Federal Judge Denies Novig Injunction in New York Prediction Market Case

A federal judge has rejected Novig's attempt to block New York from enforcing its gambling laws against one of the newest prediction market apps, ruling that its sports event contracts do not qualify as federally regulated swaps.

U.S. District Judge Colleen McMahon denied the company's request for a preliminary injunction Nov. 10, finding that New York can require Novig to obtain a gambling license or stop offering sports event contracts in the state.

"The Court is not required to disregard common sense," McMahon wrote in her 35-page opinion. "Novig's sports event contracts are sports betting."

Novig filed an appeal with the Second Circuit Court of Appeals the same day. The ruling does not resolve the entire lawsuit or revoke the company's federal exchange registration.

Federal registration doesn't override state law

Novig operates through Ludlow Exchange LLC, which received approval from the Commodity Futures Trading Commission to operate as a designated contract market June 16. The company allows customers to trade contracts tied to sporting outcomes, matching buyers and sellers who take opposing positions.

Novig argues that those contracts qualify as swaps under the Commodity Exchange Act, placing them under the CFTC's exclusive jurisdiction rather than state gambling regulators. The company sued New York Attorney General Letitia James and state gaming officials in August, seeking protection from enforcement.

McMahon rejected its arguments.

The judge found that sporting outcomes don't meet the financial or commercial requirements necessary to classify the contracts as swaps under federal law. She also dismissed the argument that Novig's exchange model makes its products fundamentally different from traditional sportsbook wagers, which are regulated by New York sports betting laws.

Both depend on sporting outcomes, she reasoned, regardless of whether customers bet against a sportsbook or another trader.

Judge rejects Novig's federal oversight argument

McMahon also addressed what would happen if a higher court determined the contracts did qualify as swaps. Even under that scenario, she found that federal commodities law would not automatically prevent New York from enforcing its gambling regulations.

The judge reasoned that the state's licensing requirements could coexist with federal oversight. Novig had argued that separate state restrictions would undermine the liquidity and efficiency of a national exchange.

However, McMahon found the company could comply with state laws by obtaining gambling licenses where available or restricting access in states where its products aren't authorized.

The decision leaves Novig without the temporary protection it sought while its lawsuit continues.

New York continues targeting prediction markets

The ruling comes amid several legal disputes between New York regulators and federally registered prediction-market operators. Attorney General James has pursued enforcement against Kalshi, Coinbase, and others over sports event contracts she argues constitute unlicensed gambling.

On Nov. 3, a Second Circuit panel also denied requests for temporary protection from Kalshi and Coinbase while their appeals continue.

Those decisions, like Novig's ruling, do not settle the underlying lawsuits. The broader disagreement concerns whether sports event contracts fall exclusively under federal commodities oversight or can also be regulated through state gambling laws.

Novig's appeal gives the Second Circuit another opportunity to address that question.

For now, New York can pursue enforcement against Novig's sports contracts without the preliminary injunction the company requested.