A federal judge in New York denied prediction market operator Novig’s request for a preliminary injunction on November 10, finding that its sports event contracts likely fall under state gambling laws rather than federal derivatives regulations.
U.S. District Judge Colleen McMahon also criticized the Commodity Futures Trading Commission (CFTC) over an emergency order protecting rival platform Kalshi, questioning whether the regulator was attempting to strengthen its position in ongoing litigation.
Novig appealed the ruling to the U.S. Court of Appeals for the Second Circuit later that day.
In her 35-page opinion, McMahon concluded that Novig had not demonstrated a likelihood of success in its challenge against New York Attorney General Letitia James and the New York State Gaming Commission.
Novig, which received CFTC approval as a designated contract market in June 2026, sued state officials in August after launching sports event contracts in New York.
The company argued that its contracts qualify as swaps under the Commodity Exchange Act (CEA), placing them under the CFTC’s exclusive jurisdiction.
McMahon disagreed, finding that the sporting events underlying Novig’s contracts did not satisfy the relevant statutory requirement for financial, economic or commercial consequences.
She also pointed to Novig’s own marketing, including its stated ambition to become the world’s largest sports betting platform.
The judge concluded that New York could apply its gambling laws even if the contracts qualified as federally regulated swaps.
She noted that Novig could pursue state sports betting authorization rather than claiming federal regulations prevented compliance with both systems.
The decision does not resolve the underlying lawsuit, but it leaves Novig without the temporary protection it sought against state enforcement.
McMahon also questioned the CFTC’s August 11 emergency order directing Kalshi to continue operating while facing enforcement proceedings in New York.
The order followed Kalshi’s warning that a potential shutdown could threaten its operations and the federally regulated prediction market system.
Novig cited the directive as evidence that state gambling restrictions conflicted with federal regulatory obligations.
McMahon rejected that argument, writing that the order “smacks of a collusive effort” between the regulator and the company to establish grounds for federal preemption.
The language represents a significant judicial criticism of the agency’s actions, although the ruling did not establish that unlawful collusion occurred.
The judge also questioned the CFTC’s recent approach to defining event contracts.
On October 19, the agency published a proposal that explicitly included sports and other event contracts in the definition of swaps. A separate interim final rule excluded conventional sportsbook wagers and casino gambling products.
The CFTC distinguishes exchange-traded contracts from traditional betting partly because participants trade against one another rather than against a bookmaker.
McMahon considered that distinction insufficient to justify different regulatory treatment.
The disagreement raises a practical question: whether a betting product’s structure should determine which regulator oversees it when the underlying activity involves predicting sporting outcomes.
McMahon’s decision follows conflicting rulings from federal appeals courts.
The Third Circuit sided with Kalshi in April, finding that sports event contracts traded on federally designated exchanges qualify as swaps under the CEA.
The Ninth Circuit reached a different conclusion in August, while the Sixth Circuit similarly rejected Kalshi’s position in September.
These decisions have left operators facing different interpretations of federal authority by jurisdiction.
Novig’s appeal gives the Second Circuit another opportunity to examine the dispute.
The outcome could influence how prediction market operators structure their services, particularly those offering sports contracts in states with established gambling licensing requirements.
For now, the ruling strengthens New York’s position in its dispute with Novig without settling the broader question of whether federal derivatives oversight prevents states from regulating sports prediction markets.
Vladimir is a senior iGaming writer and editor, adept at breaking down the key details of crypto casinos and sportsbooks so players don’t have to, delivering honest, player-focused information that actually matters.
