Robinhood Challenges State Enforcement Over Federal Prediction Markets

Robinhood Derivatives, the derivatives division of the trading platform Robinhood, has initiated legal action against the states of New Jersey and Nevada to prevent enforcement measures related to its sports event contracts. The lawsuits, filed on August 19, 2025, assert that the states’ attempts to block the offering of such contracts violate federal preemption and contradict recent rulings favoring Kalshi, a CFTC-regulated prediction market exchange. The event contracts, which allow users to trade on the outcomes of events like sports games, operate on Kalshi’s platform and are facilitated through Robinhood’s Prediction Markets Hub.

The lawsuits highlight that both states issued warnings against Robinhood’s activities after Kalshi was permitted to operate under federal oversight. In March, Kalshi filed its own suits against Nevada and New Jersey regulators, arguing that cease-and-desist letters from the states were moot due to its CFTC licensing. Federal courts in both states have previously ruled in favor of Kalshi, halting enforcement actions. However, Robinhood claims that despite these rulings, state regulators continue to threaten enforcement against it.

Robinhood argues that if it is not allowed to offer event contracts, it would face a competitive disadvantage, particularly given its partnership with Kalshi. The company stated that it attempted to engage with both states’ regulatory bodies, including the New Jersey Division of Gaming Enforcement, to clarify the legality of its offerings after the courts ruled in Kalshi’s favor. However, it claims the regulators refused to acknowledge these rulings and failed to respond to follow-up requests for meetings. In Nevada, the Gaming Control Board reportedly warned that offering such contracts would constitute a “wilful violation” of state law.

In both lawsuits, Robinhood has requested an injunction to prevent the states from taking enforcement actions against it and has filed for temporary restraining orders. The company emphasized that its platform enables users to trade event contracts on Kalshi, treating them as commodities rather than traditional wagers. This distinction, Robinhood argues, places the contracts under federal jurisdiction and not state gambling laws.

The move reflects a broader strategy by Robinhood to expand into the prediction market space, leveraging its partnership with Kalshi to bypass traditional regulatory hurdles. Kalshi, which recently reported over $2 billion in sports-event contracts traded this year, has continued to operate despite facing legal challenges in multiple states. The company has raised significant capital and garnered political support, with its board including high-profile figures like Brian Quintenz, a Trump administration nominee for CFTC chair.

The outcome of these lawsuits could set a precedent for how state and federal authorities interact in the regulation of prediction markets. If Robinhood prevails, it could pave the way for similar platforms to expand their offerings without facing state-level enforcement. Conversely, a ruling in favor of New Jersey and Nevada could reinforce the role of states in regulating gambling-related activities, even in the context of federally licensed exchanges.

Source: [1] Robinhood Sues New Jersey, Nevada Over Event Contracts (https://cointelegraph.com/news/robinhood-sues-new-jersey-nevada-over-sports-contract-threats) [2] Robinhood Sues NJ, Nevada Over Blocked Sports Contracts (https://www.law360.com/articles/2378916/robinhood-sues-nj-nevada-over-blocked-sports-contracts)