UK Exchange Smarkets Pursues Dual-Track Regulatory Strategy for U.S. Expansion

United Kingdom-based betting exchange Smarkets is pursuing a dual-track regulatory strategy to expand its presence in the United States, seeking approval as both a federally regulated prediction market and a state-licensed sportsbook operator.

Founded in 2008 and backed by Susquehanna, Smarkets submitted an application with the Commodity Futures Trading Commission in March to operate a prediction market exchange. Simultaneously, the company—which has processed more than $60 billion in lifetime trading volume—has submitted sportsbook license applications in Illinois, Iowa, and Michigan. Smarkets currently holds a sports betting license and operates in Indiana.

Speaking to CNBC Business, Smarkets founder Jason Trost explained that the dual approach acts as a safeguard amid regulatory ambiguity over whether CFTC oversight holds federal preemption over state gambling laws. Trost noted that sports-related event contracts generate a significant portion of trading volume on Smarkets, mirroring activity seen on competing prediction platforms such as Kalshi and Polymarket. He added that while the company views state licensing as a hedge, its preference remains operating under federal CFTC oversight by treating sports event contracts as financial swaps.

The dual approach comes as jurisdictional friction deepens between state gaming regulators and federal authorities. Multiple state entities have asserted that prediction market exchanges function as unauthorized gambling operations, prompting the CFTC to file legal actions to protect its supervisory authority. Tensions escalated last month when 44 state attorneys general signed a joint letter arguing that the federal agency does not hold exclusive authority over sports event contracts. The dispute also surfaced in New York, where state officials brought a lawsuit against Kalshi in July. Kalshi characterized the action as "political theater," warning that state bans would simply drive traders toward unregulated offshore venues.

To operate within individual state gaming frameworks, exchanges must satisfy strict compliance measures and accept elevated tax rates. Regulators in Illinois and Michigan have classified prediction platforms as unlicensed sportsbooks, leading Smarkets to submit traditional gaming applications in those states despite the associated financial costs.

Trost stated that Smarkets intends to position itself as a compliant operator in the U.S., leveraging its experience operating across European jurisdictions including Ireland, Malta, and Sweden. He warned that non-compliant platforms risk damaging the broader sector, noting that "some of my competitors are in danger of ruining the reputation of this industry because I think they're acting irresponsibly [and] not following regulation closely enough."

Smarkets is not the only company straddling the line between traditional gaming and event contracts. Established sports betting operators including DraftKings and FanDuel introduced prediction market offerings late last year. On a recent earnings call, FanDuel parent company Flutter Entertainment highlighted that prediction platforms allow for faster customer acquisition in jurisdictions where traditional sportsbook operations face legal hurdles.