The company operates a betting exchange in the UK and also has operations in Ireland, Malta, Sweden and Indiana in the US.
Provided by: Smarkets
Smarkets, the UK-based betting exchange, is pursuing two separate avenues to expand into the US.
The company, founded in 2008, applied for a license with the Commodity Futures Trading Commission in March. Smarkets founder Jason Trost said the platform, which has more than $60 billion in lifetime trading volume, also has pending applications to operate as a sportsbook in Illinois, Iowa and Michigan.
“The reason we’re dual-tracking is because the legal situation is unclear as to whether the CFTC has federal preemption rights,” Trost said. Similar to prediction market platforms Kalshi and Polymarket, sports are also driving volumes on Smarkets, he added.
A growing number of states are claiming that prediction markets operate as illegal gambling platforms. But the CFTC has fought back, suing several states to block efforts to regulate the platforms. Last month, 44 state attorneys general also wrote that federal agencies cannot be exclusive regulators of sports-related event contracts found on exchanges.
Prediction market platform Carsi called it “political theater” when New York state filed a lawsuit against the platform in July.
“States cannot simply shut down federally sanctioned exchanges, which would only hurt New Yorkers by forcing them out of the country,” Kalsi said.
Smarkets is trying to work with states as the tug-of-war over regulatory jurisdiction continues. The Susquehanna-backed platform was applied as a sportsbook in Illinois and Michigan, where regulators classify prediction markets as unlicensed sports betting operators. Smarkets already operates as a sportsbook in Indiana.
Some of my competitors are acting irresponsibly (and) not fully complying with regulations, putting us at risk of ruining our industry’s reputation.
Jason Trost
Founder of Smarkets
But Trost said the first option would be for Smarkets to operate as a prediction market exchange regulated under the CFTC. He agrees with some states’ opposition that sporting event contracts should be identified as swaps and regulated by the federal government.
“We think of it more as a hedge than we want to be active at the state level. You know, our preference is to work at the federal level,” Trost said.
Smarkets is not the first to take this dual-track approach. Sports betting platforms like draft kings and FanDuel launched a prediction market late last year. On an earnings call last week, FanDuel’s parent company Flutter said its prediction market platform could win customers faster in states where sportsbooks remain under scrutiny.
In order to operate its platform as a sportsbook, Smarkets had to face regulations in each state, including high compliance and tax costs.
Still, Trost said he intends to overcome the challenges and make Smarkets a major “good actor” in the industry. He noted that the platform operates in four European countries, including Ireland, Malta and Sweden, which gives the UK-based betting exchange the know-how of how to navigate contrasting regulatory situations.
Although he did not specify which operators, Trost said it was adding platforms to the space and also had a responsibility to follow regulations rather than circumvent them.
“Some of our competitors are acting irresponsibly (and) not fully complying with regulations, putting us at risk of damaging the industry’s reputation,” he said.
Disclosure: CNBC and Kalsi have a commercial relationship that includes customer acquisition and minority ownership.
