulations that govern it. And while prediction markets are rebuilding the machinery of risk transfer in interesting and productive ways, they may eventually rediscover the reason that rule existed in the first place.
In this article:
The View From Osasuna
The club said in a statement to Semafor:
As stated in our public communication, Club Atlético Osasuna contracted a relegation risk coverage with Howden, a company that works regularly with several LaLiga clubs and with LaLiga itself.
The club’s involvement in this matter was limited to the contracting of that coverage with Howden. The documentation signed by Osasuna corresponds to a standard relegation risk coverage and does not contain any reference to Kalshi, Greenlight Commodities or any other similar entity, nor does it refer to any subsequent transfer, reinsurance or hedging of the risk.
Consequently, Osasuna has no knowledge of, nor participation in, any arrangements that may have been carried out by third parties after the coverage was contracted.
One additional point that we believe is important to clarify is that Club Atlético Osasuna did not place any bet, did not participate in any prediction market and did not have any direct relationship with Kalshi or any similar platform.
The club’s sole involvement was the contracting of the relegation risk coverage referred to in our statement, a transaction contracted with Howden and carried out with the knowledge of LaLiga, which was consulted and kept informed throughout the process.
Notable
- A local NYC bar hedged using Kalshi after promising customers it would pick up everyone’s tab if the Knicks won the first game against the Spurs in the NBA Finals. The Knicks defeated the Spurs 105 - 95.