TLDR
- A federal judge denied Novig’s request to block New York from applying its gambling laws.
- Judge Colleen McMahon said Novig’s sports contracts “are sports betting.”
- She said the CFTC’s emergency order for Kalshi “smacks of a collusive effort.”
- Novig appealed to the Second Circuit within hours of the Nov. 10 ruling.
- Kalshi’s response to New Jersey’s Supreme Court petition is due Dec. 7.
A federal judge in Manhattan has sharply criticized the Commodity Futures Trading Commission over an emergency order it issued to protect Kalshi. The comments came in a ruling against Novig, another prediction market.
U.S. District Judge Colleen McMahon denied Novig’s request for a preliminary injunction against New York on Nov. 10. The decision lets the state keep applying its gambling laws to Novig’s sports contracts.
Novig filed a notice of appeal to the Second Circuit just hours after the ruling. The case joins a growing list of legal fights over who regulates sports event contracts.
Judge Takes Aim at the CFTC
In August, after New York sued Kalshi, the CFTC used its emergency powers to order the company to keep operating. That order followed an Aug. 1 notice from Kalshi itself warning of a “market emergency” if New York won a restraining order.
The CFTC said a sudden shutdown posed “an existential threat to the Commission’s registrants, marketplaces, and regulatory jurisdiction.” Novig pointed to the order as proof that state and federal law were in direct conflict.
McMahon rejected that argument. She wrote that the order “smacks of a collusive effort between a regulator and regulatee to generate a claim for conflict preemption.” She added that the CFTC’s own rules bar gaming-related event contracts, making the conflict “a mirage.”
The judge also questioned two CFTC rulemakings published on Oct. 19. One proposed defining sports, politics, culture and weather event contracts as swaps. The other said bets placed with sportsbooks and casinos are not swaps.
The CFTC based that difference on structure. Sportsbook prices are set by the house, while exchange contracts are matched on an order book and cleared.
McMahon called the two rules “inherently contradictory.” She said the agency’s shift “appears calculated to influence the outcome of the ongoing litigation on this very issue.”
Court Calls Novig’s Contracts Sports Betting
Novig sued New York Attorney General Letitia James and the state Gaming Commission in August. It argued the Commodity Exchange Act gives the CFTC exclusive control over its contracts.
In a 35-page opinion, McMahon found Novig unlikely to win on the merits. She said its contracts are likely not swaps, because sporting events lack the kind of financial consequence Congress intended.
Even if they were swaps, she wrote, federal law only stops states from regulating how exchanges are licensed and run. It does not stop states from applying their gambling laws.
She cited Novig’s own words: “Our north star is to be the largest sports betting platform in the world.” She called its claim that it could not follow both state and federal law “ridiculous,” noting it held a Colorado license in 2023 before returning it.
The ruling adds to a split among federal courts. The Third Circuit sided with Kalshi in April in a case against New Jersey regulators. The Ninth Circuit ruled the other way in August, and the Sixth Circuit followed in September.
The Second Circuit is already weighing the same questions in appeals by Kalshi and Coinbase. A motions panel denied them injunctions pending appeal, and a merits panel has yet to hear arguments.
Novig is also fighting in Missouri. On Nov. 9, the state’s attorney general filed a counterclaim under a federal anti-gambling law in a suit Novig brought in St. Louis.
New Jersey has asked the Supreme Court to review the Third Circuit decision. Ohio and 38 other states, the District of Columbia, the NFL, the American Gaming Association and 145 tribes support the request. Kalshi’s response is due Dec. 7 after two extensions.
