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The arrival of Robinhood into the nascent sports event contracts market brings a competitor with brand recognition and a customer database that rivals, and perhaps surpasses, even the biggest U.S. sports-betting operators.
The popular trading platform that appeals to a younger demographic of investors than traditional brokerages announced earlier this week that it would begin offering prediction markets on the NCAA Men’s and Women’s Basketball Tournaments through a partnership with Kalshi, which has been offering similar prediction markets in the sports genre since January.
“We believe in the power of prediction markets and think they play an important role at the intersection of news, economics, politics, sports and culture,” said JB Mackenzie, Robinhood's vice president and general manager of futures and international, said in a statement. “We’re excited to offer our customers a new way to participate in prediction markets and look forward to doing so in compliance with existing regulations.”
Robinhood previously announced in January that it would offer markets on the NFL’s Super Bowl, but withdrew those plans a day later after a formal request from the U.S. federal government's Commodity Futures Trading Commission (CFTC).
According to a report by Sportico, at the time, the CFTC had yet to complete a standard risk assessment for retail brokerages introducing novel products. However, that assessment has since been completed, clearing the way for Robinhood to, at least temporarily, proceed with launching prediction markets despite an ongoing CFTC review of the genre.
In a newly published policy paper, Robinhood said that it believes sports event contracts and other prediction markets have a legitimate value that extends beyond their similarity to traditional sports betting.
“Unlike sports gambling, in which there is a ‘house’ and oddsmakers, sports event contracts are binary products traded directly between buyers and sellers in open, transparent, two-sided markets on federally regulated exchanges,” the company stated in its memo.
“Various commercial entities, including team sponsors, media outlets, and vendors, can use sports event contracts to manage risks related to team performance,” they continued.
“For example, team sponsors could hedge their risk of a team having a losing season. Consumer-focused businesses near a sports stadium may want to hedge the possibility of cancellation or lower attendance that would impact their revenue for the day.”
A Major Player
Robinhood boasts more than 25m funded customers, which they described as customers with a balance or those who have completed a transaction in the past 45 days.
By comparison, FanDuel parent company Flutter reported 14.6m average monthly players globally in the fourth quarter of 2024, while DraftKings reported 10.1m unique customers across its portfolio of brands, including Golden Nugget Online Gaming and lottery courier Jackpocket.
That customer database, along with other factors, led Morgan Stanley managing director and senior equity research analyst Stephen Grambling to be bullish on the Robinhood's prospects in a research note released last week, even before the company officially entered the prediction markets space.
“We believe Robinhood can have success in this space because of their large platform that particularly appeals to active traders, and their proven track record creating engaging user experiences,” Grambling wrote.
In addition, the Morgan Stanley analyst said Robinhood’s popularity and scale could help drive growth in sports prediction markets generally compared to smaller entities like Kalshi and Crypto.com that have been offering the sports contracts to date.
“Though there is not much data on how many people have traded event contracts across the industry, it is apparent that these contracts are not mainstream, with volumes peaking last fall driven by the 2024 U.S. presidential election,” according to Grambling's note.
“The size of Robinhood's user base coupled with their impressive marketing and promotional execution could materially popularize event contracts, accelerating overall TAM (total addressable market) growth and Robinhood's market share.”
Robinhood’s plunge into the space indicates at least some level of confidence that any future CFTC action on event contracts will be favorable toward sports prediction markets, and given the pending appointment of former Kalshi board member Brian Quintenz as chairman of the CFTC as well as the hiring of Donald Trump Jr. as a “strategic adviser” for Kalshi earlier this year, that optimism could be well-founded.
Acting CFTC chair Caroline Pham said in a recent speech to derivatives industry trade group FIA that the federal regulator is considering reopening a 2008 comment period for a concept release that helped shape the CFTC’s treatment of prediction markets and the 2010 Dodd-Frank federal legislation on prediction markets that includes language governing regulation of event contracts.
“Of the two dozen questions posed in 2008, all remain relevant today, particularly questions regarding the public interest in information aggregation and price dissemination, and the utility of information markets,” Pham said.
One of those questions posed in the 2008 document was, “what objective and readily identifiable factors, statutorily based or otherwise, could be used to distinguish event contracts that could appropriately be traded under [CFTC] oversight from transactions that may be viewed as the functional equivalent of gambling?”
The release also noted that the Commodity Exchange Act generally supersedes state and local gaming laws and asked, “what are the implications of possibly preempting state gaming laws with respect to event contracts and markets that are treated as Commission-regulated or exempted transactions?”
Pham added that a much-anticipated CFTC roundtable on prediction markets is now likely to be held at the end of April, rather than in March as originally planned.
The acting CFTC chair called that upcoming hearing “a necessary first step in order to establish a holistic regulatory framework that will both foster thriving prediction markets and protect retail customers from binary options fraud, such as deceptive and abusive marketing and sales practice”.
