Written By: Matthew H. Benson
On August 19, 2025, Robinhood filed a complaint in the United States District Court for the District of Nevada. It is seeking a permanent injunction and declaratory relief against the Nevada Gaming Commission and its members after the Nevada Gaming Control Board sent KalshiEX (“Kalshi”), a predictive futures market exchange, a cease-and-desist letter to halt sports-related contract trading. The Board believes Nevada state gaming laws govern these transactions.
Kalshi recently received similar letters from many other states and has taken some to court, including the New Jersey Division of Gaming Enforcement and its members. Robinhood gives its users access to Kalshi’s prediction market platform through its Prediction Market Hub. Robinhood believes that offering these contracts does not violate state gaming laws because they are more similar to financial trading, subject to federal authority and its rules on futures trading, rather than state or local regulations.
The central question is: are predictive sports contracts more like sports gambling or futures trading? The answer to this question will impact governing authority and jurisdiction, oversight, regulation, consumer protection, and tax reporting.
What are Sports Related Event Contracts, and How do they Work?
Sports related event contracts are derivatives where customers can buy or sell based on the occurrence of future events (or lack thereof). The events are binary, so buyers believe something will happen, and sellers believe it will not. When the binary event either happens or fails to happen, those who were correct are paid.
In the sports context, one can purchase a contract on their favorite team to beat their opponent, which may sound like sports gambling. However, Robinhood and Kalshi argue that sports related event contracts on predictive market platforms act more like financial markets because the cost of a contract is based on a value influenced by those buying and selling positions. This differs from sportsbooks that have their odds set internally, and typically prohibit users from entering and exiting positions.
Who are the Players and How did this Start?
Robinhood is a multi-billion-dollar financial services company, that gained notoriety for uniquely providing its customers with a trading platform offering commission-free trades, appealing to a large portion of retail investors. It was also known for being the platform caught up with the GameStop short squeeze and “meme-stock” craze. Kalshi is a predictive market exchange for event contracts, regulated by the Commodity Futures Trading Commission (“CFTC”), where users can buy or sell futures contracts ranging from political elections to future CEOs of large companies, and now sporting events. Robinhood allows its users the ability to buy and sell these contracts on Kalshi’s platform.
The opposing players are State Gaming Commissions and Native American Tribes, who believe that sports related event contracts provided on these platforms are similar to sports gambling, and subject to state, not federal law. They, therefore, must register with the state, abide by its regulations, and pay state taxes. An added layer of complexity is introduced now that
Kalshi operates in states that have not legalized sports betting or gambling. Opposing parties argue that these platforms are a workaround the current regulations and taxes.
The landscape of sports betting changed after the 2018 Murphy v. NCAA decision, where the Supreme Court struck down an act preventing states from legalizing sports betting. Since then, there has been a significant shift with states legalizing gambling and sports betting, usually with age requirements and other regulations. Now, states generate large tax revenues from sportsbooks and gambling.
Predictive markets date back over twenty years, but there was a breakthrough in June 2023. Kalshi tried to provide certified political event contracts pursuant to requirements of the Commodity Exchange Act (“CEA”). When it was denied, it sued the CFTC in the United States District Court for the District of Columbia, which found that these contracts were allowed under the CEA, or federal law. The CFTC immediately appealed but moved to drop the appeal in early May this year.
The Recent Escalation
Following Kalshi’s initial victory in court and their subsequent announcement offering markets on sporting events, the space has seen an influx of investors. Kalshi received an investment from the CEO of Citadel Securities. Other large market platforms, like Interactive Brokers, have developed its own internal contract prediction market. Two weeks ago, FanDuel, one of the country’s largest sportsbooks, announced it would be launching its predictive market platform under the Chicago Mercantile Exchange (“CME”), known for its futures exchanges. This move has implications for future competition in the space and relationships with Tribes and state authorities.
The answer to whether these predictive sports markets should be regulated by state or federal law will likely be answered, at least in part, by the current cases involving the Gaming Commissions, Native American Tribes, Kalshi, and Robinhood. In its most recent case, Robinhood received a letter that the Nevada Gaming Control Board would consider Nevada customers participating in sports related event contracts to be in violation of Nevada Law. Nonetheless, it has continued to allow its Nevada users’ access to sports contract trading.
Kalshi has won preliminary relief in its lawsuits with the Nevada and New Jersey Gaming Commissions. The courts have found that “Kalshi demonstrated a likelihood of success on the merits concerning its argument that Nevada law is preempted, that it will likely suffer irreparable harm without relief, and that the balance of interests favor injunction.” Robinhood has argued that it should be able to offer the sports contracts through Kalshi’s exchange for as long as that order is in place.
So, are predictive sports contracts sports gambling, or futures trading? With the litany of recent litigation and the binary nature of these lawsuits, answers are forthcoming, but the outcome is uncertain. Who knows, maybe you can bet on it.
Sources
Gambling or investing? In America, the line is increasingly blurred, The Economist: One Big Casino (Aug. 28, 2025), https://www.economist.com/finance-and-economics/2025/08/28/gambling-or-investing-in-america-the-line-is-increasingly-blurred.
Complaint, Ho-Chunk Nation v. Kalshi Inc, 3:25-cv-00698, (W.D. Wisc.)(Aug. 20, 2025), https://storage.courtlistener.com/recap/gov.uscourts.wiwd.55038/gov.uscourts.wiwd.55038.1.0.pdf.
Compliant, Robinhood Derivatives, LLC v. Dreitzer, 2:25-cv-01541, (D. Nev.) (Aug. 19, 2025), https://storage.courtlistener.com/recap/gov.uscourts.nvd.176389/gov.uscourts.nvd.176389.1.0_2.pdf.
Matthew Kulkin and Alexandrea Rahill, Wilmer Cutler Pickering Hale and Dorr LLP, CFTC Regulation of Binary Event Contracts: A History (Apr. 25, 2025), https://www.wilmerhale.com/en/insights/publications/20250430-cftc-regulation-of-binary-event-contracts-a-history.
Andrew Dulberg et al., Legal Developments in the Gaming Industry: First Half of 2025, Wilmer Cutler Pickering Hale and Dorr LLP (Jul. 18, 2025), https://www.wilmerhale.com/en/insights/client-alerts/20250718-legal-developments-in-the-gaming-industry-first-half-of-2025 – :~:text=3.,college athletics in the state.
Leo Schwartz, Are sports prediction markets betting or investing? Two new Robinhood lawsuits could define how they are regulated going forward, Fortune (August 25, 2025, 6:39 AM), https://fortune.com/2025/08/25/robinhood-kalshi-sports-gambling-betting-prediction-markets-lawsuits/.
David Purdum & Shwetha Surendran, How Kalshi and Prediction Markets are Disrupting Sports Betting, ESPN (June 2, 2025, 7:45 AM), https://www.espn.com/espn/betting/story/_/id/45377686/kalshi-prediction-markets-disrupt-sports-betting
Laura Matthews & Chris Prentice, CFTC moves to drop appeal in Kalshi’s event contracts case, Reuters (May 5, 2025, 5:54 PM), https://www.reuters.com/markets/commodities/cftc-moves-drop-appeal-kalshis-event-contracts-case-2025-05-05/