As Sporttrade navigates its way through the online sports betting licensing process in Colorado, it is doing so in the hope that the Division of Gaming’s Limited Gaming Control Commission (LGCC) will adopt regulations around exchange wagering on Thursday.
Sporttrade has plans to move forward either way, but new regulations governing exchange wagering would allow the company — and at least one other — to offer products not available in many legal sports betting states.
Colorado law explicitly allows for exchange wagering, and three years after launching traditional sports betting, the Dept. of Revenue — which includes the Division of Gaming — is in the process of developing regulations specific to exchange wagering. The department last week held a stakeholder roundtable soliciting feedback on what the proposed should rules look like, and the LGCC is expected to vote on those rules Thursday.
“There is slight change between sportsbooks and a sports exchange,” Sporttrade founder Alex Kane told Sports Handle. “On an exchange, you can opt to ask to place a bet at a different price than what is currently offered in the market. We call it an open order, but some call it an unmatched bet. Any time that is matched, you cannot cancel it.”
Kane explained that unmatched bets can be canceled at any time, but matched bets cannot. He went on to say that bets on Sporttrade are made through the operator, versus peer-to-peer. The LGCC has opted to develop rules specific to exchanges, which will complement the existing regulations around sports wagering.
Whether or not the LGCC makes a decision Thursday, Sporttrade is moving forward in the licensing process, as it can offer traditional wagering as an internet sports betting operator and add its stock-market-style options when exchange wagering becomes available.
Exchange wagering defined
Colorado’s new rules would allow other companies, including Prophet Exchange, which offers peer-to-peer wagering, to get licensed. Both Sporttrade and Prophet Exchange are licensed and operating in New Jersey and are exploring other markets. Prophet Exchange went live in New Jersey last August and Sporttrade followed weeks later.
The proposed Colorado rules would define exchange wagering as “the form of wagering authorized by this section 7.6 (17), in which persons place wagers that can be matched by an exchange system to become back or lay wagers, and which wagering is conducted by the licensed internet sports betting operator or sports betting operator approved to conduct exchange wagering.”
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The proposed regulations allow for unmatched bets to be cancelled before being matched, set out guidelines for licensing, describe how technological breakdowns should be handled, and spend considerable sections reviewing how and who (the regulator or the operator) could suspend wagering on any event. The companies would be taxed at 10%, just like traditional sportsbooks.
To better understand how exchange wagering, at least at Sporttrade works, Kane referred to his platform as the “party starter” that brings together potential bettors and gives them a forum in which to play.
“On a betting exchange, there is a certain amount you can bet on anything, and that is set by the market,” Kane said. “Sporttrade is like the party starter. If there is nothing in the market, then people can’t seem to get started, so we as an operator get the party started. We place our own open orders and that kind of sets the goal posts.”
Tough KYC, RG responsibilities
While the style of wagering on an exchange is different than on a traditional wagering platform, what happens in the background is essentially the same. Exchange wagering companies still go through stringent know-your-customer protocols, support and offer responsible and problem gambling information, and are required to go through the same kind of vetting as a company like DraftKings or FanDuel.
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At Sporttrade, all bets are held by the operator, just as they are on traditional platforms, and the company makes its money in the same way that traditional operators do — the amount in bets paid is subtracted from handle, and the balance is gross revenue.
Kane believes his exchange is the “healthiest, most transparent” platform on which to conduct wagering, and that while such wagering represents only a tiny percentage of the market right now, that number will grow.
“I look at this as a long-term play,” he said. “Sports exchanges will be 10% of the market. It may take 10 years, but they will be.”
Getting the green light in Colorado could be the next step toward that goal.
