1. Novig loses its bid to block New York regulators
U.S. District Judge Colleen McMahon on Tuesday, November 10, 2026, denied sports prediction exchange Novig a preliminary injunction against New York's attorney general and gaming regulators. In the Novig New York case, she found the company's sports event contracts are likely not swaps under federal law, so the state can demand a gambling license or force Novig to stop offering them there.
The ruling is an early-stage decision, not a final judgment on the merits. A preliminary injunction is an emergency order that pauses enforcement while a lawsuit proceeds, and courts grant one only when the requesting party shows it is likely to win and would suffer serious harm without relief. By refusing, McMahon left New York free to act against Novig while the case continues.
Court records list the dispute as Ludlow Exchange LLC v. James, with New York Attorney General Letitia James among the defendants. Novig filed a notice of interlocutory appeal on the same day the decision came down, signaling that the fight will move quickly to a higher court.
For Novig, the practical effect is immediate exposure. Without the protection it sought, the exchange faces a choice between pursuing a state license, withdrawing the contracts from New York customers, or continuing to operate while the state's regulators decide whether to take further action.
2. Why the swap question decides who regulates Novig
The core of the case is a definitional question with large consequences. Under the Commodity Exchange Act, the Commodity Futures Trading Commission holds exclusive authority over swaps, but only when those swaps trade on a federally designated exchange. If a product falls inside that federal box, states generally cannot regulate it as gambling.
Prediction market operators have leaned on that structure to argue that their event contracts, including those tied to the outcome of sporting events, are federally regulated derivatives rather than wagers. If that argument holds, state gaming licenses and state bans would not apply. If it fails, the contracts look much more like ordinary sports bets, and states keep their long-standing power to decide who may offer betting to their residents.
McMahon concluded, at this preliminary stage, that Novig's contracts do not qualify as swaps. That finding, more than any other, is what allowed her to rule that New York may require a state gambling license for them.
3. What is a sports event contract?
A sports event contract is a financial product that pays out depending on the result of a game or another sporting outcome. A customer buys a position on a question such as whether a particular team will win, and the contract settles at a fixed value if the answer is yes and at zero if it is not. Prices move between those two values as trading takes place, so the market price is often read as the crowd's estimate of the probability of the outcome.
Supporters say this structure makes the products different from sportsbook bets, because customers trade with each other on an exchange instead of betting against a house that sets the odds. Critics, including several state regulators, argue that the label changes little: the customer is still picking a winner and risking money on a game. The Novig decision sides firmly with the second view, at least for now.
The stakes of that labeling question are commercial as well as legal. A product treated as a federally regulated derivative can, in principle, be offered nationwide under a single set of federal rules. A product treated as gambling must instead win approval state by state, pay state taxes and follow each state's consumer protection rules, a far more expensive and slower path to reaching customers.
4. Why did the judge refuse to defer to the CFTC?
McMahon gave the CFTC no deference because, in her view, the agency's own recent positions cannot be squared with each other. In October, the commission issued an interim final rule that keeps sportsbook bets and other casino-style gambling outside the definition of a swap. At the same time, it put forward a proposed rule that would classify sports event contracts as swaps.
The judge found those two actions point in opposite directions. She wrote that they are inherently contradictory and cannot be reconciled. According to the opinion, both actions were first released on October 9 and then updated on October 19.
She also questioned the timing. McMahon said the CFTC's abrupt change of course on whether states may regulate sports wagering appeared designed to influence pending litigation, rather than reflecting a settled policy judgment. Courts typically give the most weight to agency interpretations that are consistent and carefully reasoned, and the judge found neither quality here.
5. The Kalshi order and the preemption argument
McMahon reserved some of her sharpest language for an August 11 CFTC order directing Kalshi to keep operating while New York pursued enforcement against it. She said the order looked like collusion between a regulator and the company it regulates, aimed at manufacturing a conflict-preemption claim.
Conflict preemption is the legal doctrine under which federal law overrides state law when a company cannot obey both at once. An order from a federal agency telling a company to keep operating, issued while a state is ordering the same company to stop, could be used to argue that the two sets of obligations clash. The judge's comments suggest she viewed that conflict as constructed rather than genuine.
Kalshi is one of the best-known federally registered prediction market operators, and its battles with state regulators have become a reference point for the entire sector. The judge's description of the August order is likely to be cited in those other disputes.
6. Novig's listings fail even under the CFTC's own rule
The judge added that deference to the CFTC would not have rescued Novig anyway. Even if she accepted the agency's framework, Novig's listings would still be unlawful under the commission's current rule, 17 C.F.R. § 40.11, which bars exchanges from listing event contracts related to gaming.
That point narrows Novig's options on appeal. To prevail, the company would need to win not only on the statutory swap question but also overcome a federal rule that, on the judge's reading, already prohibits the type of contract it offers.
7. How the court read the definition of a swap
The Commodity Exchange Act covers contracts tied to an event or contingency that has a potential financial, economic or commercial consequence. McMahon split that definition into two parts and reached different conclusions on each.
On the first, she agreed with Novig: the outcome of a game is an event. On the second, she sided with New York. The statute, she reasoned, is aimed at instruments used to hedge price risk, the kind of exposure a farmer, airline or manufacturer faces, rather than at recreational betting on who wins a match.
She also looked at the product from the customer's point of view and found that a Novig contract is essentially no different from a traditional sports bet placed with FanDuel. For a bettor choosing a team and putting money on the result, the experience and the economic substance are the same, regardless of whether the platform calls it a wager or a contract.
8. Can Novig comply with both state and federal law?
Yes, according to the judge, who called Novig's claim that it could not satisfy both state and federal requirements ridiculous. She said the company could apply for a New York license and use geofencing to limit its service to customers physically located in the state.
Geofencing uses location data to confirm where a user is before allowing a transaction, and licensed sportsbooks already rely on it to keep their offerings within the borders of states where they are authorized. Pointing to that tool undercut Novig's argument that the state's demands left it in an impossible position, which in turn weakened its preemption case.
9. Why the ruling matters for prediction markets
Sports contracts have become one of the fastest-growing parts of the prediction market business, and their legal status is being contested in courts and statehouses across the country. A detailed federal opinion that rejects the swap theory and declines to defer to the CFTC gives states a fresh argument when they move against platforms operating without gambling licenses.
The decision also puts the CFTC's credibility at the center of the debate. Operators have relied on the agency's support to argue that federal oversight displaces state gambling law. A judge characterizing the agency's rules as irreconcilable and its Kalshi order as apparent collusion makes that reliance harder to sustain, at least in this court.
10. What happens next in the Novig case
The immediate next step is the appeal. With a notice of interlocutory appeal already filed, Novig will ask the U.S. Court of Appeals for the Second Circuit to review the denial before the underlying case is finished.
An interlocutory appeal is a challenge to a ruling made before a case reaches final judgment. Federal law generally allows such appeals when a trial court refuses to grant an injunction, which is why Novig can seek review now rather than waiting for the lawsuit to conclude. In the meantime, the denial stands, and New York's regulators are not barred from pursuing the company.
The Second Circuit is already weighing the same issue. Earlier this month, it declined to pause actions by New York and Connecticut against Kalshi and Coinbase, and said that a merits panel, the group of judges that will decide those appeals, will address the same question. Its eventual ruling on whether sports event contracts are swaps is likely to shape the outcome for Novig, Kalshi, Coinbase and the rest of the industry operating in the region.