A federal judge blocked Minnesota’s first-in-nation ban on prediction markets like Kalshi and Polymarket, ruling that federal law likely preempts the state law and allowing platforms to continue operating while litigation proceeds.
Judge Katherine Menendez and the Commodity Exchange Act
U.S. District Judge Katherine Menendez issued a preliminary injunction on July 27, halting Minnesota’s newly enacted law that aimed to criminalize prediction markets, which allow users to trade “yes or no” contracts on real-world events. The ruling, which prevents the law from taking effect on Saturday, centers on the Commodity Exchange Act (CEA) and the Commodity Futures Trading Commission’s (CFTC) exclusive authority over “swaps,” a type of derivative contract. Kalshi, Polymarket, and the CFTC had sued Minnesota, arguing the state’s law violated the CFTC’s jurisdiction to oversee “swaps,” which prediction market contracts are structured as. The injunction was granted at the behest of Kalshi, Polymarket, and the CFTC after Menendez found federal law likely preempted the state law.
The Minnesota law, signed into law by Democratic Governor Tim Walz in May, made it a crime to operate, host, or promote a prediction market in the state. It specifically targeted platforms like Kalshi, which allows users to trade event contracts on politics, sports, and economics, and Polymarket, which offers similar services. The law also criminalized providing data or verification services to prediction markets, a provision that could affect news organizations and sports leagues like Major League Baseball (MLB), which partners with prediction market platforms for data.
Menendez’s decision hinges on the CEA’s definition of swaps, which she found to include many event contracts traded on Kalshi and Polymarket. States cannot ban things that they don't have jurisdiction over,
said Kalshi spokesperson Elisabeth Diana in a statement, echoing the judge’s reasoning. The ruling aligns with the CFTC’s stance that prediction markets fall under federal regulation, not state oversight. Menendez acknowledged that not all contracts on these platforms might meet the CEA’s swap definition, leaving room for a narrower injunction if future rulings clarify which trades are federally protected. If, as appears to be the case, Kalshi and Polymarket US are listing at least some event contracts that don’t meet the CEA’s definition of swaps, any permanent injunctive relief may be much narrower,
she wrote.
Attorney General Keith Ellison
Minnesota Attorney General Keith Ellison, a Democrat, condemned the ruling, calling prediction markets gambling, plain and simple
and asserting the state’s right to keep predatory gambling out of our communities. Ellison stated he would continue defending the state’s law, which he argued was necessary. The state’s law, passed in May, criminalized operating, hosting, or promoting prediction markets, targeting platforms like Kalshi, which has faced similar challenges in other states. Massachusetts, Michigan, Nevada, and Washington state have secured court orders restricting Kalshi’s activities, according to the source material.
Colleen Sinzdak, Kalshi’s attorney, emphasized that states cannot enforce the CEA against designated contract markets. “If a state thinks a particular trade does not somehow fit into the definition of swaps, what it can do is go to the CFTC and say ‘you’re allowing a form of transaction that doesn’t fit there.’ What they cannot do is bring an enforcement action,” she argued. This framing underscores the tension between state regulators and federal agencies over jurisdiction.
Menendez’s ruling also touches on First Amendment concerns, as Minnesota’s law included a provision making it a felony to advertise said markets, a claim raised by Kalshi and Polymarket. The judge noted that the plaintiffs would be financially and operationally harmed if the ban were allowed to take effect, citing the unique nature of Minnesota’s prediction market statute
and the imminent effective date
of the law. The injunction maintains the status quo until the case’s merits are resolved, but the legal battle is far from over. Menendez’s partial acknowledgment that some contracts may not qualify as swaps could lead to a more targeted ruling in the future.
The case also raises questions about the future of prediction markets in states with conflicting regulations. As the CFTC continues its push for federal oversight, platforms like Kalshi and Polymarket may face ongoing legal challenges, even as they expand their operations. For now, Minnesota residents can continue trading on these platforms, but the broader legal landscape remains unsettled. The outcome could set a precedent for how federal and state regulators interact in the rapidly evolving prediction market industry.
CFTC Jurisdiction and Event Contracts
Under President Donald Trump’s administration, the CFTC shared the companies’ position that event contracts users can trade on prediction markets fall exclusively under the agency’s jurisdiction to regulate “swaps,” a type of derivative contract, and that states cannot regulate them. Menendez, who was appointed by Democratic President Joe Biden, agreed, noting that event contracts hosted by Kalshi and Polymarket, both CFTC-regulated entities, fit the legal definition of a “swap.” The judge emphasized that her ruling was limited to the preliminary injunction stage and that a final decision would require a full trial on the merits of the case.
The Minnesota law, SF 3432, would make it a felony to create, operate, manage, or control a prediction market platform, forcing these platforms to leave the state or face charges. The law also targeted those who knowingly provide data or verification services to prediction markets to “enable wagers,” a provision that could harm news organizations utilizing market data from the sites, as well as major sports league data partners like MLB. Kalshi and Polymarket argued that the ban would disrupt federally authorized operations and fragment a nationwide market into a patchwork of state regulations.
SF 3432 and Federal Regulations
The legal battle over prediction markets has intensified as the industry grows. Prediction markets offer “yes or no” outcome contracts, or “swaps,” for real-world events including politics, economics, weather, and sporting events. Unlike traditional gambling, these platforms operate under federal regulations, requiring contract markets like Kalshi and Polymarket to submit all new types of contracts to the CFTC for approval and ensure it is within regulations. This agreement has been championed by the platforms in court, highlighting the complex interplay between federal and state oversight in the sector.
The injunction granted by Menendez is not a final ruling but a temporary measure to preserve the status quo while the court evaluates the case. The judge’s decision underscores the legal uncertainties surrounding prediction markets and the ongoing struggle between state lawmakers and federal regulators. As the case progresses, the outcome could have significant implications for the future of prediction markets in the United States, shaping how these platforms operate and which jurisdictions they can legally serve.
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