Robinhood rolls out prediction markets with sports contracts
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Robinhood, the mass market trading app, rolled out a prediction markets hub within its app Monday, offering contracts on events ranging from financial policy outcomes to sports results.
Why it matters: Prediction markets are very much a live legal and regulatory issue in the U.S., still under debate at the federal level with some markets forbidden under state laws.
Robinhood's offering is being made available initially though Kalshi, a U.S. regulated exchange, which won the right in 2024 to legally offer election-related contracts.
The intrigue: Robinhood said its hub will open with markets on the men's and women's college basketball tournaments, which open later this week.
- This comes just a month after the company shelved the rollout of another sports-based contract for the Super Bowl — also offered through Kalshi — citing pushback from the Commodity Futures Trading Commission.
- The CFTC, which regulates derivatives markets, was reportedly investigating whether those markets fall into the category of gaming, which could land them in an area regulated by states.
Zoom in: So far, most states have legalized sports betting, but not quite all of them: 11 have not, including giants Texas and California.
Robinhood said Monday it has "been in close contact with the CFTC over the past several weeks" and intends to continue working with the regulator to "promote innovation in the futures, derivatives and crypto markets."
The big picture: Proponents of prediction markets contend they can give entrepreneurs and the public insight on what people really believe about important upcoming events (such as upcoming developments in business or policy).
- The theory is that predictions made with money on the line are more credible and more likely to reflect real knowledge.
- Election and sports markets, however, have drawn particular scrutiny.
Brady's thought bubble: Lawyers can go around and around in court on terms and market structures — bets placed against "the house" vs. traders setting a market — but to the man on the street, trading on the outcome of sports or elections is difficult to distinguish from gambling.
Zoom out: Polymarket is largely responsible for making prediction markets a going concern at scale in the U.S.
- The blockchain-based market cut a deal with the CFTC in 2022 to serve customers outside the U.S. It has since become the biggest market for events-based contracts.
- Polymarket surged to billions-per-month in volume during the election, but it's still doing hundreds of millions these days, mostly in sports. It's generally understood that many U.S. users are finding ways to use it.
- Kalshi then took the issue to court in the U.S. and won (an appeal is pending). That win opened up the market for lots of participants.
What we're watching: The Trump-era CFTC is looking at its approach to prediction markets right now, with an as yet unscheduled roundtable on prediction markets to come.
