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Down go the prediction markets like Kalshi and Polymarket. They just took a one-two punch from California judges. It’s not a knockout, but it could end up being one over time.
That’s because a judge ruled the prediction platforms are violating the federal Indian Gaming Regulatory Act by offering “sports contracts.” That’s a federal law so the fallout can extend far beyond California’s betting market. There are legit national implications here.
Keep on reading and we’ll get to the bottom of the latest ruling. Stick around to see how could change the entire legal betting industry in the United States.
California Tribes Get A Court Order Against Kalshi
Blue Lake Rancheria and Chicken Ranch Rancheria of Me-Wuk Indians have been fighting to get Kalshi’s sports contracts off their lands. Welp, they finally got a judge to agree with them. Earlier this November, U.S. District Judge Jacqueline Scott Corley granted a preliminary injunction blocking those sports contracts on the plaintiff tribes’ Indian land… while the lawsuit continues.
That last part matters. This isn’t a ban across all of California. It only applies to tribal land. So if you’re in downtown Los Angeles, Kalshi still works. But on tribal land, they are off limits until the lawsuit is settled. The ban might stay in place after that, but we won’t know til an official ruling is made.
This is massive progress for the tribes. You see, Judge Corley actually denied their request for an injunction last November. The tribes appealed, and in September, a three-judge Ninth Circuit panel found they were likely to succeed on their claims under the Indian Gaming Regulatory Act. The appeals court sent the case back to Corley, who has now granted the order she initially denied.
So what changed? The Ninth Circuit determined that Kalshi’s sports contracts constitute Class III gaming under that federal law. It also found that federal commodities law — the protection Kalshi keeps pointing to in lawsuit after lawsuit it faces countrywide — doesn’t override the tribes’ authority to regulate gambling on their lands.
Kalshi had already started blocking sports contracts on three reservations in late September. So you might be wondering, wasn’t the company already doing what the tribes wanted?
Well… the tribes disputed whether those blocks actually worked. They alleged tribal gaming officials were still able to place bets from their lands without much hassle. And there’s a difference between Kalshi voluntarily restricting access and a judge ordering it to do so. Now the company has to answer to the court about its compliance.
The tribes must provide Kalshi with maps identifying the affected territories by November 13. Kalshi then has until November 25 to submit a report detailing its compliance efforts.
Kalshi’s Federal Defense Has A Federal Problem
One ruling in California isn’t a death sentence for Kalshi across the country. However, it has the potential to create a dangerous precedent for them.
This is because Kalshi’s argument has been pretty consistent: its sports contracts are financial products regulated by the Commodity Futures Trading Commission. This federal agency has more power than any state gambling regulators.
But… the tribes are coming at it from a different direction. The Indian Gaming Regulatory Act is also a federal law, and it governs gambling on Indian lands up and down the United States. This law goes to to toe with the CFTC because of that federal oversight.
And California’s tribes aren’t the only ones going down this route. The Ho-Chunk Nation has brought a similar lawsuit against Kalshi in Wisconsin, which is in the process of expanding. A federal judge allowed its claims to proceed, though the tribe didn’t get the preliminary injunction it wanted.
We fully expect more and more tribes to follow this playbook. If California courts saw it as a federal violation, you have to imagine other state courts might think the same. Tribes see prediction markets as an existential threat to their sovereignty, so they’ll do what it takes to keep them away from their markets.
California Is A Market Kalshi Can’t Afford To Lose
It would be one thing if this ruling came in, say, New Mexico (no offense to them!). But this is the “white buffalo” of the industry: the Golden State. It’s a state where sports betting apps are locked out of, but prediction markets are allowed. That dichotomy has been a huge growth lever for the likes of Kalshi.
Get this, Eilers & Krejcik Gaming — the top consulting firm in the space — estimated California and Texas together accounted for 43% of Kalshi’s trading volume. That’s an estimate based on search and advertising data, mind you, not Kalshi opening its books. Still, it helps explain why the company has so much riding on these legal fights.
And those fights are producing mixed results as of late. Kalshi took another hit this month when the Ninth Circuit let Nevada enforce its gambling laws against it. Ohio and Tennessee have also secured favorable rulings, while Kalshi has won protection in Illinois and New Jersey. As you can see, it’s been a mixed bag for the top prediction markets.
But to reiterate, Kalshi still has access to the majority of California. This block is only for tribal lands, which are more sparsely populated than metro areas anyway. But… prediction markets now have a “joker’s card” to their long-standing argument of federal protection. That should scare the living daylights out of them, especially with Democrats regaining power in Washington.
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