The Washington Indian Gaming Association hosted the Northwest Indian Gaming Conference and Expo, which included a panel titled “Gray Market Gambling: Navigating the Threat of CFTC-Regulated Platforms and Sweepstakes” on Tuesday. The session covered the overlap that sports event contracts have with the gaming industry, how tribal gaming could be adversely impacted, and what options were available for tribes to fight back against sports contracts.
Tribal gaming organizations have already found success in their fights against sweepstakes companies. Sweepstakes casinos use dual currencies to circumvent gambling regulations like gaming licenses or state taxes. States like New York are in the process of passing bills prohibiting companies that use workarounds to offer gambling products without gambling licenses.
“I have never seen something develop and blossom so quickly that is a fundamental existential threat, not just to tribal gaming and tribal regulation of gaming, but [also] state regulation of gaming,” tribal lawyer Scott Crowell said during the panel. “The argument that these guys have seized upon, and so far, federal court judges in Nevada and New Jersey have agreed with them, is that [event contracts are legal] because [they’re] under the jurisdiction of the Commodity Futures Trading Commission (CFTC).”
From sweepstakes to prediction markets
Sports contracts pose a new challenge to tribal gaming enterprises. CFTC-regulated prediction markets are legal and offering their products with the blessing of a federal regulator. Rather than skirting regulation, prediction markets like Kalshi and Crypto.com can point to regulatory regimes they have worked hard to conform to and comply with.
The stakes for tribal interests are high. Losing gaming revenue reduces direct investments that tribes can make in their communities, from basic infrastructure like sewage and plumbing to medical clinics and law offices that can attract and retain college graduates. Whether sports contracts reduce profits or threaten the gambling industry’s existence, Indian tribes with gaming interests maintain they have the most to lose from disruption in the sports betting industry.
“Their victories in courts are really quite ominous, and this is not a ‘Oh, well, we’ll get by this one too,’” Conference Chair of the Indian Gaming Association Victor Rocha said. “This is different, and we have to take it extremely seriously, and beat it to the ground.”
Organized tribal legal involvement against sports event contracts poses new questions
On the same day as the aforementioned panel, the Indian Gaming Association filed an amicus brief against Kalshi in the Third Circuit Court of Appeals. Sixty tribes and nine tribal organizations signed onto the brief in support of New Jersey’s appeal in its case against Kalshi. The American Gaming Association also filed its own amicus brief against Kalshi in the same court.
The tribal amicus brief argued that Kalshi’s sports contracts violate the Indian Gaming Regulatory Act (IGRA), the federal law regulating gambling on tribal lands. IGRA sets out the process for creating a tribal state compact, an agreement between the state and tribe about what gambling will be offered on reservations and under which terms. The brief argued:
“It is inconceivable that Congress would have granted boards of trade the authority to offer and accept sports betting throughout the United States—including on Indian lands—without explicitly stating as much, especially in the face of comprehensive statutes and regulations governing gaming on Indian lands. It is axiomatic that ‘Congress . . . does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions—it does not, one might say, hide elephants in mouseholes.’”
Legal discussions around federal law
Trading on speculative derivatives like sports event contracts is functionally similar to gambling. However, event contracts can provide additional hedging utility, paying out if an event occurs and acting as insurance against events that could impact a manager’s portfolio or a trader’s wallet.
While Kalshi’s early District Court victories in Nevada and New Jersey were based on federal preemption of state regulations, the tribal brief argues that Kalshi is running afoul of another federal law. This argument is built in detail and poses one of the most robust new challenges to Kalshi’s sports contracts.
Another crucial battleground is Maryland, where the judge is considering other viewpoints besides federal preemption. Maryland has argued that Rule 40.11, the CFTC regulation prohibiting “gaming” contracts, only gives the CFTC exclusive jurisdiction among other federal regulators. Under Maryland’s reading, state gambling regulators have a role to play in delineating gambling from finance.
As sports betting industry lawyer Daniel Wallach pointed out in a recent Prediction News Update podcast:
“This is the beginning of what is going to be a very active period of time in which the tribal stakeholders are heard on this issue in the federal courts.”
State gaming regulators and tribal governments have diametrically opposing views of gambling authority around sports contracts compared to Kalshi. How federal courts resolve this conflict is likely to shape the online gambling landscape for years to come.
