A federal judge has temporarily blocked Minnesota from enforcing the nation's first state law that would have made operating a prediction market a felony. U.S. District Judge Katherine Menninger issued the ruling, which provides broad protection to platforms like Kalshi and Polymarket US while the legal challenge proceeds.
The ban and the challenge
Minnesota's law, set to take effect on August 1, would have classified most prediction market contracts as illegal gambling, carrying felony penalties. The state argued that such contracts—where users bet on outcomes like election results or sports events—fall under its authority to regulate gambling. But Kalshi and Polymarket US sued, claiming the state was overstepping because these contracts are already regulated by the Commodity Futures Trading Commission as swaps or derivatives.
Judge's reasoning
Judge Menninger agreed with the platforms. She found that some entertainment and other contracts may fall outside federal swap regulation, but that the state's blanket ban was too broad. The ruling gives temporary relief while the case moves forward. The judge noted that the federal Commodity Exchange Act preempts state laws that conflict with its framework, and Minnesota's law likely runs afoul of that.
What this means for prediction markets
The decision is a win for Kalshi and Polymarket US, which have been expanding their offerings despite regulatory uncertainty. Prediction markets allow users to trade on the outcome of events, from elections to weather. Critics say they resemble gambling; supporters argue they provide valuable information. The CFTC has taken a mixed approach, approving some contracts while cracking down on others. Minnesota's law was seen as a test case for state-level bans.
The ruling doesn't settle the broader legal question. A full trial is expected later this year. For now, the platforms can continue operating in Minnesota without fear of prosecution. The state could appeal the temporary block.
