Robinhood Markets (NASDAQ: HOOD) is facing an inquiry from Massachusetts regulators regarding its recently launched event contracts tied to NCAA basketball tournaments.
As of now, the Massachusetts Securities Division has not taken formal action against Robinhood. However, Secretary of State William Galvin expressed concerns to Reuters about the company potentially blurring the line between investing and sports betting.
In response, Robinhood emphasized that its event contracts are regulated by the Commodities Futures Trading Commission (CFTC). The company also noted that prediction markets are gaining popularity among both retail and professional traders.
A Tough Opponent in Galvin
While the full scope of Massachusetts’ inquiry remains uncertain, Galvin has built a reputation as one of the most vigilant state-level securities regulators.
Last November, reports suggested that his office was investigating the interest rates brokerage firms offer on cash sweeps—non-invested cash in customer accounts—amid concerns that financial services companies were shortchanging clients. Additionally, in June, Galvin launched an inquiry into the trading activities of Keith Gill, also known as “Roaring Kitty,” a key figure behind the GameStop (NYSE: GME) stock surge.
Galvin, now in his eighth term as secretary of the commonwealth, has raised concerns about the appeal of Robinhood’s event contracts to younger investors, a demographic already heavily engaged in sports betting.
Robinhood’s customer base skews young and financially active—80% earn between $50K and $100K or more annually, and 75% are millennials or Gen Z. Additionally, 60% are men, making them a key target market for sportsbook operators.
State-Level Crackdown on Event Contracts
While the CFTC oversees Robinhood’s event contracts, meaning the firm can offer them nationwide, state regulators are beginning to push back.
In addition to Massachusetts’ inquiry, the Nevada Gaming Control Board (NGCB) recently ordered prediction market operator Kalshi to cease operations in the state, though a temporary extension was later granted.
Gaming industry leaders have taken note of the regulatory disparities. Unlike financial firms offering event contracts, sportsbooks operate under stricter state regulations. Some major players, including Boston-based DraftKings (NASDAQ: DKNG), are exploring opportunities to enter the event contract space.
With the CFTC planning a roundtable discussion on event contracts, further regulatory clarity could be on the horizon. However, as state-level scrutiny grows, Robinhood and other market participants may face increasing legal and regulatory challenges.
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