As tribal leaders meet this week in Washington, D.C., the Indian Gaming Association (IGA) is continuing its push against sports prediction markets.
IGA hosted a webinar this past week, featuring gaming attorney Daniel Wallach, and the issue will be front and center in Washington at the National Congress of American Indians executive council.
“The lawsuits are piling up,” Victor Rocha, IGA conference chairman, said during the webinar.
Most recently, a Nevada federal court temporarily barred Polymarket from offering sports betting contracts in the Silver State. It’s one of several states that have taken legal action against the prediction markets. States argue the operators can’t derive their authority as they claim from the Commodity Futures Trading Commission, but must instead seek state licensing to offer what they say is gambling.
Illinois, Massachusetts, Tennessee, Arizona, Connecticut, Maryland, New Jersey, Ohio, and Montana are also fighting back. Tribes in California and Wisconsin are among those that have filed lawsuits. The CFTC has stayed out of the legal fights and hasn’t formally taken a position, but that might change to help the prediction markets.
“The losing streak (against prediction markets) finally ended with a Maryland federal court ruling on Aug. 1st,” Wallach said. “That was the first time a federal district court denied Kalshi’s motion for preliminary injunction and, frankly, called out Kalshi on its prior inconsistencies and judicial statements. It had taken the position in all its earlier cases that the gaming category only includes sports betting and Congress didn’t want sports betting to be conducted on derivative markets. That was the first court to call Kalshi to task on that and a key driver to triggering the avalanche of new lawsuits.”
Wallach said the involvement of tribes has made a big difference in the cases and he praised Nevada for making the “tactical decision” to hire outside counsel Mayer Brown, with experience before the U.S. Supreme Court, instead of relying on in-house attorneys who he said handled prior litigation poorly. A preliminary injunction in favor of Kalshi was dissolved in November with the new counsel and allowed Nevada to enforce a cease-and-desist order.
“Kalshi relies on a strained reading of the already-convoluted Commodities Exchange Act (CEA) in an attempt to evade state regulation,” U.S. District Court Judge Andrew Gordon said in his ruling. “Kalshi’s interpretation would require all sports betting across the country to come within the jurisdiction of the CFTC rather than the states and Indian tribes. That interpretation upsets decades of federalism regarding gaming regulation, is contrary to Congress’ intent behind the CEA, and cannot be sustained.”
Wallach said there were only three states in litigation with Kalshi and than has ballooned to 12, triggered “by the tsunami of the Maryland ruling, aided and abetted by Nevada’s outside counsel hire and tribal involvement beginning with Maryland.
Wallach said the inability to geofence where prediction markets are offered “is falling under its own weight.” Companies like Crypto.com and sports betting operators entering the prediction markets are geofencing, he said.
“In some weird and perverse way, FanDuel and DraftKings’ joining the prediction markets gave the state and tribal cases a boost. They showed that not only is geofencing not burdensome, but we can do it at the flip of a switch,” Wallach said. “A strength of Kalshi’s legal argument — that geofencing was impossible and a burden — is now their Achilles heel in all these state and federal cases.”
Wallach said Kalshi has even argued in court papers that the Wire Act allows betting to occur across state lines, while everyone in the gaming industry knows the 1960s federal legislation doesn’t provide a safe harbor for out-of-state sports bets.
There are challenges, Wallach said. The prediction market operators are represented by top-tier law firms and have backing from Silicon Valley, Wall Street, the White House and even the CFTC leadership.
“I hate to call it David versus Goliath, but (we’re) going against the Trump Administration, the pillars of Wall Street, and the legal community,” Wallach said. “This is an incredibly challenging battle for the states and tribes, which by contrast aren’t using outside counsel except for Nevada and Ohio, while they’re a well-oiled machine working collectively. Prediction markets have a ground game in the courts and are now lobbying Congress through their new trade association. By contrast, the states are acting individually and tribes are participating directly only by filing briefs.
Wallach said tribes are in a holding partner until the Ninth Circuit Court of Appeals hears oral arguments in April to potentially reverse what he called “an insanely wrong” San Francisco federal court ruling that the Indian Gaming Regulatory Act doesn’t apply to internet gaming on tribal lands. “Once that case gets reversed by the Ninth Circuit, that might open the floodgates for more tribal-backed lawsuits against companies like Kalshi.”
Rocha said IGA will be discussing the lawsuits at its tradeshow in San Diego at the end of March.
Wallach contends the states have made what he considered a “strategic blunder” by sending cease-and-desist letters to prediction market operators that gave companies like Kalshi the opening to go to federal court, file lawsuits, and narrowly frame the issue around the jurisdiction of the CFTC.
Meanwhile, “States like Massachusetts and the Nevada go into state court and sue the companies directly in civil-enforcement actions, placing the legality of sports event contracts under state law,” Wallach said. “When the dust settles, we’re not looking at an avalanche of state victories and only one case back in New Jersey on appeal now that has ruled in favor of Kalshi. The changing of the guard here occurred when the Maryland federal court broadened the analysis on whether these contracts are swaps by focusing on the overarching issue of Congressional intent. The question is did Congress, when it enacted the Dodd Frank Act in 2010 to give the CFTC exclusive jurisdiction over swaps, intend that law to displace state sports gambling laws? Under that type of analysis, Kalshi is going to lose 99 out of 99 times.”
In 2010, Congress had several laws in place, such as the Wire Act and PASPA, which specifically prohibited interstate sports gambling, Wallach said.
“It reflected Congress’s policy of disfavoring sports gambling. It defies logic to think at the time Congress expressly prohibited sports betting across state lines that somehow it created a secret side door to allow the CFTC to become the nation’s sports betting regulator without using clear and explicit language in making that intent clear. That’s the uphill battle that Kalshi faces when it has to litigate against the backdrop of Congress’s intent in 2010.”
Wallach said Congress made a mistake in creating an unintended loophole by not imposing an explicit ban on gaming contracts and giving the CFTC the authority to prohibit those contracts. In 2010, Congress didn’t categorize different types of gaming, but left it to the CFTC to determine which types of contracts were gaming. It was clear from Congress, however, that sporting events were not allowed, Wallach said.
Wallach said one issue to watch is if CFTC Chair Michael Selig, who has been a backer of sports betting prediction markets, provides the agency formal approval of sports event contracts and a regulatory framework, including integrity monitoring and responsible-gambling and anti-money-laundering measures.
“Michael Selig is not only going to champion sports event contracts, but could pass rules allowing it,” Wallach said.
The early wins by Kalshi have meant prediction markets will continue through at least the end of 2027, Wallach said. The issue may ultimately be decided by the U.S. Supreme Court in 2028 or by Congress, he added. There’s nothing state legislatures can do.
“The CFTC can place their thumb on the scale, but it’s an issue that will be decided by the courts,” Wallach said. “If the courts rule that federal laws don’t preempt sports gambling laws, it’s game over, unless Congress intervenes and amends the Commodity Exchange Act or passes a federal sports gambling regime that provides legal cover for prediction markets. Right now, the game is in the courts, but ultimately it may be decided by Congress.”
