How a coalition of tribes, state regulators and collections firms are turning the tables on prediction markets. By Katherine A. Baker, Joshua L. Kirschner & Samantha Ahearn
Leading prediction-market operators are facing a barrage of federal and state lawsuits brought by tribes and faceless “gambling recovery” LLCs in recent months. This highlights the fine line between sports-based event contracts and sports betting. These suits turn the tables in an ongoing in-court fight over the proper categorization of these types of event contracts. It has been, to date, driven by prediction market plaintiffs in response to state regulatory action.
The first chapter of this story arises out of cease-and-desists and other enforcement actions by several state gaming regulators against prediction markets for allegedly offering illegal sports betting to state residents through event contracts. (See David Purdum, et al., ESPN, How Kalshi and prediction markets are disrupting sports betting (Jun. 2, 2025), https://www.espn.com/espn/betting/story/_/id/45377686/kalshi-prediction-markets-disrupt-sports-betting; Zak Thomas Akoo, NEXT.io, Arizona sends C&Ds to Kalshi, Robinhood and Crypto.com (May 23, 2025), https://next.io/news/regulation/arizona-sends-cds-kalshi-robinhood-crypto-com/.)
Event contracts allow traders to bet on the likelihood of specific events, such as political elections, awards winners or, in this case, sporting-event outcomes. The states that have issued cease-and-desist letters are Nevada, New Jersey, Maryland, Montana, Ohio, Illinois and Arizona. (See supra Purdum, et al.)
Image: Katherine Baker, a Boston-based partner at Nelson Mullins Riley & Scarborough LLP and chair of the firm’s Gaming Industry Group, assists casino gaming, iGaming, sports betting, and fantasy sports operators, vendors, and entrepreneurs in navigating the state and federal commercial, and tribal-gaming landscape, including leveraging fintech solutions.
In addition, regulators in other states, like Washington, have publicly labeled the exchange of money for predictions that occurs on prediction market platforms as illegal gambling. (Matt Markovich, Kiro News Radio, Betting on the election is now available, but don’t try it says the state (Oct. 31, 2024), https://mynorthwest.com/money/betting-on-the-election-is-now-available-but-dont-try-it-says-the-state/4004138.)
Beginning in March 2025, prediction market operators initiated an offensive approach by refusing to comply with such directives and suing regulators in Nevada, New Jersey, and Maryland on federal-preemption grounds, given that prediction markets are regulated by the federal Commodity Futures Trading Commission (CFTC). (See supra Purdum, et al.; see, e.g., KalshiEX, LLC v. Hendrick, et al., Case No. 2:25‑cv‑00575‑APG‑BNW (D. Nev. filed Mar. 28, 2025)); KalshiEX, LLC v. Flaherty, et al., Case No. 1:25‑cv‑02152 (D. N.J. filed Mar. 28, 2025); Robinhood Derivatives, LLC v. Dreitzer et al., Case No. 2:25‑cv‑01541 (D. Nev. filed Aug. 19, 2025).)
In the midst of this regulatory action and litigation, on July 22, 2025, three federally recognized American Indian tribes – Blue Lake Rancheria, Chicken Ranch Rancheria of Me-Wuk Indians, and Picayune Rancheria of Chukchansi Indians – filed a complaint in the U.S. District Court for the Northern District of California against Kalshi Inc. and Kalshiex LLC (together, “Kalshi”), Robinhood Markets Inc., and Robinhood Derivatives LLC (together, “Robinhood”), and unidentified John Doe parties. (See Blue Lake Rancheria, et al. v. Kalshi Inc., et al., Case No. 1:25-cv-06162 (N.D. Cal. July 22, 2025).
The complaint seeks preliminary and permanent injunctive relief to prevent Kalshi and Robinhood from allegedly engaging in illegal sports gambling on the tribes’ respective reservations in violation of the Indian Gaming Regulatory Act (IGRA), tribal gaming ordinances, the Racketeer Influenced & Corrupt Organizations Act (RICO), and other laws. (See id.)
The event contracts at issue in the Blue Lake Rancheria complaint are sports-event contracts that allow users to bet on sports outcomes. California prohibits sports betting. Therefore, in the complaint, the tribes argue that Kalshi’s sports betting offerings are not “true” event contracts because sports betting “serves no hedging or other economic purpose … Nor does it perform any price-discovery function on an underlying commodity.” (See id.) Instead, the Tribes argue that it is “simply gambling on sports,” which Kalshi is “unabashedly” offering to the public within states and Indian reservations that strictly prohibit sports betting. (See id.)
On August 20, 2025, another federally recognized American Indian tribe, the Ho-Chunk Nation, filed a nearly identical complaint in the U.S. District for the Western District of Wisconsin against the same defendants. (See Ho-Chunk Nation v. Kalshi Inc., et al., Case No. 3:25-cv-00698 (W.D. Wis. Aug. 20, 2025).) Similar to the California complaint, the Wisconsin complaint seeks injunctive relief against prediction-market operators to prevent alleged, illegal sports gambling on the tribe’s land in violation of IGRA, the tribe’s Tribal-State Gaming Compact with Wisconsin, tribal gaming ordinances, RICO and other laws. (See id.)
Image: Joshua Kirschner,an Atlanta-based attorney at Nelson Mullins Riley & Scarborough LLP, focuses his practice on the gaming and gambling sectors, and represents businesses and individuals in a wide variety of regulatory and white-collar litigation matters. A primary focus of his practice is assisting casino, iGaming, sports betting, and daily fantasy sports operators, vendors, and entrepreneurs to navigate the state, federal and tribal gaming landscapes.
On top of these federal lawsuits, Kalshi and Robinhood are also facing several concurrent lawsuits brought in state court under a different theory – that funds lost on prediction market platforms are recoverable (by anyone) as gambling losses under state gambling loss recovery statutes. The complaints, which are mirror images of each other, were filed in the state courts of Georgia, Illinois, Kentucky, Massachusetts, Ohio and South Carolina by a string of newly formed, limited-liability companies (Georgia Gambling Recovery LLC, Illinois Gambling Recovery LLC, Kentucky Gambling Recovery LLC, Massachusetts Gambling Recovery LLC, Ohio Gambling Recovery LLC and South Carolina Gambling Recovery LLC).
These companies, which apparently were formed solely for the purpose of collecting damages in these actions, have no connection to the underlying “gambling” activity and are suing as relators in their own name and for their own benefit. (See Sydney Price, Law360, Ohio Co. says Kalshi gambling suit belongs in state court (Aug. 28, 2025), https://www.law360.com/articles/2382074/ohio-co-says-kalshi-gambling-suit-belongs-in-state-court.)
Like the federal lawsuits, these state lawsuits allege that Kalshi’s sports-event contracts are illegal sports betting disguised as legal financial products. But in place of federal statutory claims, the state suits assert claims under versions of the “Statute of Anne,” which were passed under Queen Anne in 1710 (and later adapted by various states). The statutes void certain gambling debts and allow third parties unrelated to the gambling activity in question to sue for and recover damages if the original bettor fails to act within a set period of time (e.g., six months). These types of claims have been trending in the U.S. against daily fantasy sports and sweepstakes-casino operators for the last few years, but their assertion in a lawsuit against prediction markets is novel.
While these more recent suits against prediction market operators are still in their early stages, Kalshi won its motion for preliminary injunction in Nevada and New Jersey federal court, and lost it in Maryland, with the latter two now on appeal. (See Tom Nightingale, SBC Americas, Kalshi celebrates ‘big victory’ as court denies Nevada lawsuit dismissal (Jun. 6, 2025), https://sbcamericas.com/2025/06/06/kalshi-nevada-motion-to-dismiss-denied/; Corey Sharp, Play NJ, Kalshi wins preliminary injunction to continue operating in New Jersey (Apr. 29, 205), https://www.playnj.com/news/kalshi-wins-preliminary-injunction-to-continue-operating-in-new-jersey/89290/.)
Image: Samantha Ahearn, a Boston-based attorney at Nelson Mullins Riley & Scarborough LLP, is a litigator who focuses her practice on complex commercial-litigation and business disputes, insurance disputes, labor and employment matters, internal investigations, and gaming regulation.
Notably, in a briefing before the U.S. Court of Appeals for the Third Circuit, a collective comprising attorneys general from 34 states, tribal gaming organizations representing 60 different tribes, the Casino Association of New Jersey, the American Gaming Association (AGA), and several anti-gambling groups filed amicus briefs supporting New Jersey. (See Yogonet, States, tribes, and industry groups line up against Kalshi in high-stakes prediction market case (Jun. 19, 2025), https://www.yogonet.com/international/news/2025/06/19/108713-states-tribes-and-industry-groups-line-up-against-kalshi-in-highstakes-prediction-market-case.)
They raised concerns over tribal sovereignty, state authority to regulate gaming and problem gambling. (See id.) The decisions from the Third and Fourth Circuits will undoubtedly shape the legal landscape for sports-based event contracts.
With prediction markets fighting legal battles from every angle, the status of sports-based event contracts is in question. In eyes of some gaming regulators, this activity has become just another form of gray-market gaming, which could have suitability implications for gaming operators who are already regulated or seeking to be licensed under state gaming regimes. (See, e.g., Amy Calistri, Covers, Ohio Sends Warning to Sportsbooks Contemplating Prediction Market Services (Aug. 26, 2025), https://www.covers.com/industry/ohio-sends-warning-to-sportsbooks-contemplating-prediction-market-services-aug-26-2025.)
The rulings in these cases, along with response of state gaming regulators, are poised to create a sea change in how these platforms operate and are regulated. For example, if the federal cases hold that sports-event contracts violate IGRA, they will be restricted in their operations on tribal lands. Additionally, if any state court concludes that sports-event contracts violate the state’s gambling-loss-recovery law, offering such contracts in that state and others with similar gambling-loss recovery-laws may no longer be viable.
Finally, if the case against Maryland resolves in Maryland’s favor, it may trigger a domino effect of regulators across the county starting to require prediction-market operators to register as a sports betting operator, with appellate-level judicial support for that policy. As prediction markets walk the legal tightrope, the stakes — for innovation and regulation — have never been higher.
*** This article was originally published in September 2025 edition of Sports Betting Operator Magazine Issue 018 Volume 007***
- SCCG Management. The Gambling Industry’s Global Connector. Access Here.
- Source: https://sportsbettingoperator.com/blog/tribal-lawsuits-and-state-regulators-target-prediction-markets-a-new-threat-to-sports-betting-innovation/
