Kalshi Invokes Tribes’ Bet Location Argument in Defense Against California Lawsuit

Three California gaming tribes are suing Kalshi for what they say is illegal gambling on their land, but ironically, the prediction market’s defense rests in part on an interpretation of the Indian Gaming Regulatory Act (IGRA) that’s necessary for similarly positioned tribes to offer online gambling in other states. The federal Bureau of Indian Affairs (BIA) now embraces the idea that online bets “take place” wherever they’re received, not at the bettor’s location. Yet, in this case, it would be convenient for the Blue Lake, Chicken Ranch, and Picayune Rancherias to argue the converse.

The three tribes in question operate retail casinos in California and believe Kalshi — and its partner, the trading platform Robinhood — are infringing on their exclusivity over most forms of gambling in the state. There are two components to their suit. One addresses the product itself, the other the way Kalshi advertises it.

Kalshi offers peer-to-peer trading of contracts that pay out if a given proposition holds true. The propositions span almost any conceivable topic, but the tribes are especially interested in the contracts on sporting event outcomes. California tribes shot down one attempt to legalize sports betting in the state because they don’t want to share the market with non-tribal companies. However, they may want to revisit the issue eventually if it is on more favorable terms.

The advertising portion of the suit focuses on Kalshi’s claims that “sports betting is legal in 50 states on Kalshi.”

Blue Lake Rancheria et al argue that this isn’t true, since sports betting remains illegal in California. Kalshi’s lawyers say that the claim pertains only to their specific product, and that such claims of a product’s legality are generally not actionable under false advertising laws because they are a matter of interpretation.

Kalshi: IGRA, UIGEA, and CEA Can Co-Exist

The other portion of the suit targets Kalshi and Robinhood. Both offered similar responses against the possibility of a preliminary injunction that would force them to withdraw their products from California or block users on tribal land.

When it comes to the legality of the product itself, there are essentially two questions in play:

• Are Kalshi’s contracts effectively a sports betting product?
• If so, is the betting taking place on tribal land?

Kalshi has already argued in various courts that its products are federally-regulated financial derivatives, subject to the Commodity Exchange Act (CEA), not state-level gambling laws. That’s how the Commodity Futures Trading Commission now officially sees them.

For purposes of fighting the preliminary injunction, however, Kalshi focuses on the second portion. Here, there are two relevant laws: IGRA and the 2006 Unlawful Internet Gaming Enforcement Act (UIGEA).

Although each of those laws takes a contrary view on where a bet takes place, Kalshi claims that they can coexist because UIGEA explicitly exempts products regulated under CEA.

UIGEA vs. IGRA

Unlike other US gambling laws, UIGEA was written in the internet gambling era and specifically designed to address the complexities that technology brings. Specifically, it declared that bets placed by US residents with offshore sites were still taking place on US soil and subject to US law.

However, it also says it doesn’t apply to products regulated under CEA by the CFTC, which includes Kalshi. Its definition of “betting,” as quoted by Kalshi, explicitly excludes:

any transaction conducted on or subject to the rules of a registered entity or exempt board of trade under the [CEA]

On the other hand, IGRA predates internet gambling, so it lacks specificity about those issues. At the same time, it repeatedly specifies that it concerns gaming “on tribal lands.”

Florida’s sports betting model has established some precedent there, though the concept hasn’t been fully tested in court. It granted a monopoly to the Seminole Tribe and its Hard Rock Bet platform. In order to avoid the need for a public referendum on sports betting, state lawmakers simply passed a law interpreting “on tribal land” to mean “received by servers on tribal land.” Having done that, a compact with the tribe was all that was needed under IGRA.

In its recent rulemaking, the BIA has endorsed that view. Kalshi leans on that interpretation to say its product is also not subject to IGRA because its servers are not on tribal land. In order to argue otherwise, the California tribes would need to take a position against their peers in other states and, potentially, against their self-interest if they hope to participate in a future California online sports betting market.

To summarize, Kalshi argues that for purposes of this case, it’s explicitly exempted from UIGEA, implicitly from IGRA due to the current interpretation of the phrase “on tribal land,” and therefore governed only by CEA, under which it has a license to operate.

US Gaming Law is Increasingly Riddled by Paradox

To grant the preliminary injunction, the court would need to find that the tribes are highly likely to win the case. By the same token, denial of that request wouldn’t mean they’ve lost, only that Kalshi and Robinhood can continue to operate as the case proceeds.

The tribes will have a difficult needle to thread if they want to pursue the IGRA component of the case. It would be counterproductive to protect their interest in a hypothetical future sports betting market by shooting down the assumptions necessary to create that market in the first place.

However, this sort of double-edged scenario is increasingly common in US gaming law. Politicians have broadly failed at clarifying laws that were written before the Internet existed, or was as important as it is today. Meanwhile, gambling technology and business model innovations are progressing faster than lawmakers could keep up, even if they were trying to.

Because there’s so much money to be made in gambling, every company without access to a market is motivated to interpret legal ambiguities in a way that allows a loophole into it. However, once in, they’re motivated to try to close the same loopholes to keep out the competition.

Marketing adds another layer of paradox. Based on the language of its ads, Kalshi clearly wants to be seen as “a betting product,” except when it’s legally important not to be. Other gambling-adjacent products like sweepstakes poker, player-versus-house fantasy sports, and real-money skill gaming all play elaborate linguistic games to appeal to gamblers while maintaining their legal position.

One can’t fault either Kalshi or the tribes too much, here. It’s the nature of the ambiguous legal context that everyone wants words to mean one thing at one moment and another thing the next, based on whatever is currently convenient.