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Colorado gaming regulators will begin work this month on new regulations to allow sports-betting exchanges to operate within the state after the chief executive of Novig Laboratories again requested to offer a wagering exchange.
Efforts to approve exchange wagering regulations, a form of sports betting already offered in New Jersey, as well as in international markets, that allows gamblers to wager against each other, were tabled in June by Colorado regulators over concerns about a potential tax loophole.
State gaming commissioners were concerned about how “external market makers” would be taxed, what level of licensure those entities would be required to have, and what entities would qualify as external market makers.
External market makers are typically used in exchange wagering to create liquidity and ensure the opposite side of a customer’s bet is taken. In terms of taxation, external market makers are usually treated like a customer.
During the final 2023 meeting of the Colorado Limited Gaming Control Commission, commissioner Shawn Coleman said as “this activity is laid out in statute to lay out regulations, my request is that we go back and take this seriously and put out rules to let this market take place.”
Commissioner John Tipton agreed, saying exchanges “are eager to get this done.”
The 20-minute discussion took place on December 21 after Jacob Fortinsky, CEO of Novig Laboratories, submitted a two-page letter asking the commission to prioritize development of exchange wagering regulations.
In his letter, Fortinsky said allowing exchange wagering would expand and diversify Colorado’s sports-betting market.
“The social aspect of our exchange, where users can trade against each other, further contributes to this appeal, attracting a broader user base motivated by both financial and social engagement, thereby enhancing trade volume,” he wrote.
Novig has secured market access through an agreement with Las Vegas-based Full House Resorts and its Bronco Billy’s Resorts in Cripple Creek. Another exchange wagering company, Sporttrade, has market access in Colorado through a deal with GF Gaming Corp., which owns Bonanza Casino in Central City.
Sporttrade is live with exchange betting in New Jersey but currently offers sports betting in Colorado without its exchange wagering platform.
Fortinsky also highlighted that exchange wagering acts as a significant magnet for institutional capital, which is a major force in other trading markets.
“In the realm of stock trading, for example, institutional investors account for approximately 70 percent of the trading volume,” Fortinsky wrote. “By welcoming these institutional funds as market makers on sports-betting exchanges, we expect a similar infusion of volume and vitality in the sports-betting market in Colorado.”
“This influx of institutional capital is not only in alignment with Colorado's regulatory framework but also promises to significantly enhance the betting volume and, consequently, the state's tax revenue,” he added.
Currently, New Jersey is the only state to allow exchange wagering, but regulators have not created specific rules to oversee betting exchanges. Both Sporttrade and Prophet Exchange offer exchange wagering in New Jersey.
“As the first state to put forth thoughtful exchange wagering regulations, Colorado will cement itself as an industry leader and reaffirm its reputation as a strong supporter of innovation,” Fortinsky wrote.
Patricia Landaveri, vice-chair of the commission, expressed concern with the level of scrutiny of licenses and taxes, reminding her colleagues that was why she voted in June to table the issue. Landaveri also questioned how long the rulemaking process would take, should commissioners decide to move forward.
Chris Schroder, the director of the Colorado Division of Gaming, did not commit to a date for when the rulemaking process would begin but promised to update the commission at its January 18 meeting on an expected timeline.
