Novig Loses Bid to Block New York Gambling Enforcement

Novig filed a notice of appeal to the Second Circuit on Nov. 10 after a federal judge rejected its bid to block New York’s enforcement of gambling laws against sports contracts traded on an exchange designated by the Commodity Futures Trading Commission (CFTC), according to the court ruling and the company’s filing.

Judge McMahon found Novig had not shown a likelihood of success on the merits of its request for relief. Her reasoning rejects the argument that operating a federally designated exchange is enough to put the sports contracts beyond the reach of state gambling regulators.

What did the court decide about swap status?

McMahon agreed that sporting outcomes qualify as an “event or contingency” under the statute. But she found that Novig’s contracts failed a separate test: the event must carry a potential financial, economic or commercial consequence, read in the context of a law designed to manage price risk.

Novig supplied hypothetical examples of businesses using sports contracts to hedge risks, but no real-world example, McMahon wrote. She found the offering 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,” McMahon wrote.

McMahon did not treat the hypothetical hedge examples as proof of a commercial use. Her written analysis placed more weight on the contracts’ marketing and customer purpose than on the market infrastructure Novig relied on.

She also offered an independent reason to deny relief: even if the contracts were swaps, the federal statute would not displace New York’s application of its gambling laws to betting activity on the exchange. That leaves two obstacles for Novig: its interpretation of the swap test failed, and swap status itself would not preempt New York’s enforcement under the alternative ruling.

Why did the judge reject the CFTC’s distinction?

In October, the CFTC issued an interim final rule excluding sportsbook bets and casino-style gambling from the swap definition. It also proposed a separate rule that would include sports event contracts.

The interim rule treats exchange contracts as trades at market-set prices between participants, centrally cleared, unlike traditional wagers against a sportsbook. McMahon held that distinction was not decisive under the statutory test.

The two rules “are inherently contradictory and cannot be reconciled,” she wrote. She declined to defer to the agency and said proposed regulations have no legal effect. The judge also rejected the premise that the agency’s October interpretation had settled the statutory question.

In her analysis, the test concerned price risk and a qualifying economic consequence, not simply whether a contract traded on an exchange. The agency’s market-structure distinction therefore did not resolve whether Novig’s contracts satisfied the statute.

What was the significance of the Kalshi order?

McMahon separately criticized the CFTC’s Aug. 11 emergency order directing Kalshi to continue operating while New York pursued restrictions.

She wrote that the order “smacks of a collusive effort between a regulator and regulatee to generate a claim for conflict preemption,” the doctrine under which federal requirements override incompatible state law.

The CFTC defended its intervention as necessary to preserve orderly national derivatives markets. It argued that state-by-state regulation threatened those markets.

What happens to New York enforcement?

The ruling follows the Second Circuit’s Nov. 3 denial of injunctions pending appeal in Kalshi’s New York and Connecticut cases and Coinbase’s Connecticut case. The short order denied interim relief, not the appeals themselves, and did not resolve either side’s arguments on the merits.

Novig has taken the next procedural step with its Nov. 10 appeal filing. The appeal now places the pre-enforcement question before the Second Circuit: whether federal swap status can displace New York’s gambling laws while Novig’s contracts remain at issue.