Guest Opinion. The tribal gaming industry has been the most successful economic development in Indian country in my lifetime. Over the past four and a half decades, it has lifted entire communities out of crushing poverty and conferred economic and political power to Indian people for the first time in generations.
The tribal gaming industry has proven to be resilient to challenges over the years. In the early days of tribal gaming, federal, state, and local governments brought lawsuits to challenge the legality of tribal gaming. In the 1990’s and early 2000’s, political opposition made it difficult for many tribes to develop gaming enterprises. In the past two decades, commercial gaming has become ubiquitous – forcing tribes to compete with more operators.
Now, a new challenger has emerged: nationwide prediction markets.
Prediction markets occupy a space between the stock market and gambling. On their face, these prediction markets look an awful lot like gambling. A person purchases a “contract” on whether a future event will occur, such as the winner of an election or whether the economy will add a certain number of jobs in a quarter. If the event occurs, the person who purchased the contract receives a payout based on the likelihood of that occurrence.
These markets are allowed under the federal Commodity Exchange Act (CEA) and regulated by the Commodity Futures Trading Commission (CFTC), because there is economic utility to them. By allowing large groups of people to invest in the outcome of certain events, we get more accurate predictions. It is the “wisdom of crowds” in action.
But, some of the operators of these markets – companies like Kalshi – are now allowing people to purchase “contracts” on the outcome of sporting events. In fact, Kalshi has advertised itself as “the first nationwide legal sports betting platform.” Kalshi’s Instagram account includes posts that refer to its activities as “bets.”
The Commodity Exchange Act expressly prohibits contracts that constitute “gaming,” or are otherwise “unlawful under any Federal or State law.”
Under the CEA, companies like Kalshi can self-certify that its offerings comply with federal law without prior approval. That is what Kalshi has done with its nationwide internet sports betting market.
The State of Nevada and the State of New Jersey issued cease and desist letters to Kalshi, asserting that it was offering sports betting without a license in violation of state law. Kalshi sued both states in federal district courts.
In April, the U.S. District Court for the District of Nevada ruled in Kalshi’s favor, enjoining the Nevada Gaming Commission and the Nevada Gaming Control Board from enforcing its state gaming laws against Kalshi. Several weeks later, the U.S. District Court for the District of New Jersey also ruled in Kalshi’s favor, preventing the State of New Jersey from enforcing its state gaming laws against Kalshi.
In each case, the Courts ruled that the Commodity Exchange Act preempts state gaming laws, and that the CFTC had exclusive jurisdiction to regulate Kalshi. (Federal laws can supersede, or “preempt,” state laws in certain circumstances.)
There is another federal law that preempts state gaming laws and bears upon this issue: the Indian Gaming Regulatory Act (IGRA). There’s also another federal commission that oversees the implementation of that law: the National Indian Gaming Commission (NIGC).
IGRA requires all gaming conducting on Indian lands to be licensed by the governing Tribe pursuant to an ordinance that has been approved by the NIGC. Anyone operating gaming on Indian lands without that license is in violation of IGRA. This includes companies that allow people on Indian lands to access apps to bet on sports.
Kalshi is allowing people to bet on the outcome of sporting events from anywhere in the United States. They have not had to obtain a tribal or state gaming license. Nor have they paid taxes or revenue sharing payments to any state or tribe at the same level as other gaming operators. This is a valuable competitive advantage.
No federal agency or court has answered the question of whether Kalshi’s activities constitute “gaming.” In fact, in a separate before the United States Court of Appeals for the District of Columbia, Kalshi filed a brief earlier this year in which it stated that wagers on the outcome of events like the Super Bowl would be “gaming” that is prohibited by the CEA.
In some places where Kalshi’s patrons can bet on sports, tribes have paid enormous sums of money to states for the exclusive right to conduct such gaming. In places like Michigan, tribes are offering online sports betting under state licenses and paying state gaming taxes. Those are licenses and taxes that Kalshi has been able to avoid. Kalshi is also offering its platform to people on Indian lands without getting tribal licenses or paying fees to tribal governments.
The tribal gaming industry is heavily regulated by tribal, federal, and even state agencies. It supports tribal governments. It funds jobs and services in communities across Indian country. In a time where people anticipate steep federal budget cuts, tribal gaming revenues are going to become even more important to rural communities across the United States.
The prospect of Wall Street companies reaping billions of dollars in profits from nationwide internet gaming without any licensing, regulation, or taxes poses an enormous challenge to the tribal gaming industry. The size of this challenge depends on whether these contracts are deemed to be “gaming” by the CFTC, and whether the NIGC weighs-in.
There is a lot riding on this question.
Bryan Newland is a Principal with the law firm of Powers, Pyles, Sutter & Verville P.C. in Washington, D.C. He is the former Assistant Secretary – Indian Affairs at the U.S. Department of the Interior, and the former President of Bay Mills Indian Community. He can be reached at [email protected].
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