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Colorado rejects betting exchange wagering due to tax loopholes

The Colorado Limited Gaming Control Commission has rejected proposed rules for exchange wagering, a unique form of online sports betting described as a stock exchange for gamblers. The commission voted against taking action, citing concerns about potential tax loopholes and the need for sufficient oversight.

This decision puts a hold on Colorado’s bid to become the first state with specific regulations for exchange wagering, as well as the second state in the nation to offer this type of gambling. The commissioners expressed worry that the proposed rules could create a tax loophole for certain players involved in the exchange, contradicting the state legislature’s intention of ensuring that gambling operators pay a 10% tax on their profits.

The commission decided to postpone its decision, allowing the Colorado Division of Gaming to revise the proposal and address these concerns. One of the main concerns raised by the commissioners was the level of oversight required for the new online gambling platforms. They questioned whether the state’s regulators had adequate capacity to provide the necessary supervision.

Exchange wagering differs from traditional sports betting by enabling gamblers to set their own odds on a game, essentially betting against each other rather than against a bookmaker. It appeals to more experienced bettors and individuals who view sports betting as a financial investment opportunity. Operators of exchange wagering platforms generate revenue by collecting a commission from the bets placed, typically ranging from 2% to 2.5%.

While New Jersey is the first state to allow online sports betting on exchanges, it does not have specific rules governing this form of gambling. Colorado’s proposed regulations aimed to establish a clear framework for exchange wagering within the state.

However, the potential involvement of outside investors, who may inject significant amounts of money into the exchanges, raised concerns among the gaming commissioners. The absence of existing rules nationwide or globally added to the cautious approach, with commissioners emphasizing the need to proceed carefully.

The decision by the Colorado Limited Gaming Control Commission to reject the proposed rules marks a significant development in the state’s approach to sports betting. The commission’s concerns about potential tax loopholes and the need for robust oversight reflect a commitment to ensuring the integrity and transparency of gambling operations in Colorado.

As the Division of Gaming revises the proposal, stakeholders will closely follow the developments surrounding exchange wagering in the state, anticipating a revised framework that addresses the identified concerns while providing a regulated and responsible gambling environment for enthusiasts.

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