MW You can now make March Madness bets on Robinhood. Will regulators allow sports contracts at more brokerages?

By Gordon Gottsegen

Regulators may be reversing their stance on sports-related event contracts

With March Madness upon us, you may see sports betting pop up in more places. But beyond the tournament brackets at your workplace and the sports betting sites like DraftKings $(DKNG)$ or FanDuel $(FLUT)$, sports betting may appear somewhere new - regulated financial markets.

Sports-related event contracts are financial derivatives that allow investors to wager money on the outcome of sporting events. Critics of these contracts think they're a regulatory workaround that allows financial companies to secure their share of the multibillion-dollar sports-betting industry. Proponents believe they are useful financial hedges that customers want.

As more companies begin to offer sports event contracts and regulators decide their stance, the fate of these contracts could be at an inflection point.

"Expansion into sports contracts is a blatant attempt to push gambling into regulated financial markets by disguising it as derivatives trading," Cantrell Dumas, director of derivative policy at advocacy group Better Markets, wrote in an email to MarketWatch.

Legal sports betting already exists in the U.S., but it's an industry with many guardrails in place and is regulated on a state-by-state basis. What concerns organizations across the sports and sports betting industries, like the American Gaming Association and Major League Baseball, is that the same laws that apply to sports betting aren't being applied to sports event contracts, which could lead to integrity issues.

But popular retail brokerage Robinhood Markets Inc. doesn't believe sports betting and sports event contracts are the same thing. On a support page it wrote, "Robinhood event contracts allow for speculation in prediction markets - these are not bets."

Also read: Betting on unknown future events may be the next big thing in hedging your investments

Robinhood (HOOD) recently announced the launch of its prediction markets hub, which allows Robinhood customers to trade event contracts through the prediction markets exchange KalshiEx. At launch, the prediction markets hub allowed Robinhood customers to trade contracts on the expected interest rate set by the Federal Reserve in May, as well as the NCAA men's and women's basketball tournaments.

While the Fed's interest-rate decisions often have a direct impact on stocks and bonds, Robinhood's event contracts for the NCAA men's and women's basketball tournaments are less directly tied to financial markets. Instead, Robinhood's basketball contracts could represent a noteworthy push into sports after a previous attempt fell through.

How March Madness event contracts work

On Kalshi and Robinhood, customers choose a prediction market representing the leg of the tournament they want to trade and pick which team they think will win. Each team has an associated cost based on the expected odds of that team winning and that contract being filled. If that team wins, the trader gets money back based on the odds and how much was wagered. If the team loses, the trader loses their investment.

On Feb. 3, Robinhood announced that it would allow customers to buy event contracts tied to the winner of the 2025 Super Bowl. But the day after the announcement, Robinhood said it received a formal request from the Commodity Futures Trading Commission (CFTC) to "not permit customers to access sports event contracts." Robinhood promptly adhered to the request from the CFTC, which is the government entity in charge of regulating event contracts and rolled back its football contracts.

"After being forced to roll back its Super Bowl contracts by the CFTC, Robinhood is now leveraging its massive retail customer base to double down on this backdoor approach despite regulatory concerns," Dumas said.

Not every brokerage that offers prediction markets offers event contracts for sports. Interactive Brokers Group Inc. $(IBKR)$ only offers event contracts tied to elections, economic indicators and government and environmental events. Investing platform began offering event contracts in February, but a Webull spokesperson told MarketWatch that these contracts would be tied to economic events or finance-focused. The spokesperson said that Webull didn't have plans to "offer sports betting."

But even if these financial companies don't currently offer sports-related event contracts, things could change if their competitors do. An example of this can be seen in the adoption of event contracts related to the 2024 U.S. presidential election. Although Kalshi was the company that initially pressured the CFTC to allow election-related contracts on its platform, other companies, including Interactive Brokers and Robinhood, began trading the contracts soon after Kalshi got the green light.

Kalshi currently offers dozens of sports-related prediction markets. Traders on Kalshi can wager money on all sorts of sports, including football, golf, hockey, racing and even esports. Kalshi is a dedicated event contract platform and doesn't offer securities trading like Robinhood or Interactive Brokers, but Kalshi is also regulated by the CFTC. This created some confusion as to why Kalshi was able to allow sports-related prediction markets, when Robinhood was asked to remove its Super Bowl contracts.

The regulatory battle

The Commodity Exchange Act prohibits financial contracts that could be deemed as "gaming" by the CFTC. But what is considered "gaming" may be a legal gray area. In May 2024, the CFTC proposed a few examples of what could be considered to be gaming, including:

Staking or risking something of value on the outcome of a political contest, an awards contest, or a game in which one or more athletes compete, or an occurrence or nonoccurrence in connection with such a contest or game. Thus, event contracts involving these illustrative examples of gaming could not be listed for trading or accepted for clearing under the proposal.

However, this proposal received legal pushback from several organizations across the financial industry, including Robinhood. In an August comment letter, Robinhood argued that the proposal's definition of gaming was too broad, and would stifle innovation. In October, courts ruled in favor of the event-contracts companies on whether or not contracts tied to political elections should be allowed. With that win under their belt, financial companies may continue to expand the types of event contracts they offer.

President Donald Trump appointed Caroline D. Pham as the acting chairman of the CFTC in January. Pham, who has served as a commissioner on the committee since 2022, announced that the CFTC would have a public roundtable on prediction markets in the coming weeks. The roundtable was announced just days after the CFTC asked Robinhood to roll back its Super Bowl contracts.

In the announcement, Pham said the roundtable would give the CFTC the chance to meet with stakeholders to inform regulation and oversight of prediction markets - specifically sports-related event contracts.

In public statements, Pham has made it seem like she supports less restrictive regulation of prediction markets.

"Unfortunately, the undue delay and anti-innovation policies of the past several years have severely restricted the CFTC's ability to pivot to common-sense regulation of prediction markets," Pham said in the roundtable announcement.

"Despite my repeated dissents and other objections since 2022, the current Commission interpretations regarding event contracts are a sinkhole of legal uncertainty and an inappropriate constraint on the new Administration," Pham wrote. "Prediction markets are an important new frontier in harnessing the power of markets to assess sentiment to determine probabilities that can bring truth to the Information Age. The CFTC must break with its past hostility to innovation and take a forward-looking approach to the possibilities of the future."

However, organizations other than financial companies also have a vested interest in sports-related event contracts and have reached out to the CFTC to voice their concerns.

One of those organizations is Major League Baseball, which penned a letter to the CFTC on March 7. In that letter, MLB's executive vice president of legal and operations, Bryan Seeley, said that MLB has been developing relationships with entities across the sports-betting world - from state regulators to legal sportsbooks - to ensure the integrity of games. This involves establishing compliance initiatives, information sharing and cooperation with league investigations into employee, umpire and player misconduct. MLB said that the same integrity framework should apply to sports event contracts if they are permitted, but right now that framework is lacking compared with legal sports betting.

The American Gaming Association also submitted a letter to the CFTC saying it has "strong concerns" about sports event contracts. The AGA, a trade group that represents the gaming and casino industry, said that these contracts "are essentially sports betting futures" that are available to a national customer base. Meanwhile, legalized sports betting isn't available in every state. The sports event contracts are also available to people 18 and older, while the minimum age for legal sports betting is 21 in many states.

"Moreover, a key tenet of the regulated industry's responsible gaming ethos is that sports betting is entertainment and not a means for financial gain," Christopher Cylke, senior vice president of government relations at the AGA, wrote in the CFTC letter. "Casting sports contracts as an investable financial product significantly undermines that message and threatens to create marketplace confusion around this important priority."

MW You can now make March Madness bets on Robinhood. Will regulators allow sports contracts at more brokerages?

By Gordon Gottsegen

Regulators may be reversing their stance on sports-related event contracts

With March Madness upon us, you may see sports betting pop up in more places. But beyond the tournament brackets at your workplace and the sports betting sites like DraftKings (DKNG) or FanDuel (FLUT), sports betting may appear somewhere new - regulated financial markets.

Sports-related event contracts are financial derivatives that allow investors to wager money on the outcome of sporting events. Critics of these contracts think they're a regulatory workaround that allows financial companies to secure their share of the multibillion-dollar sports-betting industry. Proponents believe they are useful financial hedges that customers want.

As more companies begin to offer sports event contracts and regulators decide their stance, the fate of these contracts could be at an inflection point.

"Expansion into sports contracts is a blatant attempt to push gambling into regulated financial markets by disguising it as derivatives trading," Cantrell Dumas, director of derivative policy at advocacy group Better Markets, wrote in an email to MarketWatch.

Legal sports betting already exists in the U.S., but it's an industry with many guardrails in place and is regulated on a state-by-state basis. What concerns organizations across the sports and sports betting industries, like the American Gaming Association and Major League Baseball, is that the same laws that apply to sports betting aren't being applied to sports event contracts, which could lead to integrity issues.

But popular retail brokerage Robinhood Markets Inc. doesn't believe sports betting and sports event contracts are the same thing. On a support page it wrote, "Robinhood event contracts allow for speculation in prediction markets - these are not bets."

Also read: Betting on unknown future events may be the next big thing in hedging your investments

Robinhood (HOOD) recently announced the launch of its prediction markets hub, which allows Robinhood customers to trade event contracts through the prediction markets exchange KalshiEx. At launch, the prediction markets hub allowed Robinhood customers to trade contracts on the expected interest rate set by the Federal Reserve in May, as well as the NCAA men's and women's basketball tournaments.

While the Fed's interest-rate decisions often have a direct impact on stocks and bonds, Robinhood's event contracts for the NCAA men's and women's basketball tournaments are less directly tied to financial markets. Instead, Robinhood's basketball contracts could represent a noteworthy push into sports after a previous attempt fell through.

How March Madness event contracts work

On Kalshi and Robinhood, customers choose a prediction market representing the leg of the tournament they want to trade and pick which team they think will win. Each team has an associated cost based on the expected odds of that team winning and that contract being filled. If that team wins, the trader gets money back based on the odds and how much was wagered. If the team loses, the trader loses their investment.

On Feb. 3, Robinhood announced that it would allow customers to buy event contracts tied to the winner of the 2025 Super Bowl. But the day after the announcement, Robinhood said it received a formal request from the Commodity Futures Trading Commission (CFTC) to "not permit customers to access sports event contracts." Robinhood promptly adhered to the request from the CFTC, which is the government entity in charge of regulating event contracts and rolled back its football contracts.

"After being forced to roll back its Super Bowl contracts by the CFTC, Robinhood is now leveraging its massive retail customer base to double down on this backdoor approach despite regulatory concerns," Dumas said.

Not every brokerage that offers prediction markets offers event contracts for sports. Interactive Brokers Group Inc. (IBKR) only offers event contracts tied to elections, economic indicators and government and environmental events. Investing platform began offering event contracts in February, but a Webull spokesperson told MarketWatch that these contracts would be tied to economic events or finance-focused. The spokesperson said that Webull didn't have plans to "offer sports betting."

But even if these financial companies don't currently offer sports-related event contracts, things could change if their competitors do. An example of this can be seen in the adoption of event contracts related to the 2024 U.S. presidential election. Although Kalshi was the company that initially pressured the CFTC to allow election-related contracts on its platform, other companies, including Interactive Brokers and Robinhood, began trading the contracts soon after Kalshi got the green light.

Kalshi currently offers dozens of sports-related prediction markets. Traders on Kalshi can wager money on all sorts of sports, including football, golf, hockey, racing and even esports. Kalshi is a dedicated event contract platform and doesn't offer securities trading like Robinhood or Interactive Brokers, but Kalshi is also regulated by the CFTC. This created some confusion as to why Kalshi was able to allow sports-related prediction markets, when Robinhood was asked to remove its Super Bowl contracts.

The regulatory battle

The Commodity Exchange Act prohibits financial contracts that could be deemed as "gaming" by the CFTC. But what is considered "gaming" may be a legal gray area. In May 2024, the CFTC proposed a few examples of what could be considered to be gaming, including:

Staking or risking something of value on the outcome of a political contest, an awards contest, or a game in which one or more athletes compete, or an occurrence or nonoccurrence in connection with such a contest or game. Thus, event contracts involving these illustrative examples of gaming could not be listed for trading or accepted for clearing under the proposal.

However, this proposal received legal pushback from several organizations across the financial industry, including Robinhood. In an August comment letter, Robinhood argued that the proposal's definition of gaming was too broad, and would stifle innovation. In October, courts ruled in favor of the event-contracts companies on whether or not contracts tied to political elections should be allowed. With that win under their belt, financial companies may continue to expand the types of event contracts they offer.

President Donald Trump appointed Caroline D. Pham as the acting chairman of the CFTC in January. Pham, who has served as a commissioner on the committee since 2022, announced that the CFTC would have a public roundtable on prediction markets in the coming weeks. The roundtable was announced just days after the CFTC asked Robinhood to roll back its Super Bowl contracts.

In the announcement, Pham said the roundtable would give the CFTC the chance to meet with stakeholders to inform regulation and oversight of prediction markets - specifically sports-related event contracts.

In public statements, Pham has made it seem like she supports less restrictive regulation of prediction markets.

"Unfortunately, the undue delay and anti-innovation policies of the past several years have severely restricted the CFTC's ability to pivot to common-sense regulation of prediction markets," Pham said in the roundtable announcement.

"Despite my repeated dissents and other objections since 2022, the current Commission interpretations regarding event contracts are a sinkhole of legal uncertainty and an inappropriate constraint on the new Administration," Pham wrote. "Prediction markets are an important new frontier in harnessing the power of markets to assess sentiment to determine probabilities that can bring truth to the Information Age. The CFTC must break with its past hostility to innovation and take a forward-looking approach to the possibilities of the future."

However, organizations other than financial companies also have a vested interest in sports-related event contracts and have reached out to the CFTC to voice their concerns.

One of those organizations is Major League Baseball, which penned a letter to the CFTC on March 7. In that letter, MLB's executive vice president of legal and operations, Bryan Seeley, said that MLB has been developing relationships with entities across the sports-betting world - from state regulators to legal sportsbooks - to ensure the integrity of games. This involves establishing compliance initiatives, information sharing and cooperation with league investigations into employee, umpire and player misconduct. MLB said that the same integrity framework should apply to sports event contracts if they are permitted, but right now that framework is lacking compared with legal sports betting.

The American Gaming Association also submitted a letter to the CFTC saying it has "strong concerns" about sports event contracts. The AGA, a trade group that represents the gaming and casino industry, said that these contracts "are essentially sports betting futures" that are available to a national customer base. Meanwhile, legalized sports betting isn't available in every state. The sports event contracts are also available to people 18 and older, while the minimum age for legal sports betting is 21 in many states.

"Moreover, a key tenet of the regulated industry's responsible gaming ethos is that sports betting is entertainment and not a means for financial gain," Christopher Cylke, senior vice president of government relations at the AGA, wrote in the CFTC letter. "Casting sports contracts as an investable financial product significantly undermines that message and threatens to create marketplace confusion around this important priority."

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March 20, 2025 11:54 ET (15:54 GMT)

MW You can now make March Madness bets on -2-

Several entities that wrote to the CFTC during the open letter period claimed that the CFTC's resources to regulate sports-related event contracts fall short of the state-level regulatory framework that is in place for legal sports betting.

"States regulate gambling, not a small, underfunded federal financial regulator that lacks expertise, capabilities and experience." Dumas said. "Moreover, the CFTC already has important responsibilities for protecting the commodities the American people need and the financial products essential to American business, which would not be possible if they had to divert their limited resources to also regulate and police the gambling industry."

The CFTC did not immediately respond to MarketWatch's requests for comment via email and phone. But based on Robinhood's new March Madness contracts already hitting the market, the regulator may be softening its approach.

"We have been in close contact with the CFTC over the past several weeks and look forward to continuing to work with them to promote innovation in the futures, derivatives and crypto markets," Robinhood said in its prediction markets hub announcement.

Robinhood declined to comment further about its conversations with the CFTC. However, the company did point to a recently released policy paper on event contracts. In that paper, Robinhood discussed its thoughts on the benefits of sports-related event contracts. Robinhood said that sports-related event contracts allow traders to bet against each other, instead of a "house" or oddsmaker. It also said the contracts could provide an economic hedge for team sponsors or businesses near a sports stadium. This echoes earlier statements by brokerages that event contracts are intended to be a financial hedge.

Financial-services company StoneX Group $(SNEX)$ mirrored that argument. "Consider companies that created tens of thousands of hats touting the Kansas City Chiefs as the 2025 Super Bowl champions. Those companies could have hedged this investment by purchasing event contracts that generated a profit if the Chiefs lost the Super Bowl, thereby recouping at least some of the money they otherwise lost in printing the hats," the firm wrote in a letter.

It remains to be seen whether those businesses will be the primary demographic trading sports-related event contracts, or whether the contracts will appeal to the estimated 1 in 5 Americans who participated in sports betting last year.

Regardless of who these contracts are for, what is evident from the letters to the CFTC is that financial companies are paying attention to how these contracts get regulated, which may signal intent to move into the space.

Ultimately, it's up to the individual investors to figure out whether they want to trade this new financial product or not. But with legal sports betting as prolific as it is, it's possible investors have already been exposed to wagering money on sports, and may have already formed their opinions.

-Gordon Gottsegen

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

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March 20, 2025 11:54 ET (15:54 GMT)

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