Robinhood Facing Massachusetts Inquiry on NCAA Tournament ‘Gimmick’

Posted on: March 25, 2025, 03:02h. 

Last updated on: March 25, 2025, 03:02h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.
  • Secretary of State examining March Madness event contracts
  • He’s concerned about potential negative effects on young investors

Robinhood Markets (NASDAQ: HOOD) is contending with an inquiry in Massachusetts related to its recently launched event contracts on the NCAA basketball tournaments.

robinhood massachusetts
Massachusetts Secretary of State William Galvin. He’s looking into Robinhood’s March Madness event contracts. (Image: Instagram)

Just days prior to the start of the men’s and women’s tournaments, the brokerage house said it was partnering with prediction markets juggernaut Kalshi to offer event contracts on the games to select clients through its Robinhood Derivatives, LLC arm. Eligible clients must be approved for margin trading or the broker’s second and third tiers of options trading.

As of yet, the Massachusetts Securities Division’s website doesn’t mention direct action against Robinhood, but Secretary of State William Galvin (D) told Reuters he’s concerned about the financial services firm blurring the line between investing and sports wagering.

This is just another gimmick from a company that’s very good at gimmicks to lure investors away from sound investing,” he told Reuters.

In a statement provided by Robinhood to the media outlet, the company said its event contracts are regulated Commodities Futures Trading Commission (CFTC), adding that prediction markets are increasingly popular among both professional and retail market participants.

In Galvin, Robinhood Could Face Formidable Foe

The extent of the Massachusetts’ inquiry into Robinhood’s sports contracts offering isn’t yet clear, but it’s not up for debate that Galvin is one of most diligent state-level securities regulators in the country.

Last November, speculation surfaced that Galvin’s office was looking into the rates of interest brokerage firms offer on cash sweeps, or non-invested cash held in investment accounts. The crux of that issue was belief among some regulators that financial services were skimping on interest payments to clients. Last June, Galvin announced an inquiry into the trading activities of Keith Gill. Gill, also known as “Roaring Kitty,” is viewed as the architect of the internet fervor that previously sent shares of GameStop (NYSE:GME) soaring.

Galvin, who’s in his eighth term as secretary of the commonwealth,  told Reuters some of his concern as it relates Robinhood’s event contracts menu is the potential vulnerability to younger investors — a demographic that’s already chock full of sports bettors.

Eighty percent of Robinhood customers make either $50K to $100K, or $100K or more annually, and 75% are millennials or members of Gen Z. Sixty percent are men. Those age and income ranges are highly coveted by sportsbook operators.

States Starting to Take Issue with Event Contracts

The CFTC cannot limit Robinhood’s ability to offer event contracts because the derivatives are traded on an exchange that’s regulated by the commission. The regulatory body is expected to soon hold a roundtable on event contracts that could provide more regulatory clarity.

States aren’t waiting. In addition to the Massachusetts inquiry into Robinhood, the Nevada Gaming Control Board (NGCB) earlier this month ordered Kalshi to halt its business activities in the state, though an extension was later granted.

Owing to the fact that companies such as Kalshi and Robinhood are regulated at the federal level, they’re able to offer event contracts in all 50 states — something that’s not lost on the gaming industry, which doesn’t enjoy that privilege. Some sportsbook operators are considering getting into the event contracts space, a group including Boston-based DraftKings (NASDAQ: DKNG).