Federal judge blocks Minnesota prediction market ban days before launch

A state law doesn’t get blocked by a federal judge every day — and when the Minnesota prediction market ban nearly took effect this Saturday, the courts stepped in first. US District Judge Katherine Menendez issued a preliminary injunction on Monday, halting the law before it could go live and allowing CFTC-regulated platforms Kalshi and Polymarket US to keep operating in the state.

Key takeaways

• US District Judge Katherine Menendez issued a preliminary injunction blocking Minnesota’s prediction market ban on Monday, days before it was set to take effect.
• The ruling allows Kalshi and Polymarket US — both regulated by the CFTC — to continue operating in Minnesota while the case proceeds.
• Judge Menendez found the state law likely conflicts with the federal Commodity Exchange Act, which grants the CFTC exclusive jurisdiction over swaps.
• The CFTC joined Kalshi and Polymarket US as a co-plaintiff in the lawsuit, signaling a broader federal intent to defend its regulatory turf nationally.
• The injunction is preliminary, not a final ruling; a full trial will determine the outcome on the merits.

Federal Judge Issues Preliminary Injunction Against Minnesota’s Prediction Market Ban

Minnesota’s law was unusually aggressive. Passed as part of a broader public safety bill, it would have banned the creation, operation, and advertising of prediction markets within the state — with criminal penalties for violations. State Rep. Emily Greenman, in an interview with NBC News, framed the issue squarely: “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.”

But Judge Menendez drew a different line. In her Monday ruling, she found that the plaintiffs — Kalshi, Polymarket US, and the CFTC — had “met their burden to show they are likely to succeed, at least in part” on their claims that federal law pre-empts the ban. She also found the platforms faced a threat of irreparable harm if the law took effect as scheduled.

Judge Menendez’s Reasoning on Federal Preemption

The core of the ruling rests on how prediction market contracts are legally classified. Kalshi and Polymarket US structure their contracts as swaps — a category that falls squarely under the federal Commodity Exchange Act and the CFTC’s exclusive jurisdiction. Because the platforms are registered as designated contract markets with the CFTC, Menendez ruled, states cannot enforce separate laws targeting those same products.

In a footnote, she acknowledged nuance: “The Minnesota statute may not be preempted in all its applications. But the Court finds the state law is likely preempted in many respects.” She pointed to predictions on entertainment outcomes — such as who wins the TV show “Love Island” — as potential edge cases that might not qualify as swaps under federal law. Still, she concluded it would be impractical to craft a narrowly targeted injunction around those edge cases at this stage, so the broader pause stands.

Impact on Kalshi and Polymarket US Platforms

The injunction effectively preserves the status quo: both platforms can continue accepting users and operating in Minnesota pending a full trial. Polymarket had argued that the law would disrupt what it described as “a nationally uniform market” and that it violated a First Amendment right to advertise — a harm, it contended, that couldn’t be remedied through monetary damages alone. Judge Menendez said the court did not need to resolve the First Amendment questions at this stage.

For the platforms, the stakes were existential at the state level. A law banning operation and advertising would have made it nearly impossible to serve Minnesota users legally, even if in-state residents themselves faced no direct penalties under the law’s text.

Legal Basis and Role of the Commodity Futures Trading Commission

Federal Jurisdiction Over Prediction Market Contracts as Swaps

The federal Commodity Exchange Act grants the CFTC exclusive authority to regulate event contracts traded on federally registered exchanges. That authority, the plaintiffs argued, directly conflicts with Minnesota’s attempt to criminalize the same products at the state level. Menendez agreed that this tension was strong enough to justify pausing the law.

CFTC as Co-Plaintiff in the Lawsuit

What makes this case especially significant is who filed it. The CFTC didn’t sit on the sidelines — it joined Kalshi and Polymarket US as a co-plaintiff, bringing the weight of a federal regulator directly into the courtroom. According to reporting by CoinDesk, the CFTC also sent a letter to the court on Monday warning it would escalate its motion to the appellate court if it didn’t receive a response by the following day. The federal regulator had initially requested a decision by July 17; the court declined then but acknowledged an expeditious ruling was needed following a July 2 hearing.

That level of regulatory aggression is deliberate. The CFTC’s participation signals it intends to defend its jurisdiction over prediction markets not just in Minnesota, but as a matter of national policy. Any state that attempts a similar ban will likely face the same federal pushback.

Details of the Minnesota State Law and Regulatory Conflict

Minnesota embedded the prediction market ban inside a broader public safety bill, classifying the markets as a form of gambling — a characterization that Kalshi and Polymarket US fundamentally reject given their federal regulatory status. The law had no provision punishing in-state residents for using the platforms; it targeted the companies themselves, making it illegal to operate or advertise within the state.

The criminal penalty component added particular urgency. Unlike a civil fine or a cease-and-desist order, criminal liability creates an immediate, irreversible risk for any platform that continues operating after a law takes effect — exactly the “irreparable harm” standard courts use when evaluating whether to grant injunctive relief.

Potential Legal and Regulatory Implications

Precedent for Other State Laws

Minnesota is not alone in pushing back on prediction markets. According to NBC News, Arizona filed criminal charges against Kalshi in March in efforts to ban transactions that mimic sports betting — and a federal judge similarly blocked that prosecution on federal preemption grounds. Nevada’s state court extended a temporary ban on Kalshi, while Utah recently banned proposition betting in a way that applies to prediction markets.

The pattern is becoming clear: states are testing the limits of their authority over a product that the federal government has already claimed. Each time, federal courts have so far sided with the CFTC’s jurisdictional argument. The Minnesota ruling, if it holds through a full trial, would add another brick to that wall — making it progressively harder for any state to craft a prediction market ban that survives judicial scrutiny.

Future Jurisdictional and Regulatory Challenges

The deeper question the courts haven’t fully answered yet is where the edges of federal jurisdiction actually lie. Judge Menendez’s footnote about entertainment-based contracts hints at a boundary that could matter significantly. If certain prediction market products don’t qualify as swaps, they may not be shielded by the Commodity Exchange Act — leaving them potentially exposed to state-level regulation. How courts define that boundary in the full trial could reshape which products platforms can safely offer in any given state, regardless of how Monday’s ruling ultimately fares on appeal.

For Kalshi and Polymarket US, winning the injunction buys time. But the broader battle over who controls the regulatory future of prediction markets in America is still very much open.

FAQ

Why did the federal judge block Minnesota’s prediction market ban?

Judge Katherine Menendez found that Minnesota’s law likely conflicts with the federal Commodity Exchange Act, which grants the CFTC exclusive jurisdiction over prediction market contracts structured as swaps. She ruled the plaintiffs were likely to succeed on that argument and that the platforms would face irreparable harm if the ban took effect.

Which platforms are affected by the injunction?

The injunction allows CFTC-regulated prediction market platforms Kalshi and Polymarket US to continue operating in Minnesota while the legal case proceeds to a full trial.

What is the legal basis for federal jurisdiction over prediction markets?

Prediction market contracts are structured as “swaps,” which fall under the federal Commodity Exchange Act and are regulated exclusively by the Commodity Futures Trading Commission. Because Kalshi and Polymarket US are registered as designated contract markets with the CFTC, states cannot enforce separate laws targeting those same products.

Does the injunction mean all prediction markets are federally protected from state laws?

Not necessarily. Judge Menendez noted that some contracts — such as those predicting entertainment outcomes like TV show results — may not meet the legal definition of swaps and could fall outside federal jurisdiction, potentially remaining subject to state-level regulation.

Article produced with the assistance of artificial intelligence and reviewed by the editorial team.