Are Prediction Markets a Form of Gambling?
The investigation into Robinhood’s March Madness market aims to establish whether it qualifies as sports betting. Opponents of the industry argue that they do, given that players can win money based on picking a team to win a particular event. Winners receive actual money, differentiating the market from the sweepstakes industry.
Proponents of sports prediction markets argue that the industry does not cross the line into gambling. That is primarily due to players betting against the market instead of the house. This key difference makes it similar to trading stocks or cryptocurrency, which they argue the industry should be classified as.
Massachusetts hopes its investigation into Robinhood’s March Madness market will officially determine which industry they belong in.
Lawmakers Warn of Financial Dangers
Many trading platforms have argued that the sports betting industry is just looking out for its bottom line, but that isn’t true for state lawmakers. Many have questioned these controversial markets for several reasons, including the ability to wager using an investment portfolio.
Problem gambling has spiked since sports betting became legal in the US. While the industry is scrambling to find better solutions, they have built safeguards to help slow the growth. Trading platforms don’t have those safeguards, putting customers struggling with gambling addiction in more danger.
With sports prediction market operators avoiding the heavy taxes of the sports industry, it would not help generate additional revenue to support further responsible gaming efforts.
Government Showdown Could Be Coming
The Commodity Futures Trading Commission (CFTC) initially took a hostile stance towards prediction markets, but that changed after the new leadership took over. The federal regulator even worked with Robinhood to help launch the March Madness brackets to avoid legal pitfalls.
Massachusetts has a reputation for fiercely enforcing regulations in its sports betting industry. That means the state will likely oppose prediction markets despite the CFTC’s stance. This may set up a showdown between the state and federal agencies that would clarify the industry’s legal status.
