Robinhood has suspended its sports event contracts barely 24 hours after market launch following intervention by the Commodity Futures Trading Commission (CFTC).
The US futures, swaps and options regulator contacted Robinhood shortly after product launch requesting that the company cease allowing its customers to access the sports events contracts.
In a statement published last night, Robinhood asserts that the contracts had only been rolled out to around 1% of its customer base. People who have already placed trades will be offered the option to close and/or resolve their positions.
It has not been made clear how many trades were placed, though the contracts will likely have gained a lot of interest among Robinhood customers due to the Super Bowl taking place this Sunday (9 February) – the NFL final being the focal point of marketing around the launch.
Robinhood also states that it will ‘continue to work with the CFTC” to understand the regulator’s concerns. The CFTC itself has not issued a statement, but its concerns will likely be the same as those expressed around Crypto.com’s product launched in December – that sports events contracts blur the lines between financial trading and betting.
“We are disappointed by this outcome, especially given that we had been in regular communication with the CFTC about our intent and plans to offer this product,” Robinhood stated.
“We’ve also taken steps to advocate for balanced regulation in the futures and derivatives markets, including participating directly in a CFTC roundtable, providing written feedback to the CFTC, and generally championing the economic benefits of event contracts.”
Event contracts – the future of innovation in futures?
Event contracts have a product origin in futures contracts, a form of speculation in which financial services customers or stakeholders hedge bets against or in favour of a certain event happening.
An example pointed to by Robinhood is that of a farmer hedging against a poor crop yield. In recent years though, this concept has been taken further by the likes of Kalshi, Robinhood, and Crypto.com with event contracts.
Both Kalshi and Robinhood offer political event contracts, most notably seen during the 2024 US election, while the former has also offered sports contacts for some time. It is also notable that Robinhood’s events contracts were made available via Kalshi’s platform.
Polymarket offers a similar politics product, though this is not offered to US consumers due to a settlement with the CFTC – the company was raided by the FBI after the US election though amid allegations US consumers were able to use its platform.
The CFTC has not been the biggest fan of event contracts due to the above-mentioned concern that they could represent a form of gambling. In this case, event contracts would have to be subject to state betting regulations. Further complicating matters, US state betting laws prohibit bookmakers from taking wagers on political markets like elections.
In 2024, the CFTC proposed a rule to prohibit event contracts. Robinhood believes that this would have a negative impact on the market in general, though it of course has a dog in the fight due to offering political event contracts and now hitting a wall with its freshly launched sports contracts.
Prohibiting event contracts would stifle innovation in future markets and ignore key stakeholders like retail investors and small businesses by focusing largely on large exchanges and clearinghouses, it argues.
“Futures markets thrive on the ability to introduce new, market-driven products,” a statement on its website reads. “The CFTC’s proposal risks deterring the development of tools that offer meaningful economic value.”
The CFTC’s stance on sports event contracts may change under its new leadership, however. Caroline Pham, the new Acting Chair of the CFTC appointed by President Donald Trump, appears more receptive to the products.
“The CFTC has a role in regulating event contracts as a market regulator, but it is essential that the CFTC does not encroach upon the prerogatives of states,” she remarked, citing the above-mentioned purview of states to regulate gambling markets.
Though it should of course be noted that the CFTC has requested Robinhood to pause its event contracts while under Pham’s leadership, stakeholders may hope that this is just a temporary measure while the regulator has internal and external discussions on how event contracts will be regulated moving forward.
