Robinhood Sues States to Turn Sports Bets Into Wall Street Trades

The lines between the gamification of money and the monetization of gaming are increasingly blurring.

At the heart of this blurring lies a fundamental tension: Are sports prediction markets better viewed as financial investments, e.g. derivatives regulated by the Commodity Futures Trading Commission’s (CFTC), or as gambling needing state-level regulation?

Last week, Robinhood, the retail brokerage synonymous with democratized investing, put itself at the center of this high-stakes regulatory fight by suing regulators in Nevada and New Jersey. The trading platform’s lawsuits are geared toward, in essence, forcing a national debate around whether prediction markets are regulated financial products, or simply sports betting dressed in FinTech branding.

The clash mirrors larger debates over how innovation in FinTech and wagering disrupts legacy regulatory frameworks and comes just as event-based contracts start to gain traction in mainstream finance.

Platforms like Kalshi have notched earlier legal victories affirming the CFTC’s authority over these instruments, while incumbents like FanDuel and CME Group are entering with their own partnerships.

Robinhood, echoing the rival prediction market Kalshi, staunchly asserts that its event contracts are regulated by federal law. CEO Vlad Tenev, in an interview earlier this year, characterized prediction markets as distinct from gambling with societal value, though he acknowledged the regulatory gray zone.

Nevada and New Jersey, both with entrenched gambling regulatory regimes, argue that event contracts tied to sports outcomes are functionally indistinguishable from sports betting. They claim jurisdiction on consumer protection and market-integrity grounds, countering that these contracts look like sports bets: the underlying asset is the outcome of a game, not a financial instrument, and the argument is that they should be treated as such.

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Robinhood’s move both underscores the sector’s momentum and highlights the unresolved tension between state gambling laws and federal commodities regulation. Many market participants are of the view that, if prediction contracts eventually gain federal protection, regulated sportsbooks could pivot to offering similar models under CFTC oversight.

The timing is no accident. The U.S. sports betting market is already projected to grow to $33 billion by 2030. But the patchwork of state-level licensing creates high barriers to entry. Event contracts, by contrast, require only a single federal license, creating efficiencies that betting operators can’t match.

The outcome of these lawsuits may thus reshape the business models of the broader sports wagering industry, shifting regulatory power from states to federal agencies, and perhaps laying the groundwork for a new class of trading products centered on event outcomes. 

That’s why for Robinhood, event contracts are not a sideshow. They represent both a diversification play and a cultural pivot. The company announced March 17 that it added a prediction markets hub to its app, allowing users to trade on the outcomes of events and quickly rack up large volumes in trades.

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The clash between federal and state authority is not new. Gambling has long been governed at the state level, while securities and commodities fall under federal oversight. Event contracts straddle the line, forcing regulators to decide which framework applies.

So far, courts have leaned toward treating event contracts as commodities. But political and public opinion remain unsettled, particularly when the outcomes involve sports or elections.

For their own part, event contracts blur the boundaries between speculation, hedging and pure betting. They function like binary options, paying out $1 if an event occurs, $0 if not, and prices fluctuate between these poles, creating a liquid secondary market.

Unlike sportsbooks that set odds, event contracts let firms earn via transaction volume and spreads. This model is scalable and less capital-intensive.

State regulators maintain that prediction markets, even when structured as financial contracts, effectively function as gambling, falling under state-specific wagering statutes. New Jersey, for example, bans betting on certain in‑state college sports and requires licensed operators to conduct sports wagering. Robinhood and Kalshi have both been ordered to stop certain event contracts targeting New Jersey residents.

The fight ultimately exemplifies a broader FinTech truth: firms must continuously reinvent product portfolios to retain customer stickiness. Event contracts may prove either the next growth engine or a costly regulatory distraction. 

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