A recent lawsuit adds a new dimension to the turf battle between jurisdictional sports betting laws and prediction market operators.
Key takeaways
- Three federally-recognized California Indian tribes sued prediction market operator Kalshi and electronic trading platform Robinhood for offering sports betting, in violation of the Indian Gaming Regulatory Act (IGRA) and the Federal Wire Act.
- The Native American nations are seeking injunctions to block Kalshi’s access to their sovereign territories.
- The lawsuit also claims Kalshi and Robinhood’s transgressions constitute violations under the Racketeer Influenced and Corrupt Organizations (RICO) Act.
A trio of federally-recognized California Indian tribes filed a lawsuit against prediction market operator Kalshi and Robinhood, a trading platform, Tuesday. The Blue Lake Rancheria, Chicken Ranch Rancheria of Me-Wuk Indians, and Picayune Rancheria of the Chukchansi Indians filed suit seeking a preliminary and permanent injunction against Kalshi and Robinhood, preventing them from engaging in illegal sports betting on tribal lands.
The suit alleges Kalshi and Robinhood are violating the Indian Gaming Regulatory Act (IGRA), which prohibits Class III gaming – including sports betting -- without an approved compact between the tribes and the state.
“Kalshi is engaging in sport gambling as defined by the IGRA and the Tribes’ Compacts, Procedures, and Ordinances. Therefore, the Tribes seek an order from the Court enjoining Kalshi from conducting its illegal sports gambling operation", the suit said.
The lawsuit also alleges Kalshi and Robinhood’s actions fall under the Racketeer Influenced and Corrupt Organizations (RICO) Act. Under RICO, a person who committed at least two acts of racketeering activity within a 10-year period can be fined up to $25,000, sentenced to 20 years in prison, and forced to forfeit all ill-gotten gains and interest in any business gained through a pattern of racketeering.
The prediction market turf battle
This isn't the first legal skirmish between Kalshi and regulatory jurisdictions. Ever since the prediction market operator started offering futures contracts based on sporting event outcomes, it's run up against state regulators.
Several states issued cease-and-desist orders, seeking to block Kalshi from offering de facto sports betting without state licenses. Kalshi fought back, claiming the Commodity Futures Trading Commission (CFTC) federally regulates its operations, and therefore it doesn't have to meet state gambling rules. In retaliation, Kalshi filed lawsuits in Nevada, Maryland, and New Jersey, fighting the states’ cease-and-desist orders.
Additionally, five lawsuits were filed against Kalshi, Robinhood, Webull and the Susquehanna International Group on behalf of Kentucky, Ohio, Massachusetts, Illinois, and South Carolina residents, seeking to recoup alleged illegal gambling losses.
This latest suit, however, is different. Kalshi can’t try to dodge state laws using the CFTC for cover. The IGRA and Wire Acts aren’t state laws. They’re federal. So, this is a different kind of regulatory turf battle – one between federal agencies. And the deciding factor may boil down to sports betting's definition.
Are sports contracts sports bets?
Prediction markets operators argue their users aren’t sports betting when they place money on sporting event outcomes. According to prediction markets, consumers purchase financial futures contracts – and don't place sports bets. Yet that claim seems spurious – especially when considering the firm’s own marketing. For instance, the lawsuit cited this Kalshi advertising:
“Kalshi has published advertisements asserting itself as ‘The First Nationwide Legal Sports Betting Platform’ and that its customers can engage in ‘Sports Betting Legal in all 50 States on Kalshi.’”
On one hand, Kalshi might not lose significant revenue if it's forced to restrict access to residents of federally-recognized tribal lands. On the other hand, ring-fencing the roughly 326 land areas associated with the federal Indian reservation system won’t be cheap.
