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Colorado regulators have approved rule changes to permit exchange wagering after more than a year of deliberation, making the state the second in the U.S. to allow the activity and the first to adopt specific regulations.
The Colorado Limited Control Commission and the Division of Gaming held several discussions throughout 2023 and into 2024 on how to regulate exchange betting, including dialogue with several operators which offer exchange products in other markets.
Christopher Schroder, the director of the Division of Gaming, said those conversations involved whether the division could appropriately regulate the products, as well as considering the tax implications of allowing exchange betting.
Under the newly approved rules, any commission collected by a betting exchange operator would be considered taxable net proceeds and taxed at 10 percent.
"I think this represents a comprehensive consideration of all parties involved and the important advice of the commission last year,” Schroder said Thursday (April 18). “We believe that our operators are anxious to get started with this so that this can launch in time for the upcoming NFL season.”
“We think we've addressed all of the thoughtful and valid concerns shared with us by the commission, and these rules will create a frame framework to serve the state of Colorado, the patrons and the industry while diversifying and expanding the Colorado sports-betting market.”
Alex Kane, CEO of exchange wagering operator Sporttrade, praised the commission and the Division of Gaming for the new rules, but he did take issue with one provision that will require operators to disclose any exchange wager that is being offered by a market maker.
“I think that because we can all agree that the operator is the counterparty to every single patron transaction on the platform, both patron bets and patron cashouts, and that patrons must be individuals, that every price offered by the operator that offers exchange wagering is the operator’s price,” Kane said.
“I can certainly understand the concern that an operator may market its activity … that it could be marketed as you are betting against your friends,” he added.
“I think that’s a somewhat harmful potential way to market the platform, and I can understand the potential responsible gaming ramifications to doing that, but perhaps a better way to achieve that is to have regulations about how an operator may market its platform inside of Colorado as opposed to requiring operators to demarcate certain prices that it offers to patrons in a discriminatory way.”
Exchange operators licensed in Colorado include Smarkets and Novig, in addition to Sporttrade. All three companies had launched in the state with alternative, fixed-odds sportsbook products prior to the new rules being adopted.
To date, New Jersey is the only state that has allowed exchange wagering with both Sporttrade and Prophet Exchange live in the state. New Jersey has not published specific regulations for exchange wagering, however.
