Three California tribes file suit against prediction markets Kalshi and Robinhood
The suit alleges that these sites are engaging in illegal sports betting
Sports betting in California is in violation of IGRA
Three California tribes have filed suit against prediction markets Kalshi and Robinhood. The legal action alleges that the prediction market sites are engaging in illegal sports gambling in California.
The three federally-recognized Indian Tribes serving as plaintiffs in the suit are the Blue Lake Rancheria, the Chicken Ranch Rancheria of Me-Wuk Indians, and the Picayune Rancheria of the Chukchansi Indians.
The suit, filed at the California Northern District Court, is seeking a preliminary and permanent injunction against the defendants designed to prohibit the sites from partaking in illegal sports gambling on the Tribes’ respective reservations. Lawyers for the tribes argue that doing so is in direct violation of the Indian Gaming Regulatory Act (IGRA).
Tribal gaming acts entered into in the state of California specifically prohibit sports betting of any kind taking place on tribal reservations or Indian lands.
Derivative trading company Robinhood formed a partnership with Kalshi to open a prediction market on the Robinhood investment platform. Both companies have headquarters in Delaware.
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Prediction markets are operating in a grey area of gambling regulations
This lawsuit is just the latest salvo to be fired in what has been an ongoing battle of semantics between operators of prediction sites, state gambling regulatory bodies, and legal and regulated betting sites operating in the US market.
Regulators and operators of legal gambling sites insist that these prediction markets are nothing more than sports betting sites in disguise. These prediction market sites offer the counterargument that derivative trading in the prediction market is about traders setting a market. They insist that they are already being regulated as trading instruments.
All of the prediction markets in the US market currently operate under the regulation of the US Commodities Futures Trading Commission (CFTC).
Tribes are taking the offensive against prediction market sites
This strategy of going on the offensive is standard operating procedure for California's tribes when it comes to gambling regulatory matters. It's proving to be a very effective strategy.
In 2022, tribal gaming organizations lobbied heavily and successfully against Proposition 27. A referendum included as part of the 2022 US midterm elections, Proposition 27 asked California voters whether they wanted the state to legalize online sports betting to be run by state racetracks. It wound up suffering a sound defeat, with 82.18% voting against Proposition 27.
There is no legal and regulated online gambling in California. The state's tribes control land-based casino gambling, operating 69 brick-and-mortar casinos across the state. However, all of California’s poker rooms are under the control of commercial entities. Both sides are seeking to gain control of the lucrative online gambling industry in the largest state in the USA in terms of population. California is home to 38 million people.
In the 71-page claim against Kalshi and Robinhood, 25 pages argue a separate RICO allegation. The tribes argue that by bringing illegal online gambling across state lines, the companies are committing wire fraud.
None of the allegations has been proven in court.
The federal government remains on the fence regarding prediction markets
Following the 2024 Presidential election, the Trump administration was promising clarity in regards to the legality of prediction markets. Seven months later, all parties involved in this debate are still awaiting that clarity.
Caroline Pham is currently serving as the temporary commissioner of the FCTC. Brian Quintenz is under consideration by Congress to fill the vacancy on a full-time basis. Quintenz served as commissioner of the FCTC from 2017-21.
In the absence of federal oversight, expect these legal battles to continue to be fought at the state level. Previously, Kalshi won a temporary injunction in New Jersey preventing a ban on prediction markets in that state.
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