Judge blocks Minnesota ban on prediction markets

MINNEAPOLIS (CN) — Days before Minnesota’s first-of-its-kind prediction markets ban was set to take effect, a federal judge ruled Monday to allow platforms like Kalshi and Polymarket to continue operating in the state for now.

U.S. District Judge Katherine Menendez granted a preliminary injunction blocking the ban, which was born out of growing concern from Minnesota lawmakers over the rapid rise of prediction markets thought to be “indistinguishable” from typical gambling that is largely prohibited in the state.

Kalshi, Polymarket and the Trump administration sued Minnesota in three separate cases earlier this year, arguing the Commodity Exchange Act preempts Minnesota’s ban and gives the federal government “exclusive jurisdiction” to regulate event contracts offered on prediction market platforms.

The prediction market giants also brought First Amendment claims against the state, claiming a provision in the ban making it a felony to advertise said markets limits free speech.

Menendez, a Joe Biden appointee, noted the three parties are at least likely to succeed on their preemption claims, and would be financially and operationally harmed should the ban be allowed to go into effect in August.

“Given the unique nature of Minnesota’s prediction market statute, the posture of these cases and the imminent effective date of Minnesota’s statute, a preliminary injunction maintaining the status quo until the merits of this case can be fully resolved is appropriate,” she said.

If implemented, Minnesota’s landmark bill, SF 3432, would make it a felony to create, operate, manage or control a prediction market platform, and would force these platforms to leave the state or face charges — authority the government says falls under the Commodity Futures Trading Commission, not Minnesota.

The ban also targets those who knowingly provide data or verification services to prediction markets to “enable wagers,” which the platforms claim could harm news organizations utilizing market data from the sites, as well as major sports league data partners like MLB.

Earlier this month, Kalshi, Polymarket and the Trump administration squared off with Minnesota in front of Menendez, claiming the ban would disrupt federally authorized operations and fragment a nationwide market into a patchwork of state regulations.

Differing from traditional gambling and bets, prediction markets offer “yes or no” outcome contracts, or “swaps,” for real-world events including politics, economics, weather and a myriad of sporting events.

For the preliminary injunction stage, Menendez applied a broad interpretation of what a swap is, finding if the contracts traded on Kalshi and Polymarket meet the federal definition of swaps, Minnesota’s attempt to criminalize them intrudes on federal authority.

However, the judge indicated not all event contracts listed on Kalshi and Polymarket fit the statutory definition of a swap, meaning those trades may not be protected by federal preemption.

“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 said.

Contract markets like Kalshi and Polymarket must also submit all new types of contracts to the CFTC for approval and ensure it is within regulations — an agreement championed by the platforms in court.

“States don’t get to enforce the CEA against designated contract markets,” Colleen Sinzdak, Kalshi’s attorney, said earlier this month. “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.”

At the hearing on July 2, Menendez shared Minnesota’s concerns when questioning the prediction markets, noting the platforms share a strikingly similar structure to traditional sports betting sites.

“It’s not different to the 20-year-old sitting in his basement, to the 20-year-old kid who emptied his savings on the outcome of a World Cup game. The fact that it might not fit a particular set of language means very little,” she said.

While appearing sympathetic to Minnesota’s interests in court, Menendez ultimately found the effort to enforce a state felony ban on federally regulated contract markets at least warrants stricter scrutiny.

The ruling comes amid a broader, nationwide battle over prediction markets. The CFTC has filed similar lawsuits against at least five other states, including Rhode Island, New Jersey and California, as it seeks to establish its authority over the emerging platforms.

An Arizona federal court ruled similarly to Menendez in May when it blocked the state’s attempt to prosecute Kalshi for providing election wagering.

“This opinion makes clear that prediction markets on CFTC-registered exchanges are governed by federal law, not a patchwork of state rules. We look forward to continuing to serve our users in Minnesota,” Neal Kumar, chief legal officer of Polymarket, said in an email to Courthouse News.

Minnesota Attorney General Keith Ellison told Courthouse News his office recognizes the court has been presented with complex and difficult legal issues that may be better answered with a developed record, and that he looks forward to further defending the state’s passed law.

“Prediction markets are gambling, plain and simple, and Minnesota has every right to keep predatory gambling out of our communities. We respectfully disagree with the court’s determination that the proper ‘status quo’ to maintain is one that allows predatory gambling apps to proliferate,” Ellison said in an email.

Kalshi did not respond to an initial request for comment.