Are sports prediction markets betting or investing? Two new Robinhood lawsuits could define how they are regulated going forward 

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Leo Schwartz is a senior

We may be four years removed from the meme stock mania of 2020, but the line between investing and gambling has never been more blurred. This time around, the culprit isn’t stocks like GameStop or even crypto sh*tcoins like the beloved Fartcoin, but prediction markets. 

Those carefully tracking the presidential odds of the 2024 election might have thought that Polymarket and Kalshi would recede into the shadows after November, ready to emerge again in four years like a cash-crazed groundhog. And to some degree, they would have been right—app downloads have plummeted for both platforms. But as the offshore Polymarket plots its re-entry into the U.S. under (ahem) more favorable regulatory conditions, Kalshi is trying to rewrite regulations altogether. 

Sequoia-backed Kalshi triumphed in its first battle last fall when it won a court case against its regulator, the Commodity Futures Trading Commission, that allowed the platform to offer political-based event contracts. Kalshi argued the instruments were no different than any other type of future. Traders are allowed to hedge against price swings in commodities like oil and wheat. Why not elections? 

After November, emboldened

Not everyone agreed. After expanding its burgeoning sports business through a partnership with Robinhood, the two platforms received cease-and-desist letters from the New Jersey and Nevada governments, who weren’t amused

The argument is a fascinating one (and, it should go without saying, steeped in language about “democratizing finance.”) The difference boils down to who sets the prices: users or the sportsbooks themselves. Kalshi operates like a traditional financial market, with the cost of contracts dictated

Robinhood’s lawyers haven’t swayed everyone. On Wednesday, the day after Robinhood filed its lawsuits, the Wisconsin Ho-Chunk Nation fired off one of its own, seeking to block Robinhood from offering the product on its land. They argued that because of Robinhood and Kalshi’s new offering, 18-year-old high school students could place bets on their phones on the outcome of “virtually every sporting event occurring across the globe,” and without any regulatory input

The mounting legal showdown will shape and stretch the bounds of investing. Just look at the new partnership between the financial giant CME Group and the sports betting platform FanDuel, also announced last week, to offer their own event contracts. The financial regulatory approach of the Trump administration has been to endow Americans with the inalienable right to lose their money however they want, with little interference. But as Bloomberg detailed in a terrific piece last week, the CFTC—which is increasingly tasked with overseeing these new products—is in turmoil as Trump’s nominee (and Kalshi board member) is stuck in limbo. Sadly, there isn’t a betting market on whether he’ll be confirmed.

Leo SchwartzX: : leo.schwartz.com

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