A Los Angeles restaurant group traded $60,000 on Kalshi to hedge against the Dodgers' shortened playoff run, illustrating how prediction markets are changing the way companies—particularly small businesses—calculate and manage risk.

Prediction markets are exchanges where participants trade contracts tied to whether a stated event—such as a team reaching a championship round or a cold front arriving—occurs, with payouts determined by the outcome. Kalshi told Fortune that the unnamed hospitality group operates 25 bars, several of them near Dodger Stadium. The group placed the trade on the condition that Los Angeles' Major League Baseball team would not advance to the World Series. The Dodgers lost to the Milwaukee Brewers in the National League Championship Series last week, and the position returned almost twice the original stake.

The proceeds helped the business offset revenue it would have earned if the Dodgers had played more postseason games. The example reflects a broader potential use for prediction markets: not only as alternatives to online sportsbooks or prop-bet forums, but also as financial and decision-making tools for businesses.

“You could imagine that there are other risks that businesses face that if there were a market available which functions similarly to the insurance market, then those businesses might want to participate in that kind of a market,” Joshua Mitts, a Columbia University law professor who studies prediction markets and securities law, told Fortune.

The restaurant group's trade, designed to hedge the Dodgers' playoff performance, “is functionally quite similar to a form of bespoke insurance,” Mitts added.

Prediction markets have been gaining popularity. Trading volume on the platforms doubled between May and July of this year, according to Pew Research Center data, exceeding $58 billion on Kalshi and nearly $22 billion on Polymarket. Sports accounted for most of the activity. Some of the markets' appeal comes from looser regulations and fewer restrictions because the platforms are classified as financial exchanges rather than gambling sites.

The evolving use of prediction markets

Small businesses looking for unconventional risk-management tools appear to be an expanding segment of prediction-market users.

In June, The Jeffrey, a New York City bar, promised customers that it would cover each person's tab up to $100 if the Knicks won an NBA Finals game. The bar then placed a $5,000 Kalshi bet on the then-underdog Knicks. A $13,500 payout allowed the business to cover its customers' tabs while also producing an $8,500 profit. The episode was reported by Fortune.

Last month, an unnamed third-party insurance company placed five trades on Kalshi that could pay out $3 million if Louisiana State University won this season's national championship. The potential payout matched what LSU's football program would owe coach Lane Kiffin in bonuses. CBS Sports reported on the trades.

Earlier this summer, a Los Angeles ice cream shop reported earning nearly half of its monthly rent—up to $1,500—by betting on when cold fronts would reach the city, providing a hedge against weaker demand. The account was reported by the New York Post.

Taken together, the examples span sports results, weather, and a coach's contract bonuses—the range of event types that businesses and institutions have used the platforms to hedge.

Prediction-market platforms have begun responding to these expanding use cases. In August, independent financial economist Lauris Zminsky launched the Blanket app in partnership with Kalshi. The artificial-intelligence engine can suggest specific yes-or-no markets on the platform that might offset a particular business risk.

“It's a reasoning tool. It's a discovery tool that funnels you towards Kalshi,” Zminsky told Fortune at the time. “What if you actually can take this up a notch and build a tool that is not only probably useful for the Kalshi team and their endeavors—to scale their S&P insurance hedging initiative—but a self-service tool where anybody can come in if they own a small business?” The initiative was covered by Fortune.

Prediction markets as insurance

Prediction markets may be suited to risk management because they can incorporate large samples, particularly when they are used for sports-related financial hedging, said Eric Zitzewitz, an economics professor at Dartmouth College.

“There's so much data, there's so much repetition, there's so many games all the time that they can be very well-calibrated,” he told Fortune. “You'll pay fees when you do that—so you'll be paying something for the insurance you get from these markets—but you should be getting fair underlying prices.”

Mitts said the approach is most effective for yes-or-no outcomes, such as weather events or the result of a game. It is less suitable for a hedge based on knowledge of specific information, he said, because business owner could become a “systematic loser” if a competitor had better intelligence. These markets are also likely to work best in major metropolitan areas, where there is sufficient trading activity while the market can still serve an idiosyncratic need, such as the risks faced by a single small business.

The large samples and real-time information gathered through prediction markets could also make them useful for business decisions, according to Zitzewitz. An e-commerce retailer, for example, might examine prediction-market users' trades on future Amazon credit-card receipts to obtain a forecast of consumer spending in the coming month.

“It's probably a better signal for you than GDP growth,” Zitzewitz said. “And it's certainly fresher.”

However, Mitts argued that the same lack of regulation attracting users could prevent prediction markets from serving as reliable insurance proxies. Traditional insurers have extensive resources to detect and prevent fraud. Prediction markets, by contrast, have an inherently decentralized structure and operate within an evolving regulatory environment, leaving them without the same resources or safeguards against abuse.

“We don't have a small number of companies who are state-regulated and who are doing things in very organized ways,” Mitts said. “This is a bit of a free-for-all.”

This story was originally featured on Fortune.com.