Federal Judge Blocks Minnesota Prediction Market Law From Taking Effect

Until Monday (July 27), the odds favored Minnesota becoming the first state to make operating or advertising a prediction market in the state a felony starting Aug. 1. But a federal judge has blocked the law from taking effect, at least for now.

Federal District Judge Kate Menendez granted Kalshi and Polymarket a preliminary injunction in their lawsuit against the state, allowing them to continue operating in Minnesota while the case plays out. The Commodity Futures Trading Commission (CFTC) is also a plaintiff in the case. In her 44-page order on Monday, Judge Menendez said the plaintiffs were likely to prevail on their claims that federal law preempts the state statute with respect to the CFTC-registered contract markets.

She warned, however, that a final order in the case “may be much narrower” than the preliminary injunction. The preemption claims rest on the CFTC’s classification of the markets as swaps, a kind of derivative, over which it has exclusive jurisdiction, as per the Commodity Exchange Act. But Menendez found that not all wagers on the platform would necessarily qualify as swaps within the meaning of the CEA.

Contracts on Senate races, the World Cup winner and the reopening of the Strait of Hormuz likely qualify, she found, because they concern events with “clear potential economic, financial, or commercial consequences.” Contracts on who wins “Love Island USA,” not so much.

The distinction is important due to how the plaintiffs brought the case. At a preliminary hearing, the CFTC confirmed that its challenge was facial, according to Decrypt, meaning it claims there are no circumstances under which the law would be valid. But Menendez said in her order that the Minnesota statute “may not be preempted in all its applications.” She criticized both sides for treating the dispute as “all-or-nothing propositions” but said she granted the preliminary injunction to preserve the status quo while the case proceeds.

More than a dozen states have brought civil actions against prediction markets for operating illegal or unlicensed gambling sites, particularly with respect to wagers on sporting events, which are typically regulated by states, not the federal government. The Minnesota law is the first criminal statute that seeks to bar the markets altogether, posing the jurisdictional question more starkly.

“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.

In a separate statement, Kalshi spokeswoman Elisabeth Diana said, “Today’s decision makes it clear: States cannot ban things that they don’t have jurisdiction over.”

In a statement posted on X, CFTC chairman Michael Selig said the agency “appreciates the court’s careful consideration of the issues.”

Minnesota Attorney General Keith Ellison criticized the ruling, however. “Prediction markets are gambling, plain and simple, and Minnesota has every right to keep predatory gambling out of our communities,” he said in a statement emailed to media outlets. “We respectfully disagree with the court’s determination that the proper ‘status quo’ to maintain is one that allows predatory gambling apps to proliferate.” The state will continue to defend the law in court, he added.