A federal judge temporarily blocked Minnesota’s first-in-the-nation law banning prediction markets, issuing a preliminary injunction just days before the legislation was scheduled to take effect. The legal challenge was brought by the Commodity Futures Trading Commission alongside major prediction market operators Kalshi and Polymarket. U.S. District Judge Katherine Menendez ruled that the plaintiffs met their burden of showing they were likely to succeed on the merits and would suffer irreparable harm if the law was enforced.
Federal Court Halts Minnesota Prediction Market Ban
Enacted in May, the statute would have made it a felony to create, operate, or advertise prediction markets or help administer nearly any activity connected to them within Minnesota. The state embedded the measure inside a broader public safety bill, categorizing the platforms as predatory gambling. The legislation had no language penalizing in-state residents for utilizing prediction markets, but targeted the companies operating within the state.
Jurisdiction and the Central Legal Questions
The primary legal battle centers on whether federal authority supersedes state regulation. The CFTC, Kalshi, and Polymarket argued that federal law grants the commission exclusive jurisdiction to regulate event-contract transactions under the Commodity Exchange Act. Central to this question is whether event contracts qualify as swaps, which are defined broadly under U.S. law to cover contracts dependent on contingencies linked to potential financial, economic, or commercial consequences.
Judge Menendez found that the statute is likely preempted in many respects because prominent trades on Kalshi and Polymarket qualify as swaps, giving the CFTC exclusive oversight of those transactions. However, the court noted that the state law may not be preempted in all its applications. Menendez pointed out that not all wagers meet the legal definition of swaps, distinguishing that contracts on Senate races, the World Cup winner, and the reopening of the Strait of Hormuz qualify, whereas bets on the outcome of Arstechnica do not.
Broader Legal Battlegrounds and State Resistance
The decision forms part of an expanding tangle of lawsuits across the United States as state governments attempt to use local gambling laws to shut down prediction markets. More than a dozen states have brought civil actions against operators, arguing that the platforms host unlicensed gambling, particularly regarding wagers on sporting events. Supporters of state-level bans, including tribal leaders and commercial casino advocates represented by the American Gaming Association, contend that betting on outcomes like sports and elections is unlawful gambling that deprives states of tax revenue.
State officials expressed frustration with the preliminary ruling. Minnesota Attorney General Keith Ellison stated that prediction markets are gambling, plain and simple, and criticized the court’s decision to maintain a status quo that permits gambling apps to proliferate, though he confirmed the state will continue defending the law in court. Conversely, representatives for the industry praised the outcome. Neal Kumar, chief legal officer of Polymarket, stated that the decision clarifies that federally registered exchanges are governed by federal law rather than a patchwork of state rules, while Kalshi spokeswoman Elisabeth Diana emphasized that states cannot ban things that they don’t have jurisdiction over.