McMahon rejected that argument, finding Novig had not established a likelihood of success on the merits. Her reasoning challenges the premise that operating a federally designated exchange is enough to put its sports contracts beyond state gambling regulators’ reach.
Why the Contracts Are Not Swaps
McMahon agreed that sporting outcomes qualify as an “event or contingency” under the statute. But she concluded that Novig’s contracts failed the separate requirement that the event be associated with a potential financial, economic or commercial consequence, read in the context of a law aimed at managing price risk.
Novig offered hypothetical examples of businesses using sports contracts to hedge risks, but no real-world example, she wrote. Instead, she found it marketed to recreational bettors.
“From the perspective of the customer, there is no qualitative difference between Novig’s product and FanDuel’s traditional sports bet,” McMahon wrote.
She also offered an alternative basis for denying relief: even if the contracts were swaps, the act would not displace New York’s application of its gambling laws to the betting activity on the exchange.
CFTC’s Rules Draw Sharp Criticism
The opinion criticized the CFTC’s October actions: an interim final rule excluding sportsbook bets and casino-style gambling from the swap definition, alongside a proposed rule including sports event contracts.
The CFTC’s interim final rule draws a structural distinction. It says exchange contracts trade at market-set prices between participants and are centrally cleared, unlike traditional wagers against a sportsbook.
McMahon rejected the distinction as decisive under the statutory test. The two rules “are inherently contradictory and cannot be reconciled,” she wrote, declining to defer to the agency. She also said proposed regulations have no legal effect.
The judge separately criticized the CFTC’s Aug. 11 emergency order directing Kalshi to continue operating while New York pursued restrictions. She wrote that it “smacks of a collusive effort between a regulator and regulatee to generate a claim for conflict preemption”—the argument that federal requirements override incompatible state law.
The agency had defended its intervention as necessary to preserve orderly national derivatives markets, arguing that state-by-state regulation threatened those markets.
The decision follows the Second Circuit’s Nov. 3 denial of injunctions pending appeal in Kalshi’s New York and Connecticut cases and Coinbase’s Connecticut case. That short order denied interim relief, not the appeals themselves.
Novig has already taken the next step: it filed a notice of appeal to the Second Circuit on Nov. 10.