Sporttrade Seeks CFTC Approval to Avoid ‘Irreparable Harm’ by Kalshi

Sporttrade, a sports prediction market platform operating with state gaming licenses, has petitioned the Commodity Futures Trading Commission (CFTC) with a letter asking permission to offer its product nationwide so it can avoid the “irreparable harm” of a competitive disadvantage.

CEO Alex Kane is not worried the April 25 letter will upset Sporttrade’s state regulators even as multiple states accuse Kalshi, a sports prediction market competitor, of inappropriately using the Commodity Exchange Act as cover for a thinly disguised form of sports betting.

“I haven’t feared [retaliation] for a second,” Kane said in a phone interview. “I know our regulators well.”

The company’s federal outreach following a monthslong internal risk assessment could encourage sportsbook giants such as DraftKings, which is enticed by prediction markets but concerned about state blowback, that they are safe to proceed, too.

Sporttrade is in a unique position because it offers sports futures event trading but is currently regulated like a traditional sportsbook in the five states where it operates (Arizona, Colorado, Iowa, New Jersey and Virginia).

Kalshi’s presence in all 50 states is enough of a long-term threat to Sporttrade’s market share that the company must change its approach right now in order to survive, Kane wrote in his letter to the CFTC. He said he hopes state officials he has built a relationship with sympathize with that predicament.

Kane’s letter notifies the CFTC that Sporttrade is “preparing a formal no-action relief request” to “accept trades on event contracts without formal federal registration.”

Kalshi, founded in 2018, has promoted the idea that its platform is a case of technological advancement that must be embraced by regulators. “No important financial innovation has ever been created without critics,” CEO Tarek Mansour wrote on social media in March.

But the firm, which began offering a platter of sports contracts for the first time this year, is not creating a fresh financial vehicle; Sporttrade was founded in 2017, and internationally, sports prediction exchanges such as Betfair have existed for decades.

Kalshi’s novelty dwells in the bold approach it is taking toward U.S. regulators, refusing to shut down upon request and in some cases suing the groups that aim to close it. By contrast, other companies have backtracked at first asking. Kalshi has also cultivated key political allies, including its board member Brian Quintenz, now the nominee to chair the CFTC, and advisor Donald Trump Jr., the son of President Donald Trump.

Kane complimented Kalshi’s platform and industry influence. He also said his company wants a level playing field so it can show it is just as cutting edge.

“It’s identical,” Kane said of Sporttrade’s level of fintech innovation compared to Kalshi. “Exact same thing, right?”

Several exchanges, including ErisX in 2021, tried and failed to go the federal route with sports futures trading under previous CFTC leadership. Rather than fight back, they acquiesced to agency resistance.

Sports economist and Syracuse University professor Rodney Paul said discussions about the possibility of sports-related prediction markets taking root in the U.S. have been going on at least since he first started going to conferences with finance researchers to discuss gambling in the early 2000s.

“Wow, it’s got to be 20 years,” Paul said in a video interview of when he first heard about the concept sports futures trading in the U.S. “I thought it was just kind of worded differently to be able to get around the negative connotation of saying it’s about gambling. … Once people figure out some sort of financial market, then they always figure out interesting derivatives.”

Kalshi has argued that its sports contracts are not a form of betting like Paul suggested. The company’s attorneys say its differences from sportsbooks are one of the reasons it should be overseen exclusively by the CFTC.

Sporttrade strikes a different tone, given its close work with state gaming regulators.

“You’re not going to hear me say this isn’t sports betting,” Kane said. “That’s a ridiculous comment.”

Still, Kane sees value in working with the CFTC if it fosters competition among prediction market platforms, which he believes are more consumer friendly than traditional sportsbooks in part because they can offer better potential returns and also because they do not limit user activity for winning too often.

Kane said he envisions a world in which state regulators maintain some influence over sports event futures contracts even with the CFTC involved. For Sporttrade to still be standing in that scenario, though, the executive believes the company must gain national reach during what his letter calls “the current uncertainty regarding even the medium-term outlook for sports event contracts.”

Expedited CFTC approval for Sporttrade, Kane added, would “encourage an open and fair capacity to offer sports event contracts, giving consumers choice among like options that all provide safe, regulated and compliant experience.”

The CFTC declined to comment on this story while Kalshi did not respond to requests for comment.

(This story has been updated in the final paragraph after the CTFC declined to comment.)