Lawsuit Filed Against Kalshi in California, Polymarket to Refund Money
Polymarket, a prediction market platform, is preparing to re-launch its services domestically following the closure of regulatory probes. The closure of these probes occurred last week, clearing the regulatory overhang for Polymarket.
In contrast, Kalshi, another player in the prediction market space, finds itself embroiled in a legal battle. Three federally recognized California tribes - Blue Lake Rancheria, Chicken Ranch Rancheria of Me-Wuk Indians, and Picayune Rancheria of the Chukchansi Indians - have filed a lawsuit against Kalshi and its distribution partner Robinhood. The lawsuit alleges that Kalshi's sports event contracts constitute illegal sports betting on tribal lands, violating the Indian Gaming Regulatory Act (IGRA), the California Constitution, and specific tribal-state gaming compacts.
The tribes argue that Kalshi's contracts are effectively unregulated Class III gaming (sports wagers) that infringe on their exclusive rights to regulate gambling on their reservations. Kalshi disputes this characterization, asserting that their markets are legal derivatives regulated by the Commodity Futures Trading Commission (CFTC), not sports betting.
The lawsuit seeks preliminary and permanent injunctions to bar Kalshi and Robinhood from offering these sports betting–style contracts accessible on tribal lands. This is the first federal action by tribal governments against Kalshi, adding to ongoing state regulatory challenges in Nevada, New Jersey, Maryland, and other states where Kalshi operates under a similar legal theory.
While some states’ courts have allowed Kalshi to continue operating pending litigation, a recent Maryland federal judge ruled against Kalshi, highlighting federal deference to state authority over gambling and emphasizing that operations like Kalshi’s might undermine IGRA’s tribal sovereignty protections.
Meanwhile, Polymarket has taken a more conservative approach in its future operations. The platform 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.
The tribal lawsuit against Kalshi and the regulatory breakthrough for Polymarket reveal a divide in the future of prediction markets. While Kalshi maintains its classification as a futures exchange, Polymarket has opted for a different strategy by acquiring a regulated entity. The outcome of these legal battles remains unresolved as of August 2025.
[1] [https://www.bloomberg.com/news/articles/2025-08-01/california-tribes-sue-kalshi-over-betting-on-sports-events] [2] [https://www.reuters.com/legal/government/california-tribes-sue-kalshi-over-betting-on-sports-events-2025-08-01] [3] [https://www.law360.com/articles/1488645/kalshi-faces-new-california-lawsuit-over-sports-betting] [4] [https://www.cnbc.com/2025/08/01/polymarket-acquires-qcx-to-return-to-us-market.html] [5] [https://www.washingtonpost.com/business/2025/08/01/polymarket-kalshi-lawsuits-prediction-markets/]
- Polymarket, following regulatory clearance, is embracing a conservative approach by acquiring QCX, a CFTC-regulated exchange, to legally serve American customers.
- In contrast, Kalshi, facing a legal battle with three California tribes, is accused of offering illegal sports betting on tribal lands, challenging its classification as a futures exchange.
- The sports event contracts in question are alleged to infringe on the tribes' exclusive rights to regulate gambling, undermining the Indian Gaming Regulatory Act (IGRA) and specific tribal-state gaming compacts.
- The sports-betting landscape is fractionalized, with one company navigating legal challenges and another adopting a regulatory strategy, signifying different paths for prediction markets in the United States.
