A federal judge in New York rejected prediction platform Novig's request to block state regulators from pursuing action against its sports event contracts, finding they are not financial swaps.
- Novig launched prediction markets in August and later signed a partnership with the New York Mets
- A federal judge said Novig's contracts are no different from traditional sports bets from a customer's perspective
- The judge said a CFTC order in a rival platform's case "smack(ed) of collusive effort."
Novig's request for a temporary injunction sought to prevent New York Attorney General Letitia James and other state officials from enforcing gambling laws against its offerings. It argued the Commodity Exchange Act (CEA) preempted officials from using gambling laws to limit the company’s offerings.
U.S. District Judge Colleen McMahon ruled in a 35-page opinion Tuesday that Novig’s sports event contracts are effectively a form of sports betting. The ruling rejected Novig's argument that its event contracts are swaps regulated exclusively under federal commodities law.
“The Court is not required to disregard common sense - Novig’s sports event contracts are sports betting,” McMahon wrote, also noting that Novig, in a public statement, said it wanted to be “the largest sports betting platform in the world.”
In explaining her decision, McMahon addressed the CEA's definition of swaps. Although sports outcomes qualify as "contingencies" under the CEA, McMahon found they lack the financial or commercial consequences required for the contracts to qualify as swaps.
McMahon also addressed the limits of CEA-based preemption. While states may not regulate the operation or licensing of designated contract markets - federally regulated exchanges that list, oversee, and clear event contracts - the CEA does not prevent states from enforcing their gambling regulations.
“Congress drafted the CEA to regulate financial activity, like hedging against corn futures, not consumers betting on Thursday Night Football,” she wrote. “The CEA’s text must be read accordingly.”
Sports betting by another name?
In defending sports event contracts, federally regulated operators of prediction markets have cited basic structural differences between their platforms and sportsbooks. Prediction markets use peer-to-peer trading, with prices shifting according to market activity, while sportsbooks set their own odds and build in a margin.
McMahon explained those differences don’t significantly alter experiences of users, who may see prediction market contracts as equivalent to traditional sports bets.
“From the perspective of the customer, there is no qualitative difference between Novig’s product and FanDuel’s traditional sports bet,” she wrote. “The only difference is who is on the other side of the contract.”
Sports betting and gaming attorney Daniel Wallach said Novig filed an appeal Wednesday, one day after McMahon’s decision was announced.
After launching markets Aug. 4, Novig made headlines for an advertising partnership with "Euphoria" actress Sydney Sweeney. The pair collaborated to create several racy ads that helped drive the company’s valuation from $500 million in February to $2 billion in September.
Novig also secured the MLB’s first team prediction market partnership with the New York Mets in July.
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Judge lashes out at CFTC
While McMahon’s decision represented a setback for Novig, it was more pointed toward the Commodity Futures Trading Commission (CFTC) - the federal body in charge of regulating prediction operators.
She criticized the agency for contradictory actions and suggested it had attempted to influence ongoing court cases. Additionally, she said the CFTC issuing an order that prevented a rival platform from shutting down after New York filed litigation “smack(ed) of collusive effort.”
