Kalshi suffered another court loss this week, this time regarding its ability to offer sports event contracts on tribal land.
On Wednesday, the Ninth Circuit Court of Appeals found that two California tribes are likely to prevail in their claim that Kalshi’s sports event contracts violate the Indian Gaming Regulatory Act (IGRA), when offered to customers located on their reservations.
The decision reverses part of a lower-court ruling that denied Blue Lake Rancheria and Chicken Ranch Rancheria of Me-Wuk Indians a preliminary injunction against Kalshi and Robinhood.
The appeals court did not immediately impose an injunction. Instead, it sent the matter back to the U.S. District Court for the Northern District of California to decide the remaining preliminary injunction factors, including:
- irreparable harm
- equities
- public interest
But the Ninth Circuit’s conclusion found the tribes are likely to show that Kalshi’s sports contracts constitute Class III gaming (as defined within IGRA) and violate tribes’ gaming ordinances and federally prescribed gaming procedures.
The decision is Kalshi’s second Ninth Circuit loss in less than a month. On Aug. 28, the court ruled in its Nevada case that Kalshi’s sports event contracts were likely not swaps protected by the Commodity Exchange Act (CEA), allowing state gaming regulators to enforce Nevada law.
Tribes challenge Kalshi, Robinhood on sports
Blue Lake and Chicken Ranch argued that Kalshi products are sports bets, regardless of the event contract label used by the Commodity Futures Trading Commission-regulated exchange. Robinhood was named because its derivatives affiliate routes customer orders to Kalshi as a retail distributor.
The products at issue allow users to take a position on the outcome of a sporting event. If the selected team or outcome occurs, the contract pays out. If it does not, the contract expires worthless. The opinion noted that Kalshi also offers point spreads, over/under markets, player propositions and multi-leg “combos.”
The Ninth Circuit looked past Kalshi’s terminology.
“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,” Judge M. Margaret McKeown wrote.
“Kalshi may reshuffle the cards, but it cannot change the hand: Its sports event contracts are class III gaming.”
Why tribal lands matter in Kalshi sports betting case
The case is distinct from the state enforcement actions Kalshi is fighting in courts across the country.
IGRA creates a federal framework for gaming on tribal lands and generally requires Class III gaming to be authorized under a tribal-state compact. Class III gaming must be tribally authorized and conducted through the tribal gaming structure. Neither Blue Lake nor Chicken Ranch authorized Kalshi’s sports contracts, the Ninth Circuit found.
Kalshi argued that it could not violate compacts to which it was not a party. The panel rejected that reading, concluding that the tribes were seeking to enjoin alleged unauthorized Class III gaming activity on their lands, which IGRA permits tribes to do.
The court also rejected the premise that the contracts occur only where Kalshi’s exchange or back-end systems operate. The court found that “Kalshi’s products are ‘located on Indian lands’ when a user enters into the event contract from tribal territory.” It notes IGRA does not require the gaming to take place “exclusively on Indian lands in order to come within its ambit.”
“In harmonizing IGRA with the UIGEA, we have explained that where ‘the act of placing a bet or wager’ takes place in a state that prohibits a form of betting but an online gaming server is located on Indian lands, ‘the bets are not legal in the jurisdiction where they are initiated,’ and are thus illegal under the UIGEA,” the ruling reads.
“The same logic works in reverse here. Kalshi may be headquartered in New York, and it’s back-end infrastructure may sit off Indian lands, but a Kalshi customer can still enter an event contract on Indian lands if she purchases one while on a reservation.”
CEA argument falls short again
Kalshi said the CEA gives the CFTC exclusive jurisdiction over its event contracts because they trade on a federally designated contract market. It also argued that the Unlawful Internet Gambling Enforcement Act (UIGEA), displaced the tribes’ IGRA claims because UIGEA excludes certain transactions conducted on registered exchanges from its definition of a bet or wager.
The Ninth Circuit rejected both arguments.
The court said UIGEA and IGRA answer different questions. UIGEA governs payments connected to unlawful internet gambling, while IGRA provides a cause of action to stop improperly conducted class III gaming on tribal lands. UIGEA preserves the application of IGRA in civil proceedings involving Indian lands, the panel noted.
The CEA argument failed for two reasons. The court pointed to its Aug. 28 Nevada ruling that Kalshi’s sports contracts are likely not swaps, putting them outside the CFTC’s exclusive jurisdiction. The panel also said that even if the contracts were swaps, the CEA’s grant of exclusive jurisdiction to the CFTC would not displace IGRA.
“The former statute may determine when a contract can trade on a DCM,” McKeown wrote. “It does not determine whether the same transaction, when offered to users on Indian lands, satisfies IGRA’s separate requirements.”
Another piece of the national map
The ruling adds another Ninth Circuit decision to the growing legal record against Kalshi’s federal preemption position.
In the Nevada case, the court concluded Kalshi’s sports contracts were likely wagers rather than swaps, allowing state gaming enforcement to proceed. The Ninth Circuit’s tribal land decision goes further, holding that even a federal commodities framework cannot override IGRA’s separate federal system for Class III gaming on tribal lands.
That does not fully resolve Kalshi’s national legal position. The Third Circuit ruled in April that the CEA likely preempts New Jersey’s attempt to regulate Kalshi’s sports markets, creating a direct split with the Ninth Circuit. New Jersey has petitioned the U.S. Supreme Court to take the case, as have Crypto.com and Robinhood.
The tribal ruling does not dictate the outcome of the final outcome on the national regulatory issue. But its language will give states, tribes and licensed gaming stakeholders another appellate decision to cite when arguing that Congress did not intend CFTC regulation to become a blanket exemption from gaming laws.
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