Current Affairs Security

Minnesota's Felony Prediction Market Ban Gets Blocked—For Now

2026-07-29

A federal judge just threw a wrench into Minnesota's attempt to criminalize prediction markets. US District Judge Katherine Menendez issued a preliminary injunction on July 27, just days before a sweeping ban was set to take effect. The state had made operating or advertising prediction platforms a felony punishable by up to five years in prison and a $10,000 fine. Governor Tim Walz signed the bill on May 18, making Minnesota the first state to classify prediction market operations as an outright criminal offence.

The legal fight got weird fast. The Commodity Futures Trading Commission filed suit against Minnesota on May 19—the very next day—arguing that federal law preempts state bans on platforms already operating under CFTC oversight. Kalshi and Polymarket jumped in to defend themselves. Suddenly it became a proper multi-front battle over whether prediction markets are federally regulated financial instruments or just sports betting with fancier language.

The sticking point is whether prediction market contracts count as "swaps" under the Commodity Exchange Act. The judge found the plaintiffs likely to win their preemption claims—at least for many contracts. The real question, Judge Menendez said, is whether the Minnesota law tries to regulate trades that actually qualify as swaps under the CEA. If they do, federal law wins. If not, Minnesota arguably gets a say.

Kalshi operates as a CFTC-registered exchange. It already submits to federal oversight, compliance requirements, and the whole bureaucratic apparatus that comes with it. The argument is straightforward: Congress gave the CFTC authority over derivatives and event contracts. That created a federal framework. States can't just override it by banning what federal law permits.

But the injunction has teeth-marks all over it. Judge Menendez warned in her 44-page order that the final ruling "may be much narrower" than what she just granted. Not every wager on these platforms necessarily qualifies as a swap. She even pointed to Love Island predictions as contracts that might genuinely fall under Minnesota law. Election markets and major economic events? Those look federally protected. Reality TV trivia? Grey area.

There's another problem. The order only shields entities registered as designated contract markets with the CFTC. Everyone else—customers, advertisers, data providers, random users—remains exposed to criminal liability. The state keeps defending the law. This is a partial victory at best, and a temporary one.

Polymarket US said it's happy and plans to keep serving Minnesota users. Attorney General Keith Ellison said Minnesota disagrees and will keep fighting. The court's careful distinction between qualifying and non-qualifying contracts suggests the final answer won't be clean. It'll be patchwork instead.

This matters beyond Minnesota. Arizona, Connecticut, Illinois, New Jersey, Massachusetts, and Wisconsin are all currently pursuing ways to restrict or ban prediction markets. The CFTC is fighting those battles too. This ruling is a shot across the bow—a warning that federal oversight trumps state criminalisation at least some of the time. How far that principle extends remains the real fight.

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