Minnesota Judge Blocks Prediction-Market Ban but Says Some Contracts Aren't Swaps
U.S. District Judge Katherine Menendez blocked Minnesota from enforcing the first state felony ban on prediction markets, days before its August 1 start. The ruling gives Kalshi and Polymarket US broad temporary protection, even as the judge found that entertainment and other contracts may fall outside federal swap regulation.
The 44-page order prevents Minnesota officials from enforcing Minnesota Statutes Section 609.7615 against entities registered with the CFTC as designated contract markets until a final decision on the merits. The statute, signed by Governor Tim Walz on May 26, makes it a felony to create or operate covered prediction markets, facilitate their operation, supply certain data or payment services, or advertise prohibited transactions.
Minnesota is the first state to criminalize prediction markets directly rather than pursuing them through existing gambling statutes. Kalshi, the CFTC, and Polymarket US argued that the Commodity Exchange Act gives the CFTC exclusive jurisdiction over qualifying swaps traded on federally designated contract markets, preempting state law. Menendez found the plaintiffs likely to succeed on that argument for a substantial portion of contracts.
Menendez identified contracts tied to a U.S. Senate election, the winner of the World Cup, and the reopening of traffic through the Strait of Hormuz as likely meeting the federal definition of a swap, hinging on whether an event contract has potential financial, economic, or commercial consequences. However, she rejected the idea that every listed contract receives the same protection. A Kalshi market on the winner of Love Island USA season eight, contracts on words spoken by announcers during World Cup broadcasts, and a contract on a team taking a 20-point lead appeared to lack those consequences, potentially falling outside federal jurisdiction.
Because a contract-by-contract injunction would be difficult to administer before August 1, and refusing relief would expose platforms to felony prosecution, the court blocked enforcement as a whole against CFTC-registered designated contract markets. Menendez cautioned that any permanent injunction may be “much narrower.” The order leaves implied-preemption and First Amendment arguments undecided.
Kalshi told the court it had over 90,000 verified Minnesota users with millions of dollars in unsettled positions. Without an injunction, Kalshi and Polymarket US would have faced a choice between exiting Minnesota or operating under threat of felony charges. Minnesota Attorney General Keith Ellison said the state disagreed with the ruling and would continue defending the law.
The federal record remains mixed: the Third Circuit shielded Kalshi in New Jersey in April, while a Washington state court granted that state an injunction against Kalshi in July. Massachusetts, Michigan, and Nevada have also secured orders restricting Kalshi’s activities, and over 40 states have pushed back on the CFTC’s position that sports event contracts fall under exclusive federal oversight.