Prediction market operator Kalshi is navigating a patchwork of legal setbacks and wins this summer. A federal judge in Manhattan denied the company's request for an injunction on July 7, signaling New York's gambling laws may still apply while the case proceeds. Then on July 21, Washington state obtained a preliminary injunction blocking Kalshi's offers in-state. But just a week later, a federal judge temporarily halted Minnesota's new ban on prediction markets, keeping some markets live pending litigation. The mixed rulings highlight the uncertain regulatory terrain for event contracts in the U.S.
Kalshi's legal setbacks
The Manhattan ruling means Kalshi can't use an injunction to shield itself from New York's gambling enforcement while the broader case plays out. The judge didn't rule on the merits — just that Kalshi hadn't shown it would suffer irreparable harm without an injunction. Washington's preliminary injunction came two weeks later, effectively barring Kalshi from offering contracts to residents there. The state argued the contracts amount to illegal gambling, and the court agreed enough to block them pending trial.
Minnesota's ban on hold
Not all news was bad for the industry. On July 28, a federal judge temporarily halted Minnesota's new ban on prediction markets. The order keeps some markets live while litigation continues. The judge found the ban likely conflicted with federal commodities law, which gives the CFTC authority over derivatives. That tension — between state gambling laws and federal commodities regulation — is at the heart of the legal fight.
State vs. federal regulation
Prediction markets sit in a regulatory gray zone. At the federal level, the CFTC can treat them as commodities derivatives. At the state level, they can be classified as gambling — or both, depending on the contract and state law. Election contracts are a particular lightning rod. Several states treat them as gambling, and federal regulators have scrutinized them closely. Kalshi is a federally regulated designated contract market, while Polymarket runs crypto-settled markets with U.S. access restrictions. Both face jurisdiction risk, thin liquidity, ambiguous resolution sources, and potential KYC changes by state.
Midterms Hub launched anyway
Despite the legal headwinds, Kalshi launched a Midterms Hub this week, showing the company is betting on growth. The hub offers contracts on the 2026 midterm elections, even as courts weigh whether such contracts are legal. For traders, the practical risks are real: jurisdiction risk, thin liquidity, ambiguous resolution sources, and tax reporting headaches. Resolution sources — like newswires or certified election results — are critical for determining whether a contract settles at 1 or 0.
The next concrete step: the Manhattan case continues, and the Minnesota temporary restraining order will be tested in further hearings. Kalshi's ability to operate in key states like New York and Washington remains in doubt, but the Minnesota ruling gives the industry a foothold. The question now is whether other states will follow Washington's lead or Minnesota's pause.
