Beyond betting: Prediction markets’ next frontier

Pierre, you’ve described this as the first-ever use of a prediction market to hedge a conference. Where did the idea come from, and how much was about reducing risk as opposed to demonstrating a real-world commercial application for prediction markets?

As an events business, we’re constantly exposed to risks in the real world. COVID demonstrated that on the biggest possible scale for our sector. In our case, we lost 100 per cent of our revenue from one day to the next.

Over 13 years and around 800 events, we’ve encountered almost everything you can imagine. This year in particular has felt strange for the events industry because the world is changing. You have geopolitical risks, weather risks and all kinds of potential disruption.

When we hosted NEXT New York in March, there had been a huge blizzard in New York about two weeks beforehand. It caused chaos and we were thinking: what happens if this occurs during our show? Then conflict in the Middle East escalated shortly before the event. We had many delegates either travelling from the region or connecting through it. Fortunately, it didn’t escalate further, but we still processed a significant number of refunds because people couldn’t make the event.

Fast forward to our Malta show at the end of May, where we host around 6,000 people, and there were concerns about European airports potentially running short of fuel. Again, we were wondering what would happen.

I spent June in New York and met with Susquehanna. I asked how they saw the future of prediction markets and they told me they viewed them much more broadly as financial instruments for hedging risk. Given everything we had experienced, I immediately thought that was interesting for us. We started discussing how that could work for NEXTPredict NYC and Susquehanna said they would take the other side of the trade.

When you boil all of those force majeure situations down, what we are really talking about is airport disruption. That can be caused by geopolitics, extreme weather or many other events. That led us towards a contract specifically based around flight cancellations.

Traditionally, that sounds like something an event organiser would insure against. Why use a prediction market instead?

This is where it becomes really interesting. Most of the discussion in the media today is prediction markets versus sports betting: which is bigger, which is better and where somebody should place a bet. But Susquehanna and others are looking at something different – and potentially much bigger. They are looking at prediction markets versus insurance as a future competitive industry.

Event insurance is already very mature. We have various forms of insurance because venues require them and because we have legal obligations. Typically, you insure what happens inside the venue: somebody falls, something breaks, there’s a fire or somebody gets hurt. You can take that further and insure yourself against force majeure, but there are a couple of reasons why prediction markets become interesting.

Usually, for that insurance to become effective, you have to cancel the event. But imagine extreme weather closes JFK and causes huge disruption across New York’s airports. That doesn’t necessarily mean we cancel the conference. We could still hold it, but perhaps only half the expected delegates arrive. The material financial damage has already happened, but standard event insurance might not trigger because the conference itself went ahead.

The second issue is making a claim. You then potentially have a debate with the insurance company about whether your circumstances qualify under the policy. With a prediction market, we’re on one side of the trade, Susquehanna is on the other, and Kalshi is in the middle determining whether the conditions of the contract have been met.

For force majeure events that materially damage a conference without actually causing its cancellation, that structure can make much more sense.

How did you arrive at the 50 per cent flight-cancellation threshold and roughly $12,000 cost for protection of up to $3m?

The $3m represents our investment in the entire NEXTPredict New York product. The logic was that if the contract triggers, we don’t lose money on that investment. Obviously, we’re hoping that we don’t win the trade – because if we do, something has gone seriously wrong with travel into New York – but that’s the purpose of the hedge.

How did the arrangement with Kalshi and Susquehanna actually work? Was there already a market you could use?

This was a learning experience for us as well. Kalshi has an institutional team and we signed up as an institutional customer. We went to Kalshi and said that we wanted to hedge our conference, with Susquehanna taking the other side of the trade. We discussed what the appropriate trigger should be. We initially considered disruption across the airports, but ultimately decided we could focus on JFK because if you have that level of disruption there, it’s reasonable to expect wider disruption as well.

Once we’d agreed the parameters, Kalshi’s team created the market specifically for us. They had to establish exactly how the contract would work and what would trigger it. There are also provisions designed to prevent abuse. Certain types of disruption, such as incidents involving drones or bomb threats, don’t trigger the contract.

Interestingly, when the market was published, somebody in the media picked it up and suddenly there was a story about Kalshi allowing people to gamble on flight cancellations. What wasn’t understood was the negotiation and corporate hedging use case behind it. This particular market is only available to institutional customers. General retail customers can’t trade it, partly because it’s obviously a sensitive market.

Having now gone through the process, what have you learned about the practicality of prediction markets as a corporate risk-management tool?

One thing I’ve learned is that Kalshi is extremely hungry for this type of business. They put the time and effort into creating a professional contract in a very short period. That told me something about the direction in which the company wants to move. Kalshi wants prediction markets to be seen as providing these types of hedging opportunities.

I also learned how easily something like hedging a conference can be misconstrued when it is taken out of context. Then there’s Susquehanna’s perspective as a market maker and the way they see prediction markets potentially competing with the insurance industry in future.

Another important point is simply how easy the process was. We could have gone to an insurance company and asked for a very specific policy covering flight cancellations. They might say they don’t insure that risk, so we’d go somewhere else and eventually receive some complicated contract.

In reality, we probably just wouldn’t bother. With the prediction market, it was straightforward. Even if it were ultimately more expensive than insurance, the simplicity itself has value. Without that straightforward opportunity, we probably wouldn’t hedge the risk at all.

Does that point towards something much bigger than conference insurance?

Absolutely. That’s what makes this interesting. The current public conversation is heavily focused on prediction markets and betting, but the institutional opportunity is much wider. If markets can be created around clearly defined, independently verifiable outcomes, they can potentially allow businesses to hedge risks that are difficult, cumbersome or uneconomic to cover through traditional insurance.

That’s the direction companies such as Susquehanna are looking towards, and it’s also why we’re positioning NEXTPredict towards the institutional and financial side of the market rather than simply treating prediction markets as another form of gambling.

NEXTPredict NYC was announced relatively recently. Have there been moments since the announcement that convinced you there really is demand for a dedicated prediction-markets event?

There is just so much hype around prediction markets right now. One of the most interesting things I’ve learned is that the core prediction-market industry is actually quite small. You have Kalshi and Polymarket and then various other exchanges and companies around them. But the industry on the periphery is enormous.

Think about all the gambling companies interested in launching prediction-market products, the crypto companies building products around prediction markets, the exchanges and all of the other adjacent businesses. There is a huge number of major companies interested in this sector even though the core prediction-market industry itself remains relatively small. That’s been one of the most interesting discoveries for us.

Has that made organising NEXTPredict very different from putting together a traditional gambling industry event?

Completely. Coming from gambling, it can be quite difficult to generate interest from outside the industry. With prediction markets, it’s almost the exact opposite. It’s such a hot industry that everybody wants to be part of it.

We’re talking to mainstream journalists, major business media, some of the biggest venture capitalists in the world, institutional banks and companies from across the US that are extremely interested in participating. For us, that makes it really fun. We’re having fascinating conversations every day and expanding our network into completely new areas.

It’s been refreshing. In gambling, there can sometimes be a stigma attached to what you do. With prediction markets, the response is: “Prediction markets? Yes, we want to talk about that.”

Who is actually going to be in the room? Are you beginning to see an entirely new ecosystem forming around the sector?

We’re gearing the event much more towards the financial sector. We’re targeting institutional banks, institutional investors, VCs, private equity, the exchanges themselves and the wider financial ecosystem. There will obviously be gambling companies there as well, but that’s not the primary angle we’re taking with NEXTPredict.

We’re looking towards the institutional future of prediction markets, their use for hedging and what the next evolution of this industry looks like.

How ambitious are you being in terms of attendance?

Other events currently taking place in this space might attract 400 or 500 people. We’re aiming for around 2,500. So we’re not trying to make something that’s just a little bigger. We’re looking at something an order of magnitude bigger. I’m pretty confident we’ll fill it. We already have delegates registered from around the world and the level of interest we’re receiving from potential speakers continues to grow.

Which sessions do you expect to generate the most interest?

We have Jason Robins involved and I think some of the most interesting sessions will be the fireside conversations where you put major figures together and allow them to really explore where this market is heading. We also have the CEO of Binance.US involved.

Those heavyweight conversations are some of the sessions I’m most looking forward to, but we’re also creating space for startups. There are so many interesting companies being built around prediction markets right now, so giving those businesses an opportunity to showcase what they’re creating is going to be an important part of the event.

Finally, what do you still have to put in place for NEXTPredict NYC to become the event you’re envisaging?

Thanks for reminding me! Pretty much everything still has to be done. The marketing campaign kicks into high gear from September, while sponsorship needs to be settled and organised, and there is still a huge amount of event production ahead of us.

We’re still in the early innings. That’s why we’re working at a frantic pace. It is an incredibly short timeframe in which to build an event of this scale, but that’s also part of what makes it exciting. We have a lot still to do – but we can do anything and everything.