Novig loses court shield, and New York gambling laws strike back

The ruling leaves Novig's federal exchange designation intact but blocks its request for interim relief against New York authorities.

Judge McMahon concluded that the sports contracts at issue remained subject to state rules, even if they qualified as federal swaps.

The judge reasoned that federal control over the licensing and operation of designated contract markets does not preclude the incidental application of state gambling laws to betting conducted on them.

Contract classification and jurisdiction

The opinion first considered whether Novig's sports contracts fell outside the Commodity Exchange Act's definition of swaps.

McMahon accepted that sporting outcomes could qualify as events or contingencies, but found the contracts lacked the required inherent financial, economic, or commercial connection.

She then considered the alternative assumption that the contracts are swaps, finding that even then, New York could still apply its gambling rules to the betting activity.

Appeal and next steps

Novig filed a notice of appeal to the US Court of Appeals for the Second Circuit on Nov. 10, challenging the denial of its preliminary-injunction request.

The judge rejected Novig's argument that complying with both federal and state law was impossible, pointing to pursuing state licensing and using geographic controls as possible routes to compliance.

The Nov. 10 order is limited to the preliminary-injunction motion, leaving a nationwide ban, a nationwide shutdown directive, and a final merits judgment outside its scope.