Federal judge blocks Minnesota's total ban on prediction markets

A federal judge in Minnesota has blocked the first state law that would have fully banned prediction markets, granting a preliminary injunction just days before the ban was set to take effect on August 1. Judge Katherine Menendez ruled that Minnesota's total prohibition likely violates the Commodity Exchange Act because many event contracts traded on platforms like Kalshi and Polymarket US meet the legal definition of swaps. The CFTC, along with Kalshi and Polymarket, sued the state after Minnesota enacted the law in May, arguing that the federal agency has exclusive jurisdiction over swaps. Menendez agreed, noting that event contracts tied to financial, economic, or commercial consequences—such as election outcomes or interest rate changes—are swaps under federal law. However, the judge suggested Minnesota could still prohibit contracts that don't qualify as swaps, like bets on reality TV shows. Minnesota Attorney General Keith Ellison criticized the ruling, calling prediction markets "gambling, plain and simple," and said the state will continue to defend its law.

The ruling highlights a growing legal battle between state gambling regulators and federal commodities oversight. While Minnesota was the first state to enact a complete ban, other states have attempted to regulate prediction markets under gambling laws, leading to conflicting court decisions. Judge Menendez's opinion acknowledges that not all event contracts are swaps—for example, bets on Love Island USA likely fall outside federal jurisdiction—so Minnesota may ultimately be allowed to prohibit those specific wagers. The case is now likely to proceed to a full merits hearing, and an appeal to the Eighth Circuit is possible. The outcome could have significant implications for the $100 billion prediction market industry, as a definitive Supreme Court ruling may be needed to resolve whether states can ban or restrict such platforms. For now, the injunction keeps Kalshi and Polymarket operational in Minnesota, but the legal uncertainty persists.