Judge Freezes Minnesota Prediction Market Law 4 Days Early

Four days before the Minnesota prediction market law was set to make operating or advertising a prediction market in the state a felony, a federal judge blocked it from taking effect.

Federal District Judge Kate Menendez granted Kalshi and Polymarket a preliminary injunction on Monday, July 27, allowing the platforms to keep operating in Minnesota while their lawsuit against the state proceeds, according to PYMNTS. The Commodity Futures Trading Commission is also a plaintiff in the case.

4 Days Before Aug. 1, Minnesota's Prediction Market Law Hits a Federal Wall

The law was scheduled to take effect on Aug. 1. It would have put Minnesota on track to become the first state to impose felony penalties for operating or advertising a prediction market inside its borders.

Menendez's injunction does not kill the law. It freezes enforcement while the court decides whether Minnesota can criminalize activity that Kalshi, Polymarket and the CFTC say falls under federal commodities law.

In her 44-page order, Menendez said the plaintiffs were likely to prevail on claims that federal law preempts the Minnesota statute for CFTC-registered contract markets. That is the core issue now: whether Minnesota's gambling and public safety authority can reach contracts that federal law treats as regulated derivatives.

A final order in the case “may be much narrower” than the preliminary injunction, Menendez warned.

That caveat matters. The court preserved the status quo, but it did not give prediction markets a blanket win.

First Felony-Level Ban Puts Event Contracts Against State Gambling Power

The Minnesota prediction market law mattered beyond one state because it sharpened a fight already playing out across regulators: are event contracts federally regulated financial products, state-regulated gambling, or both depending on the contract?

More than a dozen states have brought civil actions against prediction markets for allegedly operating illegal or unlicensed gambling sites, especially around sports. Minnesota went further. Its statute was the first criminal law seeking to bar the markets altogether.

For Kalshi and Polymarket, the immediate effect is practical. They avoid an Aug. 1 cutoff for Minnesota operations and advertising while the lawsuit continues. For the CFTC, the ruling keeps its federal jurisdiction argument alive at a moment when states are testing how far they can go.

Menendez's order also draws a line between different types of event contracts:

That split is the most important part of the order. It undercuts an all-or-nothing reading from both sides.

Menendez said the Minnesota statute “may not be preempted in all its applications” and criticized the parties for treating the dispute as “all-or-nothing propositions.” Translation: the final ruling may protect some event contracts while leaving room for state enforcement against others.

For adjacent XOOMAR coverage of regulated fintech and Kalshi-related legal disputes, readers can see Western Union Digital Bank Forces Users Into 2-Month Exit and Kalshi Threatens Netflix Over Defamatory Trailer Claim. Those stories are separate from this Minnesota case, but they sit in the same broad bucket of legal process shaping financial-tech access and risk.

44 Pages Narrow the Fight to Federal Preemption, Not Every Prediction Bet

The plaintiffs' legal theory rests on federal preemption. They argue the Commodity Exchange Act gives the CFTC exclusive jurisdiction over swaps and CFTC-registered markets, limiting Minnesota's power to ban the covered contracts.

The CFTC confirmed at a preliminary hearing that its challenge was facial, according to Decrypt, meaning it argued there are no valid applications of the Minnesota law. Menendez did not fully accept that framing.

That leaves the next stage more nuanced than the headline suggests. The court still has to decide how far federal law reaches, which contracts qualify as swaps, and whether Minnesota can enforce parts of the law against activity outside the CFTC's exclusive domain.

Kalshi and Polymarket also attacked the advertising restrictions. Related reporting from FOX 9 and NBC News said the platforms argued the ban on prediction market advertising raised First Amendment concerns, but Menendez did not need to resolve those questions at this stage.

Platform executives framed the injunction as a jurisdictional win.

“This opinion makes clear that prediction markets on CFTC-registered exchanges are governed by federal law, not a patchwork of state rules. We look forward to continuing to serve our users in Minnesota,” Neal Kumar, chief legal officer of Polymarket, said in an email to Courthouse News.

Kalshi spokeswoman Elisabeth Diana was more blunt:

“Today’s decision makes it clear: States cannot ban things that they don’t have jurisdiction over.”

CFTC chairman Michael Selig said in a statement posted on X that the agency “appreciates the court’s careful consideration of the issues.”

More Than a Dozen State Civil Actions Still Leave Prediction Markets Under Pressure

Minnesota officials are not backing down. Attorney General Keith Ellison criticized the injunction and said the state will continue defending the statute in court.

“Prediction markets are gambling, plain and simple, and Minnesota has every right to keep predatory gambling out of our communities,” Ellison said. “We respectfully disagree with the court’s determination that the proper ‘status quo’ to maintain is one that allows predatory gambling apps to proliferate.”

That response shows why the Minnesota prediction market law remains a live threat even after Monday's ruling. The state views the platforms through a gambling and public safety lens. The platforms and the CFTC view at least some contracts through federal commodities law.

The next filings will matter more than the press statements. Watch whether the court narrows any final ruling to CFTC-registered markets, to contracts with economic or commercial consequences, or to specific categories of event contracts.

For now, the court gave Kalshi and Polymarket breathing room in Minnesota. It did not settle where prediction markets sit in U.S. financial and gambling law.

Disclaimer: This XOOMAR analysis is for informational and educational purposes only. It is not financial, investment, legal, tax, or professional advice. It does not provide buy, sell, hold, price-target, portfolio, or personalized recommendations. Verify information independently and consult qualified professionals before making decisions.

Impact Analysis

• Minnesota’s felony-level prediction market ban is paused while the federal preemption fight continues.
• The case could shape how far states can go in regulating event contracts overseen by federal commodities law.
• Kalshi and Polymarket can keep operating in Minnesota for now, but the injunction is not a final ruling.