A federal judge in Manhattan has delivered a significant blow to the prediction market industry, refusing to stop New York State from applying its local gambling laws to Novig. In a strongly worded opinion, the court ruled that the platform’s sports-related contracts legally constitute sports betting rather than federally regulated financial swaps.
The decision by U.S. District Judge Colleen McMahon of the Southern District of New York goes further than simply denying Novig’s request for protection. In her 35-page ruling, the judge went on to criticize the Commodity Futures Trading Commission (CFTC), suggesting that an emergency order issued by the federal regulator to shield a competing prediction market, Kalshi, appeared to be the result of a collusive effort between the agency and the entity it regulates. This sharp judicial rebuke sets the stage for a much larger, high-stakes regulatory and constitutional battle over the boundaries of federal versus state oversight.
Judge Says Novig’s Contracts Are Sports Betting
The legal conflict began in August when Novig filed a lawsuit against New York Attorney General Letitia James and the New York State Gaming Commission. The prediction market argued that the federal Commodity Exchange Act grants the CFTC exclusive jurisdiction over its contracts, thereby preempting state-level gambling enforcement. Novig sought a preliminary injunction to halt state interference while the core legal questions were resolved.
In her November 10 opinion, Judge McMahon denied the motion for a preliminary injunction after finding that Novig was unlikely to succeed on the merits of its case. Because the plaintiff failed to clear this primary hurdle, the court did not need to evaluate the remaining legal factors required for an injunction.
The court systematically dismantled Novig’s statutory arguments. Judge McMahon concluded that Novig’s sports-related contracts do not qualify as "swaps" under the Commodity Exchange Act. She reasoned that sporting events lack the requisite "potential financial, economic, or commercial consequence" in the manner originally intended by Congress when drafting the legislation.
Furthermore, the judge noted that even if the contracts could somehow be classified as swaps, federal law only bars states from regulating the internal licensing and structural operations of designated exchanges. It does not strip states of their traditional police powers to apply local gambling and gaming laws to transactions taking place within their borders.
"The Court is not required to disregard common sense—Novig’s sports event contracts are sports betting," Judge McMahon wrote. To underscore the point, she cited Novig’s own public marketing and corporate statements, including a declaration that its "north star is to be the largest sports betting platform in the world." In a biting footnote, she added that Novig ultimately generates revenue "by charging two suckers a fee for the privilege of betting against each other on its platform."
The court also dismissed Novig’s claims that it faced an impossible dilemma of conflicting state and federal compliance obligations, calling the argument "ridiculous." Judge McMahon pointed out that Novig is fully capable of pursuing a state-level license, noting that the company previously sought and obtained a sports betting license in Colorado in 2023 before voluntarily returning it.
"Collusive Effort" Over Kalshi Emergency Order
Beyond her assessment of Novig’s operations, Judge McMahon trained her sights directly on the CFTC, severely criticizing the federal agency for its intervention in August. At that time, the CFTC used emergency powers to order Kalshi to keep operating after New York State initiated legal action against the prediction market.
The federal agency’s emergency order had been prompted by a formal notice filed by Kalshi on August 1, warning of an impending "market emergency" if New York succeeded in securing a restraining order. The CFTC justified its intervention by claiming that a sudden, uncoordinated shutdown of the exchange posed an existential threat to the commission’s registrants, marketplaces, and broader regulatory jurisdiction.
Novig had pointed to the CFTC’s emergency action as clear proof of an irreconcilable conflict between state authority and federal market regulation. Judge McMahon firmly rejected that interpretation, offering a sharp critique of the regulator’s behavior.
"The Kalshi Order smacks of a collusive effort between a regulator and regulatee to generate a claim for conflict preemption," McMahon wrote. She further observed that the CFTC’s own longstanding rules explicitly prohibit the listing of gaming-related event contracts, rendering the agency’s claimed conflict of laws "a mirage."
The judge’s skepticism extended to a pair of controversial CFTC rulemakings published on October 19. In the first instance, the agency proposed a rule defining sports-, politics-, culture-, and weather-related event contracts as swaps. Simultaneously, in an interim final rule, the agency declared that traditional bets placed directly with commercial sportsbooks and casinos do not constitute swaps. The CFTC attempted to justify this structural distinction by arguing that sportsbook prices are unilaterally set by the house, whereas prediction market exchange contracts are matched directly on an open order book and cleared centrally.
Judge McMahon dismissed both rules as "inherently contradictory." She reasoned that both mechanisms represent outcome-dependent wagers with direct financial consequences, asserting that the identity of the counterparty—whether a centralized house or an anonymous peer on an exchange—"is simply not a difference that makes a difference." She concluded that the agency’s sudden regulatory pivot "appears calculated to influence the outcome of the ongoing litigation on this very issue."
Novig Appeals to the Second Circuit
Judge McMahon’s ruling adds fuel to an escalating split among federal courts regarding the legal classification of sports event contracts. Earlier in the year, the Third Circuit Court of Appeals ruled in favor of Kalshi in a parallel legal challenge brought by New Jersey regulators, holding that the exchange’s sports-based contracts fall squarely under exclusive CFTC jurisdiction.
However, other circuits have taken a sharply divergent view. The Ninth Circuit ruled against prediction markets in August, finding that the underlying substance of the contracts was unequivocally "sports gambling, regardless of whether [the exchange] calls them swaps." The Sixth Circuit followed suit with a similar ruling in September. While Judge McMahon’s ultimate legal conclusion aligns with the Ninth and Sixth Circuits, her scathing assessment of the CFTC’s administrative conduct goes well beyond the language used by any previous appellate court.
The broader jurisdictional conflict is already climbing toward the highest levels of the American judiciary. New Jersey has formally petitioned the U.S. Supreme Court to review the Third Circuit’s decision. The state’s petition has garnered significant backing through amicus curiae briefs filed by Ohio, 38 other states, the District of Columbia, the National Football League, the American Gaming Association, and a coalition of 145 Native American tribes. Kalshi’s formal response to the Supreme Court petition is currently scheduled for December 7, following a series of extensions.
Meanwhile, the fallout in the lower courts was immediate. Just hours after Judge McMahon released her decision, Novig filed a formal notice of interlocutory appeal. The U.S. Court of Appeals for the Second Circuit is already reviewing parallel questions in consolidated appeals involving both Kalshi and Coinbase. In those proceedings, a motions panel previously denied the exchanges’ requests for injunctions pending appeal in a non-precedential order, though a full merits panel has yet to schedule oral arguments.
Novig finds itself locked in multi-front legal battles across the country. In addition to its struggle in New York, the company is fighting legal challenges elsewhere, including in Missouri, where the state’s attorney general filed a counterclaim against Novig under federal anti-gambling statutes in connection with a separate lawsuit initiated by the platform in St. Louis.
Bitcoin & Major Altcoins
Bitcoin & Major Altcoins
Bitcoin & Major Altcoins
