A federal appeals court has dealt a significant blow to prediction market operator Kalshi, finding its sports event contracts amount to illegal gambling under federal tribal law.
On September 16, 2026, a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit reversed in part a district court ruling in Blue Lake Rancheria v. Kalshi, Inc., No. 25-7504.
The panel held that Kalshi’s sports event contracts constitute class III gaming under the Indian Gaming Regulatory Act when accessed from tribal lands in California.
The court found that plaintiff tribes are likely to succeed on the merits of their Indian Gaming Regulatory Act claim, marking a significant early victory for tribal gaming interests.
Sports betting has been illegal in California under Cal. Penal Code Section 337a(a)(6), and California voters decisively rejected both Proposition 26 and Proposition 27 in November 2022.
Trading data cited by the court suggested that up to 90 percent of Kalshi’s trading volume comes from sports, undermining the company’s characterisation of its products as financial derivatives.
The court was blunt in its functional analysis, declaring that contracts keyed to sporting outcomes represent “the stuff of sports betting,” citing the Supreme Court’s decision in Bay Mills.
In a vivid passage, the court imagined a user standing on the floor of the Blue Lake Casino Hotel downloading both Kalshi and DraftKings to place bets on the same game simultaneously.
The court concluded that “the bettor, the place, the stake, and the contingency remain the same,” adding that “the only thing that changes is Kalshi’s vocabulary.”
The ruling drew a sharp contrast between Kalshi’s courtroom arguments and its marketing, noting that while the company “studiously wraps its product in the language of derivatives” in court, “its advertising is less coy.”
Kalshi’s own advertisements proclaimed that “Sports Betting [Is] Legal in all 50 States on Kalshi,” even as the company simultaneously argued in court that its products are not sports betting.
The court observed that Kalshi offers bets on point spreads, over/under totals, and player proposition bets, and permits parlays, which Kalshi calls “combos,” mirroring traditional sportsbook formats.
Despite its pointed criticism of Kalshi’s marketing, the court affirmed the district court’s rejection of the tribes’ Lanham Act false advertising claim, finding Kalshi’s legality claims constitute non-actionable opinion.
The Ninth Circuit also rejected Kalshi’s statutory preemption arguments, holding that neither the Unlawful Internet Gambling Enforcement Act nor the Commodity Exchange Act displaces the Indian Gaming Regulatory Act.
The court found it “implausible that Congress took a wrecking ball to all sports gambling regulations built up over decades by federal, state, and tribal governments when it amended the CEA to add the definition of swap.”
The ruling drew substantial amicus support, with the American Gaming Association and a coalition of 27 state attorneys general plus the District of Columbia joining tribal organisations in backing the plaintiff tribes.
Class III gaming has become, as the court noted, “the lifeblood on which many tribes have come to rely,” making unregulated prediction markets a direct economic threat to tribal exclusivity rights.
The decision creates further pressure for Supreme Court review, with the Third, Sixth, and Ninth Circuits having reached divergent conclusions on how federal commodity law interacts with gaming regulation.
Prediction market operators must now reassess their legal exposure on tribal lands, as operating without a tribal compact may constitute a violation of federal law under this ruling.
The regulatory landscape remains highly uncertain, and market participants including financial institutions and gaming operators should monitor developments closely and tailor compliance strategies to specific jurisdictions.