U.S. District Judge Colleen McMahon of the Southern District of New York denied Novig's request for a preliminary injunction against New York on November 10, ruling that the prediction market's sports event contracts fall under state gambling laws rather than federal commodities regulation.
In a 35-page opinion, McMahon found that Novig's contracts are likely not "swaps" under the Commodity Exchange Act because sporting events lack the "potential financial, economic, or commercial consequence" Congress intended to cover. She also wrote that even if the contracts qualified as swaps, federal law does not prevent states from applying their gambling laws to them.
McMahon emphasized that Novig's own statements contradicted its legal position, noting the company's stated goal to become "the largest sports betting platform in the world." She rejected Novig's argument that it could not comply with both state and federal regulations, pointing out that Novig had previously obtained a license in Colorado.
CFTC Conduct Criticized
The judge was particularly critical of the CFTC's August emergency order, which directed Kalshi to continue operating after New York took legal action against it. The CFTC issued the order following a notice from Kalshi warning of a "market emergency" if New York obtained a restraining order.
McMahon stated that the CFTC's order "smacks of a collusive effort between a regulator and regulatee to generate a claim for conflict preemption." She noted that the CFTC's existing rules already bar listing gaming-related event contracts, making the claimed conflict "a mirage."
The judge also criticized two CFTC rulemakings published on October 19, calling them "inherently contradictory." In one, the agency proposed defining sports, politics, culture, and weather-related event contracts as swaps. In another interim final rule, it stated that bets placed with sportsbooks and casinos are not swaps, distinguishing them based on whether prices are set by the house or matched on an order book.
Broader Legal Conflict
McMahon's ruling adds to a split among federal appellate courts on the question. The Third Circuit sided with Kalshi in April, holding that its sports contracts fall within CFTC jurisdiction. The Ninth Circuit reached the opposite conclusion in August, and the Sixth Circuit followed in September.
New Jersey has asked the Supreme Court to review the Third Circuit's decision, with support from 38 other states, the District of Columbia, the NFL, the American Gaming Association, and 145 tribes. Novig filed an interlocutory appeal to the Second Circuit, which is already hearing consolidated appeals from Kalshi and Coinbase on similar questions.
