Tribes join pushback against prediction markets

New York Attorney General Letitia James announced a lawsuit against prediction market platform Kalshi late last month, alleging it is running an illegal gambling operation.

That marks yet another increase in the number of state governments looking to crack down on prediction markets, even in the midst of federal opposition to those efforts. Meanwhile, Tribal governments and representatives are also looking to curb them over worries they undermine gaming in Indian Country and Tribal sovereignty more broadly.

Last month, the National Council of Legislators from Gaming States passed a resolution at its meeting opposing the expansion of prediction markets and calling on Congress and the states to clarify prediction markets’ legal status and “further clarify that such markets are a form of illegal gambling.” 

The group, which represents lawmakers from states where gaming is legal, said the platforms “choose largely to operate outside the established regulatory frameworks governing licensed sports betting, casino gaming, and other forms of legalized gambling.”

Meanwhile, Tribal governments are on edge about a proposed new rule from the Commodity Futures Trading Commission, which looks to define “gaming,” define factors for when gaming-related event contracts are contrary to the public interest, and suggests that contracts based on sporting events are unlikely to be found to be contrary to the public interest. The rule also would assert CFTC’s exclusive role in regulating event contracts traded as swaps or futures contracts.

In a statement to the Senate Indian Affairs Committee ahead of a roundtable it hosted last week, James Siva, chairman of the California Nations Indian Gaming Association, said prediction markets might become a “nationwide gambling that bypasses the carefully balanced Tribal, state, and federal regulatory framework that has governed gaming for decades.” Respecting Tribal sovereignty, he said, is also key.

“For Indian Country, the stakes are profound,” Siva’s statement continued. “Tribal gaming is not simply an industry. It is a cornerstone of Tribal sovereignty, self-governance, and economic self-determination. The revenues generated by Tribal gaming fund essential government services, including healthcare, education, public safety, housing, infrastructure and programs for Tribal communities. These investments are especially critical in communities that continue to face some of the highest poverty rates and lowest life expectancy in the nation.”

Gaming in Indian Country got its start with the Indian Gaming Regulatory Act in 1988, which laid out the regulatory process and structure for how Tribes could go into gaming in individual states. It also specified that states had to work with Tribes in the compacting process, laying out agreements on how gaming would operate and be regulated while respecting Tribal lands.

California alone passed two propositions — Prop 5 and Prop 1A — to allow gambling on Tribal lands, while others did similar work legislatively or via ballot initiative. The U.S. Census Bureau found last year that the expansion of Tribal casinos has helped alleviate the poverty level, but a lot of work still lies ahead.

In a separate interview with Route Fifty, Siva warned that early projections suggest that 5% of Tribal lands’ more than $42 billion in gross gaming revenue could be lost to prediction markets. Gaming is a highly regulated industry, he said, and prediction markets should not be allowed to circumvent that process.

“Not to mince words, but prediction markets are the single largest threat that we have seen to Tribal government gaming since the industry's been created,” Siva said. “[It's] been really frustrating to see how quickly they've been able to grow because in our minds, and in our view, this is illegal sports betting that's being condoned at the federal level. No way around it. That is our position that these are illegal activities.”

In a bid to avoid any conflict between prediction markets and Tribal governments, U.S. Sens. Lisa Murkowski and Brian Schatz — the chair and vice chair of the Senate Indian Affairs Committee, respectively — urged the CFTC to conduct formal government-to-government Tribal consultation on its rule and extend the public comment period. CFTC spokespeople did not respond to requests for comment.

Other Tribal representatives argued they are not wholly against prediction markets as they have value in certain areas. Just not on sports and other events that are bet on already, they said.

“A lot of Tribes are in the agricultural spaces and the agricultural industry, and they recognize that there is a need to hedge on certain commodities, and they see the value in that,” Michael Hoenig, vice president and associate general counsel for gaming for the Yuhaaviatam of San Manuel Nation in California, said during a panel discussion at the National Conference of State Legislatures’ Legislative Summit last month. “What we're talking about, and the kinds of events contracts that Tribes are in opposition to are those for sports betting, and those for what we see coming down the line for casino-style games.”

Kaitlyn Levinson contributed reporting from NCSL’s Legislative Summit in Chicago.