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Three California tribes filed a lawsuit this week against Kalshi, Robinhood, and 20 unnamed “Doe” defendants, accusing them of illegal sports betting.
The tribes are asking the Northern California District Court to bar the companies from operating in the state.
The lawsuit reads:
“Kalshi is engaging in illegal sports gambling on the tribes’ reservations disguised as event contracts that allow people to speculate on the outcome of a sporting event.”
Tribes say 2 acts being violated
The Blue Lake Rancheria, Chicken Ranch Rancheria of Me-Wuk and the Picayune Rancheria of the Chukchansi Indians tribes claim the platforms are illegally offering sports betting on tribal land. The companies should use geolocation technology to block access on reservations, the tribes argue.
The lawsuit contends that Kalshi’s and Robinhood’s actions violate the Indian Gaming Regulatory Act (IGRA) and Racketeer Influenced and Corrupt Organizations Act, and that the two engaged in false advertising.
“Under the IGRA, if the gaming activity is not specifically prohibited by federal law and is conducted within a state which does not, as a matter of criminal law and public policy, prohibit such gaming activity, Indian tribes and the National Indian Gaming Commission have the exclusive right to regulate Class II gaming on Indian lands; and the Indian tribes and the states, pursuant to a compact, have the exclusive right to regulate Class III gaming on Indian lands.”
Sports betting falls under Class III gaming, according to the IGRA.
What is Kalshi?
Kalshi is a financial exchange and prediction market. Its users wager on different outcomes. These “event contracts” can be on almost anything. Users can wager on the US economy, pop culture awards, political outcomes, and even weather patterns. It also includes sporting events.
According to the lawsuit:
“While masquerading as novel commodities and futures products, these event contracts are, substantively, nothing more than illegal, unregulated wagers on the outcomes of sporting events.”
Technically, Kalshi is regulated. The company operates as a Designed Contract Market under the Commodity Futures Trading Commission. Kalshi’s event contracts (wagering options) are viewed as financial instruments that fall under federal commodities law, not under any state gaming laws.
Because of that, some states have pushed back, accusing the platform of skirting state sports betting regulations.
Kalshi CEO Tarek Mansour told Axios that it does not engage in gambling.
“I just don’t really know what this has to do with gambling.”
However, it’s worth pointing out that Kalshi has publicly branded itself as “The First Nationwide Legal Sports Betting Platform.”
Robinhood’s involvement
Where Robinhood comes into play is its partnership with Kalshi. The two recently formed a new prediction market hub.
Robinhood is an electronic trading platform best known for trading stocks, options, index options, and cryptocurrency.
Robinhood’s platform has not been viewed as a sportsbook, but because of its venture with Kalshi, it’s providing a futures market with similar offerings … similar enough to raise red flags for three of California’s tribes.
Tribes aiming at several gaming targets
Earlier this year, the Maryland Lottery and Gaming Control Commission sent a cease-and-desist letter to Kalshi, saying its activity was “indistinguishable” from sports betting. One could assume that outcome could help determine how things play out in California.
Likewise, Kalshi and the state of New Jersey are in a legal battle after state regulators sent a cease-and-desist letter to the platform.
Earlier this month, California Attorney General Rob Bonta declared daily fantasy sports illegal in the state. In the opinion, Bonta said all DFS games, including “pick’em” and draft-style contests, are prohibited in the state.
California tribes strongly supported Bonta’s position.
As of now, Underdog Fantasy and DraftKings have said they will continue to offer DFS in California, though Underdog pulled its pick’em games.
California lawmakers are expected to either codify the DFS ban with legislation or possibly legalize the games.
Legislation to ban sweepstakes casinos, also strongly supported by California tribes, is making its way through the state Senate.
