Kalshi offering predictions on sports, natural disasters, elections or other categories should be considered gambling under Arkansas state law.
That is according to the opinion published Thursday by Arkansas AG Tim Griffin and prepared by Assistant AG William Olson. The opinion, in response to Sen. Bryan King‘s request, notes that the activity does fit the state Supreme Court’s definition of gambling.
The fact that Kalshi calls these markets predictions “does not protect it from scrutiny,” the opinion says.
Four questions about Kalshi
The AG’s office was asked to address four questions related to Kalshi:
- Would a company like Kalshi be operating in violation of Arkansas law if it was not licensed to engage in gaming operations?
- Under Arkansas law, would sports related event contracts be subject to Arkansas’s tax on fantasy sports games?
- If companies like Kalshi are not required to possess gaming licenses, would they be subject to any other Arkansas regulatory body as a financial exchange?
- If companies like Kalshi can operate under Arkansas law without a gaming license, is there any type of event contract that could not be exchanged under Arkansas law, such as election contracts or contracts related to future tragedies?
Only two of the questions needed to be answered, with the answer to question one rendering questions three and four “moot.”
Event contracts considered ‘gaming’
The Arkansas Supreme Court defines gaming or gambling as “the risking of money, between two or more persons, on a contest or chance of any kind, where one must be loser and the other gainer.” See State v. Torres, 309 Ark. 422, 425, 831 S.W.2d 903, 905 (1992).
In issuing its opinion, the Arkansas attorney general noted the requesting senator’s comments that Kalshi’s prediction market platform allows users to “bet on future events [like] election outcomes, the occurrence of natural disasters, sports outcomes, and who will win the Nobel Peace Prize this year.”
Based on the aforementioned description, the attorney general concluded that Kalshi’s operations would meet the state’s definition of gaming or gambling, because “a participant is risking money on a chance that a future event occurs.” The opinion further cites Arkansas Code §5-66-101, which governs construction and judicial interpretation of Arkansas’ statutes prohibiting gaming:
In their construction of the statutes prohibiting gaming, the judges of the several courts in this state shall construe the statutes liberally, with a view of preventing persons from evading the penalty of the law by changing of the name or the invention of new names or devices that now are, or may hereafter be, brought into practice, in any and in all kinds of gaming, and all general terms of descriptions shall be so construed as to have effect, and include all such games and devices as are not specially named.
As a result, the opinion concluded that Kalshi’s classification of its platform as a “prediction market” did not affect the attorney general’s determination as to whether buying event contracts fell under the state’s definition of gaming or gambling.
Fantasy sports exemption does not apply to Kalshi
Arkansas exempts “paid fantasy sports games” from its prohibitions on gambling and gaming, because sports-related event contracts do not satisfy the statutory requirements initially set forth in the Unlawful Internet Gambling Enforcement Act:
- All prizes and awards offered to winning participants are established and made known to the participants in advance of the game or contest and their value is not determined by the number of participants or the amount of any fees paid by those participants.
- All winning outcomes reflect the relative knowledge and skill of the participants and are determined predominantly by accumulated statistical results of the performance of individuals (athletes in the case of sports events) in multiple real-world sporting or other events.
- (iii) No winning outcome is based (a) on the score, point-spread, or any performance or performances of any single real-world team or any combination of such teams; or (b) solely on any single performance of an individual athlete in any single real-world sporting or other event.
Kalshi’s offerings, therefore, would not be exempt under state law.
Arkansas setting the stage for action?
Notwithstanding, Attorney General opinions are not binding precedent.
As seen most recently in California regarding the numerous fantasy sports operators that continue to conduct business despite the issuance of an unfavorable attorney general opinion in the state, further action will be required should Arkansas wish to turn the attorney general’s opinion into a matter of law.
