Smarkets, a UK-based betting exchange founded in 2008, is expanding into the U.S. market by pursuing two distinct regulatory avenues: applying for a Commodity Futures Trading Commission (CFTC) license and seeking sportsbook licenses in Illinois, Iowa, and Michigan [1]. The platform has achieved over $60 billion in lifetime trading volume and collected more than $1.2 billion this year, according to its American founder, Jason Trost [1]. Smarkets already operates as a sportsbook in Indiana and runs exchanges in the UK, Ireland, Malta, and Sweden [1].
The dual-track strategy is driven by ongoing legal ambiguity regarding whether the CFTC has federal preemption over state regulations. Trost explained, "The reason we're doing the dual track is because the legal situation is unclear if the CFTC has federal preemption or not" [1]. Sports betting drives much of Smarkets' volume, similar to other platforms like Kalshi and Polymarket [1].
Regulatory tensions are escalating, with a growing number of states arguing that prediction markets are illegal gambling platforms. The CFTC has responded by suing multiple states to block their regulatory efforts, while 44 state attorneys general recently asserted that the federal agency cannot be the exclusive regulator of sports-related event contracts [1]. Kalshi, another prediction market platform, described New York's lawsuit against it as "political theater," emphasizing that shutting down federally licensed exchanges would push users offshore [1].
Smarkets is attempting to cooperate with state regulators, applying as a sportsbook in Illinois and Michigan, where prediction markets have been categorized as unlicensed sports betting operators [1]. Trost criticized some competitors for acting irresponsibly and not adhering closely to regulations, warning of potential reputational damage to the industry [1]. Despite these challenges, Smarkets' preferred approach is to operate as a federally regulated prediction market exchange under the CFTC, viewing sports-event contracts as swaps [1]. Other platforms, such as DraftKings and FanDuel, have also adopted dual-track strategies, with Flutter (FanDuel's parent company) noting that prediction markets can attract customers faster in states where sportsbooks face regulatory scrutiny [1].
CONCLUSION
Smarkets' dual-track U.S. entry highlights the ongoing regulatory uncertainty surrounding prediction markets and sports betting. The company's preference for federal regulation under the CFTC underscores industry concerns about state-level restrictions and reputational risks. Market implications remain medium as the regulatory landscape continues to evolve, with Smarkets and its competitors adapting strategies to navigate both federal and state requirements.