New Jersey gaming regulators have ordered Robinhood and Kalshi to stop offering prediction markets on March Madness, saying the contracts amount to unauthorized sports betting under state law.
Robinhood announced Friday it would comply with the request. Kalshi has not responded to a request for comment.
“Event contracts offered by Robinhood Derivatives are federally regulated by the CFTC and offered through CFTC-registered entities, assuring that retail customers can access these prediction markets in a safe and regulated manner,” said a Robinhood spokesperson. “While we do not believe these contracts run afoul of any state laws, we are no longer allowing New Jersey residents to enter new positions for the Men’s and Women’s Basketball Tournament event contacts.”
The New Jersey Division of Gaming Enforcement issued a cease and desist letter Thursday, alleging that the platforms violated an NJ sports betting prohibition on wagering on college events held in the state. This year’s NCAA East Regional is taking place in Newark.
The letter, first reported by The Closing Line newsletter, gives both companies until midnight Friday to confirm they have halted sports betting operations in the state or face potential legal action.
Jurisdictional dispute
Robinhood and Kalshi launched their joint prediction markets platform on March 17, just days before the start of the men’s and women’s NCAA basketball tournaments. Through Robinhood’s app, users in 50 states can trade on outcomes of various real-world events — including March Madness matchups — via Kalshi, a federally regulated event contract exchange overseen by the Commodity Futures Trading Commission.
Unlike traditional sportsbooks such as FanDuel or DraftKings, which are licensed and regulated in one form or another by 38 states, Kalshi and Robinhood contend that their products are financial instruments, not bets. They argue that the CFTC has sole jurisdiction over event contracts, which a recent court decision opened the way up to be used to trade outcomes in politics and economics.
New Jersey disagrees. The DGE said Kalshi’s and Robinhood’s offering constitutes illegal wagering in the state, where bets on in-state college programs and events — like this week’s East Regional — are expressly banned. That includes Thursday’s BYU-Alabama and Arizona-Duke matchups in Newark, which were unavailable to bettors at regulated sportsbooks.
“Kalshi believes in the value of regulation, and operates under the comprehensive oversight of the Commodity Futures Trading Commission,” the company said in a statement. “We look forward to engaging with the state of New Jersey to resolve this matter.”
Three states move against prediction markets
The New Jersey action comes just days after Massachusetts Secretary of State Bill Galvin subpoenaed Robinhood over similar concerns. Galvin’s office is investigating how many Massachusetts users attempted to trade college basketball contracts through the app and whether Robinhood ignored a prior request from the CFTC to hold off.
Nevada gaming regulators earlier this month also ordered both companies to cease operations in their state, saying the markets violated rules against unlicensed sports betting.
The CFTC is set to host a public session in the coming weeks on the matter. Acting Commissioner Caroline Pham has described the meeting as the “first major step in establishing a holistic regulatory framework.”
Critics, in early input solicited by the CFTC, contend that sports prediction markets dangerously skirt problem gambling and integrity protection mandates imposed on regulated sportsbooks.
Billions at stake in governance dispute
Robinhood and Kalshi first launched sports prediction markets ahead of Super Bowl 59, though Robinhood quickly withdrew them after the CFTC requested more time to review their legal structure.
But as long as one side sees prediction markets as federally regulated derivatives and the other sees them as unauthorized gambling subject to state law, legal conflict looms. Courts may ultimately decide which framework applies, an outcome that could take years, as it did with Kalshi’s landmark win that paved the way for $5 billion of bets on the 2024 election.
In the meantime, Kalshi and Robinhood continue to offer contracts on March Madness and other sporting events.
