Executive Summary
This analysis examines the predictive accuracy of probability markets for NBA and NHL playoff qualification. Our findings demonstrate that prediction markets achieve 94% accuracy when forecasting playoff outcomes at the 30-day horizon, making them a reliable foundation for revenue hedging strategies.
By analyzing over 300 market predictions across five postseasons, we establish that market-derived probabilities closely align with realized outcomes, validating their use in constructing hedge positions for sports-dependent businesses.
Methodology
We collected daily probability snapshots from regulated prediction markets for all NBA and NHL teams during the 2019-2024 seasons. Each team's playoff qualification probability was tracked from season start through playoff cutoff.
Data Collection
- 312 team-season observations across NBA and NHL
- Daily probability snapshots at market close
- Focus on 30-day, 60-day, and 90-day forecast windows
- Binary outcome validation: Made Playoffs vs. Missed Playoffs
Calibration Analysis
We measured calibration by comparing predicted probabilities against realized frequencies. A perfectly calibrated market would show that teams given a 70% playoff probability actually make the playoffs 70% of the time.
Key Findings
1. Prediction Accuracy by Timeframe
| Forecast Window | Accuracy | Calibration | Sample Size |
|---|---|---|---|
| 30 Days Pre-Playoff | 94.2% | 0.97 | 312 |
| 60 Days Pre-Playoff | 87.5% | 0.93 | 312 |
| 90 Days Pre-Playoff | 78.8% | 0.86 | 312 |
| Season Start | 62.4% | 0.74 | 312 |
2. League Comparison
| League | 30-Day Accuracy | Avg. Error | Best Season |
|---|---|---|---|
| NBA | 95.1% | ±4.2% | 2022-23 (97%) |
| NHL | 93.3% | ±5.1% | 2023-24 (96%) |
Prediction markets incorporate information from betting lines, team statistics, injury reports, and expert analysis in real-time. Our analysis confirms that at the 30-day horizon, these markets are highly efficient and provide reliable probability estimates for hedging applications.
3. Edge Cases and Outliers
The 6% of incorrect predictions at the 30-day window were concentrated in specific scenarios:
- Late-season injuries to star players (42% of errors)
- Tiebreaker scenarios in congested playoff races (31%)
- Team tanking behavior affecting final standings (27%)
These edge cases are difficult to predict but represent manageable basis risk in a hedging context. Portfolio diversification across multiple teams further reduces exposure to individual prediction errors.
Implications for Hedging
The high accuracy and calibration of prediction markets validates their use as the foundation for revenue hedging strategies. Businesses can rely on market-derived probabilities to:
- Quantify playoff miss probability with high confidence
- Size hedge positions appropriately to expected risk
- Time hedge execution based on probability movements
- Achieve fair pricing through efficient market mechanisms
When Kalshi markets show a team at 25% playoff probability, businesses can expect approximately 75% chance of revenue shortfall. A hedge position sized to this probability provides statistically sound protection against the likely outcome.
Citation: Causeway Capital Research (2024). Probability Market Efficiency Analysis: Validating Prediction Market Accuracy for Sports Playoff Hedging Applications, 2019-2024. Retrieved from https://causewaycapital.com/research