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Minnesota's Prediction Market Ban Gets Blocked — But Only Partly

2026-07-29

A federal judge in Minnesota paused the state's ban on prediction markets on Monday — days before the felony law was scheduled to take effect. Judge Katherine Menendez ruled that Minnesota's new law appears to be preempted by federal commodities law, handing Kalshi, Polymarket, and the CFTC a preliminary injunction that keeps things running while litigation drags on.

The core question is straightforward enough: do states get to regulate prediction markets, or does the federal government own the whole space? Minnesota says these platforms are gambling dressed up as financial instruments. The platforms and the CFTC say they're federally regulated derivatives. Pick your side — either way, someone's unhappy.

Menendez's 44-page order gets surgical here. She drew a line based on what contracts do. If a contract concerns an event with "clear potential economic, financial, or commercial consequences" — like Senate races, the World Cup winner, or the reopening of the Strait of Hormuz — it survives federal preemption. But Kalshi's markets on Love Island USA or what announcers say mid-match? Those probably don't make the cut.

The platforms haven't shown every contract they offer qualifies for federal protection. This distinction matters because the CFTC launched a facial challenge, meaning it has to prove the Minnesota law is unconstitutional in all circumstances. That's a high bar. Menendez warned that permanent relief could end up "much narrower" than the preliminary injunction — in other words, the platforms might win the battle here but lose the war later.

Minnesota Attorney General Keith Ellison, a Democrat who signed the law as part of broader public safety legislation, isn't backing down. He told the court the state "respectfully disagree[s]" with Menendez's reading and accused the platforms of running "predatory gambling apps." His argument: they could satisfy federal requirements while still restricting what they offer in Minnesota.

The timing was ridiculous. The CFTC sent a letter on July 24 warning the judge that without a ruling or stay by close of business the next day, they'd treat the motion as denied and take it to the Eighth Circuit. Kalshi and Polymarket made the same threat. Menendez's ruling landed just hours before the deadline expired. She wasn't about to let federal agencies and prediction market platforms bully her docket, but she also understood the clock was ticking.

This Minnesota case sits inside a much larger regulatory scramble. The CFTC has sued multiple states — Illinois, Arizona, Connecticut, Wisconsin, and Minnesota — to block prediction market bans. In April, the Third Circuit ruled that New Jersey couldn't subject Kalshi's contracts to its sports gambling laws. In May, a federal judge in Arizona blocked the state from prosecuting Kalshi under its gambling rules, finding federal preemption applies there too.

What makes the Minnesota decision notable is how carefully Menendez split the difference. She endorsed the argument that at least some prediction market contracts fall primarily under federal jurisdiction, giving the platforms a clear judicial win. But her language about the narrowness of permanent relief tells you neither side will walk away fully satisfied. The jurisdictional question remains contested. The real fight is still ahead.

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