Ninth Circuit Presses Kalshi on Sports Betting Comparisons in Tribal Appeal

A Ninth Circuit panel repeatedly compared Kalshi’s sports-event contracts to traditional sports wagers on Friday, pressing the prediction market operator to explain why the two should be treated differently under federal law.

The questioning came during an appeal brought by three California tribes — Blue Lake Rancheria, Chicken Ranch Rancheria of Me-Wuk Indians and Picayune Rancheria of the Chukchansi Indians — seeking to revive a request for a preliminary injunction that a federal judge denied last year.

The tribes argue that Kalshi’s sports-event contracts constitute unauthorized Class III gaming on tribal lands, violating the Indian Gaming Regulatory Act (IGRA) and threatening tribal sovereignty.

Judges Press Kalshi on Why Sports Contracts Are Different From Sports Betting

A big portion of the hearing focused on whether Kalshi’s contracts are meaningfully different from sportsbook wagers.

Judge M. Margaret McKeown asked Kalshi attorney Grant Mainland to consider someone on tribal land buying a Kalshi contract that pays out if the San Francisco Giants win while simultaneously placing the same wager through DraftKings.

So, in your view, the first one would be allowed, the Kalshi, but not the DraftKings?” McKeown asked.

“Certainly, designated contract markets are regulated differently from regulated sportsbooks,” Mainland responded.

As he attempted to qualify his answer, McKeown interrupted.

So the answer is yes.”

Kalshi also maintained that its products are not Class III gaming under IGRA.

“That is our position. Yes. Not class III gaming,” Mainland told the panel.

Judge Richard Paez then turned to the tribes’ false-advertising claim under the Lanham Act, noting that one of Kalshi’s advertisements says that “sports betting is legal in all 50 states.”

“On Kalshi,” Mainland clarified.

But the question was, is what Kalshi’s doing. You said it’s not class III gaming. What am I missing?” Paez responded.

Mainland ultimately acknowledged that trading on whether a team wins a game “has some similarity to doing the same thing on DraftKings.”

Like a bet to me,” Paez remarked.

Tribes Argue Sports Contracts Become Illegal on Tribal Lands

The tribes argued that even if Kalshi’s conduct is legal elsewhere, that framework does not apply on tribal lands.

“Let’s just assume that their conduct off the reservation is totally legal,” tribal attorney Lester Marston told the panel. “I put to you this: the moment that you take that legal conduct and you engage in that exact same conduct on the reservation, they’re committing a crime under 1166, and they’re violating the civil provisions of the IGRA.”

To support that argument, Marston pointed to the Supreme Court’s decision in United States v. Mazurie, a case involving liquor sales rather than gambling. He argued that the decision shows conduct can be lawful off a reservation but becomes illegal once it occurs on tribal lands.

“If it walks like a duck, it quacks like a duck,” he said before offering a hypothetical involving someone on tribal land downloading the Kalshi app and wagering on a World Cup match.

I decide I want to bet on it [World Cup game]. So, I place a bet, right? I put some money up on their app, and whether I am paid money is going to be determined by the outcome of a physical contest, a game.”

Marston argued that such conduct falls squarely within IGRA’s definition of Class III gaming. He also pointed to the Supreme Court’s decision in Michigan v. Bay Mills Indian Community, arguing that the relevant location is where the patron places the wager, not where the servers or computers processing the transaction are located.

“What you do is you look to where the patron is placing the bet,” Marston said. “It’s where every roll of the dice and spin of the wheel takes place.”

Panel Explores Whether Tribes Can Sue and How IGRA Fits With Commodity Law

The panel also spent considerable time on a threshold question that could ultimately decide the appeal: whether the tribes have the right to sue under IGRA at all.

The tribes argued that their gaming ordinances, tribal-state compacts and IGRA form “one comprehensive regulatory scheme.” They also argued that the agreements are “really integrated” and “intertwined,” meaning a violation of tribal ordinances effectively amounts to a violation of the compacts.

Kalshi disagreed.

Do the plaintiff tribes have the right to sue? Under IGRA’s plain text, the answer is no,” Mainland said.

Mainland also argued that the tribes’ theory has almost no precedent. According to Kalshi, “just one case” has used IGRA against a private party, the Cayuga Nation litigation. Even there, Mainland said the defendant was “acting as an agent of the state operating lottery terminals on Indian lands.”

Mainland later argued that accepting the tribes’ position would create “a 240 tribe exception” to the Commodity Futures Trading Commission’s exclusive jurisdiction over designated contract markets (DCMs).

Judge McKeown appeared unconvinced.

But that wouldn’t be so unreasonable. I mean, the whole tribal situation is a very complicated relationship.”

The judges also repeatedly asked how the Commodity Exchange Act and IGRA fit together. They also questioned whether the two statutes “coexist” or whether one “supersede[s]” the other.

Mainland argued the laws govern different areas and that, for DCMs, “there is a single statute that governs it” — the Commodity Exchange Act.

Friday’s questioning also mirrored issues raised in other prediction market litigation. A separate Ninth Circuit panel repeatedly questioned Kalshi’s arguments during hearings over Nevada’s enforcement action. Meanwhile, in May, a federal judge in Wisconsin allowed the Ho-Chunk Nation’s IGRA claims against the company to proceed.

Tribal Leaders Say Prediction Markets Are Already Hurting Gaming Revenue

The hearing comes as tribal leaders increasingly describe prediction markets as a direct threat to tribal gaming and sovereignty.

In a Tribal Business News interview published after the hearing, California Nations Indian Gaming Association Chairman James Siva said preliminary studies suggest prediction markets have already reduced tribal gaming revenue by approximately 5%.

The rise of the prediction market is, without a doubt, the largest and most impending threat we have to tribal gaming and to tribal government and tribal sovereignty that we have currently,” Siva said. “It may be the biggest threat we’ve seen since the beginning of this industry.”

Siva also predicted the dispute would ultimately reach the U.S. Supreme Court.

“I feel like the path is leading to the Supreme Court,” he said.

According to the publication, tribal gaming generated more than $43 billion nationally in fiscal 2023. Revenue serves as a major funding source for tribal governments, supporting services such as public safety, health care, housing and education.

The Ninth Circuit did not rule from the bench and has no set deadline to issue a decision. The court could affirm the denial of the injunction, reverse and send the request back to the district court for reconsideration, or resolve the case on the narrower question of whether the tribes have standing to sue under IGRA.