Minnesota Prediction Market Ban Paused by Federal Judge

A federal judge has temporarily stopped Minnesota from enforcing its newly enacted prediction market ban, allowing federally registered platforms to continue operating in the state while litigation over regulatory authority moves forward.

U.S. District Judge Katherine Menendez issued a preliminary injunction on Monday, days before the law was scheduled to take effect on Saturday. The measure would have made it a crime to create, operate, host or promote a prediction market in Minnesota.

The Commodity Futures Trading Commission, Kalshi and Polymarket challenged the statute after Governor Tim Walz signed it into law in May. The Justice Department also took legal action against the measure.

Menendez concluded that the challengers had shown a sufficient likelihood that federal commodities law overrides significant parts of Minnesota’s ban.

The plaintiffs “have met their burden to show they are likely to succeed, at least in part,” Menendez wrote.

The injunction prevents Minnesota from applying the law to entities registered with the CFTC as designated contract markets. Kalshi and Polymarket can therefore continue offering event contracts to Minnesota residents as the cases proceed.

Federal Authority Forms the Core of the Dispute

The challengers argue that Congress gave the CFTC exclusive authority over event contracts traded through federally regulated exchanges. They classify those contracts as swaps or other derivatives covered by federal commodities law.

Menendez found several examples of contracts offered by Kalshi and Polymarket that appeared to meet the legal definition of a swap. Her order does not establish that every contract listed by the platforms receives the same protection.

“The Minnesota statute may not be preempted in all its applications. But the Court finds the state law is likely preempted in many respects. Therefore, temporarily enjoining enforcement of the statute maintains the status quo while enabling further development on this issue and others.”

The judge indicated that the court could later narrow the injunction if further proceedings show that some event contracts fall outside federal protection.

“But 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,” she wrote.

The CFTC had pressed for a rapid ruling because of the approaching effective date. The agency previously requested a decision by July 17 and later advised the court that it could seek appellate intervention without a prompt response.

Platforms Cite Threat of Irreparable Harm

Kalshi and Polymarket argued that enforcement would cause harm that financial compensation could not adequately repair.

Polymarket said the prohibition would interrupt what it described as “a nationally uniform market”. It also raised a First Amendment argument concerning its ability to advertise in Minnesota. The judge did not address that constitutional claim at the preliminary injunction stage.

“Today’s decision makes it clear: States cannot ban things that they don’t have jurisdiction over,” Kalshi spokesperson Elisabeth Diana said in a statement.

Minnesota Attorney General Keith Ellison said the state would continue defending the legislation.

“Prediction markets are gambling, plain and simple, and Minnesota has every right to keep predatory gambling out of our communities,” he said.

The Minnesota law formed part of a wider public safety bill. It targeted companies that provide or support prediction markets, though it did not establish penalties for residents who used the platforms.

State officials classify the products as gambling because customers place money on the outcome of real-world events, including sports contests and elections.

“Gambling has always been a public health and a public safety issue since states have been regulating it, and that has always been an uncontested fact,” Minnesota state Rep. Emily Greenman as quoted by NBC News.

State Challenges Continue Across the Country

The Minnesota dispute is part of a broader legal conflict between state gambling authorities and federally regulated prediction market operators.

States argue that sports event contracts closely resemble sports wagering and fall within their traditional power to regulate gambling. The platforms and the CFTC maintain that federal law governs contracts offered through registered exchanges.

Arizona filed criminal charges against Kalshi in March over transactions that authorities said imitated sports betting. A federal judge blocked that prosecution after finding that federal law pre-empted the relevant state gambling provisions.

Courts in Massachusetts, Michigan, Nevada and Washington have issued orders restricting some Kalshi activity. A Nevada state court also extended a temporary prohibition involving the platform.

Utah recently banned proposition betting through legislation that applies to prediction markets. Gambling remains illegal in the state.

Minnesota’s statute differed from earlier enforcement actions because it expressly prohibited prediction markets instead of relying on existing gambling laws. The preliminary injunction keeps that prohibition on hold while the court considers whether Minnesota can apply any portion of the law to federally regulated platforms.