With the NCAA men’s basketball tournament final four set, the fight between state sports betting regulators and federally-regulated prediction market platforms is heating up. On Monday, Ohio became the third state to send a cease-and-desist letter, this time to Kalshi, Robinhood, and also Crypto.com, for offering sports contracts unapproved by Ohio gaming regulators. The move follows in the wake of similar letters from Nevada and New Jersey sports betting regulators.
While Robinhood so far appears to be playing ball, Kalshi is maintaining its go-to strategy to take the battle to the court of law.
Kalshi plays offense against state regulators
Nevada was the first to send a C&D letter to Kalshi on March 4, and New Jersey regulators followed on March 27 with a letter asking Kalshi and Robinhood to “stop offering any form of sports wagering to New Jersey residents and void any such wagers already placed,” as first reported by Dustin Gouker via Substack.
Robinhood, which just recently began offering Kalshi sports event contracts for March Madness on its platform, is deferring to the latter to fight the legal battles intended to keep sports futures markets in all 50 states. Last Friday, Kalshi filed suit against both Nevada’s and New Jersey’s regulators in defense of its legal standing to offer sports event contracts, which are regulated by the federal Commodity and Futures Trading Commission (CFTC) – not the states, Kalshi argues.
“As promised, Kalshi will keep fighting for the right of prediction markets to thrive,” Kalshi co-founder Tarek Mansour said on Twitter after his company filed suit.
It’s not the first time the company has defended their right to offer future event contracts in the U.S. The CFTC rejected Kalshi’s first attempt to list election contracts for the 2022 midterms. Kalshi responded by suing the CFTC in November 2023 and listed event contracts after they won their case in October 2024.
One could say Kalshi’s success to date is partially tied to their litigation efforts, so it’s unsurprising to see them embrace that tactic once again here.
Robinhood retreats
Meanwhile, Robinhood continues its more conservative, defensive strategy, swiftly pulling its March Madness markets from both Nevada and New Jersey ahead of the March 28 deadline provided by the NJ Department of Gaming Enforcement. It’s not the first time Robinhood has offered prediction markets and quickly backtracked. Back in early February, the financial platform announced it was partnering with Kalshi to offer event contracts for the Super Bowl, but it took the markets down at the request of the CFTC.
These varying approaches reveal key differences in the companies’ risk tolerances. It could also have a lot to do with the fact that Robinhood has had its share of regulatory scrutiny, and would prefer to avoid any future reputational damage or continued regulatory heat. Just earlier this month, Massachusetts Secretary of State Bill Galvin told Reuters his office was launching a probe into Robinhood’s March Madness prediction markets offering.
As opposed to Kalshi, Robinhood’s experience with lawsuits has been as a defendant either settling lawsuits or paying large fines for technical issues on its platform. That includes settling a wrongful death lawsuit when a 20-year-old killed himself after his Robinhood balance showed negative $730,000. Robinhood also faced class action lawsuits for pausing trading on Gamestop and another for its Deposit Sweep program.
On March 7, Robinhood had to pay $3.75 million to its customers, in addition to $26 million in other fines. These fines came from changing some market orders to limit orders, reducing customers’ payout prices. Other fines came from Robinhood’s anti-money laundering and clearing house technology failing to meet industry standards.
What happens next?
Ohio’s entry into the states’ fight against Kalshi and sports prediction markets suggests a likelihood that other gaming regulators with robust sports betting markets will follow. Or they could wait and see how the current Kalshi litigation plays out.
The question remains of whether state regulators have the authority to outlaw Kalshi’s sports prediction markets. Mansour said the following about Nevada and New Jersey on X (Twitter):
“While they are not our regulators, both states have issued cease and desist orders that fundamentally misunderstand prediction markets and undermine the foundation of U.S. financial markets, which are regulated by the federal government.”
Regardless, the fight between state gaming regulators and federal prediction markets is escalating quickly in advance of an anticipated CFTC roundtable on the subject, expected to take place around the end of April. Whether the courts will validate state regulators’ positions – or Kalshi prevails in this round – remains to be seen. But the CFTC may just weigh in on the matter before we get a definitive ruling.
