Minnesota’s Prediction Market Ban Is Blocked Days Before Launch
Key Points
- A federal judge barred Minnesota from enforcing its prediction market statute, which was scheduled to take effect Aug. 1.
- Judge Katherine Menendez found the CFTC, Kalshi, and Polymarket were likely to succeed, at least in part, on their federal-preemption claims.
- The law would have made operating, advertising, processing payments for, or otherwise facilitating certain prediction markets a felony.
- Kalshi and Polymarket can continue serving Minnesota traders while the underlying lawsuit proceeds.
Federal Court Freezes Minnesota’s Prediction Market Law
U.S. District Judge Katherine Menendez issued a preliminary injunction on July 27 preventing Minnesota officials from enforcing the state’s new prediction market statute while its legality is litigated.
The ruling came four days before the law was scheduled to take effect. Menendez found that the Commodity Futures Trading Commission, Kalshi, and Polymarket had shown they were likely to succeed, at least in part, on their argument that the federal Commodity Exchange Act preempts Minnesota’s restrictions.
“The Court finds that Plaintiffs have met their burden to show they are likely to succeed, at least in part, on their express-preemption claims,” Menendez wrote in the order. She also found a threat of irreparable harm and concluded that the balance of harms and public interest favored blocking enforcement until the court reaches a final decision.
The injunction preserves access to Kalshi and Polymarket for Minnesota users while the case continues. The order remains a preliminary assessment rather than a final judgment on whether Minnesota’s law is federally preempted.
Minnesota Targeted Far More Than Sports Contracts
Gov. Tim Walz signed the ban on May 18 as part of the state’s omnibus public-safety legislation. The governor’s office said the measure prohibited prediction markets from operating in Minnesota.
Although sports contracts were a major target, the statute reached considerably further. It prohibited businesses from allowing wagers, trades, contracts, or other financial positions tied to sports, contests, people, politics, catastrophes, and deaths.
The law also covered several companies that support the prediction market infrastructure. Financial institutions, payment processors, geolocation providers, platform suppliers, media affiliates, and other businesses could have faced felony liability for knowingly facilitating prohibited transactions after receiving a cease-and-desist letter.
Advertising restrictions were included as well. The statute targeted certain marketing during live sporting events, in media with substantial under-21 audiences, and on public property or near schools and playgrounds. Anyone convicted under the law could also have been barred from receiving a Minnesota gaming-related license for at least 10 years.
That scope made Minnesota’s approach fundamentally different from state enforcement actions focused solely on sports event contracts. The law attempted to disable much of the commercial network required to operate a prediction market inside the state.
The CFTC Challenged the Ban Immediately
The CFTC sued Minnesota on May 19, one day after Walz signed the legislation. Kalshi and Polymarket joined the challenge as plaintiffs.
The federal regulator argued that Congress gave it exclusive jurisdiction over transactions conducted on registered derivatives exchanges and that Minnesota could not criminalize activity allowed under that federal framework.
“This Minnesota law turns lawful operators and participants in prediction markets into felons overnight,” CFTC Chairman Michael Selig said when the agency announced the lawsuit.
Minnesota Attorney General Keith Ellison countered that event contracts resembling wagers fall within the state’s traditional authority over gambling, public health, and consumer protection.
“Prediction markets are gambling, plain and simple, and Minnesota has every right to keep predatory gambling out of our communities,” Ellison said in a June statement opposing the injunction.
The state argued that the Commodity Exchange Act grants exclusive CFTC authority only over commodity futures and swaps. According to Minnesota, many sports, political, and cultural contracts lack the financial, economic, or commercial connection required to qualify as federally protected swaps.
The Judge Found Minnesota’s Law Likely Reached Federally Regulated Trades
Menendez found that the challengers had presented a sufficiently strong case that Minnesota’s statute would regulate transactions falling within the CFTC’s claimed exclusive jurisdiction.
The court also accepted the operators’ argument that enforcement would cause irreparable harm. Kalshi and Polymarket otherwise faced the choice of withdrawing from Minnesota, rebuilding their compliance systems around the state’s restrictions, or risking criminal prosecution.
Menendez said the injunction would “preserve the status quo” until the parties’ claims could be fully adjudicated. If Minnesota ultimately wins, the state can begin enforcing the statute against future violations.
Kalshi spokesperson Elisabeth Diana said in a statement following the ruling that states “cannot ban things that they don’t have jurisdiction over.” Polymarket Chief Legal Officer Neal Kumar said the order supported the company’s position that CFTC-registered exchanges are governed by federal law rather than “a patchwork of state rules.”
Ellison maintained the state’s opposition, saying Minnesota had the authority to keep what he described as predatory gambling out of its communities.
Why This Matters for Bettors
For Minnesota bettors, the immediate effect is continued market access. Kalshi and Polymarket do not need to geofence the state, remove entire categories of contracts, or suspend Minnesota accounts while the injunction remains active.
The broader consumer impact extends beyond the two named platforms. Payment providers, media companies, geolocation services, and other intermediaries would have faced potential criminal liability under the statute. That exposure could have encouraged companies to stop supporting prediction markets in Minnesota even before prosecutors brought a case.
The decision also gives the prediction market industry a much-needed federal-jurisdiction win after several states gained ground against sports event contracts. Courts and regulators in Washington, Wisconsin, Michigan, and New York have recently allowed state restrictions or enforcement efforts to advance, weakening the industry’s claim that CFTC registration automatically shields every contract from state gambling law.
Minnesota presented an especially important test because lawmakers enacted a dedicated prediction market statute rather than applying existing gambling laws to individual operators. The ban also covered political, cultural, disaster, and other event contracts, making its reach far broader than the sports-focused orders issued elsewhere.
Menendez’s reasoning gives Kalshi and Polymarket a decision they can cite when challenging similar state measures. It does not bind judges in other jurisdictions, but a finding that the operators are likely to prevail on express preemption provides more useful precedent than a ruling based solely on procedural defects or immediate financial harm.
The conflict now has two competing lines of authority. States can point to decisions allowing gambling enforcement against sports contracts, while operators can point to Minnesota and Arizona as evidence that federal regulation may displace at least some state restrictions.
That split increases the likelihood that appellate courts - and potentially the Supreme Court - will eventually need to define the boundary between federally regulated derivatives and state-regulated gambling. Until then, bettors should expect access to remain heavily dependent on where they live and which court reaches the issue.
What Happens Next
The preliminary injunction will remain in place while the federal district court considers the merits of the CFTC, Kalshi, and Polymarket’s claims. Minnesota can continue defending the law and may seek appellate review of the injunction.
The central question will be whether the covered event contracts qualify as transactions within the CFTC’s exclusive jurisdiction. The court may also need to determine whether different categories of contracts can be treated differently, rather than placing sports, politics, weather, culture, and financial events under one jurisdictional rule.
For Kalshi and Polymarket, the practical goal is a permanent injunction preventing Minnesota from enforcing the statute. The state will seek a ruling preserving its authority to regulate contracts it considers gambling, even when they are listed by a federally registered exchange.
Other states considering dedicated prediction market legislation will now have reason to proceed more carefully. Minnesota’s experience shows that a broad statutory ban can trigger an immediate federal challenge and remain frozen before prosecutors ever enforce it.
Marcus has spent over 20 years navigating the legal side of online betting - from his early days consulting for offshore operators to helping licensed U.S. sportsbooks launch in regulated markets. He’s worked with compliance teams, reviewed licensing frameworks in 15+ states, and advised on some of the biggest regulatory shifts since PASPA was repealed.
At BettingScanner, Marcus serves as the voice of reason - translating legalese into plain English and helping bettors understand what’s legal, what’s risky, and where the gray areas live. If you’re ever unsure about the rules, Marcus is your man - as he probably helped write them.
