What would you do if there was a 1-in-5 chance that the government would ban the company you worked for next year?
According to a post shared in TikTok’s Bytedance Lounge, one TikTok employee concerned about the company’s future took matters into their own hands. The unverified employee bet a “large chunk” of their signing bonus that the U.S. will ban TikTok by May 2025, one of many “event contracts” available on Kalshi, the first federal regulated prediction market in the U.S.
What they didn’t realize is that, by doing so, they were violating company policy, raising an ethical question that more employees and employers will have to confront as similar markets become mainstream.
So, why would one bet on losing their job in the first place?
The employee explained that they were simply hedging. In their own words: “to cover my ass in case it actually happened.”
The rationale is perfectly reasonable, as hedging risk is one of the primary use cases cited by prediction market advocates.
In a letter written to the CFTC and co-signed by four academics, including three economists, Rutgers Statistics professor Harry Crane mentions the words “hedge” or “hedging” 68 times across 27 pages.
“Plainly, event contract markets enable participants to efficiently hedge risks to one-off or non-standard events, such as elections, global events (war, terrorism, pandemic), and other catastrophic outcomes,” explains Crane. “This internal benefit of facilitating hedging produces the additional external benefit of a well-honed price signal which informs the general public about significant events in the public and national interest.”
With tensions growing between the Chinese-owned company and the Biden administration and increasing uncertainty regarding the future of the social media company’s operations in the U.S., the unnamed employee desired a more predictable world in which they would receive some type of compensation if they no longer had their job.
In April 2024, President Biden signed a “ban-or-divest” law, setting a deadline for TikTok to either sell its US operations to a non-Chinese entity or face a ban. TikTok responded with a lawsuit against the U.S. government, arguing that the ban is an overreach of executive powers and violates users’ First Amendment rights. You can find more about the conflict in our Will the U.S. Ban TikTok? Guide.
For the concerned TikTok employee, Kalshi’s TikTok Ban contracts became a proxy for severance—offering a financial safeguard for an uncertain future.
How Hedging Works
Imagine the employee’s annual salary is $100,000 and his signing bonus was $10,000, while the price of “YES” is 20 cents. If he uses half of his signing bonus — $5,000 — to purchase 25,000 YES contracts, then they would earn $20,000 (80 cents profit for every contract/share bought at 20 cents) if TikTok was banned by the date the market resolves. They also have the option of selling their positions before the market resolves.
By hedging at this price,the employee makes a calculated decision that, relative to how they perceive the probability of a ban, they prefer risking $5,000 for a $20,000 return.
Conflicts of Interest
Some may argue that a conflict of interest arises when insiders are participating in markets related to their line of work. It’s why athletes are prohibited from betting on their sports. Pete Rose’s defense was that he never bet against his own team — only on them. The TikTok employee can’t even say that.
However, there’s one major difference: the TikTok employee can’t influence the market’s outcome. Those who can are prohibited from trading in the market, per Kalshi’s trading prohibitions.
The TikTok ban is ultimately in the court’s hands, as it prepares to hear oral arguments in the case on Sept. 16. The divest-or-ban deadline is Jan. 19, 2025.
TikTok didn’t respond for comment, but the alleged incident raises broader ethical and legal questions about insider knowledge influencing prediction markets.
Soon, more companies will have to grapple with who can and can’t use prediction markets to “cover their own ass.”
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