Federal Judge Halts Minnesota's Felony Ban on Prediction Markets Ahead of Aug. 1 Start

A federal judge has temporarily blocked Minnesota from enforcing the nation's first state-level felony law targeting prediction markets, ruling that federally regulated markets are likely protected by the Commodity Exchange Act. U.S. District Judge Katherine Menendez issued a 44-page order preventing state officials from enforcing Minnesota Statutes Section 609.7615 against entities registered with the Commodity Futures Trading Commission (CFTC) as designated contract markets. The injunction came just days before the law was set to take effect on Aug. 1. The statute stems from Minnesota SF 3432, signed by Gov. Tim Walz on May 26 as Chapter 118. It makes it a felony to create or operate covered prediction markets, facilitate their operation, provide certain data or payment services, or advertise products tied to prohibited transactions. Walz had signed an earlier measure, SF 4760, on May 18; the CFTC sued the next day and Kalshi filed its own challenge on May 28. SF 3432 later repealed those provisions and replaced them with the language now codified at Section 609.7615. Minnesota is the first state to criminalize prediction markets directly rather than relying on existing gambling laws. Kalshi, the CFTC, and Polymarket U.S. brought related challenges, arguing that the Commodity Exchange Act gives the CFTC exclusive jurisdiction over qualifying swaps traded on federally designated contract markets, leaving states unable to criminalize those transactions. Menendez said the plaintiffs are likely to succeed on that express-preemption theory for a substantial portion of the contracts at issue. Applying a broad reading of what qualifies as a "swap" at the preliminary-injunction stage, she pointed to contracts tied to a U.S. Senate election, the World Cup winner, and the reopening of traffic through the Strait of Hormuz as examples that likely meet the federal definition because the events can carry potential financial, economic, or commercial consequences. At the same time, the judge declined to treat every contract listed on a federally registered exchange as automatically covered. She suggested a Kalshi market on which couple would win season eight of Love Island USA, contracts tracking words spoken by announcers during World Cup broadcasts, and a bet on whether a team would take a 20-point lead in a game may lack the type of financial or commercial nexus needed to qualify as swaps. The CFTC confirmed at a July 2 hearing that its lawsuit is a facial challenge, which requires showing there is no set of circumstances under which the law would be valid. Menendez noted in a footnote that the statute "may not be preempted in all its applications," but concluded it is likely preempted in many respects. She said a temporary block maintains the status quo while the court develops the record. Menendez also criticized the all-or-nothing framing adopted by both sides, noting the platforms appear to list many contracts that likely fall within CFTC jurisdiction and many that may not. A contract-by-contract injunction was deemed impractical to implement before Aug. 1, while denying relief entirely would have exposed the platforms to potential felony prosecution. The court therefore barred enforcement of the statute as a whole against CFTC-registered designated contract markets while the cases proceed, warning that any permanent injunction could be "much narrower." The ruling left unresolved the plaintiffs' implied-preemption and First Amendment claims. Timing also played a role. The CFTC had initially sought a decision by July 17 and later told the court it would treat its motion as constructively denied and seek interim relief from the Eighth Circuit if no ruling or stay arrived by July 28. Kalshi and Polymarket U.S. said they would do the same. Menendez issued her decision the day before that deadline. Kalshi told the court it had more than 90,000 verified Minnesota users as of May 26, with millions of dollars in unsettled positions. Menendez found that without an injunction, Kalshi and Polymarket U.S. would have faced a choice between exiting Minnesota and canceling trades or continuing to operate under the threat of felony charges. Because sovereign immunity would likely prevent the companies from recovering damages from the state, the court treated the potential losses as irreparable. Minnesota Attorney General Keith Ellison said the state respectfully disagreed with the ruling and would continue defending the law, calling the platforms predatory gambling operations. Courts have split on similar disputes. The Third Circuit shielded Kalshi in New Jersey in April. A Washington state court granted that state an injunction against Kalshi in July after rejecting the same preemption defense. Massachusetts, Michigan, and Nevada have also obtained orders restricting Kalshi's activities, and more than 40 states have pushed back on the CFTC's view that sports event contracts fall under exclusive federal oversight.