A federal judge blocked Minnesota’s first-in-nation ban on prediction markets like Kalshi and Polymarket, issuing a preliminary injunction to prevent the law from taking effect on Saturday. The ruling, from U.S.
The injunction, granted at the request of Kalshi, Polymarket, and the CFTC, halts Minnesota’s law, which made it a felony to operate or promote prediction markets in the state. The law, signed by Democratic Governor Tim Walz in May, targeted platforms that let users trade event contracts
on outcomes ranging from sports to elections. Minnesota’s Attorney General, Keith Ellison, vowed to continue defending the ban, calling prediction markets “gambling” and asserting the state’s right to protect communities from predatory gambling.
Federal Preemption and the Swap Definition
Menendez’s decision centered on the CEA’s definition of swaps, a type of derivative contract. The judge found that certain event contracts on Kalshi and Polymarket fit the legal definition of a swap,
placing them under federal jurisdiction. States don’t get to enforce the CEA against designated contract markets,
Colleen Sinzdak, Kalshi’s attorney, argued in court, adding that states must instead challenge such contracts through the CFTC.
Legal Battle Over State vs. Federal Authority
The case reflects a broader clash over regulatory power. Minnesota’s law directly targets prediction markets, unlike other states that have pursued legal challenges against the platforms under existing gaming laws. Kalshi and Polymarket, both CFTC-regulated entities, argue that the state’s ban violates the First Amendment by restricting speech around market advertising.
The ruling also highlights tensions within the CFTC. Under the Trump administration, the agency had aligned with platforms, arguing that event contracts fall under its jurisdiction. Biden appointee Menendez, however, agreed with the CFTC’s stance that certain contracts meet the swap definition, though she left room for narrower rulings if not all contracts qualify.
The injunction maintains the status quo while the case proceeds, but the outcome remains uncertain. Menendez suggested that future rulings could limit the injunction’s scope if some contracts fail to meet the swap definition. This could create a patchwork of regulations, as other states, including Rhode Island, New Jersey, and California, have also faced CFTC lawsuits over similar laws.
For Kalshi and Polymarket, the decision is a reprieve. Today’s decision makes it clear: States cannot ban things that they don’t have jurisdiction over,
said Elisabeth Diana, a Kalshi spokesperson. But Ellison’s office signaled it would continue fighting, framing the ban as a necessary safeguard against predatory gambling.
The case underscores the legal and regulatory uncertainty surrounding prediction markets. As the CFTC seeks to establish its authority, states like Minnesota are testing the limits of their ability to intervene. The final resolution could set a precedent for how federal and state powers interact in the rapidly expanding multibillion-dollar prediction market industry.
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