Twenty-seven US states have backed tribal appellants in a federal gambling law case against Kalshi that could help define the future trajectory of gambling regulation across the United States.
As market analysts and investors continue to pour capital into the fast-growing prediction markets sector, a fundamental legal dispute is unfolding over who has the authority to regulate wagers tied to real-world events.
State governments and tribal regulators, or federal agencies overseeing financial markets?
Few have more at stake than Indigenous American tribes, who have for decades exercised sovereignty over gaming on their lands under the Indian Gaming Regulatory Act of 1988 (IGRA).
That framework governs how tribes may offer gambling, including sports wagering, through negotiated deals with states. This system, tribes argue, is now being threatened by prediction markets operating under federal commodities regulation.
In Blue Lake Rancheria et al. v. Kalshi Inc., that long-running tension has reached a potential boiling point. Tribal governments argue that allowing nationwide sports-linked event contracts through federal regulation would not only bypass state gambling law but also undermine decades of congressionally sanctioned tribal gaming legislation.
Tribes V Kalshi, 9th circuit boiling point
At the center of the appeal is whether prediction markets tied to sporting outcomes should be treated as lawful financial derivatives, as Kalshi contends, or as a regulated form of sports betting subject to state legislation and, on certain lands, tribal control.
Tribes and state attorneys argue that the existing lattice of federal, state, and tribal gambling law already governs gambling activity and licensing. They maintain that prediction markets must comply with those frameworks rather than sidestep them by obtaining approval under the Commodity Exchange Act (CEA).
The states’ position is reinforced by the absence of any gambling or sports-wagering language in the CEA or the Dodd-Frank Act, which governs federal derivatives markets. By contrast, Congress explicitly addressed sports wagering in laws such as the Wire Act, which expressly references “bets or wagers on a sporting event or contest.”
The Ninth Circuit’s ruling could either cement prediction markets as a new, federally regulated category of wagering or reaffirm the boundaries Congress drew between financial markets and gambling, well drawn lines the tribes and states say were never meant to be crossed.
California Tribes V Kalshi appeal could be defining moment
Gaming legal expert and market commentator Daniel Wallach has flagged the appeal as a pivotal moment for prediction markets, describing the Ninth Circuit as the central battleground for the legal fight.
Great line from the States’ Amici Brief filed with the 9th Circuit in the CA Tribes v. Kalshi appeal:
“Congress knows well how to regulate gambling—including sports wagering. When it does so, it typically speaks in express terms. The Wire Act, for example, uses phrases like… https://t.co/JdiWDGzfi8 pic.twitter.com/8NoHGwjFyq
— Daniel Wallach (@WALLACHLEGAL) January 19, 2026
“The 9th Circuit is shaping up to be the legal battleground for prediction markets,” Wallach wrote. “The tally: four appeals (Tribes, KEX, RH & Crypto) and two stay motions (KEX & RH). The latest: the [American Gaming Association] and 27 states (led by California) each filed amici briefs yesterday in the California tribes’ Ninth Circuit appeal.”
Wallach also highlighted the central role of IGRA. While District Judge Corley addressed aspects of the statute at the trial-court level, the states’ amicus brief emphasizes what it describes as unambiguous language:
“No provision of this section shall be construed as altering, superseding, or otherwise affecting the application of the [Indian Gaming Regulatory Act].”
According to the states, that clause blocks the use of federal commodities regulation as a workaround to tribal gaming protections enacted by Congress.
To the victor go the spoils
If Kalshi were to emerge victorious, prediction markets tied to sports could operate nationwide under federal oversight, expanding the Commodity Futures Trading Commission’s (CFTC) authority into a traditionally state-regulated gambling space.
State sports betting laws and tribal agreements would be at serious risk of being bypassed, potentially opening a significantly broader playing field for prediction markets nationwide.
As we previously reported, Kalshi has argued that existing tribal agreements do not apply to its operations, stating that the company does not recognize location as a relevant factor in its offerings.
At the time, the New York-based company stated, “Kalshi does not house servers on Indian lands. Kalshi does not employ personnel on Indian lands. Kalshi conducts no business whatsoever on Indian lands.”
If the states and tribes prevailed, IGRA would remain intact, reinforcing long-standing protections against territorial and regulatory overreach.
This outcome would also mean significant compliance costs on sports-linked prediction markets, requiring them to comply with state and tribal gambling laws and to pay multiple licensing fees and taxes.
So it is all to play for in the 9th Circuit, where either the federally regulated markets or the existing state and Tibal agreements will stand or fall. Regardless of the outcome, it will have a significant impact on sports wagering across North America.
Featured image: Kalshi
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