U.S. District Judge Colleen McMahon rejected Novig’s bid for a preliminary injunction on Tuesday, ruling that the sports prediction exchange’s contracts are not swaps under the Commodity Exchange Act at this early stage. This decision leaves New York free to require Novig to obtain a state gambling license or stop listing the contracts entirely. The judge explicitly refused to defer to the Commodity Futures Trading Commission, whose regulatory actions she found irreconcilable with existing law. By denying the injunction, McMahon effectively cleared the path for state regulators to enforce their licensing requirements against the platform immediately.
The Regulatory Conflict
McMahon declared the CFTC’s October rules "inherently contradictory and cannot be reconciled." In October, the agency issued an interim final rule keeping sportsbook bets outside the swap definition, alongside a proposed rule defining sports event contracts as swaps. She criticized the CFTC’s "sudden change in its longstanding position" as calculated to influence the ongoing litigation. The judge also faulted an August 11 order directing Kalshi to keep operating while New York pursued it, stating that action "smacks of a collusive effort between a regulator and regulatee to generate a claim for conflict preemption." Even if the court deferred to the CFTC, Novig’s listings would remain unlawful under the agency’s own current rule, 17 C.F.R. § 40.11, which bars listing event contracts related to gaming.
Legal Interpretation and Appeal
The Commodity Exchange Act covers contracts tied to events with potential financial consequences. McMahon agreed with Novig that game results constitute events but sided with New York on the second prong, reasoning that the statute targets hedging price risk rather than recreational betting. She noted there is no qualitative difference between Novig’s product and FanDuel’s traditional sports bet from the customer’s perspective. The judge dismissed Novig’s argument that it could not obey both state and federal law as "ridiculous," pointing out that the company could seek a New York license and use geofencing to serve only customers physically in the state. A notice of interlocutory appeal was filed the same day as the ruling. The Second Circuit, which earlier declined to pause actions against Kalshi and Coinbase, has said a merits panel will take up the same question.
