Robinhood has launched a high-stakes legal challenge to prevent Massachusetts from shutting down prediction markets on its platform. The company filed suit in federal court against Attorney General Andrea Joy Campbell and the Massachusetts Gaming Commission, seeking both declaratory and injunctive relief. The platform provides access to event contracts, including sports-related contracts, which are executed on KalshiEx LLC, a federally regulated exchange overseen by the Commodity Futures Trading Commission (CFTC). As a registered futures commission merchant, Robinhood operates under strict federal oversight, giving it a strong legal footing.
The lawsuit comes after Massachusetts initiated legal action against Kalshi, alleging unlicensed sports wagering and specifically referencing Robinhood’s involvement. According to the state, around $1 billion in Kalshi wagers were traded through Robinhood in Q2, generating approximately $10 million in revenue for Kalshi. Robinhood contends that state attempts to regulate federally approved trading activities violate the Supremacy Clause and encroach on a field reserved for federal regulators. The company warns that without intervention, over 31,000 Massachusetts customers could face service disruptions, financial losses, and reputational harm.
This legal dispute underscores a growing national debate about the classification of prediction markets. While state regulators often categorize sports-related event contracts as gambling, Robinhood and similar platforms maintain that these are financial derivatives under federal jurisdiction. Previous federal court rulings in New Jersey and Nevada have issued injunctions in favor of Kalshi, offering a potential pathway for Robinhood.
The outcome of this case could have far-reaching implications for the regulation of prediction markets across the U.S., determining how emerging event-contract platforms operate within the complex intersection of state and federal law. As the legal landscape evolves, stakeholders in both finance and gaming are closely monitoring the developments, which may set important precedents for the rapidly growing prediction market sector.
