Indian Tribes Enter the Legal Arena Against Kalshi in New Jersey
In a significant move within the legal landscape, the federal court in New Jersey has become the focal point for a clash between Indian tribes and Kalshi, the prediction market operator. A coalition of nine tribal organizations and 60 individual tribes has officially entered the fray, submitting a compelling 45-page amicus brief backing New Jersey’s appeal against Kalshi in the Third Circuit Court of Appeals.
This development marks a pivotal moment for Indian Country, particularly after tribes have vocalized their concerns regarding prediction markets like Kalshi that started offering sports contracts early this year. The tribes’ discontent has been evident, especially through a recent public comment portal initiated by the Commodity Futures Trading Commission (CFTC), which has largely reflected tribal interests. In late May, there was a discussion facilitated by acting CFTC Chair Caroline Pham with tribal leaders, but the outcomes were minimal.
The brief elaborates on various legal issues, emphasizing how Kalshi’s sports event contracts potentially infringe upon tribal sovereignty as elucidated in the Indian Gaming Regulatory Act (IGRA). The legal representatives for the tribes, Scott Crowell and Joseph Webster, have previously alluded to possible legal actions against prediction markets.
Tackling IGRA Directly
A central argument in the brief revolves around the interplay between prediction markets and IGRA, the federal framework established in 1988 for gaming on tribal lands. IGRA delineates different classes of gaming, with Class III encompassing activities akin to traditional casino gaming, including sports betting. Tribes assert that sports betting falls under Class III, positioning it firmly within IGRA’s jurisdiction.
While the act does not specifically define sports betting, the tribes reference the Unlawful Internet Gaming Enforcement Act, which presents a clear definition that aligns with Kalshi’s offerings. The legal perspective from the tribes argues that every contract traded on tribal land constitutes a violation of IGRA due to its alignment with sports betting.
Examining Jurisdictional Boundaries
Another significant component of the discourse is whether the Commodities Exchange Act (CEA) supersedes IGRA, particularly concerning Kalshi’s rights to govern these contracts. Kalshi has indicated that any sports contract jurisdiction should lie with the CFTC, suggesting that IGRA’s implications could be nullified.
However, the tribes vehemently refute this notion, asserting that the CEA does not overshadow IGRA. They propose that for a conflict to exist, the CEA must pertain exclusively to lawful transactions within the CFTC’s authority—something they argue does not apply to sports contracts.
The tribes’ brief articulates that accepting Kalshi’s position would dangerously destabilize the entire framework governing tribal gaming, causing adverse effects to state revenues and employment opportunities.
The Special Rule Controversy
Opponents of prediction markets have pointed to the CEA’s “Special Rule” amendment as crucial. This regulation empowers the CFTC to assess contracts related to public interest activities, including gaming, which has been a significant point of contention.
Tribal representatives argue that Kalshi misinterprets the process, that the prohibition against gaming contracts is inherent, and does not require an additional review by the CFTC prior to enforcement.
Furthermore, they cite remarks from legislators involved in formulating the Special Rule, emphasizing their intention to curb gambling through event contracts, which they viewed as lacking genuine economic purpose.
A Shifting Narrative
As Kalshi has endured protracted legal battles, its previous defense strategies are beginning to backfire. Initially, the company successfully differentiated its election contracts from gaming, claiming no real economic significance for sporting events. However, allegations have emerged that Kalshi’s messaging has shifted as it expanded its offerings to include sports contracts, openly labeling them as forms of betting.
The tribes’ brief draws attention to numerous public statements made by Kalshi, noting contradictions that may undermine its legal standing.
In conclusion, the tribal coalition is urging the appellate court to overturn the lower court’s ruling that favored Kalshi, thereby reaffirming tribal gaming rights and ensuring that existing frameworks are respected amid evolving market dynamics.