Ohio opens a second front against Robinhood's prediction market

Ohio's gaming regulator has sent a formal notice to Robinhood alleging that its prediction market contracts constitute illegal gambling under state law. The action arrived as Kalshi was already before the Second Circuit on federal preemption grounds, and as New York's attorney general filed a separate suit making the same underlying claim: that event contracts are gambling, that state law reaches them, and that the CFTC's designation of Kalshi as a designated contract market does not change that.

The Ohio action matters for a reason the New York filing has obscured. New York sued Kalshi directly. Ohio went after Robinhood — a broker, not an exchange. That distinction is not technical. Kalshi can argue, and has argued, that as a CFTC-regulated DCM it operates under federal law that preempts state gaming statutes. Robinhood cannot make that argument with the same force. It is not the exchange. It is the distribution channel. If Ohio's theory holds, every app that offers access to a federally regulated prediction market becomes a potential defendant under state gambling law, regardless of whether the underlying exchange has federal authorization.

The preemption argument that has protected Kalshi's contracts from state reach may not transfer cleanly to the firms that sit one step removed from the market. I have seen this structural gap before — a federal licence that covers the issuer but leaves the distributor exposed. Courts are not consistent on where the preemption shield ends. The Second Circuit has not yet resolved whether the Commodity Exchange Act preempts state gaming statutes entirely, or only for the designated market operator itself.

Kalshi's pending rehearing petition asked the full Second Circuit to revisit that boundary. The panel decision it is challenging held that CFTC designation does not automatically override state law. If that holding stands, Ohio's theory against Robinhood becomes considerably more durable. If the full court reverses, Robinhood's exposure narrows — but does not disappear, because the preemption argument would still need to be litigated in Ohio on its own facts.

The consensus read on these state actions is that they are political positioning ahead of the Supreme Court's consideration of the NFL's petition. I think that underweights what Ohio just did. Targeting the distribution layer, rather than the exchange, is a strategic choice. It is harder to preempt. It implicates a different set of federal statutes. And it puts pressure on every brokerage that has added prediction market access without separately analyzing whether its own state-law exposure is covered by the exchange's federal designation.