LearnHow event contracts work
What is an event contract, and how can a business use one?
An event contract is a contract on a question with a clear yes-or-no answer, such as whether a team wins a title or rainfall passes an agreed level. If the agreed event happens, the contract pays out under its terms. If it doesn’t, the contract doesn’t pay out, and the upfront cost isn’t returned. A business can use one to offset a cost it can’t control, such as rising input costs, bad weather or customer refunds from a promotion.
How does the payout work?
An event contract is tied to one question with a clear answer, such as “Will the team win the title?” or “Will April to June bring more than 12 rain days?” The terms name the event, the dates and the source that decides the result.
The CFTC describes event contracts as derivative contracts based on the outcome of an event, “typically with a binary payoff.” In the same notice, it describes a binary contract’s payoff as “either a fixed amount or zero.” So the contract pays a fixed amount if the event happens and nothing if it doesn’t.
Protection can also be set up to pay more as the outcome gets worse. In the rain-days example on our weather page, protection pays for each rain day beyond the 12 the schedule can absorb.
After the event, the exchange settles the contract under its rules. Kalshi’s settlement guide, for example, says contracts typically settle shortly after they expire, and that timing can vary with the data source and any manual review.
Who regulates them?
In the US, the Commodity Futures Trading Commission (CFTC) regulates event contracts listed on the exchanges it registers. In a March 2026 notice, the CFTC said event contracts listed on CFTC-registered exchanges are swaps or futures contracts subject to its jurisdiction. The same notice uses “prediction market” to mean a CFTC-registered exchange that offers event contracts.
One kind of CFTC-registered exchange is a designated contract market. For example, the CFTC designated KalshiEX LLC as a contract market in November 2020. The CFTC notice says a registered exchange may list only contracts that are not readily open to manipulation, must enforce the contract terms and must monitor activity on its market.
These contracts are now far more common. Exchanges certified about 1,600 event contracts in 2025, up from an average of about five a year from 2006 to 2020, the CFTC notice says. They cover financial indices, economic data, weather, political events and sports, among other subjects.
Insurance has a different regulator. In the US, states regulate insurance, and the National Association of Insurance Commissioners supports that state-based system. For how the two compare, see Is an event contract the same as insurance?
What happens to the upfront cost?
You pay for protection up front. If the agreed event doesn’t happen, the contract doesn’t pay out, and the upfront cost isn’t returned. You paid for protection you didn’t end up needing.
If the agreed event happens, the contract pays out under its terms. The upfront cost is still spent, so what the business gains is the payout less that cost. The worked example below shows both outcomes.
With Crux, you see the upfront cost before you approve anything.
How can a business use one?
A business uses an event contract to offset a cost it can’t control. The agreed event is one that tends to happen when the cost hits. If the event happens, the payout helps cover the cost. Reuters reported in August 2026 that some US small businesses use event contracts this way, for risks such as a change in labor law, rising freight costs and promotion refunds.
Crux protects against three kinds of risk:
- Input costs. Protection follows a widely published price, such as metals, fuel, natural gas or power, not each supplier invoice. Tariff protection is tied to a defined policy outcome, such as an agreed duty rate taking effect by an agreed date, rather than a published price. It pays under those agreed terms, not on each customs bill. See input costs and How can my business protect its margins from tariff increases?
- Weather. Protection follows measured rainfall, snowfall or temperature at an agreed local weather station over agreed dates. The payout follows the agreed weather measurement. There are no loss adjusters. See weather and How can a seasonal business protect its revenue from bad weather?
- Promotions. You offer customers a refund if an agreed outcome happens, such as your team winning the title. Your business honors the offer, as with any promotion. If the agreed outcome happens, the contract pays your business under the agreed terms. Crux sets up and brokers the contract. See promotions and How do I run a “money back if the team wins” promotion without taking the risk?
You tell us what could hurt the business. We set up the protection and show you the terms and price. You approve it through an account in your business’s name that we help you open. A business can also buy event contracts itself on an exchange. For both routes and their limits, see Can a small business hedge real risks with prediction markets?
A worked example
Make the offer that fills the store. Promise customers their money back if your team wins the title. A contract payout covers the refunds.
| If the team | Contract payout | What it means |
|---|---|---|
| Doesn’t win | $0 | No refunds are due. The $80,000 protection cost still applies. |
| Wins the title | $1,000,000 | The contract payout covers your customer refunds. |
Protection cost: $80,000 upfront
Illustrative example. Terms and pricing agreed upfront.
What are the limits?
- If the agreed event doesn’t happen, the contract doesn’t pay out, and the upfront cost isn’t returned.
- The agreed event may not match your actual loss. A contract pays on the measured outcome, not on your own costs or sales. This gap is called basis risk.
- The payout follows the contract terms and the agreed measurement source, such as a published price or a named weather station.
- Not every risk has an agreed event that fits it. Tell us what could hurt the business and we’ll confirm what we can protect.
- Each contract covers one event over agreed dates. It doesn’t renew on its own.
- Settlement can take time after the event, for example while the agreed data source publishes its result.
When is Crux not a fit?
- Your risk is damage to property or equipment, such as a fire. Property and business interruption insurance pay for covered physical loss.
- You need a payout that matches the loss you can document. Indemnity insurance pays based on the covered loss you prove.
- The risk has no clear, measurable event, such as a slow month with no single cause.
- You can pass the cost on, for example with a price-adjustment clause in your customer contracts.
Related guides
Sources
- Prediction Markets (advance notice of proposed rulemaking), Commodity Futures Trading Commission, Federal Register, March 16, 2026.
- CFTC Designates KalshiEX LLC as a Contract Market, Commodity Futures Trading Commission, November 4, 2020.
- Market Settlement, Kalshi, October 2026.
- McCarran-Ferguson Act, National Association of Insurance Commissioners, April 1, 2026.
- Prediction markets take a swing at hedging for US small businesses, Reuters, via KFGO, August 28, 2026.
This guide is general education. It is not an offer, and it is not financial, legal or tax advice. Terms, prices and availability depend on the contract.