Current Affairs Security

Minnesota's Felony Prediction-Market Ban Just Got Blocked—But the Fight's Far From Over

2026-07-29

Minnesota tried something bold: make prediction markets a felony. Governor Tim Walz signed it on May 18, making Minnesota the first state to criminalize the platforms outright. Operating or advertising one could land you five years in prison and a $10,000 fine. The law was set to take effect on August 1.

Then a federal judge said no.

U.S. District Judge Katherine Menendez granted a preliminary injunction on July 27—just days before the statute's effective date—blocking Minnesota from enforcing the law against federally regulated exchanges like Kalshi and Polymarket US. Her 44-page order found that the platforms face irreparable harm and are likely to win on the merits. The Commodity Futures Trading Commission had sued the state on May 19, arguing that federal law preempts state attempts to ban what federal regulators have already authorised.

The legal issue turns on one question: do event contracts count as federally regulated derivatives?

Congress gave the CFTC exclusive jurisdiction over derivatives and "swaps." Menendez found that Kalshi and Polymarket US operate as designated contract markets under federal authority, and many of their event contracts fit the swap definition—meaning they involve events with clear economic, financial, or commercial consequences that are neither remote nor speculative. If you're betting on the US dollar-to-euro exchange rate or whether inflation hits 4%, that's serious enough to qualify. Weather or crop contracts likely do too. Some sports bets probably don't.

The judge stopped short of declaring total preemption. She noted that the prediction market companies and CFTC haven't demonstrated that every single event contract on their platforms qualifies as a swap. Minnesota's statute may survive in some form if it applies only to products that don't meet the federal definition. That means permanent relief could end up covering fewer products than this emergency injunction does.

Polymarket US celebrated the ruling and said it would keep serving Minnesota users. Minnesota Attorney General Keith Ellison disagreed with the decision and vowed to keep defending the law. Meanwhile, a New York court recently denied Kalshi interim protection from state gambling enforcement—showing that the federal registration picture varies wildly by jurisdiction.

This ruling matters beyond Minnesota. The CFTC is currently fighting similar battles against Arizona, Connecticut, Illinois, New Jersey, Massachusetts, and Wisconsin, all of which are pursuing legal avenues to restrict or ban prediction markets. The CFTC has countersued each state, arguing that the Commodity Exchange Act gives it exclusive jurisdiction.

Menendez's decision could serve as a bellwether for all of them. If federal preemption holds here, other states will face an uphill climb. If Minnesota wins on appeal and the definition of "swap" narrows, states get more room to regulate. Customers and outside service providers remain technically exposed while Minnesota continues its defence. The outcome could reshape how prediction markets operate across the country.

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