Recent findings from Gambling Insider suggest that fans of Kalshi's penny parlays may be losing money at an alarming rate. The research indicates that as the odds lengthen and the bet amount decreases, the losses become significantly greater.
Data from Kalshi reveals that participants in multi-leg bets experience losses that correlate closely with the odds and the size of their stake. Bettors who purchase combinations priced under 2 cents are losing 92 cents for every dollar wagered. In comparison, those betting less than $5 are losing three to five times more per dollar than those placing bets of $100 or more.
Essentially, the least expensive tickets available on Kalshi turn out to be the most costly bets in the United States. This situation may contribute to state regulators' ongoing efforts to shield their residents from what they consider to be illegal gambling practices associated with Kalshi.
An analysis covering approximately 325,000 individual parlay purchases on the platform shows that the amount lost per dollar staked is primarily influenced by two factors visible when the bettor confirms their wager: the odds they select and the size of their stake.
The analysis focused on every “taker” fill in the multi-leg combo markets that concluded over a four-day period in late July.
For those purchasing combos priced below 2 cents, which imply odds of less than one in fifty—often marketed as “lottery tickets”—the recovery was a mere 8 cents for every dollar staked.
Combos priced between 2 and 10 cents resulted in losses of about half the amount wagered. Conversely, combos priced between 35 and 50 cents—typically near coin-flip odds—only resulted in a loss of 2 cents per dollar, indicating a more fairly priced product.
A similar trend is observed when analyzing the stakes rather than the odds. Bets under $1 lost 88 cents per dollar, while those between $1 and $5 lost 75 cents. In stark contrast, stakes of $100 or more, regardless of whether it was $100 or $10,000, resulted in a loss of only 16 cents.
The relationship between stake size and odds is significant: smaller bettors predominantly opt for longer odds.
Is Kalshi taking advantage of the 'favorite-longshot bias'? According to Kalshi's own data, over half of all combo contracts traded this year—19.7 billion out of 38 billion, or 51.8 percent—were purchased at less than 2 cents in implied probability. However, these contracts represent only 1.4 percent of the total dollars wagered: $43 million out of $3.19 billion.
This segment of the market is inherently linked to small-stakes betting. The loss rate for buyers of Kalshi's sub-2-cent combos is 92 cents, significantly higher than the 19-21 cents hold by sportsbooks and more than double the approximately 42.5 cents reported by state lotteries.
It’s important to note that state filings do not categorize sportsbook parlays by odds, so the long-shot slips from sportsbooks could be equally harsh. The actual figures remain undisclosed, as there are no requirements for transparency. Kalshi's revenue model is based on fees rather than hold.
Gambling Insider calculated the sportsbooks' hold percentages from official filings in New Jersey and Maryland.
Kalshi’s transparent data allows for visibility into these figures; based on available evidence, no legal gambling product in the U.S. with published loss rates extracts more from players than the penny parlay.
This situation is not a mere coincidence or a pricing error on individual bets. It exemplifies the well-documented phenomenon known as the 'favorite-longshot bias.'
This bias, commonly observed in racetrack and lottery data, demonstrates that bettors tend to overpay for low-probability large payouts while undervaluing high-probability favorites.
Here, we see this bias operating on an industrial scale within a federally regulated exchange, featuring a product that emerged just ten months ago and now trades over $1 billion monthly.
Kalshi's app prominently displays multi-leg combos at the top of its sports page, ahead of traditional single-outcome markets, with these combos primarily based on sports events.