Ninth Circuit: Kalshi Tribal Land Sports Betting Deemed Illegal

• The Ninth Circuit Court of Appeals ruled that prediction markets like Kalshi likely violate California law by offering sports betting on tribal lands.
• The court determined that Kalshi's 'event contracts' for sports outcomes constitute Class III gaming, regardless of the platform's terminology.
• The ruling clarified that 'gaming activity' occurs on Indian lands if a user places a wager while physically present on a reservation, even if the platform is headquartered elsewhere.
• This decision supports the exclusive gaming rights of tribes, including the Blue Lake Rancheria and Chicken Ranch Rancheria of Me-Wuk Indians, who brought the lawsuit.
• The case may proceed to the U.S. Supreme Court due to a potential conflict with a Third Circuit ruling on state versus federal regulation of prediction markets.

The Ninth Circuit Court of Appeals recently delivered a significant ruling, determining that online prediction markets, specifically Kalshi, likely violate California law by enabling users to wager on sporting events from tribal lands.

The Ninth Circuit Court of Appeals recently delivered a significant ruling, determining that online prediction markets, specifically Kalshi, likely violate California law by enabling users to wager on sporting events from tribal lands. This decision addresses a lawsuit brought by two Native American tribes, the Blue Lake Rancheria and the Chicken Ranch Rancheria of Me-Wuk Indians, who argued that such platforms infringe upon their exclusive rights to manage gaming on their sovereign territories.

At the heart of the dispute is Kalshi's classification of its offerings as "event contracts," which the platform contended allowed it to operate legally even in states where sports betting is generally prohibited. However, the appellate court firmly rejected this distinction. U.S. Circuit Judge M. Margaret McKeown, writing for a unanimous three-judge panel, emphasized that the nature of the wager remains unchanged regardless of the terminology used. She illustrated this point by comparing a user placing a bet on a sports outcome via Kalshi with one using a traditional online sports betting app, concluding that Kalshi's sports event contracts constitute Class III gaming.

The Ninth Circuit's ruling overturned a lower federal court's decision that had previously denied the tribes' request for a preliminary injunction. The district court had reasoned that transactions conducted through Kalshi did not physically occur on tribal land, thereby exempting the platform from tribal compacts. However, the appellate panel disagreed, asserting that if a consumer purchases an event contract while physically present on a reservation, then the "gaming activity" undeniably takes place on Indian lands, irrespective of Kalshi's headquarters or backend infrastructure being located elsewhere.

This interpretation is crucial for understanding the jurisdictional reach over online platforms operating in proximity to or accessible from tribal territories. While sports betting remains illegal across most of California, it is permitted within the state's Native American casinos under specific tribal compacts. The court found that the tribes were likely to succeed on the merits of their claim regarding the Class III gaming classification, directing the trial judge to reconsider the preliminary injunction motion on this specific ground. The panel did, however, concur with the lower court that Kalshi's advertisement stating "Sports Betting: Legal in all 50 States on Kalshi" was merely a nonactionable opinion.

The decision represents a significant victory for the tribes, affirming their authority to govern and manage gaming activities on their lands. Les Marsten, an attorney representing the tribes in their lawsuit against Kalshi and Robinhood, lauded the ruling as upholding tribal self-governance. Marsten also criticized Kalshi's conduct, labeling it "immoral" and "wrong" for allegedly refusing to implement geofencing measures around tribal reservations, despite the company's substantial valuation. He further argued that such betting applications drain crucial funds from tribes, impacting their ability to finance essential government services.

This ruling also introduces a potential conflict with a separate decision from the Third Circuit in April, which concluded that states lack the authority to regulate prediction markets, as that power rests exclusively with federal bodies like the Commodity Futures Trading Commission. This divergence in judicial opinion across circuits could pave the way for a review by the U.S. Supreme Court, a possibility that Marsten himself predicted. Kalshi's attorney, Joshua Sterling, declined to comment on the Ninth Circuit's decision, leaving the future legal landscape for prediction markets, particularly those operating in California and accessible from tribal lands, subject to further scrutiny and potential litigation.

This Ninth Circuit ruling clarifies that online 'event contracts' offered by prediction markets like Kalshi can be deemed Class III gaming when accessible from tribal lands, even if the platform is headquartered elsewhere. Lawyers advising prediction market operators or tribal gaming entities should note this precedent regarding jurisdictional reach and the classification of such contracts, particularly in states like California with strict gaming regulations and tribal compacts. Compliance officers must review geofencing and jurisdictional compliance strategies to avoid similar legal challenges, especially given the potential for a Supreme Court review.

Source: Original reporting via The Associated Press