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Federal Judge Kills Minnesota's Felony Prediction Market Ban—For Now

2026-07-29

Minnesota wanted to turn prediction market operators into felons. A federal judge has just hit pause on that plan.

Judge Katherine Menendez of the U.S. District Court for the District of Minnesota ruled Monday that the state's prediction market ban almost certainly violates the Commodity Exchange Act. She granted a preliminary injunction stopping the law before it could take effect on August 1, 2026—which would have made operating platforms like Kalshi and Polymarket a five-year felony in the state, plus a $10,000 fine.

The case boils down to a single question: are prediction markets federally regulated financial derivatives, or are they gambling subject to state control? Minnesota chose option two. The CFTC, Kalshi, and Polymarket chose option one. The judge, for now, agrees with the platforms.

Menendez found that the CEA gives the CFTC exclusive jurisdiction over swaps traded on designated contract markets. Many contracts on both platforms—election markets, geopolitical events—likely qualify as swaps under federal law. That matters, because if they do, Minnesota can't ban them.

But here's the wrinkle. Menendez explicitly said not every contract on these platforms meets the federal definition. She rejected the idea that registration alone settles the question. She even named specific losers: Kalshi markets on Love Island USA winners and World Cup announcer mentions. Those don't qualify. They fail the test.

This distinction will shape the final ruling. The judge warned that permanent relief could be "much narrower" than Monday's injunction. Translation: the court might end up carving out large chunks of what these platforms currently offer. Some markets survive federal preemption. Others probably don't.

The practical stakes are enormous. Kalshi reported over 90,000 verified Minnesota users holding millions of dollars in open positions as of late May. Polymarket US immediately welcomed the ruling and said it expected to keep serving Minnesota customers. Attorney General Keith Ellison disagreed and promised the state would keep fighting as the case develops through the merits phase.

Minnesota's approach is exceptionally aggressive. This is the fourth time in 2026 that a federal court has sided with prediction market platforms against state-level bans. But Minnesota stands alone in its severity. CFTC Chairman Michael S. Selig called it "the most aggressive move by a state to shut down CFTC-regulated markets and undermine the federal regulatory regime set up by Congress more than 50 years ago."

Governor Walz signed the ban in May. It triggered immediate lawsuits citing federal preemption and First Amendment violations. The platforms and the federal regulator argued that allowing individual states to prohibit federally regulated contracts would shatter the national derivatives framework. A fragmented patchwork. Regulatory chaos.

The real battle ahead isn't just in court. The CFTC has been working on contract-by-contract review rules for event contracts involving gaming, war, terrorism, assassination or unlawful conduct. The public comment period closed on July 27. That rulemaking might shape the outcome more than litigation will.

The injunction holds while both sides prepare for the merits phase. They'll need to define precisely which contracts fall within federal jurisdiction and which states may regulate. That's the fight that matters.

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