Writing that allowing Kalshi and other prediction markets to offer sports event contracts that mimic sports betting will “have a significant impact on their or their member tribes’ rights regarding gaming on Indian lands, as well as Indian gaming and tribal governmental revenue as a whole,” a group of more than 65 tribal entities Monday filed an amicus brief in Kalshi’s case against the state of New Jersey.
The group, which refers to itself as the Tribal Amici, asks the court to reverse its preliminary injunction and halt the trading of sports event contracts in New Jersey.
Turns out, the tribes were the start of a flood of amicus briefs backing New Jersey. Tuesday, a group of 34 states, the American Gaming Association, and the Casino Association of New Jersey filed briefs arguing for states’ rights and against allowing Kalshi to operate. In addition, the financial literacy group New Finance Institute (NFI) makes the argument that Kalshi’s sports event contracts never should have been allowed in the first place.
The lawsuit, initially filed in U.S. District Court in New Jersey in March, was appealed in May to the U.S. Court of Appeals for the Third Circuit. Kalshi filed the suit in response to receiving a cease-and-desist letter from New Jersey to stop offering its product in the state. It is one of three cases filed by Kalshi being considered in federal courts around the U.S., and is being closely watched by stakeholders across the gambling industry.
A tribal source previously told InGame that it believed the strongest of the current cases was the one in New Jersey. It’s possible that the Tribal Amici and others will file amicus briefs in other states, as well.
Kalshi response due late July
The nation’s tribes — more than 500, many of whom offer Class III gaming across the U.S. — were granted exclusivity to Class III gaming by the 1988 Indian Gaming Regulatory Act. Tribes can offer land-based or digital casino-style gaming, including sports betting, on their reservations under IGRA.
As digital wagering has proliferated, tribes have partnered with commercial operators or gone it alone to offer digital wagering in multiple states. It is widely understood that legal online sports betting is the foundation on which legal online casino legislation will be built, so for tribes and states, there is much at stake.
The Indian Gaming Association, California Nations Indian Gaming Association, National Congress of American Indians, and Indian gaming associations from Arizona, Oklahoma, and Washington, as well as 60-plus individual tribes, signed off on the amicus brief.
As the case moves forward, the next key date is July 24, when Kalshi must file a brief in response to the state’s contention that the Third Circuit should overturn a lower-court ruling that is allowing Kalshi to continue to operate in the state.
Kalshi: CEA takes preference
As Kalshi’s offerings have taken hold — from winning the right last fall to offer presidential election betting to expanding around the Super Bowl to offer sports event contracts — Indian Country has been wrestling with how to fight what it calls an encroachment on its “exclusive sovereign right” to Class III gaming. Options to fight back include filing legal briefs and sending out cease-and-desist letters. To date, no tribe has sent a cease-and-desist letter, but tribes could ask for their reservations to be geofenced to keep Kalshi out.
That the federal government is allowing Kalshi to offer sports event contracts anywhere contradicts IGRA. On the one hand, IGRA gives the tribes exclusivity to gaming. There is no question that IGRA explicitly says that on-reservation gambling belongs only to the tribe whose land it is on.
“KalshiEX LLC’s (“Kalshi”) unlawful and unfair entrance into the gaming market has adversely impacted tribal gaming revenue and the benefit of tribes’ bargained-for compacts,” lawyers wrote in the amicus brief. “Additionally, by offering its so-called sports event contracts under the guise of commodity trading pursuant to the Commodity Exchange Act (“CEA”), Kalshi impedes tribes’ inherent sovereign right to regulate gaming activity on Indian lands. Contrary to Kalshi’s arguments: (1) the CEA does not govern its gaming-related sports event contracts; (2) such contracts are expressly prohibited by the CEA and Commodity Futures Trading Commission’s (“CFTC”) own regulations; and (3) federal, state, and tribal gaming laws therefore
apply to the contracts (including IGRA).”
On the other hand, Kalshi argues, the Commodity Exchange Act (CEA), which governs prediction markets, allows for sports events contracts anywhere in the U.S.
Tribes: CEA does not ‘preempt’ IGRA
In simpler terms, the tribes maintain that the CEA does not “preempt” IGRA. But in a lawsuit against the state of Maryland, Kalshi’s lawyers suggested it does, saying “IGRA’s definition of ‘gaming’ does not refer to sports event contracts, and even if it did, the CEA’s exclusive jurisdiction provision would displace any attempt by tribes to regulate those contracts.”
Indian Country counters by saying that the CEA in no way “preempts, amends, diminishes, or even
conflicts with IGRA.”
The CEA expressly prohibits the offering of markets related to “terrorism, assassination, war, gaming, or an activity that is unlawful under any State or Federal law.” Despite that, the Commodity Futures Trade Commission (CFTC) has sat back and allowed the sports event contracts. During a conference call with tribal representatives May 30, Acting CFTC Chair Caroline Pham said the agency in its 50 years of existence has never denied a proposed market.
The financial-literacy group NFI, in its brief, wrote: “This is a case of agency inaction, not preemption. After watching the prediction markets for over 30 years and doing very little, the CFTC — faced with the prospect of nationalized sports betting through federally regulated markets — for the second time — chose, for the first time, not to utilize the most powerful tool that Congress had empowered it with: Its discretionary review authority on event contracts. The court should reverse not on the basis of preemption, but of the CFTC’s failure to act.”
The 34 U.S. states plus the District of Columbia and the Mariana Islands that joined to file an amicus brief continue to argue that control of digital sports betting belongs with states. Among the states involved are three of the biggest for legal sports betting — New York, Illinois, and Pennsylvania.
Siding with New Jersey — and in lockstep with the tribes — the states’ lawyers, led by Nevada Attorney General Aaron Ford and Ohio Attorney General Dave Yost, wrote, “When Congress removes the States’ historic police powers, it does not whisper in the dark of night. Rather, courts expect Congress to speak clear as day when it intends a dramatic shift in our country’s traditional balance of power.”
A tribal source Tuesday shared an overview of the states’ brief and wrote that “the regulation of gambling is a core function of state police powers with centuries of precedent” and that “only states have the infrastructure and legal frameworks to protect public health, enforce age limits, ensure operator suitability, and respond to community concerns.”
Are regulations compromised?
In the tribal brief, lawyers described how tribal sovereignty is at risk. In addition, they and the states point out that CFTC-backed sports event contracts do not adhere to stringent state and tribal regulation around consumer protections and responsible gambling.
Tribal lawyers also contend that sports event contracts do not fit the CEA definition of “swaps” or “excluded commodities” because such instruments depend on the “occurrence” or “non-occurrence” of an event. A sports event contract has nothing to do with whether or not the game or match is played, but its outcome.
Tribal lawyers also argue that CEA’s self-certification mechanism that permits registered entities to introduce “new financial instruments” ultimately allows companies like “Kalshi to exercise extraordinary sovereign regulatory authority — approving, implementing, and launching financial instruments with nationwide economic impact — without any meaningful federal oversight.”
This would fly in the face of the strict regulations that tribal and state lawmakers, regulators, and the gambling industry as a whole have put into place in legal gaming states.
For tribes, Kalshi is just the next fight
No matter the arguments, Indian Country through its amicus brief has entered another battleground on which it is intent on preserving its sovereignty. Since the Professional and Amateur Sports Protection Act was overturned in 2018, tribes across the U.S. have been taking on the fight.
In California, tribes spent $250 million to defend their sovereignty against a 2022 commercial operators’ initiative. In Florida, the Seminole Tribe helped kill a similar initiative and ultimately compacted with the state for exclusivity. In Oklahoma, tribes won’t even consider backing a legal digital gambling bill or recompacting until Gov. Kevin Stitt term-limits out.
Tribal lawyers make multiple arguments around the idea that the federal government, in particular Congress, has a long-standing commitment to preserving tribal sovereignty and gaming exclusivity. They point to Kalshi’s ability to offer betting on tribal lands as a way to “diminish tribal bargaining power in compact negotiations and diminishes the value of the tribes’ bargained-for benefits by violating the tribes’ exclusive compact rights.”
In addition, they claim, “Kalshi tramples upon established federal Indian policy by usurping the rights of tribes to regulate gaming on Indian land and by siphoning revenue from tribal governments. The IGRA mandates that tribes have the exclusive right to regulate gaming on Indian lands, and sports betting is lawful only if conducted in conformance with a tribal-state compact. 25 U.S.C. §§ 2701(5), 2710(d)(1)(C); 25 C.F.R. § 502.4(c). Kalshi violates this exclusive right. Kalshi’s intrusion is particularly dangerous because it does not comply with any gaming regulations that protect consumers, ensure fairness, or mitigate negative gaming impacts. In fact, Kalshi’s ‘self-certified’ sports betting products are wholly unregulated by any gaming authority.”
As the legal cases play out, this battleground could be slightly different than previous ones. It appears that Indian Country will have allies in its fight against Kalshi. Tribal leaders, state attorneys general, key industry groups, and others are in alignment. That alone should send a message.
