NCLGS conference erupts as Kalshi and tribal leaders trade legal blows
A discussion on prediction markets turned unexpectedly combative at the National Council of Legislators from Gaming States (NCLGS) summer meeting in Louisville, as lawyers, tribal leaders, and fintech executives locked horns over who holds the power to regulate sports-related event contracts and whether those contracts should even exist.
What began as a panel on an emerging corner of the gaming world quickly escalated into a full-blown jurisdictional showdown. At its core: a clash between state-level gaming interests and those who believe prediction markets fall squarely under the domain of federal commodities law.
Drawing the line at the federal level
Josh Sterling, a partner at Milbank and a former official at the Commodity Futures Trading Commission (CFTC), came prepared to defend Kalshi, the prediction market platform currently embroiled in legal battles across several states. Kalshi has received cease-and-desist notices from regulators in New Jersey, Nevada, and Maryland, prompting a broader debate about whether sports contracts are regulated gambling or federally protected financial instruments.
Sterlings position was clear: The line is drawn in Section 2(a)(1), Title Seven in the United States Code, he said. It basically says any swap or futures contract or an option thats traded on a CFTC-licensed marketplace is subject to the exclusive jurisdiction of the CFTC.
Tribal sovereignty and Class III gaming
The tension in the room sharpened when Michael Hoenig, Vice President Associate General Counsel for Gaming at the Yuhaaviatam of San Manuel Nation, joined the discussion. Representing one of the tribes involved in filing amicus briefs against Kalshi, Hoenig framed the issue as a direct challenge to tribal authority.
I think we see this as a profound affront to tribal sovereignty, he said. The Indian Gaming Regulatory Act, which is also a federal law, controls gaming activity that occurs on Indian lands tribes have jurisdiction to determine who gets to operate gaming activity on their lands.
The dispute hinges in part on whether these event contracts should be categorised as Class III gaming. If so, tribes argue that Kalshi must geofence tribal land out of its offerings or risk violating IGRA.
Bandwidth, bureaucracy, and broken systems
Moderator and NCLGS President Shawn Fluharty raised concerns about the CFTCs ability to handle a category as broad and consumer-facing as sports betting. Sterling, however, dismissed the notion that the federal agency lacks resources or regulatory reach.
Youll pardon my French, he said, but I just wish, once in my goddamn life, the government would not say, Boy, if only we had more resources, we could do our job. I mean, its kind of ridiculous. Its not hard.
On the issue of consumer protection, Sterling doubled down. People are adults, and theyre allowed to spend their money however they want it, and if they lose their shirt, thats on them.
Referencing the crude oil futures contract traded on the New York Mercantile Exchange, Sterling continued If I was going to worry about line drawing, why arent you regulating trading at West Texas Intermediate (WTI)? It went negative in April of 2020. I know, I was there. Im sure a lot of people lost their shirts there. But you care because its sports? I mean, it seems a little odd to me.
Kalshis stance and familiar friction
NCLGS President Fluharty questioned whether prediction markets could undercut years of legislative work establishing regulated sports betting frameworks, but Sterling shrugged off the concern, No one outlawed the horse and buggy. Ford just made a better product.
As for how Kalshis approach is being received by critics, Victor Rocha of the Indian Gaming Association has previously offered perhaps the most pointed take. In a moment that captured the depth of ongoing frustration among tribal representatives, , Ive talked to [Kalshi CEO] Tarek Mansour twice now, and my take from him is that hes a lying little twerp.
