Minnesota prediction market law blocked by federal judge

A federal judge has blocked the Minnesota prediction market law that was set to make operating or advertising such markets in the state a felony from Aug. 1. The order lets Kalshi and Polymarket keep serving Minnesota users while their lawsuit, joined by the Commodity Futures Trading Commission, proceeds.

U.S. District Judge Kate Menendez granted a preliminary injunction on Monday, finding that the plaintiffs were likely to succeed on arguments that federal law preempts the Minnesota statute for CFTC-registered contract markets. The decision preserves the current situation while the court considers the broader challenge.

In a 44-page order, Menendez said a final ruling could be narrower than the temporary relief issued this week. She said the preemption question depends on whether the relevant contracts qualify as swaps under the Commodity Exchange Act, which places that category of derivative under the CFTC’s exclusive authority.

What does the Minnesota prediction market ruling mean?

The ruling does not end the case or strike down the Minnesota law permanently. It means the state cannot enforce the statute against the plaintiffs for now, while the court tests whether federal commodities law displaces the state’s attempt to regulate or ban the activity.

Prediction markets allow users to trade contracts tied to the outcome of future events. In this case, the legal mechanism turns on whether those contracts are swaps, a form of derivative whose value is linked to an underlying event or condition and which may fall within federal commodities oversight.

Menendez drew a distinction among the contracts at issue. She said markets tied to Senate elections, the World Cup winner or the reopening of the Strait of Hormuz likely have “clear potential economic, financial, or commercial consequences” and may fit within the swaps framework. She was less convinced that entertainment contracts, including those tied to the winner of “Love Island USA,” would qualify in the same way.

That distinction could matter as the litigation continues. According to Decrypt, the CFTC confirmed at a preliminary hearing that it brought a facial challenge, meaning it contends the Minnesota statute is invalid in every application. Menendez wrote that the law “may not be preempted in all its applications” and faulted both sides for presenting the dispute in all-or-nothing terms.

Minnesota’s statute is significant because it uses criminal penalties to target prediction markets. More than a dozen states have filed civil actions against such platforms, often alleging illegal or unlicensed gambling, especially for sports-related contracts that states traditionally regulate. Minnesota’s law went further by seeking to bar the activity outright.

Polymarket chief legal officer Neal Kumar said in an email to Courthouse News that the decision shows prediction markets on CFTC-registered exchanges are governed by federal law rather than state-by-state rules. Kalshi spokeswoman Elisabeth Diana said in a separate statement that states cannot prohibit activity outside their jurisdiction.

CFTC Chairman Michael Selig said in a statement posted on X that the agency “appreciates the court’s careful consideration of the issues.”

Minnesota Attorney General Keith Ellison opposed the decision. In a statement emailed to media outlets, he said prediction markets are gambling and that Minnesota has the right to keep what he called predatory gambling out of its communities. Ellison said the state disagrees with the court’s view of the proper status quo and will continue defending the law.

This story draws on original reporting from PYMNTS.