Smarkets, a UK betting exchange with $60B in volume, is applying for a CFTC license while also seeking state sportsbook permits to hedge regulatory uncertainty.
Smarkets, a UK betting exchange founded in 2008, is pursuing two regulatory tracks in the U.S. It filed for a license with the Commodity Futures Trading Commission in March and has pending applications to operate as a sportsbook in Illinois and Iowa, with a separate application in Michigan, founder Jason Trost said. The platform has over $60 billion in lifetime trading volume.
The dual approach comes as the legal fight over who regulates prediction markets remains unsettled. The CFTC has argued it holds federal preemption. States including New York and New Jersey have sued prediction platforms as illegal gambling. The CFTC has sued multiple states to block those efforts. Last month, 44 state attorneys general wrote that the CFTC cannot be the exclusive regulator of sports-event contracts.
Trost said the dual track is necessary because "the legal situation is unclear if the CFTC has federal preemption or not." Smarkets already operates a sportsbook in Indiana and runs in four European countries, among them Ireland and Malta. Sports drives the bulk of Smarkets' volume, Trost added, similar to platforms like Kalshi and Polymarket.
Smarkets' preference is to operate under CFTC regulation, Trost said. "We view it more as a hedge rather than we want to be active on a state level. Our preference is to be active on the federal level," he added. Trost said he agrees with the argument that sports-event contracts should be classified as swaps, making them subject to CFTC oversight. The Susquehanna-backed company applied as a sportsbook in Illinois and Michigan, two states where regulators have categorized prediction markets as unlicensed sports betting operators.
The approach mirrors moves by larger sports betting platforms. DraftKings (DKNG) and FanDuel's parent Flutter (FLUT) launched prediction markets late last year. During its earnings call last week, Flutter noted that its prediction market can gain customers faster in states where sportsbooks are still under scrutiny.
State regulation comes with high compliance and tax costs. Trost said he's willing to deal with those costs and make Smarkets a "good actor" in the industry. He added that some competitors are "in danger of ruining the reputation of this industry because I think they're acting irresponsibly, not following regulation closely enough."
The regulatory battle continues. Kalshi, a prediction market platform that has a commercial relationship with CNBC, called New York's lawsuit against it "political theater." Kalshi said states cannot shut down a federally licensed exchange and that such actions drive users offshore.
Trost declined to specify which operators he considers irresponsible, but said platforms have a responsibility to follow regulation rather than work around it.
Smarkets filed its CFTC application in March. The agency has not yet acted on it. State applications in Illinois and Iowa remain pending, with a separate application in Michigan.
"Some of my competitors are in danger of ruining the reputation of this industry because I think they're acting irresponsibly, not following regulation closely enough," Trost said.
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