Robinhood faces Massachusetts probe over March Madness betting hub
Massachusetts regulators have launched an investigation into Robinhood’s (NASDAQ: HOOD) recently launched prediction markets, which allow users to bet on outcomes of real-world events, including the ongoing NCAA March Madness basketball tournaments. The inquiry, led by Massachusetts Secretary of State Bill Galvin, seeks to determine whether the platform is improperly merging brokerage services with gambling-like financial contracts.
Galvin, a vocal critic of Robinhood’s business practices, expressed concerns about the company’s strategy, stating that linking betting markets to brokerage accounts creates risks, especially for younger users. “This is just another gimmick from a company that’s very good at gimmicks to lure investors away from sound investing,” he told Reuters.
The Massachusetts Securities Division issued a subpoena to Robinhood on 20 March 2025, demanding details about the number of state residents who have accessed or attempted to trade event contracts related to college basketball. Additionally, it seeks internal communications about Robinhood’s decision to proceed with these offerings despite previous scrutiny from the U.S. Commodity Futures Trading Commission (CFTC). Robinhood has until 3 April 2025 to respond.
Rise of prediction markets
Robinhood’s prediction markets hub, launched on 17 March 2025, allows users to buy financial contracts based on event outcomes, ranging from sports to Federal Reserve policy decisions. These contracts function similarly to wagers, offering payouts depending on the accuracy of users’ predictions.
The contracts are offered through KalshiEX, a CFTC-registered derivatives trading platform that has been working to integrate prediction markets into the mainstream financial ecosystem. Kalshi has previously attracted regulatory scrutiny for its attempts to introduce betting markets on political events, including U.S. elections.
Kalshi’s collaboration with Robinhood marks the first time event-based contracts are being made widely available across all 50 U.S. states. According to Kalshi, nearly $195 million in contracts were placed on men’s NCAA tournament games by 24 March, while women’s tournament games saw $12.8 million in contract volume.
Regulatory and legal concerns
Critics argue that Robinhood’s initiative blurs the line between investing and gambling. Galvin’s office has expressed particular concern that associating financial contracts with a popular sports event, particularly one favoured by younger audiences, could mislead users about the nature of these trades.
“This is betting under the guise of investing,” Galvin asserted, adding that Robinhood has a history of gamifying financial activities to increase user engagement. His office has previously taken enforcement actions against the brokerage for encouraging risky trading behaviour among retail investors. In January 2024, Robinhood paid $7.5 million to settle claims related to such practices and a 2021 data security breach.
Robinhood, in response to the Massachusetts probe, defended its new product, stressing that event contracts are legal and regulated by the CFTC. “Prediction markets have become increasingly relevant for retail and institutional investors alike, and we’re proud to be one of the first platforms to offer these products to retail customers in a safe and regulated manner,” a company spokesperson said.
Broader debate over financial markets and gambling
The controversy surrounding Robinhood’s prediction markets is part of a larger debate over the role of event-based trading in financial markets. In October 2024, a federal appeals court ruled in favour of Kalshi’s ability to offer election-related event contracts, setting a precedent for their legal legitimacy.
Despite this, the CFTC has remained cautious. In February, Robinhood scrapped plans to offer Super Bowl-related event contracts after the regulator raised concerns. However, the CFTC later stated that it had “no legal justification to prevent Robinhood from offering access to these contracts” related to March Madness.
Adding to the regulatory complexities, former CFTC Commissioner Brian Quintenz, a Trump administration appointee, has served on Kalshi’s board, while Donald Trump Jr. acts as a strategic adviser to the company. These ties have raised questions about potential political influences on the regulator’s stance toward event markets.
Major players eye prediction market
The rise of prediction markets has also caught the attention of major players in the sports betting and gambling industries. DraftKings and Flutter Entertainment (the parent company of FanDuel), two of the largest betting platforms, have weighed in on the trend.
DraftKings’ CEO has expressed interest in the growth potential of event contracts, while Flutter Entertainment has been cautious, citing concerns over the regulatory landscape and potential misclassification of financial instruments as gambling products.
The expansion of prediction markets comes at a time when regulators worldwide are grappling with how to classify and oversee these new financial tools. Some jurisdictions have embraced them as legitimate investment vehicles, while others have sought to restrict or regulate them under gambling laws.
