Kalshi's $18.6 Million Mistake: Prediction Market Exchange Pays Out Wrong Winners

Kalshi, a prediction market exchange, made a costly mistake in settling a market for a college football game between Western Michigan and Michigan. The exchange paid out $18.6 million to traders who bet on the losing team before the game's final result was confirmed.

The market had traded heavily with $18.6 million volume by the time officials reviewed the play and ruled that a Western Michigan defender touched the ball from out of bounds, restoring one second to the clock. This allowed Michigan to score a 47-yard touchdown and win the game 13-12.

Kalshi had prematurely settled the market when the clock read zero, paying out to traders who backed Western Michigan. The exchange then clawed back these payments and reimbursed the initially incorrect winners before finally paying out to those who bet on Michigan.

This error has raised concerns about the reliability of prediction markets, particularly in light of a recent case where Coinbase's AI-generated World Cup result was pushed to users before kickoff. This incident also comes after Kalshi was barred from offering sports contracts in Michigan by a court order and faces a $500,000 daily penalty.