Ninth Circuit Panel Presses Kalshi’s Federal-Preemption Defense on Sports Contracts
Appeals judges questioned whether CFTC registration shields Kalshi's sports event contracts from tribal gaming law, with Robinhood's order flow also exposed.
A Ninth Circuit panel used a Friday hearing to probe the load-bearing legal claim underneath Kalshi’s sports-contract distribution: that CFTC designation as a regulated derivatives market overrides tribal gaming restrictions at the point of execution. The outcome will determine whether Kalshi can keep listing sports event contracts on reservations while a broader suit plays out, and it carries direct downstream exposure for Robinhood, which routes customer orders into Kalshi-listed contracts as a co-defendant.
The jurisdictional test case
The appeal was filed by Blue Lake Rancheria, Chicken Ranch Rancheria of Me-Wuk Indians and Picayune Rancheria of the Chukchansi Indians after a district judge denied their request for a preliminary injunction against Kalshi’s sports contracts on tribal land. Judge M. Margaret McKeown tested Kalshi’s framing with a direct comparison: a Kalshi contract paying out on a Giants win versus an identical wager placed on DraftKings.
Kalshi attorney Grant Mainland told the panel that “designated contract markets are regulated differently from regulated sportsbooks.” McKeown pressed further, confirming the practical effect — the Kalshi version would be permitted on tribal land while the DraftKings-style wager would not, despite economically identical exposure to the same sports outcome.
Tribes’ theory rests on Section 1166 and IGRA
Lester Marston, representing the tribes, argued that federal criminal code Section 1166 imports California’s gambling prohibition into Indian country as federal law — applying to Kalshi’s contracts regardless of their legality off-reservation. “Let’s just assume that their conduct off the reservation is totally legal,” Marston said. “I put to you this: the moment that you take that legal conduct, and you engage in that exact same conduct on the reservation, they’re committing a crime under 1166, and they’re violating the civil provisions of the IGRA.”
The tribes also filed a Lanham Act false-advertising claim, alleging Kalshi marketed its sports contracts as “legal in all 50 states.” McKeown noted the tension between that marketing language and Kalshi’s parallel argument that the contracts are federally regulated derivatives rather than gambling products — the same underlying inconsistency at the heart of the sportsbook hypothetical.
Market-structure implications
Kalshi’s counter-argument to the panel avoided the broader federal-versus-tribal conflict entirely, asserting the tribes failed to identify a specific tribal-state compact provision its contracts violate. A Ninth Circuit ruling in favor of the injunction would represent the strongest judicial pushback yet against the theory that CFTC registration alone insulates sports-outcome contracts from state and tribal gaming enforcement.
That precedent would extend well past California. Kalshi is separately fighting a $5 million fine dispute with Ohio regulators, meaning any narrowing of the federal-preemption argument here could weaken its position across multiple state-level enforcement fronts simultaneously — a structural risk relevant to both Kalshi’s distribution reach and Robinhood’s prediction-market revenue line.
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