Prediction market platforms Kalshi and Polymarket have secured an early legal victory after a federal judge temporarily blocked Minnesota from enforcing a first-of-its-kind law that would have prohibited most prediction markets in the state. US District Judge Katherine Menendez granted a preliminary injunction preventing the law from taking effect while the underlying litigation continues. The ruling allows both platforms to continue offering eligible event contracts to Minnesota residents for now, despite the state’s attempt to criminalize operating, hosting or promoting prediction markets.
The dispute centers on whether prediction markets are federally regulated financial derivatives or illegal gambling under state law. Minnesota argued that the contracts amount to gambling and therefore fall within its traditional authority to regulate betting activities. Kalshi, Polymarket and the US Commodity Futures Trading Commission (CFTC) countered that many of the contracts qualify as swaps under the Commodity Exchange Act, placing them under the CFTC’s exclusive jurisdiction. Judge Menendez concluded that the challengers were likely to succeed on that argument at this stage of the case. While emphasizing that the issue remains subject to further litigation, she found that allowing the statute to take effect before the legal questions are resolved could cause irreparable harm.
Federal Jurisdiction Takes Center Stage
Minnesota became the first US state to enact legislation specifically targeting prediction markets rather than relying on existing gambling statutes. The law, signed by Governor Tim Walz in May, was scheduled to take effect on August 1 and would have made it a criminal offense to operate or advertise many prediction market products within the state. Supporters argued that the legislation was necessary to prevent unregulated gambling on sports, politics, weather and other real-world events.
The lawsuit brought together an unusual coalition. Alongside Kalshi and Polymarket, the CFTC joined the challenge, arguing that Congress granted the federal agency exclusive authority over qualifying event-contract markets. The regulator maintained that allowing individual states to prohibit federally regulated contracts would undermine the national derivatives framework established under the Commodity Exchange Act. Judge Menendez agreed that at least some contracts offered on the platforms appear to fall within the legal definition of federally regulated swaps. However, she noted that the scope of the injunction could be narrowed later if certain categories of contracts are ultimately found to fall outside federal jurisdiction.
Legal Battle Extends Beyond Minnesota
The ruling represents an important but temporary victory for the prediction market industry rather than a final determination of legality. Kalshi has faced legal challenges from several other states, including Washington, Massachusetts, Michigan, Nevada and New York, where regulators have argued that prediction contracts violate state gambling laws. Courts have reached differing conclusions depending on the jurisdiction, leaving unresolved questions about the balance between federal commodities regulation and state gambling authority.
The Minnesota decision nevertheless provides one of the clearest judicial endorsements so far of the argument that at least certain prediction market contracts fall primarily under federal oversight. For Kalshi and Polymarket, the injunction preserves access to an important market while reinforcing their position that they operate regulated financial products rather than sportsbooks.
The broader implications extend well beyond Minnesota. As prediction markets continue expanding into politics, economics, sports and cultural events, the outcome of this litigation could help define the regulatory boundary between derivatives trading and gambling across the United States. Until a final judgment is reached, however, the platforms’ victory remains provisional, with the constitutional and statutory questions still awaiting a full trial.