A U.S. federal judge on Monday blocked Minnesota from enforcing a first-in-the-nation law banning prediction markets, ruling that federal law likely preempts the state’s attempt to prohibit platforms such as Kalshi and Polymarket.
U.S. District Judge Katherine Menendez granted a preliminary injunction sought by the U.S. Commodity Futures Trading Commission (CFTC), Kalshi and Polymarket, halting a law signed by Democratic Governor Tim Walz in May that was due to take effect this week.
The measure would have made Minnesota the first U.S. state to explicitly outlaw prediction markets, making it a crime to operate, host, or promote the platforms in the state.
Menendez found that certain event contracts offered by CFTC-regulated platforms likely qualify as “swaps” under federal law, meaning they fall under the agency’s jurisdiction rather than that of state regulators.
The injunction allows Kalshi and Polymarket to continue offering event contracts to Minnesota residents while the case proceeds. The judge said she could later narrow the injunction if she concludes that some event contracts do not meet the legal definition of swaps.
“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,” Menendez wrote.
The lawsuit is part of a broader legal battle over whether prediction markets should be regulated exclusively by the federal government or can also be restricted under state gambling laws.
Under President Donald Trump’s administration, the CFTC has argued that event contracts traded on prediction market platforms fall exclusively under the agency’s authority to regulate derivatives, preempting state regulation.
Kalshi welcomed the ruling. “Today’s decision makes it clear: States cannot ban things that they don’t have jurisdiction over,” Kalshi spokesperson Elisabeth Diana said in a statement.
Polymarket Chief Legal Officer Neal Kumar said the company looked forward to continuing to operate in Minnesota.
Minnesota Attorney General Keith Ellison said the state would continue defending the law, arguing that prediction markets amount to gambling.
“Prediction markets are gambling, plain and simple, and Minnesota has every right to keep predatory gambling out of our communities,” Ellison said in a statement.
The dispute comes as prediction markets have expanded rapidly, attracting billions of dollars in trading on contracts tied to events ranging from elections to sports, while drawing scrutiny over concerns about gambling addiction and the potential for insider manipulation.
More than a dozen states have sought to curb prediction markets using existing anti-gambling laws, producing mixed results in court. States including Massachusetts, Michigan, Nevada and Washington have secured court orders restricting Kalshi’s operations, while Arizona temporarily sided with the CFTC by halting a criminal case against the company.
Kalshi said in court filings it had more than 90,000 users in Minnesota by the end of May who had traded millions of dollars on its platform. Minnesota lawmakers have defended the ban as necessary to protect public health and safety in a state where sports betting remains illegal.