This week, a notable amicus brief emerged in support of New Jersey's legal case against Kalshi, filed in the US Court of Appeals for the Third Circuit. This 45-page document comes from a coalition of nine tribal organizations and 60 individual tribes, marking Indian Country's formal entry into this legal debate after expressing its concerns for some time. Since Kalshi and others introduced sports contracts to prediction markets over the winter, tribal organizations have been vocal critics. A public comment portal initiated by the Commodity Futures Trading Commission (CFTC) earlier this year has seen significant input from tribal interests. In late May, acting CFTC Chair Caroline Pham discussed these matters with tribal leaders, but the conversation did not yield substantial outcomes.
In the newly filed amicus brief, the tribes delve into several critical issues, arguing that sports event contracts offered by prediction markets violate tribal sovereignty under the Indian Gaming Regulatory Act (IGRA). The brief comes from attorneys Scott Crowell and Joseph Webster, who have hinted at possible legal action in recent discussions.
As Kalshi secures initial victories in the courts, the tribal coalition sees the need to intervene more forcefully. The brief primarily addresses how prediction markets relate to IGRA, seeking to clarify this significant topic, which has only been briefly mentioned in other legal contexts.
IGRA, enacted in 1988, establishes the federal framework for gaming on tribal lands and defines a classification system. While Classes I and II are less well known, Class III encompasses traditional casino-style gaming, including sports betting. The tribes assert that sports betting falls under Class III, thus making it subject to IGRA.
While the act does not explicitly define sports betting, the tribes reference 31 U.S. Code § 5362, which defines 'bet or wager' under the Unlawful Internet Gaming Enforcement Act. The brief states, "[T]he staking or risking by any person of something of value upon the outcome of … a sporting event … upon an agreement … that the person or another person will receive something of value in the event of a certain outcome." They argue that this definition directly aligns with what Kalshi offers, asserting that any contract traded on tribal land violates IGRA provisions.
Another contentious issue is whether IGRA is preempted by the Commodities Exchange Act (CEA), the key legislation that governs the CFTC. Kalshi has previously indicated in a lawsuit against Maryland that even if IGRA does encompass sports event contracts, the CEA's exclusive jurisdiction would override any tribal attempts to regulate them.
The tribes' brief counters that "the CEA neither preempts nor conflicts with IGRA." The brief further claims that the CEA applies only to lawful transactions that fall under the CFTC’s exclusive jurisdiction, which they argue does not include sports contracts. The attorneys state, "It is 'inconceivable' to believe that Congress intended the CEA to be a federal sports betting regulation without explicitly stating as much."
Claiming that accepting Kalshi’s arguments would endanger the integrity of the entire Indian gaming framework, the brief warns that it could adversely affect many states in terms of revenue sharing and job growth. If the court sides with Kalshi, it would mean Congress intended to dismantle the existing federal framework for tribal gaming and nullify key provisions of IGRA.
Additionally, the brief addresses the CEA's "Special Rule" amendment, which grants the CFTC authority to review and potentially block contracts relating to activities that serve the public interest, including gaming. Under the CFTC’s regulatory framework, the language specifies that no contracts involving such activities should be listed. Kalshi has not contested this interpretation but maintains that its contracts do not constitute gaming.
Tribal representatives argue that Kalshi has misinterpreted the review process, asserting that the prohibition of event contracts involving gaming under § 40.11(a)(1) is absolute and does not require prior review. They also reference a transcript from discussions among senators who advocated for the Special Rule, highlighting the lawmakers' intent to prevent "gambling through supposed 'event contracts.'"
In a legal twist, Kalshi has faced scrutiny as prosecutors reference past arguments made by the company. Initially, Kalshi differentiated its election betting contracts from sports betting, stating that the latter carried “no inherent economic significance” or “any real economic value.” However, since launching sports contracts, this messaging has shifted, with the brief recalling instances where Kalshi labeled its offerings as sports betting.
The tribes have formally requested the court to reverse the District Court’s earlier decision allowing Kalshi’s motion for a preliminary injunction.
