Kalshi Wins as Judge Blocks Minnesota Prediction Markets Ban

Key Insights

• Kalshi secured temporary relief against Minnesota’s prediction market ban.
• The court found federal law likely preempted parts of the statute.
• Polymarket retained Minnesota access while the broader lawsuit continued.

Kalshi secured temporary relief on July 27 after a federal judge blocked Minnesota’s prediction market ban. U.S. District Judge Katherine Menendez found federal commodities law likely preempted parts of the state statute. The ruling kept Kalshi and Polymarket operating before the law’s Aug. 1 effective date.

The order preserved existing market access while the court considered the broader jurisdictional dispute. It also tested how far states can regulate event contracts listed on federally supervised exchanges. That question carried direct consequences for prediction market operators, trading firms, and crypto-linked platforms.

Kalshi Wins Temporary Relief From Minnesota Ban

Menendez granted preliminary injunctions sought by the Commodity Futures Trading Commission, Kalshi, and Polymarket. Reuters reported that she viewed several challenged contracts as swaps under federal law. That classification placed those contracts within the federal regulator’s exclusive jurisdiction.

The Commodity Futures Trading Commission filed its lawsuit on May 19. The agency said Minnesota’s statute conflicted with the Commodity Exchange Act. Its complaint sought an injunction before the ban started on Aug. 1.

Minnesota’s legislation prohibited creating, operating, managing, or supporting a prediction market. The law also criminalized advertising products that promoted prohibited transactions. Minnesota’s Office of the Revisor of Statutes classified violations as felonies.

State lawmakers placed the restrictions inside Senate File 3432. The bill covered sports, elections, legal actions, weather, entertainment, and public statements. It also targeted payment, location, pricing, settlement, and data services supporting those markets.

Minnesota legislative records showed the Senate passed the final conference report by 59-8. The House approved the measure by 100-34 on May 16. Governor Tim Walz approved Chapter 118 on May 26.

Kalshi Case Tests Federal Preemption Claims

The court’s analysis centered on federal preemption under the Commodity Exchange Act. Menendez found the plaintiffs likely showed federal law displaced Minnesota’s authority for some contracts. She did not hold that every listed contract qualified for federal protection.

That limitation narrowed the practical reach of the ruling. The judge said the injunction could later cover fewer contracts. Plaintiffs had not established that every Kalshi or Polymarket contract met the statutory swap definition.

The distinction mattered because contract classification determined the responsible regulator. Federally regulated derivatives generally fall under Commodity Futures Trading Commission oversight. States retain broad authority over gambling, consumer protection, and criminal enforcement.

Minnesota Attorney General Keith Ellison defended the statute before the ruling. In a June 18 statement, Ellison described prediction markets as gambling. He argued Minnesota retained authority to protect residents from unlicensed wagering products.

The federal regulator took the opposite position. Its May statement said Minnesota could not criminalize activity Congress placed under federal supervision. The agency also warned that state bans could fragment national derivatives regulation.

Kalshi Ruling Leaves Polymarket Questions Open

The injunction allowed Kalshi and Polymarket to continue serving Minnesota users during litigation. However, it did not settle the legality of every event contract. Future proceedings could separate federally protected derivatives from contracts treated as state-regulated wagers.

That split could shape product design across prediction markets. Platforms may face stronger pressure to document contract classifications and federal registration status. Service providers could also review exposure under state advertising and support provisions.

Polymarket’s position introduced another layer. The company joined the litigation through its U.S. operations. The ruling protected its current access, subject to the contract uncertainty identified by Menendez.

The case also extended a broader dispute between states and federal derivatives regulators. Minnesota framed the products as gambling conducted without state approval. The plaintiffs framed them as financial contracts governed by a national statutory system.

Kalshi Litigation Moves Toward Merits Review

A preliminary injunction did not decide the final claims. It required the plaintiffs to show likely success and potential harm without relief. The court maintained existing operations while considering the legal merits.

The next phase will examine which contracts qualify as swaps under federal law. It will also test Minnesota’s remaining authority over advertising, support services, and non-swap products. Court filings will determine whether the injunction remains broad or becomes narrower.

Minnesota could also appeal the preliminary order. Reuters reported that the ruling preserved operations while litigation continued. No final merits judgment had resolved the jurisdictional conflict by July 27.

Until the court modifies the injunction or issues a final ruling, Kalshi and Polymarket can continue offering covered products to Minnesota users. The order represents temporary procedural relief rather than a final determination that every contract listed by either platform is protected from state regulation.

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