Judge Says CFTC Kalshi Order ‘Smacks of a Collusive Effort’ in Novig Ruling

Judge Says Novig’s Contracts Are Sports Betting

In a 35-page opinion filed Nov. 10, Judge McMahon of the U.S. District Court for the Southern District of New York denied Novig’s motion for a preliminary injunction against New York Attorney General Letitia James and the state’s Gaming Commission. Novig had sued in August, arguing that the Commodity Exchange Act gives the CFTC exclusive jurisdiction over its contracts. The judge found Novig unlikely to succeed on the merits and did not reach the other injunction factors.

The judge found that Novig’s contracts are likely not “swaps” under the act, because sporting events are not “associated with a potential financial, economic, or commercial consequence” in the sense Congress intended. Even if they were swaps, she wrote in the alternative, federal law bars states only from regulating the licensing and operation of exchanges, not from applying their gambling laws to them.

“The Court is not required to disregard common sense—Novig’s sports event contracts are sports betting,” McMahon wrote, citing Novig’s own statements, including “Our north star is to be the largest sports betting platform in the world.” She added in a footnote that Novig makes its money “by charging two suckers a fee for the privilege of betting against each other on its platform.”

She called Novig’s argument that it could not comply with both state and federal law “ridiculous,” noting that Novig could seek a New York license, as it did in Colorado in 2023 before returning that license.

‘Collusive Effort’ Over Kalshi Emergency Order

The judge excoriated the CFTC related to its decision in August, when the agency ordered Kalshi to keep operating after New York sued it, using its emergency powers. The CFTC’s order followed a notice from Kalshi itself on Aug. 1 warning of a “market emergency” if New York won a restraining order. The CFTC said the threat of a sudden shutdown posed “an existential threat to the Commission’s registrants, marketplaces, and regulatory jurisdiction.”

Novig argued that the order underscored an irreconcilable conflict between state and federal law. McMahon rejected that: “The Kalshi Order smacks of a collusive effort between a regulator and regulatee to generate a claim for conflict preemption.” She added that the CFTC’s own current rules bar listing gaming-related event contracts, making the claimed conflict “a mirage.”

She was also critical of two CFTC rulemakings published on Oct. 19. In one, the agency proposed defining sports-, politics-, culture-, and weather-related event contracts as swaps. In the other, an interim final rule, it said bets placed with sportsbooks and casinos are not swaps. The CFTC rested that distinction on structure: sportsbook prices are set by the house, while exchange contracts are matched on an order book and cleared.

McMahon called the two rules “inherently contradictory,” reasoning that both are outcome-dependent bets with financial consequences and that who sits on the other side “is simply not a difference that makes a difference.” She said the agency’s shift “appears calculated to influence the outcome of the ongoing litigation on this very issue.”

Novig Appeals to the Second Circuit

The ruling deepens a split among federal courts over whether sports event contracts are swaps. The Third Circuit sided with Kalshi in April in a case brought against New Jersey regulators, holding that its sports contracts fall within the CFTC’s jurisdiction. The Ninth Circuit reached the opposite conclusion in August, finding that the contracts’ “substance” was “sports gambling, regardless of whether [the exchange] calls them swaps,” and the Sixth Circuit followed in September. McMahon’s bottom line tracks those two appellate courts; her criticism of the CFTC’s conduct goes further than any court’s language quoted in the agency’s own October rulemaking.

New Jersey has asked the Supreme Court to review the Third Circuit decision, backed by amicus briefs from Ohio and 38 other states plus the District of Columbia, the NFL, the American Gaming Association and 145 tribes. Kalshi’s response is due Dec. 7, after two extensions.

Novig filed a notice of interlocutory appeal hours later. The Second Circuit is already weighing the same questions in consolidated appeals by Kalshi and Coinbase, where a motions panel denied them injunctions pending appeal in a non-precedential order. A merits panel has yet to hear arguments.

Novig, like its major industry rivals, is embroiled in legal fights on several fronts. On Nov. 9, Missouri’s attorney general counterclaimed against Novig under a federal anti-gambling law, in a separate suit Novig brought in St. Louis.

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