Novig Sues New York Over Prediction Markets and Launches Nationwide Platform

A legal battle of significant proportions is brewing in the intersection of sports betting and financial markets. Novig, an emerging player in the sports trading sector, has filed a lawsuit against the authorities of New York State. This move comes immediately after the nationwide launch of the Novig platform across the United States. The company is seeking to proactively prevent New York from taking similar enforcement actions as it did against its competitor, Kalshi. At the heart of the matter is whether prediction markets are classified as gambling under state law or as commodity trading under federal law. Novig argues that New York’s laws are preempted by the Commodity Exchange Act (CEA), which assigns oversight of such markets to the Commodity Futures Trading Commission (CFTC).

The urgency of this lawsuit is underscored by recent escalations in New York. Just last week, Governor Kathy Hochul and Attorney General Letitia James filed a lawsuit against Kalshi, seeking an astronomical $36 billion in damages. New York accuses Kalshi of allowing users aged 18 to 20 on its platform, which state authorities claim violates local gambling laws. Novig is now attempting to bypass this risk by strictly setting its minimum age at 21 and positioning itself as a responsible market leader.

Numbers and facts

Novig is not a small player in the prediction market space. The company successfully closed a $75 million funding round in February. This laid the foundation for the expansion of the platform, which describes itself as the leading sports prediction market. A central pillar of Novig's strategy is cooperation with major sports organizations. For instance, the company signed a multi-year deal with the New York Mets, making it the first official prediction market partner of an MLB franchise. The partnership includes a prominent brand presence at Citi Field and utilizes official Major League Baseball data.

An interesting aspect is the winning probability for users. Jacob Fortinsky, co-founder and CEO of Novig, emphasizes the advantage of his model compared to classic bookmakers. The difference lies in the structure of the markets, which operate more like an exchange. Users trade contracts on sports events instead of betting against the house. According to Fortinsky, this ensures better odds and fair conditions for participants.

"Novig users are up to 10x more likely to win in the long-run than on traditional sportsbooks." - Jacob Fortinsky, co-founder and CEO of Novig

However, there are critical voices regarding these claims. Analysts like Jordan Bender from Citizens Equity Research pointed out that the median return on investment (ROI) for prediction market users could be around -8%. In comparison, the ROI for traditional sports betting is often around -5%. This indicates that while the model is innovative, it does not automatically guarantee profits for every participant.

Background

The conflict in the USA reflects a global debate. Similar battles are raging in states like Michigan and Kentucky. In Michigan, a federal judge recently denied preliminary injunction requests from Polymarket and Robinhood, doubting that sports contracts fall under the protection of the Commodity Exchange Act. In Kentucky, a tax of 14.25% on prediction market revenue was introduced, while Attorney General Russell Coleman simultaneously filed lawsuits against Kalshi and Polymarket for illegal gambling.

Novig originally launched as a sports betting operator in Colorado before pivoting to a sweepstakes model to reach a larger audience. The final shift to the prediction market model occurred last year, coinciding with the application for a license as a Designated Contract Market (DCM) with the CFTC. This regulatory recognition at the federal level is the pivot point of the current lawsuit. Novig wants a judicial determination that state authorities have no standing against a federally regulated exchange.

Why it matters for German players

For German players, the situation remains clear but also restrictive. Prediction markets like Novig or Kalshi currently do not hold a license from the Gemeinsame Glücksspielbehörde der Länder (GGL). In Germany, online gambling is subject to strict rules under the Interstate Treaty on Gambling 2021 (GlüStV 2021). Anyone wishing to bet or play legally in Germany must stick to providers listed on the GGL's so-called whitelist. These licensed operators must adhere to strict player protection measures, including a monthly deposit limit of 1,000 euros across all providers, monitored by the central LUGAS system.

Furthermore, an entry limit of 1 euro per spin applies to virtual slots in Germany. Sports betting is also strictly regulated, and betting markets deemed susceptible to manipulation are often prohibited. Since Novig acts as a derivatives exchange in the US, an approval in Germany would likely go through the financial regulator BaFin rather than the GGL, provided the model is classified as a financial product. Until then, the service is not legally accessible to German users. Those who play on unregulated MGA or Curacao platforms face high risks, as there is no German legal guarantee for payouts.

What it means for GGL-licensed casinos

For operators of online casinos with a GGL license, the development in the USA is something to monitor. Innovative models like sports trading could eventually reach the European market. Currently, however, German casinos benefit from the legal certainty provided by the GlüStV 2021. While the USA faces a patchwork of federal and state laws, Germany offers clear guardrails. The strict controls on age verification and money laundering prevention, which are currently becoming a matter of dispute in New York, are already standard and a prerequisite for operation in Germany. GGL-licensed providers can position themselves as a safe alternative to gray markets, even if innovative financial-betting products are still awaiting a clear classification.