Most of the attention on the legal battle over prediction markets has been focused on what states are doing. However, a potentially more serious case is happening in the Ninth Circuit Court of Appeals, brought by three California tribes based on a different law. During a hearing this month, a judge suggested that Kalshi’s contracts appear to function as wagers.
Summary
- Three California tribes, Blue Lake Rancheria, Chicken Ranch Rancheria, and Picayune Rancheria, sued Kalshi arguing its sports event contracts constitute unlicensed Class III gaming on tribal lands under the Indian Gaming Regulatory Act.
- A federal district judge denied their preliminary injunction in November, finding that the compacts and secretarial procedures did not prohibit Kalshi’s conduct and that federal internet gambling law excludes transactions on entities registered under the Commodity Exchange Act.
- The Ninth Circuit heard argument this month, and the panel questioned Kalshi sharply, with one judge stating the contracts sound like a bet subject to Native American gambling law and another suggesting it would not be unreasonable to exclude tribes from federal preemption here.
- This is analytically distinct from the state cases dominating coverage: it turns on IGRA and tribal sovereignty, not on state police powers, and more than sixty federally recognized tribes have filed amicus briefs across related proceedings.
- The stakes are the exclusivity bargain itself, under which tribes accepted regulation and revenue sharing in exchange for gaming rights, with a Brookings analysis describing prediction markets as an existential threat and California tribes planning a 2028 ballot initiative in response.
For the past two years, the prediction market industry has portrayed its legal challenges as battles with individual states, and media coverage has largely reflected this view – focusing on actions by regulators in places like Nevada, New Jersey, and Massachusetts. However, this focus has created a significant oversight. The most important current case against Kalshi isn’t being brought by state authorities, but by three small Native American tribes in California. This case hinges on different federal laws, and recent court hearings suggest the judges are less sympathetic to Kalshi’s arguments than the initial court was. Some judges indicated that Kalshi’s contracts resemble bets covered by tribal gaming regulations, and even questioned whether tribes should be excluded from the federal rules Kalshi is using as a defense. Over sixty federally recognized tribes have filed briefs supporting this position, and one analysis suggests prediction markets could seriously threaten existing Native American gambling operations. Surprisingly, these developments have received little attention in cryptocurrency news outlets, which have been primarily tracking state-level cases. This article aims to address that gap, highlighting how the tribal perspective raises different – and potentially more far-reaching – questions than those being debated at the state level.
The case
The facts are narrow, and the theory is not.
As an analyst following this case, here’s my understanding: in 2025, Blue Lake Rancheria, Chicken Ranch Rancheria of Me-Wuk Indians, and Picayune Rancheria of the Chukchansi Indians filed a lawsuit against Kalshi in federal court. They claim Kalshi’s platform offers illegal sports betting on tribal lands, which violates the Indian Gaming Regulatory Act. Essentially, the tribes argue that simply accessing the Kalshi platform *while physically located* on their reservations constitutes Class III gaming – and because of this, Kalshi needs to follow the same rules as any other operator, including obtaining proper tribal approval and adhering to relevant regulations. They’re asking the court for a ruling confirming this and an injunction to stop Kalshi from operating in this way.
Kalshi responded in writing, and its approach was successful at the regional level. Its lawyers explained that the exchange isn’t bound by agreements or internal tribal rules, which only apply to what the tribes offer directly, not to what a separate, federally regulated online platform provides. They also argued that this law had never been used before to target an independent private company like theirs.
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In November, District Judge Jacqueline Scott Corley rejected the request for a preliminary injunction. Her decision is important because it forms the basis of the current appeal. The judge determined that the tribes’ internal procedures were similar enough to agreements authorized by the Indian Gaming Regulatory Act (IGRA), which was a positive outcome for them. However, she ruled that these procedures didn’t prevent Kalshi from operating as they focused only on games run *by* the tribes and didn’t mention external companies. Judge Corley then stated that the Unlawful Internet Gambling Enforcement Act applied to the situation. Crucially, this law doesn’t consider transactions involving entities registered with the Commodity Exchange Act as gambling – a category Kalshi fell into. Finally, she decided that only the Commodity Futures Trading Commission can decide what types of contracts are covered by these regulations.
That argument sums up the industry’s entire defense: they’re a legally registered exchange for derivatives, laws specifically exempt them from certain rules, and the agency overseeing them has the final say on what they can offer.
The Ninth Circuit, this month
While appeals courts don’t make decisions immediately after arguments, and questions asked aren’t official rulings, the way the lawyers presented their case at the appeals court was noticeably different from how the case was handled in the lower court.
The judges questioned Kalshi’s lawyers about whether these contracts were actually bets. One judge specifically pointed out they seemed like gambling, potentially falling under Native American gaming regulations. Another suggested allowing tribes to operate outside of federal oversight in this area—a decision that would create an exemption to the argument Kalshi uses to justify its U.S. operations.
The tribes’ lawyers argued that rules about gaming can’t be considered separately from the agreements and internal processes already in place, as these require gambling to follow tribal regulations. They also warned that federal law wouldn’t be very helpful if a company could operate illegal gambling on tribal land and avoid lawsuits simply because its name wasn’t listed in any of the official documents.
The panel didn’t indicate when they would issue a decision. The original case in district court has been paused while they consider this matter. This hearing occurred after the Ninth Circuit Court of Appeals heard arguments earlier this year regarding Nevada’s attempt to regulate Kalshi, Robinhood, and Crypto.com – and, like before, the judges seemed doubtful about claims that federal law overrides state law. Now, one appeals court is considering two different legal challenges based on the same core issue.
Why this is not the state fight
It’s easy to overlook the difference between these cases, as they both concern sports contracts and involve the same people being accused.
As an analyst, I’m looking at two distinct legal challenges here. The cases brought by states center on a classic federalism issue – whether federal law regarding commodities overrides state gambling regulations. But the tribal cases present a different question entirely. They aren’t about federal versus state power; instead, they ask if a 2010 update to the commodity law effectively negated the Indian Gaming Regulatory Act of 1988, and the agreements made under it. This is a conflict *between* federal laws, and it involves tribal sovereignty – rights stemming from treaties, specific laws, and a history of court decisions that have consistently favored protecting those rights.
Legal experts have pointed out a significant issue with the CFTC’s stance: if accepted, it would mean Congress unintentionally overturned decades of established Native American gaming law when updating regulations in 2010 – and did so without any mention of tribes or the Indian Gaming Regulatory Act (IGRA). Courts are hesitant to overturn existing laws implicitly, particularly those concerning tribal rights, generally interpreting ambiguities to benefit tribes. Kalshi argues its position doesn’t require overturning any laws; it simply isn’t considered ‘gaming’ under IGRA’s definitions. They contend that accepting the tribes’ argument would mean any financial product accessible nationwide would suddenly need licensing in each state a user enters with their phone.
Another related legal issue is happening at the Sixth Circuit Court of Appeals. They’re deciding if these agreements should be legally classified as ‘swaps’ under commodity trading laws – a key question that affects all the other cases mentioned. So we have three different courts, each with its own interpretation, all dealing with the same financial product.
What is actually at stake
For Native American tribes, the core issue is the agreement that allows them to operate casinos, and the financial benefits at risk are the reason discussions have become more tense.
The Indian Gaming Regulatory Act (IGRA) allows tribes to make agreements with states, giving them the exclusive right to offer certain types of gaming. In return, tribes follow state regulations and often share a significant portion of their revenue, which supports vital services like healthcare, education, and infrastructure in Native communities. However, if national, federally licensed betting apps can offer the same sports wagering options everywhere – even on tribal lands – without needing to negotiate with tribes or follow IGRA rules, then the exclusivity tribes secured through years of negotiation loses all value. As the Indian Gaming Association’s chairman explained, these apps offer the same bets as any legal sportsbook. A recent study by Brookings Institution called this development a serious threat to the future of tribal gaming.
The response focused on facts, not persuasive arguments. Numerous tribal organizations and over sixty federally recognized tribes have submitted legal briefs supporting their position in related cases. At this year’s Indian Gaming Association meeting, leaders explained they are pursuing both lawsuits and lobbying efforts in Washington. They’re urging Congress to force the CFTC to follow its own regulations, claiming the agency has allowed gambling to function disguised as financial activity. California’s tribal groups have also confirmed they still plan to propose a state law in 2028 to allow tribes to run sports betting, partly because they believe current prediction markets are operating in a legal loophole.
The U.S. Commodity Futures Trading Commission (CFTC) is taking a more active stance against states that it believes are overstepping their authority when it comes to prediction markets. CFTC Chair Michael Selig stated the agency will intervene to protect federal oversight in this area. As a first step, the CFTC has filed a legal brief supporting Crypto.com in a related case.
— crypto.news (@cryptodotnews) February 17, 2026
The potential consequences for the prediction market industry are significant. A recent court case in Massachusetts revealed that sports contracts account for almost seventy percent of the activity on the Kalshi platform, leading to its blocking in that state. A negative ruling regarding tribal sovereignty wouldn’t just create more regulations; it would force the industry to operate differently across the country. The current system relies on a single, national federal license and consistent rules everywhere, which would be impossible to maintain with exceptions for hundreds of Native American reservations.
The honest reading
This case is being fought in multiple courts because both sides have very convincing arguments, making a simple agreement impossible.
The tribes’ strongest legal position isn’t simply that their agreements are like those with sportsbooks – though that comparison might be appealing to the court. Instead, they argue a 2010 law about commodities shouldn’t invalidate an earlier 1988 law and the agreements made under it, especially since courts generally interpret laws in favor of tribal rights. This is a fundamental argument about how Congress changes laws; it doesn’t even matter whether these contracts are considered gambling or not.
From my perspective, Kalshi’s strongest argument isn’t simply that comparisons to traditional sportsbooks are flawed. It really comes down to Judge Corley’s reasoning: the UIGEA specifically exempts transactions involving entities registered with the Commodity Exchange Act, tribal compacts dictate what tribes can offer – not external companies – and Congress gave the CFTC sole power over defining ‘covered contracts’. These points are all based on the clear language of the relevant laws, which tends to hold up well when appealed.
Neither side can honestly say this situation was intentionally created. Back in 1988 and 2010, no one imagined a system where federally licensed exchanges would offer bets on football games to people on tribal lands. Now, the courts are being asked to decide who has the power to regulate something Congress never specifically addressed. This is true of all the legal questions in this area, and this tribal case is just an example of a group with a strong historical connection to the issue being left out when the relevant laws were made.
The exclusion that decides the case
As an analyst, I’ve noticed a particular law is surprisingly central to this case – even more so than the arguments presented by either side. It’s worth a closer look because it was originally intended to address a completely different issue.
The 2006 Unlawful Internet Gambling Enforcement Act aimed to stop offshore online gambling by blocking financial transactions. It defined what constitutes a bet, but included specific exceptions. One of these exceptions covered transactions happening on exchanges registered with the Commodity Exchange Act. Congress made this exception to ensure the law didn’t unintentionally affect legitimate commodity futures markets – places where people normally trade contracts for future prices. At the time, no one considered that a registered exchange might offer contracts based on the outcome of events like football games to everyday customers, as this didn’t exist or wasn’t being discussed.
After two decades, a specific exemption has become central to the court’s decision regarding tribal gaming and represents the core of the industry’s legal argument. Essentially, if activity involving a registered Commodity Exchange Act (CEA) entity isn’t considered betting or wagering under federal law, then a licensed exchange offering sports contracts isn’t engaging in illegal internet gambling – regardless of how it appears.
The logic itself is correct, but this rule is being used in a situation very different from the one it was originally intended for.
The tribes’ argument that certain laws don’t apply to them and the industry’s claim of being excluded from gambling regulations are essentially two sides of the same debate. The industry believes existing laws clearly exempt them, while the tribes argue those laws weren’t intended to cover prediction markets or tribal gaming, and that interpreting them to allow this would undermine a previously agreed-upon framework. Courts often resolve disputes like this by deciding whether to focus on the literal wording of the law or its original purpose, and the judges hearing this case seem open to prioritizing purpose. Ultimately, the court’s decision will hinge on this choice – text versus purpose – rather than on how these contracts are experienced by users.
What to watch
The Ninth Circuit Court issued its decision without stating a timeframe, and the judges’ questions suggested they weren’t supportive of the current approach. If the court reverses the previous ruling, the case will go back to Judge Corley, who may then consider limiting the scope of the decision based on location. However, if the court upholds the original ruling, it would likely end further challenges based on tribal law and reinforce federal authority in this area.
A key issue before the Sixth Circuit Court concerns whether certain contracts qualify as “swaps” under federal law. The court’s decision on this matter is crucial because it could significantly impact ongoing legal battles involving both Native American tribes and state governments, potentially changing the course of those cases.
Tribal organizations are actively lobbying Congress, and they’ve often been successful in protecting their rights when those rights are at risk. The quickest way to address issues concerning tribal lands—whether it’s related to the current sports-contract bill or other legislation—is through specific language included in those bills.
The proposed 2028 California ballot initiative regarding sports betting is significant because it’s led by tribal groups. It has the potential to reshape the sports betting market in California—the biggest state for this issue—no matter how current legal challenges play out. How the measure is written will also show whether tribes plan to work with, or keep separate from, existing national sports betting companies that have federal licenses.
For those watching the prediction market industry, it’s important to note that the current legal challenges – concerning state regulations, tribal sovereignty, and how “swaps” are defined – all stem from the same core issue. These cases essentially represent different approaches to resolving a single question: when Congress allowed event contracts on federal exchanges, did they intend to override existing state and tribal gambling laws? Each plaintiff is arguing based on the legal principle that best suits their case. The industry consistently defends itself by emphasizing its status as a registered financial venue, sticking to a literal interpretation of the relevant laws, and asserting that the regulatory commission has final say over what can be traded.
This means the legal risks facing the industry aren’t simply accumulating with each case, but are fundamentally built into the system. A loss in one lawsuit doesn’t just mean another rule to follow; it demonstrates that the industry’s main legal defense isn’t foolproof, and other plaintiffs will use that to argue for their own interpretations. That’s why the industry is simultaneously investing in compliance, data analysis, and political lobbying – they’re not tackling these issues one after another. The next few months are crucial, as the industry isn’t waiting for a single court decision. It’s trying to determine if its core legal argument can withstand challenges from three different authorities at the same time.
Frequently Asked Questions
Who is suing Kalshi, and on what theory?
Three California Native American tribes – Blue Lake Rancheria, Chicken Ranch Rancheria of Me-Wuk Indians, and Picayune Rancheria of the Chukchansi Indians – are claiming that Kalshi is operating illegal gambling on their lands. They argue that because people can use Kalshi’s platform while *on* tribal reservations without permission, it violates federal law (the Indian Gaming Regulatory Act) regarding Class III gaming.
What did the district court decide?
So, the judge ruled against the tribes’ attempt to block Kalshi. Basically, she said the way the government approves tribal gaming is similar enough to a formal agreement, but it doesn’t actually stop Kalshi from doing what they’re doing – the rules focus on what the tribes offer, not external companies. Plus, she pointed out that existing federal laws about online gambling don’t apply to exchanges like Kalshi, which are regulated by the CFTC, meaning the CFTC has the final say here. As an investor, this feels like a positive sign for Kalshi, removing a major legal hurdle.
What happened at the Ninth Circuit?
This month, I attended the hearing where Kalshi’s contracts were debated before the panel. The judges pressed Kalshi with tough questions – one even pointed out that these contracts resemble bets potentially covered by Native American gambling regulations. Another judge floated the idea of allowing tribes to operate without federal oversight in this space. Unfortunately, we didn’t get a decision immediately, and there’s no word yet on when we can expect a ruling. For now, the district court case is still paused.
How is this different from the state lawsuits?
There are two distinct legal issues at play. State-level cases center on whether federal rules for registering derivatives override state laws related to gambling, raising questions about the balance of power between the federal and state governments. Tribal cases, however, focus on whether changes to federal commodity law in 2010 unintentionally superseded the Indian Gaming Regulatory Act of 1988 and existing agreements with tribes, which concerns the relationship between federal laws and tribal sovereignty.
Why do tribes consider this existential?
The core of the agreement established by the Indian Gaming Regulatory Act (IGRA) is exclusivity. Tribes agreed to accept regulation and, often, share significant revenue with states in return for the sole right to offer gaming on their lands, which supports vital government services. However, if national, federally-approved betting platforms can offer the same sports wagering options everywhere – including on tribal reservations – without needing tribal agreements, that promised exclusivity is undermined without any opportunity for tribes to renegotiate.
How organized is the tribal response?
A significant number of Native American tribes – over sixty – have officially supported the legal cases through filed briefs. Tribal groups also revealed they’re coordinating both lawsuits and lobbying efforts, as discussed at a recent gaming convention. In California, tribal coalitions are still planning a 2028 ballot measure to establish sports betting run by tribes, largely in reaction to the growing popularity of prediction markets.
What is the strongest argument on each side?
For Native American tribes, the question is whether a recent change to commodities law—one that doesn’t mention tribes or the Indian Gaming Regulatory Act—should overturn existing laws and agreements from 1988. Courts generally interpret ambiguous laws to favor tribes, so it likely shouldn’t. For Kalshi, the court agreed with this line of reasoning: federal law exempts certain financial exchanges, tribal agreements apply only to the tribes themselves and not outside companies, and the Commodity Futures Trading Commission has the final say on what terms mean.
What would an adverse ruling mean for the industry?
Offering the product in limited areas would create inconsistencies with its goal of nationwide standardization under a single federal license, especially considering the complex landscape of tribal reservations across the country. A large portion of the product’s activity comes from sports contracts – one court found nearly 70% – meaning any changes to how it operates would have a significant impact. Please remember this is for informational purposes only and should not be considered legal or investment advice.
2026-07-28 18:06