A federal court has stopped Minnesota from enforcing the first state law designed to criminalize prediction market operations. The ruling keeps platforms such as Kalshi and Polymarket available while the wider fight over federal and state authority continues.
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U.S. District Court Judge Katherine Menendez granted a preliminary injunction on Monday, preventing Minnesota officials from applying a new felony law against prediction market operators.
The law would ban the creation, operation, hosting, assistance, and advertising of prediction markets in Minnesota. Governor Tim Walz signed the measure in May after lawmakers argued that many event contracts function like online gambling. Minnesota has no legal sports betting market.
Kalshi, Polymarket, and the Commodity Futures Trading Commission challenged the ban. Their central claim says the federal Commodity Exchange Act gives the CFTC exclusive authority over event contracts traded through federally regulated exchanges.
“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, that they face a threat of irreparable harm, and that the balance of harms and the public interest weigh in favor of entering a preliminary injunction barring enforcement of Minnesota’s prediction market statute until a final decision on the merits is reached,” Judge Menendez wrote.
The order does not settle whether Minnesota can regulate prediction markets permanently. Instead, it keeps the current market open while the court reviews the federal preemption arguments.
Minnesota took a different route from states that issued regulatory orders or filed lawsuits against individual operators. Its legislation created direct criminal penalties for prediction market activity, making it the first state law of its kind in the US.
Judge Menendez found that the law appears likely to cover transactions over which the CFTC claims exclusive jurisdiction. However, Minnesota could still enforce the statute later if the state wins the case.
“If Plaintiffs prevail on the merits, Defendants will not be harmed because the preliminary injunction would simply have prevented enforcement of a state law that is preempted by the (federal Commodity Exchange Act),” Judge Menendez wrote. “And if Defendants ultimately prevail, the preliminary injunction will no longer be effective, and Defendants can begin enforcing the prediction market statute against those who violate it.”
The CFTC had requested a temporary stay before the ruling. The agency said operators and market participants needed certainty before the August 1 deadline and warned that it could seek emergency relief from an appeals court.
Monday saw the district court grant broader protection through the preliminary injunction. Kalshi and Polymarket can therefore continue offering eligible event contracts in Minnesota while litigation proceeds.
The dispute joins federal and state cases involving Arizona, Connecticut, Illinois, Massachusetts, Nevada, New Mexico, and other jurisdictions. State officials commonly classify sports event contracts as gambling, while the CFTC and registered exchanges treat them as federally regulated derivatives.