Prediction market Robinhood has filed suit against gaming regulators in two states
The lawsuits were filed in federal court in New Jersey and Nevada
The suits argue that sports-related event contract trading is investing and not gambling
Going on the offensive, derivative trading company Robinhood has filed suit in federal court against gaming regulators in both New Jersey and Nevada.
The lawsuits are challenging sports betting cease-and-desist orders issued to Robinhood in both states. The suit is seeking immediate temporary restraining orders (TRO) and preliminary injunctions to be issued against state gaming regulators in both states.
The basis for the lawsuits is that the prediction market services offered by Robinhood are considered investment opportunities, rather than gambling, as state regulators suggest. In a bold move, Robinhood's lawyers requested that the cases be assigned to the same judges who heard similar cases involving the prediction market company Kalshi.
In each of those instances, the judges ruled in Kalshi's favor. So far, this move hasn't worked out for Robinhood. The New Jersey case remains unassigned. In Nevada, a different judge has been assigned to hear the case.
Robinhood utilizes Kalshi's platform to offer prediction market services.
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A Maryland court was offering a different opinion on prediction markets
A judge in Maryland ruled against Kalshi in a similar case, but Robinhood's lawyers argue that this case is flawed and courts shouldn't be using it as legal precedent. "Among other defects in the Maryland district court's reasoning, the court assumes, wrongly and without analysis, that sports-event contract trading is gambling, and that assumption colors the entire opinion," their brief on the Maryland ruling reads.
Companies that offer sports-event prediction market trading insist that this isn't gambling. Participants are merely trading potential outcomes, and are similar to playing the stock market. On the flip side, gambling regulators argue that sports-event trading is no different from sports betting, and this factor would mean it is gambling.
At the heart of this legal debate is also which regulator makes the rules for companies such as Robinhood and Kalshi. Regulation of these prediction market companies is done by the US Commodities Futures Trading Commission (CFTC). Lawyers for the companies argue that a state gambling regulator can't supersede federal law.
The court of public opinion has already ruled in favor of prediction markets
While the legal world is still debating the issue, the court of public opinion is already issuing its ruling. And that opinion is leaning heavily on the side of allowing prediction markets to operate in the US market.
A
survey of Robinhood users
conducted by Mizuho Americas found that 78% of the site's users want to be able to use prediction market services to conduct sports-event trading. The survey also found that two-thirds of the customers who trade with Robinhood are already betting on sports through legal and regulated sports betting sites in the US market.
In a recent earnings call, Robinhood revealed that the majority of its $1 billion in trades during the last quarter was done in the sports event market.
Prediction markets are getting ready for football season
Ignoring the machinations of ongoing court proceedings, prediction market services are going full steam ahead. With the NFL preseason underway and the college football season just around the corner, both Kalshi and Robinhood are ramping up their coverage of both leagues.
“Our event contracts, including those for pro and college football, are offered in a compliant, federally regulated way through our CFTC registered Futures Commission Merchant, Robinhood Derivatives. This is a decisive step forward in our mission to democratize finance for all and unlock even more innovative market opportunities for investors," Robinhood said in a statement.”
This week, Robinhood launched NFL and college football prediction markets directly on the Robinhood app.
“Football is far and away the most popular sport in America,” JB Mackenzie, VP & GM of Futures and International at Robinhood, said in a statement. “Adding pro and college football to our prediction markets hub is a no-brainer for us as we aim to make Robinhood a one-stop shop for all your investing and trading needs.”
Meanwhile, Kalshi has posted self-certifications with the CFTC for markets featuring point spreads, total points, and touchdown props.
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