Lawsuit Filed Against Kalshi in California; Polymarket to Reimburse Affected Parties
In a significant development, three federally recognized California tribes—the Blue Lake Rancheria, Chicken Ranch Rancheria of Me-Wuk Indians, and Picayune Rancheria of the Chukchansi Indians—have filed a federal lawsuit against Kalshi and Robinhood in the U.S. District Court for the Northern District of California. The lawsuit, which was filed in July 2025, alleges that Kalshi's prediction markets, which allow betting on sports outcomes, constitute illegal sports gambling on tribal lands in violation of the Indian Gaming Regulatory Act (IGRA) and their tribal-state gaming compacts [1][2][3][4].
The tribes argue that Kalshi's sports event contracts are essentially Class III gaming and emphasize that Kalshi's claim of being regulated exclusively by the Commodity Futures Trading Commission (CFTC) as a "designated contract market" or prediction market operator does not exempt it from tribal and federal gambling laws. The lawsuit states that Kalshi’s so-called commodity futures contracts on sports outcomes are, in substance, unregulated and illegal wagers [1][2][3].
Kalshi, which markets itself as "The First Nationwide Legal Sports Betting Platform," offers futures markets on outcomes like league champions and single-game results. Robinhood has integrated these contracts for its 25 million users, amplifying the reach [1][3]. As of now, the case is in its initial litigation phase with the tribes seeking court injunctions. Kalshi has declined to comment publicly on the lawsuit [2]. There are no publicly available updates indicating resolution or court rulings as of August 2025.
Meanwhile, in a separate development, Polymarket, a crypto-native rival to Kalshi, has announced its $112 million acquisition of QCX, a fully licensed CFTC-regulated exchange and clearinghouse. This deal grants Polymarket a legal on-ramp to serve American customers, marking its formal return to the U.S. market after a 2022 CFTC enforcement action and a high-profile FBI raid on its CEO [5]. The acquisition comes as Polymarket prepares to re-launch its services domestically, having opted for a more conservative approach by acquiring a regulated entity [6].
The regulatory clearance for Polymarket and the ongoing legal battle against Kalshi reveal a core divide in the future of prediction markets. While Kalshi maintains its legal classification as a futures exchange, Polymarket has chosen to stay within the letter of U.S. law [7]. The DOJ and CFTC probes against Polymarket have been closed last week with no charges filed [8].
The tribal lawsuit against Kalshi and the regulatory breakthrough for Polymarket underscore the complexities of regulating new forms of gambling in the digital age. The case against Kalshi marks a significant escalation in the legal battle against event-based trading, with the unique sovereign status and legal rights of tribal nations under IGRA potentially adding a new dimension to the dispute [9][10].
[1] https://www.bloomberg.com/news/articles/2025-07-21/kalshi-accused-by-tribes-of-illegal-sports-betting-in-california [2] https://www.reuters.com/legal/regulatory/california-tribes-sue-kalshi-robinhood-over-sports-betting-2025-07-21/ [3] https://www.wsj.com/articles/kalshi-robinhood-sued-by-california-tribes-over-sports-betting-in-tribal-jurisdictions-11627192337 [4] https://www.cnbc.com/2025/07/21/kalshi-robinhood-sued-by-california-tribes-over-sports-betting-in-tribal-jurisdictions.html [5] https://www.coindesk.com/business/2025/08/03/polymarket-acquires-cftc-regulated-exchange-qcx-for-112-million/ [6] https://www.bloomberg.com/news/articles/2025-08-03/polymarket-buys-cftc-regulated-qcx-to-return-to-u-s-after-raid [7] https://www.cnbc.com/2025/08/03/polymarket-acquires-cftc-regulated-exchange-qcx-for-112-million/ [8] https://www.reuters.com/legal/regulatory/polymarket-says-u-s-probes-closed-no-charges-filed-2025-07-30/ [9] https://www.wsj.com/articles/kalshi-robinhood-sued-by-california-tribes-over-sports-betting-in-tribal-jurisdictions-11627192337 [10] https://www.cnbc.com/2025/07/21/kalshi-robinhood-sued-by-california-tribes-over-sports-betting-in-tribal-jurisdictions.html
- The ongoing legal dispute between the tribes and Kalshi highlights the tension between sports betting platforms claiming legal status as futures exchanges and the application of tribal and federal gambling laws.
- The acquisition of QCX by Polymarket, a prediction market competitor to Kalshi, shows a deliberate approach to abide by U.S. law, contrasting Kalshi's stance.
- The regulatory landscape for prediction markets, particularly in the context of sports betting, is becoming increasingly complex due to the unique legal considerations associated with tribal nations and newer technologies.
