Judge Blocks Minnesota Prediction Market Ban, Citing Federal Preemption

In brief

A federal judge paused Minnesota's first-in-the-nation prediction market ban on Monday, days before the felony law was due to take effect.

Judge Katherine Menendez found Kalshi, Polymarket and the CFTC likely to win on federal preemption grounds.

She warned that permanent relief could be "much narrower," since not every contract the platforms list qualifies as a swap.

A federal judge blocked Minnesota from enforcing SF 3432, the first state law to criminalize prediction markets, granting Kalshi, Polymarket and the Commodity Futures Trading Commission a preliminary injunction on Monday, with the statute due to take effect on Saturday.

U.S. District Judge Katherine Menendez found the three plaintiffs likely to succeed on express-preemption claims, and the platforms likely to suffer irreparable harm. Her 44-page order bars enforcement against exchanges registered with the CFTC as designated contract markets, and holds until a decision on the merits.

The swap question

Whether Minnesota's law is preempted, Menendez wrote, turns on whether the trades at issue "qualify as 'swaps' within the meaning of the CEA." Contracts on Senate races, the World Cup winner and the reopening of the Strait of Hormuz clear that bar, she found, because they concern events with "clear potential economic, financial, or commercial consequences." Kalshi markets on who wins Love Island USA, or on what announcers say mid-match, likely do not.

The split matters because of how the case was brought. The CFTC confirmed at the July 2 hearing that its challenge is facial, which requires showing there is no set of circumstances in which the law would be valid. Menendez found the statute "may not be preempted in all its applications" and enjoined it anyway to preserve the status quo, faulting both sides for treating the dispute as "all-or-nothing propositions." Permanent relief, she wrote, "may be much narrower."

Where the fight goes next

Ellison said the state "respectfully disagree[s]" with the court's reading of the status quo, one he told Courthouse News "allows predatory gambling apps to proliferate." His memorandum argued the platforms could satisfy federal requirements while restricting what they offer in the state.

The CFTC has sued multiple states, among them Illinois, Arizona and Connecticut, Wisconsin and Minnesota, where the DOJ and the agency filed within hours of the bill becoming law. Kalshi followed days later.

The order landed a day before a deadline the agency set itself. In a July 24 letter, the CFTC told Menendez that absent a ruling or stay by close of business Tuesday it would treat its motion as "constructively denied" and seek interim relief from the Eighth Circuit. Kalshi and Polymarket said they would do the same.

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