Robinhood Takes on Connecticut in Latest Prediction Markets Battle

Robinhood is the latest prediction market to take on the Connecticut authorities over its crackdown on sports contracts at “unregulated” exchanges.

Robinhood, with the backing of its federal regulator, the Commodity Futures Trading Commission, is seeking judicial help to stop CT using state laws.

The CFTC has filed a motion for a preliminary injunction. The next steps will be taken in the U.S. District Court for the District of Connecticut.

Connecticut Orders Prediction Markets to Take Down Sports

Connecticut has been gunning for prediction markets during the past year. Last month, it won its latest skirmish after a federal judge ruled that Connecticut could apply its sports betting laws to prediction exchanges, including Kalshi and Robinhood.

Kalshi had made an emergency motion to keep operating under federal rules. Prediction markets are regulated by the CFTC as derivatives, not sportsbooks that would be subject to state rules.

However, Kalshi’s appeal failed. The ruling gave Connecticut added fire, leading to the state’s Department of Consumer Protection issuing cease-and-desist letters to a list of major prediction markets.

It’s that move, made late last week, that has led to Robinhood’s action now.

In Connecticut’s Firing Line

• Robinhood
• Polymarket
• Crypto.com
• Coinbase
• ProphetX
• Novig
• Webull
• Gemini
• Underdog Predict

Robinhood Follows Kalshi on Legal Road

The battle between the CFTC and Connecticut goes back to April. The prediction market regulator simultaneously sued Connecticut, Arizona, and Illinois after they tried to impose state laws on prediction markets.

Speaking at the time, CFTC chairman Michael S. Selig said that the commission would “continue to safeguard its exclusive regulatory authority” over prediction markets and “defend market participants” against what he described as “overzealous state regulators”.

Then in August, Connecticut sued Kalshi, citing charges of “unlawful sports betting” activities.

The charges relate specifically so sports-themed contracts, such as markets on the Super Bowl winner. “This is gambling,” was the blunt judgment of CT Attorney-General, William Tong.

Now, Robinhood is joining the fight, and there’s lots at stake. State regulators are singling out sports contracts at prediction markets which, they say, is sports betting in all but name.

States like Connecticut have spent a long time building up their regulated sports betting frameworks. CT legalized sports betting in 2021. While some regulated sportsbooks have prediction markets, or are planning to launch, many don’t. Some operators feel that the centralized model of sportsbooks is under threat.

Robinhood Drops Sports in MI Deal

Robinhood isn’t immune to complying with state threats, however. Last week, it removed its sports contracts in Michigan following an agreement between Robinhood and the Michigan Gaming Control Board (MGCB).

“We’re pleased,” said the MGCB’s Henry Williams, “[that] Robinhood has agreed to step back from offering these unregulated products while the courts continue to sort out the broader legal questions.”

While Michigan seems to have gone for the soft approach by coming to an agreement with Robinhood, Connecticut is going in harder.

Speaking last week, CT governor Ned Lamont explained that Connecticut had been “at the forefront” of taking on prediction markets and “leading the way in protecting consumers”.

“When we legalized sports wagering in 2021, the goal was to create a safe, responsibly regulated market for Connecticut consumers, not to open a free-for-all.”

The lack of consistency across federal rulings and state approaches mean the U.S. Supreme Court is even more likely to make a final regulatory decision. By next year, it could be decided once and for all who gets to regulate the very lucrative prediction markets: the federal government or the states.