A federal judge on Friday temporarily blocked Minnesota from enforcing a first-of-its-kind state law that would have made it a crime to operate, host, or promote prediction markets. The preliminary injunction, granted by Judge Katherine Menendez, allows platforms like Kalshi and Polymarket to continue offering event contracts to Minnesota users while the legal challenge plays out.
Why the judge stepped in
Judge Menendez found the state law is likely preempted by the federal Commodity Exchange Act. She reasoned that event contracts may qualify as 'swaps' regulated by the Commodity Futures Trading Commission. The ruling stops the law from taking effect Saturday, giving the court time to weigh whether Minnesota can criminalize activity that falls under federal oversight.
The law and its backers
Governor Tim Walz signed the measure in May, making Minnesota the first state to explicitly ban prediction markets. The law made it a criminal offense to run, host, or promote such platforms. Attorney General Keith Ellison defended the statute, calling prediction markets 'gambling' and saying the state disagrees with the ruling. He vowed to continue fighting for the ban.
What this means for prediction market operators
Kalshi and Polymarket, two of the largest event-contract platforms, can now serve Minnesota customers without fear of prosecution—at least for now. But the legal fight is far from over. The judge noted the injunction could later be narrowed if the court decides not all event contracts fall under the 'swaps' definition. That leaves room for the state to argue that some contracts are pure gambling, not financial derivatives.
Other legal headaches for the industry
Kalshi already faces restrictions in Massachusetts, Michigan, Nevada, and Washington. The company also recently suspended three U.S. political candidates for trading on contracts tied to their own elections, citing insider trading concerns. Separately, Google engineer Michele Spagnuolo was charged with using confidential company data to make about $1.2 million trading on Polymarket. The case highlights the regulatory and ethical gray areas surrounding prediction markets.
The court will continue to hear arguments on whether the Minnesota law is preempted. If the state prevails on some points, the injunction could be lifted for certain types of contracts. For now, prediction market users in Minnesota can keep trading, but the legal uncertainty remains. The case is being watched closely by other states considering similar bans.
