Robinhood Faces Massachusetts Probe Over College Sports Betting Hub

Massachusetts regulators have launched an investigation into Robinhood, focusing on the company's recent introduction of a prediction markets hub. This platform allows users to place bets on various outcomes, including March Madness college basketball games. The probe was initiated by a subpoena issued by Secretary of the Commonwealth of Massachusetts Bill Galvin on March 20. The subpoena seeks information about Massachusetts residents who have requested to bet on college sports through the platform, as well as internal communications related to the hub's launch. The deadline for Robinhood to provide this information is April 3.

The prediction markets hub, launched by Robinhood on March 17, enables users to buy and trade financial contracts tied to the outcomes of specific events. These events range from basketball games in the NCAA tournaments to the Federal Reserve's interest rate decisions. The hub is offered in the US through Kalshi, an exchange for prediction markets regulated by the Commodity Futures Trading Commission (CFTC).

Galvin expressed concern that Robinhood is linking a gambling event to a popular sports event, which is particularly appealing to young people, and tying it to a brokerage account. He criticized the move as a gimmick to lure investors away from sound investing practices. Robinhood, however, maintains that the event contracts offered through its prediction markets hub are regulated by the CFTC and provided through CFTC-registered entities. The company also emphasized the relevance of prediction markets for both retail and institutional investors, asserting that it offers these products in a safe and regulated manner.

This is not the first time Galvin has investigated Robinhood. In January 2024, the company settled complaints brought by Galvin in 2020 and 2021, paying $7.5 million. These complaints were related to Robinhood's practices, including strategies to encourage users to trade. The latest probe comes just a month after Robinhood scrapped plans to allow users to bet on the outcome of the Super Bowl, following a request from the CFTC. The CFTC had completed a review of Robinhood's risk management procedures and controls applicable to sports-related event contracts, finding no legal justification to prevent the company from offering access to these contracts, which are listed on a CFTC-registered exchange.

Event contracts are agreements that allow users to bet on the outcome of essentially anything, from sports games to election outcomes and the price of cryptocurrencies. These contracts have gained popularity on platforms like Kalshi and have drawn the attention of regulators. The Massachusetts probe also requested Robinhood to hand over internal communications about the decision to roll out the recent college basketball events contracts after the CFTC's request to stop the Super Bowl contracts. The CFTC also reportedly asked Kalshi and Crypto.com early last month to explain how both of their Super Bowl event contracts complied with derivatives regulations.