On Friday, three tribes from California petitioned the Ninth Circuit to reinstate their attempt to prevent Kalshi from offering sports-event contracts on their reservations while ongoing litigation over these markets proceeds.

Throughout the oral arguments, Kalshi maintained that its sports markets should be classified as federally regulated derivatives, not as traditional bets. The three-judge panel raised critical inquiries regarding this position, as reported by DeFi Rate.

The tribes involved include the Blue Lake Rancheria, the Chicken Ranch Rancheria of Me-Wuk Indians, and the Picayune Rancheria of the Chukchansi Indians. They are appealing a November ruling by U.S. District Judge Jacqueline Scott Corley, who denied their request for a preliminary injunction.

This injunction would have barred Kalshi from making certain yes-or-no sports contracts available to customers on tribal lands while the litigation advances.

This case represents one among many nationally concerning whether prediction-market sports contracts are exclusively governed by federal commodities law or if they can also be regulated as gambling by state and tribal authorities.

Conflict with Federal Law

Kalshi posits that the contracts traded on its federally registered exchange fall under the Commodity Exchange Act (CEA) and come under the exclusive authority of the Commodity Futures Trading Commission (CFTC).

In contrast, the California tribes argue that Kalshi is illicitly offering sports betting on their lands, thus violating the Indian Gaming Regulatory Act (IGRA).

IGRA typically mandates that Class III gaming, which encompasses sports betting, be conducted under an approved tribal-state compact or suitable federal frameworks.

While Picayune operates under a compact, Blue Lake and Chicken Ranch are permitted to conduct Class III gaming through procedures issued by the Interior Department following unsuccessful compact negotiations.

Giants Scenario Puts Kalshi in a Bind

Judge M. Margaret McKeown challenged Kalshi’s attorney, Grant Mainland, to visualize a situation where someone on tribal grounds bought a contract that paid out if the San Francisco Giants won, while concurrently attempting to place a comparable bet via DraftKings.

“In your perspective, would the first case be acceptable, the one from Kalshi, but not the DraftKings wager?” McKeown queried, as highlighted by DeFi Rate.

Mainland stated that federally designated contract markets are regulated distinctively from sportsbooks. McKeown pointedly responded, “So the answer is yes.”

Tribes Assert IGRA Remains in Effect

The tribes contend that federal oversight of commodities does not supersede IGRA. Tribal attorney Lester Marston informed the panel that actions viewed as lawful outside a reservation can become unlawful when executed on tribal land, according to records from the hearing.

Kalshi urged the court to overlook whether its offerings constitute gambling. Instead, Mainland concentrated on the legality of the tribes’ foundational IGRA claim.

IGRA empowers tribes to file lawsuits against Class III gaming occurring on tribal lands that violate an existing tribal-state compact. Kalshi argues that the tribes have failed to identify any section of a compact or federal gaming regulation that its contracts infringe upon.

This argument previously enabled Kalshi to avoid the injunction under Corley’s November ruling. Per Corley’s decision, Picayune’s compact and the federal procedures governing Blue Lake and Chicken Ranch outlined the types of gaming activities the tribes could facilitate but did not delineate what external entities like Kalshi could offer online.

Corley also concluded that the transactions in question fell under the Unlawful Internet Gambling Enforcement Act (UIGEA). This law explicitly exempts transactions conducted under the oversight of an entity registered with the CEA from its definition of a “bet or wager.”

Corley determined that this exemption included Kalshi’s contracts, even if accessed from tribal lands.

Pointing to UIGEA, the tribes argue it should not be construed as altering existing federal or state gambling regulations or any tribal-state compact. They argue that Corley’s interpretation mistakenly allowed the federal commodities framework to overshadow IGRA, lacking clear Congressional intent.

Future Developments

Friday’s discussions did not resolve the legality of Kalshi’s sports contracts on tribal reservations. The Ninth Circuit is only assessing whether Corley was justified in denying temporary relief.

A reversal would not permanently prohibit Kalshi or settle the primary lawsuit; instead, it might return the injunction request to Corley for further evaluation, which could ultimately compel Kalshi and its partners to restrict transactions that originate from the lands belonging to the three tribes during the ongoing case.