How Robinhood Stock Benefits From New Pro Gambling Tax Changes

Key Points

• The One Big, Beautiful Bill (OBBB) Act, signed earlier this month, allows bettors to only deduct 90% of their losses for tax purposes, as opposed to the previous 100%.
• Limiting taxable losses to 90% of gains makes professional sports betting far less profitable through traditional sports books.
• Brokerages offering event contract trading, such as Robinhood, have an opportunity to fill the void due to their more tax-friendly structure.

A tiny passage in President Trump's One Big Beautiful Bill (OBBB) Act can potentially massively disrupt the professional sports betting industry in the U.S. Under the new law, professional gamblers won’t get the same lenient tax treatment as stock and options traders, as only 90% of betting losses will be tax-deductible against income, as opposed to the complete 100% under the previous rule. 

While a 10% tweak may seem minor, it will drastically change the U.S. betting landscape as pros seek ways to minimize their tax burden.

One unlikely winner of this whole situation? Robinhood Markets Inc. NASDAQ: HOOD is already soaring to new all-time highs.

How New Gambling Tax Laws Are Impacting Professional Bettors

The life of a professional gambler is far less glamorous than amateur bettors assume. You aren’t sitting in stadium club boxes getting showered in cash and high-fiving celebrities; you’re hunched over your phone at a sports book, poring over the dozens (if not hundreds) of bets you’ve made that week.

Professional gamblers are more like day traders, seeking out small gains after small gains, avoiding losses, and hoping to win slightly more than they lose. A win rate of 50% isn’t enough to break even either.

To beat the sports book’s house cut, which is often called the vig or juice, you need to win 52.4% of the time.

Now, imagine you’re a newbie pro gambler calculating your year-end earnings. Your bankroll for the year was $5 million, and you placed $5,000 wagers on 1000 different bets.

If you lose 470 of your 1000 bets, you’ve lost $2.35 million while earning $2.65 million from your 530 winning bets.

You’re up $300,000 on the year since your losses cancel out your winnings. Or at least they used to.

Thanks to new legislation in the OBBB Act, you can only deduct 90% of your gambling losses on your taxes. So in this scenario, you’d only be able to deduct $2,115,000 of your $2,350,000 in losses.

Your net profits are $300,000, but your taxable income is $485,000 (and this hypothetical doesn’t even factor in the betting vig!)

An income of $485,000 for a single filer has a 35% federal tax rate in 2025, so your obligation to the IRS would be $169,750 - a nearly $65,000 increase on your tax bill from the previous regulation.

While this change will have little effect on weekend warriors betting NFL parlays on DraftKings Inc. NASDAQ: DKNG, professionals will likely seek new jurisdictions or alternative ways to bet on sports. Enter event contracts.

Robinhood’s Event Contracts: Betting on Market Outcomes Without the Added Tax Burden

Prediction markets have become popular features in the finance sector, especially among crypto adopters.

Polymarket and Kalshi are two of the largest platforms operating in the U.S., where gamblers can bet on everything from sports to elections to stock prices to the high temperature in New York City on a given Tuesday. Yes, it gets degenerate fast.

Robinhood has also started offering prediction markets through a partnership with Kalshi, with events ranging from Fed funds rates, unemployment rates, gas prices, and (of course) sports.

Unlike traditional sports betting, event contract trading is regulated under the Commodity Futures Trading Commission (CFTC), which considers them to be Swaps, or notional principal contracts.

This distinction is crucial; Swaps are taxed as ordinary income, meaning if your winning swaps earn $200,000 and your losing swaps lose $100,000, you can deduct the full $100,000 in losses against your gains.

Regulation under the CFTC also allows Robinhood to bypass state gambling commissions, which have historically shown hostility toward these types of contracts.

Prediction markets through Robinhood offer professional sports bettors a new avenue to wager on NFL, NBA, and other pro leagues without the onerous tax obligations.

Naturally, Robinhood takes a small commission on each transaction, and event contracts aren’t a ‘gambler vs. the house’ proposition; your counterparty is another trader taking the opposite side of the action. Counterparty risk and liquidity risk aren’t worries for gamblers at a casino, but must be considered when trading on these new and lightly-regulated prediction markets.

However, the growth is undeniable as Robinhood reported more than one billion event contracts traded in the first six months of availability, helping fuel the company’s 50% year-over-year (YOY) quarterly revenue growth.

The $927 million figure was the second-highest in Robinhood’s history, and analysts have been scrambling to update their price targets to reflect more bullishness. Piper Sandler, Morgan Stanley, and JMP Securities all bumped their price projections this week to $110, $110, and $125, respectively.

The stock continues to provide reasons to buy, and analysts and investors alike will be watching intently when the company releases its Q2 2025 earnings on July 30.