Knicks parade sparks debate on event contract rules for top cities

On Thursday, New York City hosted one of the most anticipated championship parades in the history of the metropolis, providing a cathartic moment for long-suffering fans in one of the largest sports markets in the world.

As large swaths of fans lined the Canyon of Heroes, New York Knicks guard Jalen Brunson received a key to the city, days after leading his team to their first NBA title in over 50 years. When the franchise last won the NBA Championship in 1973, the Walt Frazier-led Knicks were deprived of a parade, as austere mayor John Lindsay preferred low-key, intimate gatherings over massive city-wide events. When the Knicks defeated the Lakers in Wilt Chamberlain’s final NBA game, Kalshi did not exist, and sports betting in the Empire State remained largely confined to illegal neighbourhood bookies.

While the dollar has weakened by almost 90% since the Knicks’ last title, the costs of hosting a championship parade have skyrocketed. Typically, the event can set a city back anywhere from $1 million to $4 million, with at least two Super Bowl parades over the last decade topping $2.25 million. The exorbitant budgeting required to hold a parade begs the question: should a municipality enter into an event contract to counterbalance the substantial expenditures of the civic event?

One option for a city to defray the costs is to bring in a corporate sponsor, New York State Senator Joseph Addabbo Jr., explained. Kalshi, for instance, has a multi-year partnership with Madison Square Garden, the home of the Knicks. Last weekend, Polymarket served as a sponsor for a UFC card on the White House South Lawn, with its logo plastered on the rail of the octagon.

“There’s so many moving parts on who’s going to offset the costs,” Addabbo told iGB. “It’s a great conversation to have.”

Hometown parade contracts

In 2024, nearly a week before Christmas, a division of Crypto.com submitted two event contracts to the US Commodity Futures Trading Commission, the federal regulator for financial derivatives.

Dubbed as a “Hometown Event Celebration Contract,” Crypto.com Derivatives North America (CDNA) described the product as a “financial instrument” designed to express a market view surrounding the “varying economic and commercial impacts” borne by a city for hosting the festivity. In addressing the derivatives, along with a broader category of sports event contracts, Holland & Knight attorney Johnny ElHachem wrote that proponents of the contracts claim they provide “valuable market-based pricing of real-world probabilities.”

In a letter to the CFTC, CDNA indicated that the contract had a notional value of $100 with a minimum price fluctuation of $0.25, to align with other offerings on its platform. Per the letter written by then-CDNA Chief Compliance Officer Kevin Dan, the operator established a position limit of 2,500 contracts for traders. Before the completion of a 90-day review period, the CFTC asked the operator to suspend the listing of the contracts, ElHachem wrote in a January 2025 brief. CDNA subsequently withdrew the application.

Dan currently serves in a similar capacity at Rothera, a new prediction markets operator backed by Robinhood and Susquehanna International Group. Efforts to contact Dan for this story were unsuccessful.

As of Thursday, there are no public accounts of a direct investment by city of $1 million+ on a hometown event contract.

Nevertheless, there have been several creative attempts at hedging in recent months. An Upper East side bar picked up the tab for patrons in Game 1 by taking the Knicks at Kalshi. Last week, Betr hedged a free spin promotion valued at $1.8 million, with a Polymarket trade on the US to win the World Cup.

Block trades

With a positional limit of less than 3,000 shares, a municipality would barely be able to afford the cost of overtime for a coterie of security personnel. The Knicks opened the NBA Finals as decisive underdogs against the San Antonio Spurs, with odds on Kalshi hovering around 37% before Game 1 on 3 June. At those odds, a $1.2 million contract on the Knickerbockers carried a payout of $2.04 million, well within the range for the average cost of a parade.

For large institutional players seeking to reduce their exposure, a new product is available on prediction markets. In April, Greenlight Commodities executed a privately negotiated, custom trade with institutional market maker Jump Trading Group that enabled the Houston-based environmental hedge fund to hedge its exposure to the price of a carbon allowance at a California auction.

Placed on Kalshi, the transaction made history as the first institutional prediction market trade on record. Rather than forecast price movements in a traditional sense, asset managers instead utilise the off-exchange trades on real-world events as “direct hedging mechanisms”, according to the Theodore Roosevelt Association, a nonprofit organisation focused on education and research.

John Conlon, a director at Greenlight Commodities, described the transaction as the “shot heard round the world for institutional prediction markets”.

“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,” he said in April. “There is not a single event on earth that cannot be hedged, almost perfectly, with an event contract. Today was day one.”

An alternative to Lloyd’s

Under CFTC regulations, block trades are typically limited to Commodity Trading Advisors (CTAs) and aforementioned institutional investors with more than $25 million in assets under custody. While the trades are permissible for large hedge funds, it is less clear whether a municipality that collects more than $100 billion in annual tax revenue should invest in a contract with a sports outcome as the underlying event.

Days before the NBA All-Star Game, Kalshi announced a partnership with Game Point Capital, a sports insurance broker that issues hundreds of millions in dollars in policies on sports annually. Kalshi CEO Tarek Mansour noted on his X account that Game Point hedged performance bonuses for two basketball franchises on qualifying for the playoffs and whether the teams would advance to the second round.

Though brokers such as Game Point offload risk with Over-the-Counter (OTC) Reinsurers such as Lloyd’s of London, Mansour believes reinsurance companies tend to be risk-averse with certain policies.

“In all OTC markets, re-insurers are restrictive in what risks they take: they like to avoid volatile, higher risk contracts, so they offer prices that are opaque and prohibitively high,” he wrote. “Exchanges are a better alternative because they expand liquidity and bring competition: multiple counterparties compete in an open marketplace to improve the price.”

While it does not appear that Lloyd’s offers a standalone product for a sports championship parade, the famed insurance marketplace has written special event policies on if a float malfunctions or an overflowing crowd engulfs a city centre. Ahead of the 2022 FIFA World Cup, Lloyd’s estimated that players in the tournament collectively had an insurable value of £22 billion, an increase of nearly £9 billion from the previous World Cup. With the rise of prediction markets, insurers such as Lloyd’s may face a formidable competitor.

There are other commonalities with the insurance industry. Osasuna, a top division club in Spain’s La Liga, reportedly took out a €1.2 million policy with brokerage firm Howden to hedge against the financial loss of relegation.

There are other commonalities with the insurance industry. Osasuna, a top division club in Spain’s La Liga, reportedly took out a €1.2 million policy with brokerage firm Howden to hedge against the financial loss of relegation.

At the same time, Kalshi users traded nearly $600,000 on whether the Navarre club would drop. Osasuna ended the season with a defeat to Getafe, but avoided relegation. Club officials denied placing trades on Kalshi or similar platforms.

The Economic Purpose Test

The ethical implications on if a city or a state can invest in a sports-event contract fall against a larger backdrop on whether the products constitute wagering or hedging. Utah Governor Spencer Cox, a detractor of federally regulated prediction markets, famously questioned whether the CFTC has “authority over the derivative market on LeBron James’ rebounds”.

Conversely, former CFTC commissioner Brian Quintenz enumerated the economic and hedging purposes for sports-related companies in a 2021 statement. In a dissent on the self-certification of ErisX NFL contracts, Quintenz argued that there are plenty of athletic events that have a “discernable and legitimate” economic impact. Quintenz, who withdrew his nomination as CFTC chairman last year, added that the hedging opportunity for sporting events is akin to the same trading mechanisms on “oil, corn, or gold production”.

Earlier this week, Quintenz criticised former CFTC chair Gary Gensler for his position that the regulation of sports event contracts should be left to the states, rather than the federal government. On 11 June, Gensler filed an amicus brief on behalf of Ohio against Kalshi. That brief came one day after the CFTC issued proposed rules on prediction markets, . The 267-page proposal from the CFTC addressed a so-called “Special Rule” within the Dodd-Frank Act that enabled the commission to modify rules around event contracts.

Gensler, who chaired the CFTC during the 2008 Financial Crisis, wrote that sports contracts do not fit the purpose of the Commodity Exchange Act, the CFTC’s governing legislation. According to Gensler, the sports derivatives also run contrary to “statutory language defining a swap”, which in his estimations focus on hedging economic risk. On Wednesday, a Michigan federal judge denied a preliminary injunction from Polymarket by ruling that sports contracts are “not swaps” under the CEA.

More ambiguities

Ahead of the parade, multiple outlets reported that Michelob Ultra, Chase and Funk Harbor Rum reached agreements to become the main sponsors of the parade. It is unclear if Kalshi or Polymarket inquired on serving as a sponsor. Representatives from both companies did not respond to a request for comment.

John Holden, an associate professor in the Department of Business Law and Ethics at Indiana University, told iGB that championship parades are typically insured, which serves as a way to offset risk. While the CFTC referenced a public interest test more than 500 times in the proposed rulemaking, a spokesperson did not answer whether the parade contracts meet the standard. The impact of the public interest guidelines are difficult to discern, Holden added, considering that the language used is “seemingly quite broad”.

The New York City mayor’s office has not publicly released its budget for the parade and representatives of Mayor Zohran Mamdani did not reply to an inquiry from iGB. But Mamdani, a passionate Knicks fan, told Sirius NBA Radio this week that the city prepared for the parade well before the Knicks captured the title on 13 June.

In a rousing speech outside of City Hall Thursday, Mamdani alluded to in-game odds during Game 4 when leading sportsbooks gave the Spurs a 99.6% chance to even the series. The Spurs led by 29 points with 8:23 left in the third quarter before the Knicks rallied to victory, completing the largest comeback in NBA Finals history.

“What is New York when you have 99.6% of the world stacked against you?” he asked reflexively. “For 53 years we watched, for 53 years we waited, now we’ve won.”

Matt Rybaltowski

Matt is primarily responsible for long-form feature coverage on complex sports betting scandals. He also provides coverage on finance, M&A and other technological developments.