Judge Denies Novig Bid to Block New York Gambling Enforcement
A federal judge denied Novig a preliminary injunction against New York, finding its sports event contracts are not swaps under the Commodity Exchange Act and calling the CFTC's October swap rules inherently contradictory. Novig has appealed to the Second Circuit.
New York may require sports prediction exchange Novig to obtain a state gambling license or stop listing its sports event contracts, a federal judge ruled Nov. 10. The ruling denied Novig's request for a preliminary injunction against the state's attorney general and gaming regulators.
U.S. District Judge Colleen McMahon's opinion held, at this stage of the case, that the contracts are not swaps under the Commodity Exchange Act. The decision denies Novig protection from enforcement. It does not order the platform to shut down or finally resolve the lawsuit.
Why the contracts failed the swap test
Novig matches customers taking opposing positions on sporting outcomes rather than taking the other side of their bets. According to the opinion, it received federal exchange designation in June and began offering sports contracts to New York customers in August. It argued the Commodity Exchange Act gave the CFTC exclusive authority over those contracts.
McMahon agreed that a sporting outcome is an "event or contingency," but found the contracts lack the required association with a potential financial, economic or commercial consequence. The statute, she reasoned, targets hedging of price risk. Novig offered only hypothetical hedging examples and marketed to recreational bettors.
"From the perspective of the customer, there is no qualitative difference between Novig's product and FanDuel's traditional sports bet."
Judge Colleen McMahon
She also gave an alternative basis: even if the contracts were swaps, the act would not displace New York's application of its gambling laws to betting on the exchange.
No deference to the CFTC
McMahon declined to defer to the agency. Its October interim final rule excludes sportsbook bets and casino-style gambling from the swap definition, while a proposed rule would include sports event contracts. She called the two "inherently contradictory and cannot be reconciled" and said proposed regulations have no legal effect.
The interim final rule distinguishes exchange contracts, which trade at market-set prices between participants and are centrally cleared, from wagers against a sportsbook. The judge did not treat that distinction as decisive.
She was sharper about the CFTC's Aug. 11 emergency order directing Kalshi to keep operating, which she said "smacks of a collusive effort between a regulator and regulatee to generate a claim for conflict preemption." The CFTC has defended its intervention as necessary to preserve orderly national derivatives markets, arguing that state-by-state regulation threatens them.
McMahon also dismissed as "ridiculous" Novig's claim that it could not obey both state and federal law, noting the company could seek a New York license and geofence to serve only customers in the state. Even if the court deferred to the CFTC, she added, the contracts would be unlawful under 17 C.F.R. § 40.11.
Appeal already filed
Novig filed a notice of appeal to the Second Circuit the same day.
That court on Nov. 3 denied injunctions pending appeal in Kalshi's New York and Connecticut cases and Coinbase's Connecticut case. The order denied interim relief, not the appeals themselves, and a merits panel is set to take up the same question.
What it means
For now, prediction market operators serving New York face a choice between a state gambling license and delisting sports contracts while the appeals run. The ruling joins the Second Circuit's Nov. 3 refusal of interim relief to Kalshi and Coinbase, leaving the merits question to the appellate panel.
