The Numbers Come First
Tim Arrowsmith runs a goat-herding operation in Northern California. His labor costs were about to more than triple after a state wage exemption policy expired on June 30. No insurer would cover that risk. No futures contract existed for it.
So Arrowsmith paid $50,000 for a contract on Kalshi — a federally regulated prediction market — that pays him $500,000 if Sacramento does not fix the rule by October 1. If lawmakers act, his labor costs stay flat and he is out $50,000. If they do not, he has $500,000 to absorb the increase. That is textbook risk transfer, the same instrument oil producers and financial conglomerates have used for decades.
What Prediction Markets Actually Are
Brian Quintenz, who served as a U.S. Commodity Futures Trading Commission commissioner from 2017 to 2021 and is now a Kalshi advisor and board member, argues the Arrowsmith hedge is not a novelty — it is a logical extension of the Commodity Exchange Act framework that has governed U.S. derivatives markets for generations.
Under that framework, anything that can pose risk to people and businesses — a physical good, a financial concept, or an actual event — is a valid underlier for a derivative listed on a federally regulated marketplace. Event contracts, which pay out based on whether something happens in the real world, fit squarely inside that design.
Prediction markets, Quintenz notes, are financial exchanges, not bookmakers. They act as intermediaries and do not take the other side of a trade. The market sets prices, and traders can exit positions at any time — the same mechanics as any traditional financial market.
A recent Federal Reserve report found that Kalshi markets provide an accurate, real-time read on the economy valuable to both researchers and policymakers, and that they beat Fed funds futures at predicting interest-rate moves.
Who Is Fighting Back — and Why
Despite that track record, multiple states have moved to ban prediction markets or apply state-level gaming regulation to them. New York — the capital of American finance — is among those that have sued. According to Quintenz, casino and sportsbook interests are driving much of that push, motivated by competitive threat rather than consumer protection.
Event contracts now cover risks that no prior risk-management product reached: environmental funds hedging California carbon allowance prices, ice cream shops hedging a rainy summer, businesses too small to interest a Wall Street desk transferring specific risks to willing counterparties.
CEO Times Editorial View
The Arrowsmith case is a clean illustration of what free enterprise looks like when regulators get the framework right. A small operator, priced out of traditional insurance markets, found a federally supervised venue that let him transfer a defined risk at a defined cost. That is the market working exactly as intended.
The effort to shut prediction markets down through state gaming law is not consumer protection — it is incumbent protection. When casino interests persuade state attorneys general to treat a price-discovery instrument like a roulette wheel, the taxpayer and the small business owner pay the price. Capital rewards clear rules, and the clearest rule here is that a federally regulated exchange should not be regulated out of existence by competitors dressed up as regulators.
