Colorado Regulators to delay Sports Betting Exchange Rules

The Colorado Limited Gaming Commission voted to take no action on proposed legal sports betting exchange rules. Colorado is the first state attempting to establish rules specific to the regulation of sports betting exchanges. 

On Thursday, Colorado’s Gaming Commission voted 3-1 to delay adopting new rules pertaining to sports betting exchanges. The Commission wanted more time to study a potential issue with tax collections. 

While 38 states and the District of Colombia have legalized sports betting, only one state — New Jersey — has implemented sports betting exchanges. Even New Jersey, however, does not have rules specific to its exchanges. 

“There aren’t any rules in place in the nation, or probably the world yet, so we need to proceed carefully,” Colorado Commissioner Justin Davis said. “I know the division has done a lot of research to make that happen. But we’ve had a lot of issues raised. I think it’s important to proceed carefully.”

Potentially Lower Fees and Better Odds

Sports betting exchanges are relatively common in Europe. For instance, the UK has roughly a half-dozen sports betting exchanges. However, exchanges are still having trouble finding traction in the U.S. 

Unlike retail sportsbooks and online sports betting sites, sports betting exchanges enable peer-to-peer betting. Exchanges don’t set lines and — more importantly — don’t have to worry about losing money on any particular bet. Exchanges just collect commissions from the peer-to-peer bets.

Exchanges are also advantageous for sports bettors. In general, fees are lower on exchanges. That’s primarily because the middleman takes less risk and, therefore, takes less of a cut. And since exchanges have no skin in the outcome, bettors can often find more attractive odds — as long as they can find another bettor willing to take their action.

New Jersey Stands Alone — For Now

New Jersey has licensed two sports betting exchanges. Prophet Exchange launched last August, while Sporttrade debuted a month later. Both exchanges would like the opportunity to expand to other jurisdictions. In fact, Prophet successfully raised $10 million in April to help fuel its expansion plans. Both exchanges, however, will have to wait a little longer to set up shop in the Centennial State. That said, Colorado is likely to play host to the next regulated sports book exchange.

In January, Illinois introduced a bill to allow sports betting exchanges. HB 1405, however, appears stuck in Rules Committee. Meanwhile, Colorado sports betting has technically legalized exchanges. The state only needs to finalize its sports betting exchange regulations. The current sticking point relates to a potential loophole that could impact the state’s ability to collect a planned 10% tax on an exchange’s commissions. That, however, does not seem to be an insurmountable problem.