Kalshi suffered another legal blow in the Ninth Circuit as judges ruled against the company and in favor of California tribes. At the same time, pressure on the company is mounting in Texas, with the Senate hosting a hearing on how to address prediction markets.
The Blue Lake Rancheria, Chicken Ranch Rancheria of Me-Wuk Indians and Picayune Rancheria of Chukchansi Indians filed a lawsuit against Kalshi last year. The Picayune Rancheria of Chukchansi Indians withdrew from the action last month, without any public explanation. The complaint remained the same: Kalshi is operating illegal sports betting on Tribal lands.
A California district judge denied the tribes’ motion for a preliminary injunction in November, ruling that Kalshi’s sports markets fall under the CFTC’s jurisdiction. The tribes appealed, and on Wednesday, the Ninth Circuit overturned the district court ruling.
Judges ruled 3-0 in favor of the tribes, rejecting Kalshi’s argument that its markets fall under the ‘swaps’ category in the Commodity Exchange Act.
Kalshi spokesperson Elisabeth Diana told Gaming America, “We’re reviewing all of our options to address this decision, including appeal. This ruling is hard to square with other federal laws, which leave regulation of on-exchange derivatives trades exclusively to the CFTC.”
Kalshi’s Markets Are Sports Gambling, Say Judges
“The substance of the sports event contracts offered on Kalshi’s DCM is sports gambling, regardless of whether Kalshi calls them swaps,” stated the ruling.
As such, the markets are in violation of the Indian Gaming Regulatory Act (IGRA) and may not be offered on tribal lands.
“The analysis is functional. IGRA does not ask whether the operator labels the product a bet or an event contract, or something else. It asks what the activity looks like,” it added.
To demonstrate the similarity between Kalshi’s product and sports betting, the judges gave an example:
To demonstrate the similarity between Kalshi’s product and sports betting, the judges gave an example:
“Imagine a user standing on the floor of the Blue Lake Casino Hotel who downloads Kalshi and DraftKings, a classic online sports betting app. On Kalshi, she buys a $100 contract that pays if the San Francisco Giants win. On DraftKings, she wagers $100 on the same outcome. The bettor, the place, the stake, and the contingency remain the same. The only thing that changes is Kalshi’s vocabulary,” the ruling stated.
Of course, Californians can now also place that $100 wager on DraftKings Predictions, which the company launched in the state ahead of the new NFL season. When asked whether the tribe intends to pursue action against other operators, Blue Lake Rancheria did not respond to requests for comment.
Bets Take Place on Tribal Lands
The judges also ruled on a much-debated issue on where a bet takes place. The district court had previously concluded that because the transactions occur on Kalshi’s servers, located off reservations, the betting does not occur on tribal lands
The Ninth Circuit judges disagreed, stating, “If a patron on Indian lands uses Kalshi to stake money on a sports outcome, the wagering act occurs on Indian lands, even if Kalshi’s infrastructure operates elsewhere.”
In New York, the Cayuga Nation filed a lawsuit against Caesars in June, similarly claiming that sportsbooks are violating the IGRA by allowing users on tribal lands to place bets. Other sportsbooks, including DraftKings and FanDuel, agreed to block access from the Cayuga Nation’s land, but Caesars did not.
The ruling against Kalshi may encourage other tribes to take action against prediction markets and possibly even licensed sportsbooks.
The view that betting takes place where the bettor is located is not endorsed nationwide, however. In Florida, the Seminole Tribe has carved out a gaming compact on the opposite premise. Bettors can place wagers from anywhere in the state, as long as the servers processing transactions are located on tribal lands.
Ruling Adds More Weight to Need of Supreme Court Intervention
The judgment aligns with the Ninth Circuit’s ruling last month, where judges also sided 3-0 against Kalshi in its dispute with Nevada.
Kalshi has appealed, while Robinhood and Crypto.com have both petitioned the Supreme Court to hear the case.
With the Third Circuit ruling in favor of Kalshi, New Jersey has petitioned for the Supreme Court to overturn that ruling.
Companies stand a better chance of appealing in the Ninth Circuit, according to lawyer Stephen Piepgrass of legal firm Troutman Pepper Locke.
“In recent years, the Supreme Court has shown a willingness to reverse decisions from the Ninth Circuit. If you are a platform operator looking at the odds, you would prefer to be appealing an adverse decision out of the Ninth Circuit to this Supreme Court, more than just about any other,” Piepgrass said.
Since 2007, the Supreme Court has overturned 79.5% of the cases it agreed to hear from the Ninth Circuit, the highest reversal rate of any appellate circuit over that span. The figure has risen recently, with 15 of 16 cases overturned since 2020.
Texas Urged to Take Action Against Kalshi and Prediction Markets
On Tuesday, the Texas Senate also hosted a hearing on prediction markets. The American Gaming Association (AGA) urged the state to take action against Kalshi and other companies offering sports prediction markets.
AGA Vice President Tres York similarly highlighted the similarity between placing a sports bet and trading on Kalshi.
“On Sunday, Texans were able to use prediction markets like Kalshi to put money down on who would win the Cowboys-Giants game. If they chose the right team, they get paid out. That’s a sports bet,” York said.
Kalshi Head of Enforcement Robert Denault attempted to frame the company as a safer alternative to sportsbooks, such as the AGA’s members.
“What we offer is a financial product that lets Texans engage in well-regulated trading activity in a free and open market, as well as manage real financial risk,” Denault said.
York hit back, criticizing the company for not admitting that its product is virtually indistinguishable from sports betting.
York urged Texas to go the same route as the Californian tribes and countless state regulators and sue Kalshi.
“I would suggest considering suing in state court to get a court judge to secure an order kicking them out until this issue is ultimately resolved, and then potentially looking at clarification language to make sure that this type of workaround to offer sports gambling in Texas will not be allowed,”
