Kalshi Just Lost to a Federal Statute, and That Is the Part That Should Worry It

The two tribes that beat Kalshi on Wednesday own 66 acres between them. Blue Lake Rancheria is roughly 26 acres in Humboldt County. Chicken Ranch Rancheria of Me-Wuk Indians is roughly 40 acres in Tuolumne County. You could walk the whole of the territory now covered by the Ninth Circuit's reasoning in an afternoon.

It is still the worst day Kalshi has had in court, and the acreage is why nobody should be reassured by it.

Here is the structural fact. For eighteen months, every state that has moved against Kalshi — Nevada, Massachusetts, Maryland, New York, Arizona, Washington, Ohio, Connecticut, Michigan — has been met with the same argument, and it is a good one: the Commodity Exchange Act gives the CFTC exclusive jurisdiction over contracts traded on a designated contract market, so a state gambling statute cannot reach them. Sometimes it has won. Sometimes it has lost. It has always been available.

On Wednesday, in Blue Lake Rancheria v. Kalshi, Inc., No. 25-7504, a unanimous panel ruled against Kalshi under the Indian Gaming Regulatory Act. IGRA is not a state gambling statute. It is an act of Congress. Preemption is an argument about which sovereign wins; it has nothing to say when the other law is also federal.

What the panel actually held

Judge M. Margaret McKeown wrote for Chief Judge Mary H. Murguia and Judge Richard A. Paez. The case was argued in San Francisco on July 10 and filed September 16. It is published.

The tribes had to show three things under 25 U.S.C. § 2710(d)(7)(A)(ii): that Kalshi's sports event contracts are class III gaming activity, that the activity is located on Indian lands, and that it is conducted in violation of the instruments governing gaming there.

On the first, the panel refused to look at the label. IGRA's residual definition sweeps in everything that is not class I or class II; the National Indian Gaming Commission's own regulation puts "[a]ny sports betting and parimutuel wagering" in class III at 25 C.F.R. § 502.4(c). "The analysis is functional," the opinion says. "IGRA does not ask whether the operator labels the product a bet or an event contract, or something else. It asks what the activity looks like."

Then McKeown does something no appellate judge in this fight has done as plainly. She puts a person on the casino floor:

Imagine a user standing on the floor of the Blue Lake Casino Hotel who downloads Kalshi and DraftKings, a classic online sports betting app. On Kalshi, she buys a $100 contract that pays if the San Francisco Giants win. On DraftKings, she wagers $100 on the same outcome. The bettor, the place, the stake, and the contingency remain the same. The only thing that changes is Kalshi's vocabulary.

And the line that will be quoted in every brief filed against this company for the next two years: "Kalshi may reshuffle the cards, but it cannot change the hand."

On the second element, the panel held the contract is located on Indian lands when the user enters it from there — borrowing the logic of California v. Iipay Nation of Santa Ysabel, which held that servers on a reservation do not make an off-reservation bet legal, and running it backwards. Kalshi's headquarters in New York and its matching engine wherever it sits are beside the point. "Class III gaming," quoting Bay Mills, "is what goes on in a casino" and not "the off-site licensing or operation of the games."

David Z. Bean, chairman of the Indian Gaming Association, put the same holding in one sentence on Thursday: "Tribal sovereignty does not stop at the edge of a screen." That is a press statement and it is also, unusually, an accurate summary of the legal test.

The third element is where Kalshi's argument was strongest and where it went worst.

The trap California built

Blue Lake and Chicken Ranch do not have a tribal-state compact. They have secretarial procedures, prescribed by the Secretary of the Interior in 2024, and they have them because California would not negotiate in good faith. That is not editorialising; it is the holding of Chicken Ranch Rancheria v. California, 42 F.4th 1024 (9th Cir. 2022), in which this court found the state had spent years demanding that the tribes accept family law, environmental regulation and tort provisions unrelated to gaming. A mediator picked the tribes' last, best offer. California declined it. IGRA's backstop kicked in.

Kalshi's argument was that § 2710(d)(7)(A)(ii) gives tribes a cause of action to enjoin gaming conducted in violation of a compact, and that where only secretarial procedures exist, enforcement belongs to the Secretary alone under subsection (iii).

Follow that to its end. A tribe that successfully proved a state negotiated in bad faith would, as its reward, lose the private right of action that every compacted tribe retains. The panel put it in footnote 4: such a reading "would reward a state that refuses to negotiate with a tribe by denying that tribe a cause of action where it would otherwise exist." Secretarial procedures, the court held, are "functionally equivalent" to compacts, and the procedures here incorporate the tribes' own gaming ordinances. Chicken Ranch's ordinance, on file with the NIGC since 1999, is four lines and admits no daylight: "All gaming activities on the Rancheria (whether Class I, II, or III) are prohibited except as expressly authorized under [the ordinance]." Blue Lake's is identical.

Kalshi's fallback — that a compact is a contract and cannot bind a non-party — got the sharpest paragraph in the opinion. A compact "certainly has contractual features," McKeown writes, "and the general rule that a contract cannot bind a nonparty would carry substantial force if the Tribes sought contractual relief from Kalshi. But the Tribes do not seek contractual relief." They sought an injunction against class III gaming activity. Congress limited who may sue and what may be enjoined. "But it did not limit which entities may be enjoined."

Both federal statutes, harmonised

The UIGEA carve-out — that a transaction on a CFTC-registered entity is not a "bet or wager" — was Kalshi's inferential chain to the conclusion that its conduct on Indian lands sits outside the federal courts entirely. The panel answered it with the statute's own text: the UIGEA disclaims any intent to "alter[], supersed[e], or otherwise affect[] the application of [IGRA]" in civil proceedings relating to Indian lands. "The UIGEA thus curtails its own applicability."

On the CEA, the panel first noted it had already held in KalshiEX v. Assad that these contracts are likely not swaps at all, which ends the exclusive-jurisdiction argument before it starts. Then it said it would reverse anyway. "Exclusive jurisdiction" in 7 U.S.C. § 2(a)(1)(A) sits next to a list headed by the SEC; under ejusdem generis it means exclusive of other financial regulators, not of every federal statute in the code. Section 16(e)(2) preempts state and local gaming law by name. It does not mention federal law, and Congress does not displace one federal statute with another unless the two are "clearly incompatible." The CEA determines when a contract may trade on a DCM. IGRA determines whether class III gaming on Indian lands is lawful. Different questions.

The advertisement Kalshi gets to keep

The tribes lost one claim, and the reasoning should unsettle anyone who thinks the legal fog around this industry is bad for it.

Kalshi advertises that "Sports Betting [Is] Legal in all 50 States on Kalshi." The tribes said that is false advertising under the Lanham Act. The panel affirmed the district court's rejection, citing Coastal Abstract Service v. First American Title: absent a clear and unambiguous ruling from a court of competent jurisdiction, a layperson's statement about what a statute means is opinion, not fact.

Then: "The legality of Kalshi's products remains unsettled, and that state of affairs forecloses a viable Lanham Act claim."

Read those two sentences against the other thirty-odd pages. The same opinion that says these contracts are likely illegal class III gaming says the claim they are legal everywhere cannot be false, because nobody has finally settled it. Kalshi has litigated in a dozen jurisdictions, produced a circuit split, and generated exactly the unsettledness that now protects its marketing. That is not a cynical reading. It is the doctrine working as written, and it means the fog is an asset on the balance sheet, not a liability.

The strongest case that this is smaller than it looks

Take it seriously, because it is not weak.

This is a preliminary-injunction appeal decided on likelihood of success. The panel remanded to Judge Jacqueline Scott Corley to reach irreparable harm, the balance of equities and the public interest — the other three Winter factors — "in the first instance." She denied the tribes the first time. She could find the remaining factors cut against them, and no injunction would issue at all. The Lanham Act claim is gone. A third tribe, Picayune Rancheria of the Chukchansi Indians, dropped out by stipulation after oral argument. And the Ninth Circuit has a rehearing petition pending in the parallel line of cases, with the Third Circuit still on the other side of a split that the Supreme Court may resolve in a way that makes all of this academic. Lester Marston, who argued for the tribes, told Courthouse News he expects the Court to be involved before February.

All of that is true, and none of it touches the thing that changed. Likelihood of success is, as the panel says, "the most important Winter factor," and it is the one now resolved against Kalshi in a published Ninth Circuit opinion. Tribes in Wisconsin and New Mexico are litigating the same theory and now have a precedent. The amicus caption in this case runs to Massachusetts, California, 25 other states and the District of Columbia on one side of the ledger, alongside the Indian Gaming Association, the National Congress of American Indians and fifteen federally recognised tribes, with the American Gaming Association filing separately. That is the casino industry and more than half the country's attorneys general pointed at the same target.

And a cert grant does not help as much as Kalshi needs it to. The question the Supreme Court would take is whether the CEA preempts state gaming law. Even a clean win on that question leaves Blue Lake standing, because Blue Lake is not about state law.

Where we stand

We have argued in this space against Arizona's criminal charges, and we still do. Prosecuting a federally licensed exchange and its executives is a category error, and the remedy for a mislabelled financial product is not an indictment.

This is a different thing, and we are not going to pretend otherwise because the outcome is inconvenient. A civil injunction, sought by the sovereign whose land the activity occurs on, under the statute Congress wrote for exactly that situation, is the ordinary machinery of law. The panel applied a functional test — what is the activity, not what is it called — and it reached the answer any honest observer reaches. Kalshi sells point spreads, game totals, player props and parlays. Those are the words. They are also the products.

The company's response has been that it may appeal. It should think harder than that. The argument it has spent two years building is a preemption argument, and it has now run into the one kind of law preemption cannot move.

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Editor's note: TrueEdge builds odds tools and earns affiliate commissions from licensed sportsbooks, which compete directly with the prediction-market exchanges discussed here. This piece argues that a ruling against one of those exchanges was correctly decided. Weigh the conflict.