US Federal Judge Halts Minnesota Law Banning Prediction Markets

A federal judge has temporarily blocked Minnesota from enforcing the nation’s first state law banning prediction markets, delivering a win for Kalshi and Polymarket just days before the statute was set to take effect. U.S. District Judge Katherine Menendez granted a preliminary injunction on Monday, ruling that federal law likely preempts Minnesota’s attempt to outlaw the platforms.

The law, signed by Democratic Governor Tim Walz in May, would have made it a felony to operate, host, or promote prediction markets in the state starting August 1. It marked the most aggressive move yet by any state to shut the fast-growing industry out entirely, rather than pursue narrower enforcement actions.

Why the Judge Sided With the Platforms

Menendez found that the U.S. Commodity Futures Trading Commission, Kalshi, and Polymarket were likely to succeed on their core argument: that certain event contracts offered on CFTC-regulated exchanges qualify as “swaps” under federal law, placing them under the agency’s jurisdiction rather than the state’s. She also concluded that letting the ban take effect would cause the operators “irreparable harm.”

“Given the unique nature of Minnesota’s prediction market statute, the posture of these cases, and the imminent effective date of Minnesota’s statute, a preliminary injunction maintaining the status quo until the merits of this case can be fully resolved is appropriate,” Menendez wrote in her order.

The injunction lets Kalshi and Polymarket keep offering event contracts to Minnesota residents while the underlying case plays out, though the judge left room to narrow her ruling later if some contracts turn out not to meet the legal definition of a swap. Kalshi told the court it had more than 90,000 users in Minnesota by the end of May who had traded millions of dollars on the platform.

A Bigger Fight Over Who Regulates Prediction Markets

Minnesota’s law wasn’t an isolated effort. More than a dozen states have tried to use existing anti-gambling statutes to restrict Kalshi and Polymarket, with mixed results in court. Massachusetts, Michigan, Nevada, and Washington have secured court orders limiting Kalshi’s operations, while Arizona and Minnesota have seen the CFTC successfully push back on their attempts. Connecticut, Illinois, and Iowa have also drawn federal lawsuits from the CFTC this year as the agency works to establish a single national framework rather than a state-by-state patchwork of sports betting rules.

Kalshi welcomed Monday’s decision. “Today’s decision makes it clear: States cannot ban things that they don’t have jurisdiction over,” spokesperson Elisabeth Diana said in a statement. Polymarket Chief Legal Officer Neal Kumar said the ruling confirms that prediction markets on CFTC-registered exchanges are governed by federal law rather than a mix of state rules, and that the company looks forward to continuing operations in Minnesota.

Minnesota Attorney General Keith Ellison signaled the state isn’t backing down. “Prediction markets are gambling, plain and simple, and Minnesota has every right to keep predatory gambling out of our communities,” Ellison said. His office has argued that the CFTC’s authority over commodity futures and swaps doesn’t strip states of their traditional power to regulate gambling, particularly for contracts tied to sports, political, and cultural events rather than financial risk management.

What Happens Next

The injunction keeps Minnesota’s ban on ice while the lawsuit continues, with no timeline yet for a final ruling on the merits. Meanwhile, the CFTC has opened a rulemaking process to define which event contracts it considers “contrary to the public interest” and could bar from CFTC-regulated exchanges going forward — a move that could eventually reshape which sports and political contracts platforms like Kalshi and Polymarket are allowed to list nationwide.

For now, the ruling extends a winning streak for prediction market operators in court, even as a growing list of states signals they intend to keep fighting for the right to treat these platforms as gambling operators subject to state law.