Kalshi faced another setback in court this week concerning its operations on tribal land. The Ninth Circuit Court of Appeals ruled on Wednesday that two California tribes are likely to succeed in their claim that Kalshi’s sports event contracts contravene the Indian Gaming Regulatory Act (IGRA), particularly when these contracts are marketed to customers on tribal reservations.
This decision overturned part of a previous ruling from a lower court, which had rejected a request from the Blue Lake Rancheria and Chicken Ranch Rancheria of Me-Wuk Indians for a preliminary injunction against Kalshi and its retail partner, Robinhood.
While the appeals court did not immediately issue an injunction, it directed the case back to the U.S. District Court for the Northern District of California to evaluate the remaining factors necessary for a preliminary injunction. These factors include assessing potential irreparable harm, weighing equities, and considering public interest.
The Ninth Circuit indicated that the tribes are likely to establish that Kalshi’s sports contracts qualify as Class III gaming, as defined by IGRA, suggesting that these contracts violate tribal gaming ordinances and federally mandated gaming procedures.
This marks Kalshi's second loss in the Ninth Circuit in less than a month. On August 28, the court ruled in a separate Nevada case that Kalshi’s sports event contracts are not likely to be categorized as swaps under the Commodity Exchange Act (CEA), a ruling that enables state gaming regulators to enforce Nevada law against the company.
Blue Lake and Chicken Ranch contend that the products offered by Kalshi function as sports bets, regardless of the terminology applied by the Commodity Futures Trading Commission (CFTC), which oversees Kalshi. Robinhood is involved because it distributes Kalshi's derivatives through its affiliate.
Users of Kalshi’s platform can make predictions on sporting event outcomes, with contracts paying out if the selected outcome occurs, or expiring worthless if it does not. Kalshi offers various betting options, including point spreads and multi-leg combinations.
The Ninth Circuit disregarded Kalshi’s specific wording regarding its contracts. "Imagine a user at the Blue Lake Casino Hotel who has both Kalshi and DraftKings open on her phone, betting on the same outcome — the San Francisco Giants winning a game. The only difference is Kalshi's choice of vocabulary," wrote Judge M. Margaret McKeown. "Kalshi may reshuffle the cards, but it cannot change the hand: Its sports event contracts are class III gaming."
The case's significance is heightened by the specificities of tribal land regulations. IGRA establishes a federal framework for gaming on tribal lands, necessitating that Class III gaming be authorized under a tribal-state compact. The Ninth Circuit confirmed that neither Blue Lake nor Chicken Ranch authorized Kalshi's sports contracts.
Kalshi argued that it could not be held accountable for violating gaming compacts to which it is not a party, but the court rejected this view. It stated that the tribes were rightfully seeking to prevent unauthorized Class III gaming activities on their lands, a right afforded to them under IGRA.
Further, the Ninth Circuit found that Kalshi's products are considered "located on Indian lands" when a user accesses them from tribal territory. The ruling specified that IGRA does not necessitate that gaming take place solely on Indian lands.
The Ninth Circuit also dismissed Kalshi’s claims regarding the CEA, noting that its determination of exclusive jurisdiction by the CFTC is irrelevant to IGRA's regulations governing tribal gaming. The panel highlighted that UIGEA and IGRA tackle distinct issues; UIGEA addresses unlawful internet gambling payments, while IGRA allows tribes to combat unauthorized Class III gaming on their lands.
Despite the setback, the ruling adds to the legal challenges Kalshi faces nationally. In its Nevada decision, the court concluded that Kalshi’s contracts are likely classified as wagers instead of swaps, thereby enabling state gaming authorities to take action. Furthermore, a conflicting ruling from the Third Circuit stated that the CEA likely preempts New Jersey’s regulation of Kalshi's sports markets, presenting a legal discrepancy between the circuits. New Jersey and others have sought review from the U.S. Supreme Court regarding these ongoing regulatory concerns.
This ruling does not resolve the larger national debate but reinforces the argument that Congress did not intend for CFTC regulation to supersede gaming laws.
