A federal judge in the U.S. has halted Minnesota from enforcing a pioneering law that prohibits prediction markets, ruling that federal law is likely to supersede the state’s ban on platforms like Kalshi and Polymarket.
U.S. District Judge Katherine Menendez issued a preliminary injunction at the request of the U.S. Commodity Futures Trading Commission (CFTC), Kalshi, and Polymarket, preventing a law signed by Governor Tim Walz in May from going into effect this week.
This legislation would have made Minnesota the first state in the U.S. to explicitly criminalize prediction markets, rendering it illegal to operate, host, or advertise such platforms within state boundaries.
Menendez determined that specific event contracts offered by CFTC-regulated platforms likely fall under the category of “swaps” according to federal law, placing them under the jurisdiction of federal regulators instead of state authorities.
The injunction permits Kalshi and Polymarket to continue providing event contracts to residents of Minnesota while the legal proceedings unfold. The judge noted that the injunction could be refined later if it is determined that certain event contracts do not fit the legal definition of swaps.
“Considering the unique aspects of Minnesota’s prediction market law, the dynamics of these cases, and the imminent activation of Minnesota’s statute, issuing a preliminary injunction to maintain the status quo until the issue can be addressed is warranted,” Menendez stated.
The case forms part of a larger legal struggle to determine whether prediction markets should be governed solely by federal authorities or if they can also be regulated through state gambling laws.
During the Trump administration, the CFTC asserted that event contracts exchanged on prediction market platforms are exclusively within its domain for derivative regulation, thereby overriding state laws.
Kalshi expressed satisfaction with the ruling. “Today’s decision clarifies that states cannot implement bans on matters outside their jurisdiction,” said Kalshi spokesperson Elisabeth Diana in a statement.
Polymarket’s Chief Legal Officer Neal Kumar noted that the company looks forward to remaining operational in Minnesota.
Minnesota Attorney General Keith Ellison indicated that the state will continue to defend the law, maintaining that prediction markets equate to gambling.
“Prediction markets are nothing but gambling, and Minnesota has the right to protect its communities from exploitative gambling practices,” Ellison asserted in a statement.
This controversy arises amidst a rapid expansion of prediction markets, which have attracted billions in trading related to events from elections to sports, while also raising concerns regarding gambling addiction and potential insider manipulation.
Over a dozen states have attempted to limit prediction markets via existing anti-gambling regulations, with variable outcomes in judicial settings. States like Massachusetts, Michigan, Nevada, and Washington have succeeded in securing court orders that constrain Kalshi’s activities, whereas Arizona temporarily sided with the CFTC by suspending a criminal case against the company.
Kalshi reported that by the conclusion of May, it had amassed over 90,000 users in Minnesota who had transacted millions on its platform. State legislators have defended the ban as a necessary measure to safeguard public health and safety in a state where sports betting remains prohibited.