A federal judge halted Minnesota’s ban on prediction markets on July 27, four days before it was due to take effect, in the strongest court test yet of whether states can outlaw platforms the CFTC regulates.
U.S. District Judge Katherine Menendez granted a preliminary injunction pausing the law, which Governor Tim Walz signed on May 18 to make Minnesota the first state to criminalize prediction-market operations. The statute treated the platforms as illegal gambling, with operating or advertising one punishable as a felony carrying up to five years in prison and a $10,000 fine.
The ban was set to take effect August 1. In a 44-page order, Menendez wrote that the plaintiffs face irreparable harm and are likely to succeed on the merits, freezing enforcement until the case is fully decided.
The challenge was a joint federal-and-industry effort. The CFTC sued Minnesota on May 19, the day after the signing, and the Justice Department, Kalshi, and Polymarket US joined the fight over whether these markets are federally regulated derivatives or state-regulated gambling.
Why the Court Sided With Federal Preemption
The ruling rests on express preemption under the Commodity Exchange Act. Menendez found that Congress gave the CFTC exclusive jurisdiction over transactions in “swaps” and that Kalshi and Polymarket US operate as designated contract markets under that federal umbrella.
Many of the event contracts on those platforms, the judge reasoned, fit the definition of a swap because they turn on events with clear potential economic, financial, or commercial consequences that are neither remote nor speculative. On that basis, a state cannot criminalize what federal law has authorized.
The Win Comes With a Line the Judge Drew
The victory is narrower than the headlines suggest. Menendez was explicit that Minnesota’s law “may not, ultimately, be preempted in all respects,” even as applied to Kalshi and Polymarket, because preemption depends on whether each specific contract qualifies as a swap.
That distinction is the entire battleground of the national fight. Contracts tied to economic or commercial outcomes look like federally regulated derivatives; contracts that function as bets on sports or entertainment are harder to fit under the swap definition, and the court signaled the state ban could still reach those. The injunction validates the CFTC’s theory for the strongest cases while leaving its weakest ones exposed.
The Strongest Precedent Yet in a Mixed National Fight
The ruling matters because of what it blocked. Courts have handed the industry wins before, including in New Jersey and Tennessee, but this is the first to freeze an outright criminal legislative ban rather than a regulator’s enforcement action and to do it on preemption grounds.
The broader scorecard remains split. Kalshi has absorbed injunctions in Nevada and Massachusetts and faced a $120,000-a-day order in Michigan, while the CFTC has sued at least nine states asserting exclusive federal jurisdiction. Minnesota is the first state to try a blanket criminal ban, which makes its defeat, however partial, the most direct precedent yet for the preemption argument.
What Happens Next
This is an injunction, not a final judgment, and the underlying case still heads to a full trial on the merits. Minnesota officials signaled they intend to keep defending the law, maintaining that prediction markets are gambling that states have a right to restrict.
The unresolved question the ruling sharpens is the same one running through the CFTC’s recent advisory tightening how Kalshi and Polymarket certify contracts: where the swap definition ends. Until a court draws that line cleanly, every state case turns on the same contested boundary, and Minnesota just became the leading test of it.
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