Judge Rules Novig’s Sports Contracts Are Gambling, Not Financial Swaps

A federal judge has rejected an effort by prediction market operator Novig to insulate its sports contracts from New York’s gambling laws, finding that the products are essentially bets on sports and not financial derivatives protected by federal law.

In a 35-page opinion issued Tuesday, US District Judge Colleen McMahon denied Novig’s request for a preliminary injunction against New York Attorney General Letitia James and the state’s gaming regulators.

Novig had argued that the federal Commodity Exchange Act (CEA) preempts New York from enforcing its sports betting laws against the company.

The ruling means that the state is still poised to take enforcement action against Novig, compelling the company to either secure a New York gambling license or cease operations in New York. However, the decision does not compel Novig to shut down.

A Sports Bet by Another Name

Novig runs an exchange where customers trade against each other on sports outcomes, instead of betting against a traditional sportsbook. In June, the Commodity Futures Trading Commission (CFTC) designated it a contract market.

Novig had argued that its contracts were “swaps” solely governed by the CFTC and therefore outside the reach of state gambling regulators.

McMahon disagreed. While sporting outcomes count as “events or contingencies” under the CEA, she wrote that they lacked the type of inherent financial or commercial consequences needed to make the contracts swaps.

Novig’s contracts included point spreads, player props, and parlays that were indistinguishable from bets offered on FanDuel and BetMGM, she noted. One four-game NFL parlay that offered a payout larger than 111 times the amount wagered.

“The Court is not required to disregard common sense—Novig’s sports event contracts are sports betting,” McMahon wrote.

The judge also noted that Novig had held a Colorado sports betting license before giving it up and transitioning to its federally-regulated exchange model.

Judge Targets CFTC

McMahon reserved her harshest language for the CFTC, which has been attempting to draw a distinction between financially-traded sports contracts and traditional sportsbook bets.

She found the agency’s recent stances contradictory and wondered whether it had attempted to influence the ongoing litigation.

More pointedly, McMahon stated that a CFTC order preventing a rival platform from shutting down while New York filed legal action “smacks of a collusive effort” to create a conflict by federal law.

She also argued that even if Novig’s contracts were swaps, federal law would not automatically displace New York’s long-standing authority over gambling.

This is not a final word on Novig’s lawsuit, but the latest addition to an increasingly disparate patchwork of court rulings around the country.