TheChek News Flow

The Takeaway

Kalshi wants to become a major challenger to traditional financial markets by encouraging big funds and companies to use prediction markets to protect against losses. Behind the scenes, it’s developing new contracts to win those big investors over.

That includes wagers aimed at niche corners of finance like the market for legal claims, where investors buy up claims at a discount betting they’ll be worth more once settlements are resolved. Last month, at a big investor’s request, Kalshi added new prediction contracts on the timing and size of payouts in the $2.8 billion settlement between college athletes and the National Collegiate Athletic Association.

The idea came from investment firm Grand Teton Systems, which has bought about $400 million worth of claims from athletes. Louis d’Origny, co-founder of GTS, said he reached out to Kalshi because he wanted a way for claim holders to hedge the risk that the payments might come in smaller or later than expected.

Under a court-approved settlement from last year, the NCAA is due to distribute back pay to college athletes who said they were illegally barred from sharing in revenue it made from broadcasting their games or using their name, image and likeness. But female athletes have challenged the settlement, saying they aren’t getting their fair share compared to male athletes, and that has put payouts on hold.

The size and timing of individual payouts remains a question, which could also mean different tax implications for claimants based on when the back pay hits. Though Kalshi offers yes-no bets on everything from election outcomes and sports to “Dancing With the Stars” weekly winners—and even the outcome of some high-profile court decisions like Trump’s BBC lawsuit and Amazon’s antitrust case—it didn’t have any contracts to make wagers on how the NCAA settlement will play out.

D’Origny said he suggested new contracts tied to some of the yet-to-be-resolved details. About 72 hours later, two new contracts went live on Kalshi—one allowing customers to bet on whether women will get a bigger share of the back pay and a second on when payments will begin. “Whats exciting is that this is a genuine hedging opportunity for real world risk,” d’Origny said.

Kalshi and rival Polymarket both see a major growth opportunity in courting big traders to their platforms, arguing that they can use its contracts much as they would traditional futures contracts to hedge against things like interest rate changes or fluctuations in prices of commodities such as oil. Kalshi, which announced last week it had raised $1 billion at a $40 billion valuation, says that as of September it worked with 500 institutional customers making up around 25% of its trading volume.

Both businesses are still dominated by sports betting, which accounts for about 90% of trading volume on each platform, and having more financial customers could also help with the prediction markets’ regulatory standing. Sports predictions in particular have drawn the ire of lawmakers and embroiled Kalshi, Polymarket and other competitors in lawsuits from dozens of states over accusations that the firms are running illegal gambling operations.

Prediction markets offer more types of bets than traditional futures markets, creating the opportunity for entirely new forms of hedges. But high-profile examples of businesses using prediction market contracts have so far mostly involved hedgers using existing contracts.

They’ve included a bar in New York hedging a free drinks promotion during the National Basketball Association finals and a Los Angeles ice cream shop betting on colder weather to insure against lower sales. And while Kalshi has announced it’s worked with investors like Ark Invest to develop new contracts, the examples it has cited include bets on topics with broad interest, like non-farm payroll numbers.

That makes GTS’ request an interesting test case for Kalshi’s efforts to grow its institutional business. Large class-action settlements or major bankruptcies often attract investment firms because they involve thousands of claimants who may be enticed by an up-front payment payment, especially in complex cases that could take years to shake out.

Notably, GTS became the largest buyer of claims in the bankruptcy of Sam Bankman-Fried’s FTX. D’Origny, himself an FTX creditor, spotted an opportunity to buy bankruptcy claims at a discount from others who wanted a quick payout. GTS launched a website called FTXCreditor to solicit claims and eventually took ownership of almost 5,000 FTX claims.

The long-running dispute between college athletes and the NCAA, which covers athletes who competed as far back as 2016, is proving to be another opportunity for GTS. The firm has been running a website encouraging athletes to sell their settlement claims to receive immediate cash. The website notes that almost 6,000 athletes have opted in so far.

The contracts Kalshi created for d’Origny so far have drawn meager volume, and GTS itself hasn’t traded them yet because it hasn’t seen a favorable position to take. “We would hedge more exposure if we saw interesting odds,” d’Origny said.

But d’Origny said the markets offer other benefits, because athletes who sell a claim to GTS could use the markets to place bets that could boost their total payoff. “This actually competes with our product offering,” he said. “We take on the risk entirely for athletes. Here they have a new avenue.”

The contracts could also offer free marketing for GTS’ efforts to buy up claims. “People talking about the settlement might encourage some to sell,” he said.

The Takeaway

Palo Alto Networks is in talks to buy three-year-old Israeli security startup Clutch Security for around $500 million, according to people familiar with the matter.

If finalized, the acquisition would be the fifth Palo Alto Networks has announced this year, as CEO Nikesh Arora seeks to bolster the company’s products that counter new AI threats. Clutch develops software that helps companies track passwords and authentication codes used by AI agents.

Discussions are ongoing and may not lead to a deal. A Palo Alto Networks spokesperson said the company doesn’t comment about “rumors or speculation.” A spokesperson for Clutch Security didn’t immediately respond to a request for comment.

The startup has raised more than $20 million from investors including Lightspeed Venture Partners and SignalFire. Its current valuation couldn’t be learned.

The acquisition could further deepen Palo Alto Networks’ offerings in identity security—the software that helps businesses manage logins and other permissions to make sure their users only access the data they’re supposed to. Earlier this year, Palo Alto, which has a market cap of $287 billion, completed its $25 billion acquisition for CyberArk, the market leader in identity security. While CyberArk had historically focused on managing human users’ logins, Clutch tries to corral AI agents’ use of passwords and data.

The cybersecurity sector has found its services in high demand from rising AI-related threats, as new AI models have shown they can find serious flaws in widely used software that attackers can exploit. Meanwhile, a string of high-profile incidents involving AI agents that have breached other companies’ systems has highlighted the need for security that labels, tracks and controls customers’ AI agents.

These risks have spurred a string of acquisitions for startups that provide safeguards against AI agent blunders. Last month, HR and finance company Workday acquired startup C1.ai to manage AI agent identities alongside human identities. In August, identity security company Okta acquired Permiso Security and rival Sailpoint acquired Entro Security in June, both due to the targets’ specialization in managing AI agent identities.