The Takeaway: Kalshi Goes Down As Pope Is Announced
A trading halt and subsequent instability created chaos on Pope betting markets at Kalshi. Also, a longshot won and the favorite did not, poking a hole in Kalshi's "source of truth" narrative.
I was going to write about Flutter/FanDuel earnings today, but Kalshi being down when the Pope was announced is too juicy to pass up to write about today.
Let’s set the stage and give you the timeline:
You probably know this by now, but Cardinal Robert Prevost, an American, was named the new Pope earlier today.
You could bet on who the Pope would be at Kalshi (and Polymarket, for that matter). Prevost was a decided underdog from the start, generally having about a 1% chance of being named Pope according to Kalshi.
Trading volume on Prevost came in at about $300,000 prior to today, at least— tenth-most of all listed candidates — but that’s mostly a lot of regular users betting on him at a 1% chance, with the other 99% of each contract likely being taken by a market maker.
Kalshi “halted trading due to technical issues” a few minutes before noon Eastern, according to the official Discord channel.
An announcement saying “orders can now be modified or canceled” at 12:14 pm Eastern. And a Kalshi employee said that trading would resume one minute later.
Both the site and app were down for some amount of time, at some point after the halt. I asked Kalshi for comment and/or to qualify or quantify the downtime, and a spokesperson declined comment on this issue. Users on Discord were complaining about not being able to access Kalshi starting before 1 pm Eastern. I didn’t try to access either until around 1 pm, but both the app and site were unresponsive for me as of about 1:14 pm Eastern.
No announcement was made that full functionality and stability had been achieved, that I saw. Kalshi relayed that they were still working on the problem from 1:20-1:30 pm. The last communication on the “announcement” Discord channel was about the resumption of trading at 12:15.
Later in the day, Kalshi offered this statement “We are in active discussion with our regulator about the outage, as any U.S. financial exchange would be in this circumstance.”
In the middle of all this, everything was happening around the Pope.
White smoke — the sign that the papal conclave had picked a Pope — came sometime before 12:10 pm Eastern. That was after the official halt and shortly before the resumption of trading.
Prevost was announced as the new Pope at around 1:15 pm, when the site and app were having issues.
Again, it’s hard to quantify, but clearly some cohort of users were having trouble accessing the site or trading into or out of positions for some amount of time before the white smoke and after the announcement of Prevost. Users on Discord were complaining about the site/app being down during this time period.
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So here’s what I have out of all of this:
Kalshi took a victory lap because it had the odds of Donald Trump being elected president better than the polls. “Kalshi and prediction markets are a source of truth and tell us important things” was the narrative after the November elections. The wisdom of crowds is supposed to get us to better information. So that Kalshi users had no idea who the Pope would be would seem to be a giant “L” for Kalshi, right? Fast forward today, and apparently it’s just useful to know that the odds aren’t zero and unpredictability of markets makes them “beautiful,” according to CEO Tarek Mansour.
Also, don’t get me started about the CEO posting this while the site was not totally functional (and while I am not able to get an official comment about the far more serious issues with the site/app).
Meanwhile, Kalshi users were hammering Pietro Parolin to be pope after the white smoke. At one point, he was at around a 70% chance. There was definitely no inside information leaking on who the Pope would be, at least not with prediction markets:
Then we get to the downtime. Was this just some of the worst timing and bad luck in the world for Kalshi? I understand the issue to be a temporary overload, which makes sense given the timing. But man, it’s not a great look for the platform. Shouldn’t you be ready for stress like this?
When Kalshi goes down in the middle of a major event with millions of dollars being traded, people need to be able to get in and out of their positions in an efficient manner, or at all. That clearly was not happening here. I had a position on someone for Pope, and could not trade out.
What happens if the platform goes down during a major sporting event? Let’s imagine, for a moment, that Kalshi crashed during the playoff in The Masters. People would have just had to sit on their positions. A sportsbook going down during an event isn’t great, but there’s also not much of an integrity issue. Mostly, people just wouldn’t be able to bet. But in a close game or event, people assume they can get their money out of a position at Kalshi quickly, if they choose to do so.
Anyway, it doesn’t feel like this whole episode is something where Kalshi can say “we fixed it,” shrug its shoulders and move on. That may very well be what happens, but it doesn’t seem like this should be the end of the story for a federally regulated exchange. It certainly wouldn’t be the end of the matter if this exact scenario happened at a state-regulated sportsbook…we would have hearings and maybe fines, etc.
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Gambling news roundup
ESPN Bet still on probation for PENN until 2026 despite Interactive growth (SBC Americas): “PENN Entertainment CEO Jay Snowden suggested on Thursday that the company is still determining how best to proceed with the ESPN Bet platform — or even if to proceed at all beyond next year. Snowden stated in February that, amid slower progress than hoped for, there is a three-year clause in the 10-year, $1.5 billion contract between PENN and ESPN that could see the partners alter their path forward or even abandon the venture if it is “in their best interest.” “Both sides have the option at the third anniversary, if we haven’t hit a threshold level of revenue market share, to decide if they want to rework the deal or exit,” Snowden said on the company’s latest earnings call on Thursday.”
“Snowden was speaking after the PENN Interactive business reported its best quarterly revenue and EBITDA totals since ESPN Bet was born… Total Interactive gaming revenue grew 40% year-over-year to $290.1 million, including a $128.2 million tax gross-up. … PENN Interactive posted an adjusted EBITDA loss of $89 million for the quarter, an improvement of $106 million from one year ago.”
Penn stock was generally flat on the earnings.
All sports betting legislation dies in State Senate Thursday (Fox 23): “All sports betting legislation died on the floor of the Oklahoma State Senate on Thursday. Two bills dealing with ways to legalize sports betting in the state failed to get a vote from the full Senate chamber before a critical deadline on Thursday.
Both bills were one vote away from reaching their final destinations.”
Alberta Passes iGaming Act to Expand Sports Betting Market (Sports Betting Dime): “Service Alberta Minister Dave Nally’s Bill 48: the iGaming Alberta Act, has been approved on third reading. The Alberta iGaming bill yesterday passed out of the Committee of the Whole with no amendments and was then approved on third reading. The legislation will become legal after likely receiving Royal Assent from Lieutenant Governor Salma Lakhani.”
Gambling billionaire Escalante in expletive-ridden rant to investors (AFR, paywall): “Perth gambling billionaire Laurence Escalante told investors to sell their shares in his online gaming business Virtual Gaming Worlds if they don’t trust him, in an expletive-ridden response to concerns about diminishing disclosure.”
What exactly is a dual-currency social casino? (iGaming Expert): “The most crucial part of each US bill aiming to limit what kinds of sweepstakes contests are allowed in a state is how the parameters of what the state is trying to prohibit is defined. Those unfamiliar with the sweepstakes gaming space might think that social gaming is an entirely different vertical from sweepstakes. In reality, most sweepstakes operators will tell you they are a social gaming product. … Many social gaming sites, including social casinos run or branded as part of regulated U.S. casino companies, also offer players multiple types of rewards. Some of these sites have three or four different types of coins, hearts or points players accumulate by interacting with the app.”
When you look under the hood, social casino apps aren’t always that much different from their sweepstakes counterparts, as this piece points out. That being said, there’s not usually a one-to-one correspondence between a purchase you make with a social casino and the real-money equivalent you receive to gamble with, which happens with some sweeps sites/apps. At minimum, it’s important for policymakers to understand this dynamic if they are putting new laws on the books.
‘A casino in every pocket’: Mississippi illegal online sports betting thrives as legalization stalls (Mississippi Today): “On the heels of the Legislature’s most recent failed attempt to legalize mobile sports betting in Mississippi, a 52-year-old gambling enthusiast named Gary drew a distinction between himself and his fellow bettors: He is a winner, and most of them are losers. ‘To say it honestly, most people are losers when it comes to sports betting because they lose control. But I hope they legalize it because I have control over my gambling,’ Gary said. ‘Certain members of my family call me a degenerate, but I guarantee you I’m not a losing sports bettor.’ Gary, whose full name Mississippi Today agreed not to publish so he could speak candidly about placing illegal sports bets, is among the Mississippi residents who have together placed, according to some analysts, billions of dollars in online sports bets through illicit offshore betting platforms. He is also among the dozens of people who told Mississippi Today, in a written survey and interviews, about what legalization would mean for those who currently bet illegally. What emerged is a portrait of the state’s shadow sports betting economy alongside growing concern among experts about the potential for gambling addiction.”
Your critique of the Kalshi outage today was fair, but a bit harsh. I have been a customer of Betfair for many years and while rare, these outages do occur; even my stock broker has gone down at times. It is ironic that this happened with the pope prediction market because that would have existed even seven years ago well before all this sports Kalshi controversy. I would point out that unlike dealing with a bookmaker if one side loses on the outage, the other side wins. This pope prediction market was unlike sporting events which feature continually changing on field events that move the odds. You mentioned positions at 100/1; those winners were not hurt by the outage. The losers on the other side who lay that big number were probably market makers. They were never going to hedge out. True this would’ve been a more dynamic situation if it happened during say the Super Bowl, but as I noted, even when I try to buy stocks or options. it is a rare but not unknown risk. Point is stuff like this happens online. I have been betting sports for over 60 years and Kalshi represents a major change. For the first time ever from any USA location, it is just as easy to safely play (and collect on) five figure sports bets as it is to buy a stock; there is no penalty for winning; in addition for the first time ever, Kalshi pays money market rates on all balances, including open bets. Thus a future $ 10 K Super Bowl bet on the Steelers would pay interest until next February, even if the Steelers never made the playoffs. I find it fascinating that
there is almost a blackout about the advantages of betting with Kalshi. My guess is that it represents a threat to legal bookmakers like Circa which sponsors shows.
We just published an article today about the pitfalls of prediction markets based on public speculation instead of relevant public data. Conclave was too secretive for a real-time forecast comparable to the presidential election.