Prediction market platform Novig faces regulatory challenges and legal battles

Prediction market platforms have launched products outside of binary event contracts. Binary event contracts have two possible outcomes – essentially a "yes" or "no" for a specific question – and they pay out a fixed amount if the event takes place.

Platforms' latest offerings include perpetual futures contracts and hedges for certain risks, which experts said are ways for the platforms to appeal to Wall Street and identify as serious financial instruments.

Novig's interests remain in sports, particularly as the upcoming seasons for the NBA and Premier League approach. "Our focus is on markets tied directly to sports and competition," Fortinsky said.

Sports event contracts have not been able to escape regulatory challenges, with several states arguing prediction market platforms are operating as illegal gambling sites. The Commodity Futures Trading Commission, the federal agency authorized to regulate event contract exchanges, slapped multiple states with lawsuits in response.

Novig has also jumped into the legal fray around regulation. The platform has already sued New York, Massachusetts, Washington, New Mexico and Wisconsin, asserting that states cannot apply their gambling laws to the platform's sports event contracts.

Last week, a judge in the Southern District of New York denied the platform's application for a temporary restraining order against the Empire State, which would have stopped the state from enforcing its gambling rules on Novig.

On Aug. 9, gaming attorney Daniel Wallach wrote on social media platform X that Novig's chances of winning in court against Massachusetts, New York and Washington "are dim" after recent decisions in which the courts sided with states.

The CFTC awarded approval for Novig's designated contract markets application in June, and the company has been moving its whole business into the prediction markets category. Previously, it operated in Colorado under a state sports-betting license and then pivoted to a sweepstakes-based product. Novig only allows users above the age of 21 years.

"We've listened to the public… the 18- to 20-year-old demographic in some ways is uniquely susceptible to misbehavior in certain ways, and so we currently are 21-plus in our current product offering," Fortinsky previously told CNBC. "We encourage the rest of the industry to follow suit."