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Sporttrade, with State Licenses in Tow, Asks CFTC for National Approval

To prevent what it refers to as possible “irreparable harm,” sports betting exchange operator Sporttrade is requesting the Commodities Futures Trading Commission (CFTC) to allow it to operate throughout the US. 

Established in 2018 by Alex Kane, Sporttrade now runs sports prediction markets in Arizona, Colorado, Iowa, New Jersey, and Virginia. Consequently, it holds gaming licenses in those states, establishing it as the inaugural prediction market with state-specific gaming approvals. Other prediction market operators, like Kalshi, do not solely concentrate on sports and lack state gaming licenses, yet they are overseen at the federal level by the CFTC. 

In a letter to CFTC Acting Director Caroline Pham, Kane expressed that Sporttrade is striving for fair competition, which could be jeopardized by competitors providing sports prediction markets nationally without having state gaming licenses.

"In other words, absent clarity from Congress, the permittance of sports event contracts and the incredibly large industry that would result at the federal level hinges on how one Commission, versus the next, asserts its discretion regarding ‘public interest,’” wrote Kane. “Suffice it to say: it may take some time before the CFTC determines, one way or another, whether sports event contracts are expressly permissible. This uncertainty disproportionately harms Sporttrade in our attempt to fairly compete with federally regulated derivatives clearing markets (DCMs).”

He mentioned that his firm is preparing an official no-action relief request that details how Sporttrade can comply with the CFTC’s fundamental principles and reporting standards. Kane mentioned that there are several cases where the commission has allowed “no action relief to trading platforms to facilitate transactions on event contracts without official federal registration.” 

How Sporttrade is Distinct from Kalshi and Other Prediction Markets 

Sporttrade functions like a conventional financial exchange, allowing users to engage in derivatives related to the results of sports events in a manner akin to how traders trade stocks. 

Through that methodology instead of the conventional approach to sports betting, Sporttrade allows users to trade contracts on sporting events similarly to how an investor buys and sells stocks or bonds. This provides users the opportunity to minimize losses and recover some funds on unsuccessful bets, which is not feasible in traditional sports betting. 

Regarding consumer-facing distinctions between Sporttrade and firms like Kalshi, the former concentrates exclusively on sports, whereas other national prediction markets are relatively recent arrivals in the realm of sports derivatives. For a while now, they have provided contracts on various occurrences, including elections, economic indicators, awards ceremonies, and even the next pope. 

Another key distinction between Sporttrade and larger prediction market companies is that Kane’s firm openly states that it provides sports betting, while Kalshi avoids such claims. Because of its business model, Sporttrade actively pursued state gaming licenses – a step that Kalshi has demonstrated no interest in taking. 

“The event contracts we would list involved gaming and as such, we would need to be regulated as a sports betting operator,” Kane wrote, referencing Sporttrade’s early days. “We did not see any other way of bringing our product to market, and this was confirmed by every state gaming regulator that we spoke with.”

CFTC Rules Might Favor Sporttrade 

Sporttrade would clearly gain advantages by becoming regulated by the CFTC. Kane faces that reality head-on. Functioning on a national scale would place the company on par with competitors such as Kalshi and PredictIt. 

Secondly, the capacity to operate its business nationally may benefit Sporttrade in contrast to the online sports betting rivalry at the state level, which is predominantly dominated by only two operators.

"A CFTC-led regulatory approach for exchanges could foster a healthy and competitive environment, devoid of the monopolistic forces that dominate the state-by-state framework, encouraging a market structure that looks much more like futures trading than online casino regulation,” noted Kane in his letter to Pham.

Sporttrade, based in Philadelphia, has received support from notable investors such as Jump Capital, Delavan Lake Investments, Impression Ventures, Hudson River Trading, and Tower Research Ventures.