Prediction markets win in Minnesota, judge blocks ban days before implementation
A federal judge has blocked Minnesota from enforcing its prediction market ban, just five days before it was due to take effect.
The ruling comes after the US Justice Department and the Commodity Futures Trading Commission (CFTC), along with prediction market operators Kalshi and Polymarket, filed lawsuits against the new ban, which was due to come into effect on 1 August.
US District Judge Katherine Menendez ruled in favor of the plaintiffs on their claims that federal law preempts the ban and that, if implemented, they would face a threat of irreparable harm.
The plaintiffs argued that the CFTC has exclusive authority to regulate prediction market event contracts, since they are traded on federally registered exchanges.
Polymarket further debated that the law would also disrupt markets that federal law requires to be offered nationwide and would violate a First Amendment right to advertise, a right that could not be remedied by damages.
“The Minnesota statute may not be pre-empted in all its applications. But the Court finds the state law is likely pre-empted in many respects. Therefore, temporarily enjoining enforcement of the statute maintains the status quo while enabling further development on this issue and others,” the official wrote in the footnote of her decision.
The proposed ban was embedded in a public safety bill which Governor Tim Walz signed into law on 18 May. It classified prediction markets as gambling and a public health concern, a stance Minnesota State Representative Emily Greenman defended in a TV interview with NBC News.
“Gambling has always been a public health and a public safety issue since states have been regulating it, and that has always been an uncontested fact,” stated the official.
Other states have also gone down similar routes to try to ban prediction markets from offering event contracts. Arizona filed criminal charges against Kalshi in March to stop the operator from offering sports contracts in the state, while Nevada’s state court recently extended a temporary ban on Kalshi.
Charlotte Capewell brings her passion for storytelling and expertise in writing, researching, and the gambling industry to every article she writes. Her specialties include the US gambling industry, regulator legislation, igaming, and more.
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The Backstory
Federal preemption moves to the center
The Minnesota ruling marks a significant early win for prediction market operators in a fight that has quickly become a national test of who controls event-based contracts: federal commodities regulators or state gambling authorities. By temporarily blocking Minnesota’s ban days before it was due to take effect, the court preserved the ability of platforms such as Kalshi and Polymarket to operate while litigation continues over the scope of the Commodity Futures Trading Commission’s authority.
The dispute turns on whether contracts tied to sports, elections, weather, pop culture and other outcomes are federally regulated financial instruments or gambling products that states can prohibit. Prediction market companies argue that event contracts listed through registered exchanges fall under the CFTC’s exclusive jurisdiction. State officials say the products resemble wagering and raise public safety, consumer protection and integrity concerns that have long been handled through state gambling laws.
Minnesota’s law was among the most direct attempts by a state to classify prediction markets as illegal gambling. Its temporary defeat does not settle the broader question, but it gives operators more leverage as similar cases unfold elsewhere. The decision also signals that courts may be reluctant to allow state bans to take effect before fully weighing whether they conflict with federal commodities law.
Minnesota’s path from concern to prohibition
The Minnesota ban did not emerge in isolation. Lawmakers had been moving for months to address the rapid growth of platforms that allow users to trade on real-world events, with supporters arguing existing statutes did not adequately cover the new products. A Minnesota Senate committee advanced the proposal after legislators warned that prediction markets could operate outside the state’s gambling safeguards and create opportunities for people with privileged information to profit.
Those concerns sharpened as political markets drew scrutiny. Lawmakers raised hypothetical and real risks involving campaign insiders, elected officials and others who might know about political developments before the public. The debate then intensified after a controversy involving a Minnesota state senator who placed a bet on his own congressional primary race. As the measure moved toward a floor vote, supporters said the episode illustrated why prediction markets should not be allowed to operate without state-level restrictions.
The bill’s supporters framed the issue as one of public safety and gambling regulation. They said the platforms allowed wagers on sensitive outcomes, including elections and court cases, without the licensing and oversight required of traditional sportsbooks or casinos. Opponents questioned whether the state could lawfully intervene in markets that operators said were subject to federal supervision.
That legal uncertainty was visible before the law was finalized. When the Minnesota Senate prepared to vote on the ban, some lawmakers raised concerns about a possible clash with CFTC authority. Those warnings became central to the lawsuits that followed once Gov. Tim Walz signed the public safety bill containing the prohibition.
Kalshi set the legal challenge in motion
Kalshi moved quickly after enactment, suing Minnesota to block the prediction market ban before its effective date. The company argued the state law violated the Supremacy Clause because federally regulated event contracts fall within the CFTC’s exclusive jurisdiction. Its complaint named Walz, Attorney General Keith Ellison and the head of the state’s Alcohol and Gambling Enforcement division as defendants.
The legal strategy reflected the industry’s broader defense: prediction markets are not unlicensed sportsbooks but exchanges listing contracts under federal commodities law. Kalshi’s position was that allowing each state to prohibit or criminalize federally approved contracts would fragment national markets and undermine the regulatory structure Congress gave to the CFTC.
Polymarket raised similar preemption arguments, while also saying Minnesota’s limits on advertising would interfere with protected speech. The participation of the Justice Department and the CFTC elevated the dispute beyond a private fight between operators and a state government. Their involvement underscored the federal government’s interest in preventing states from overriding commodities regulation, even as the products themselves increasingly resemble areas traditionally policed by gambling regulators.
The court’s temporary injunction is important because timing mattered. Had the ban taken effect, operators faced potential criminal exposure and market disruption while the case proceeded. The judge’s decision keeps the status quo in place, giving the parties time to litigate the preemption question without immediately forcing platforms out of the state.
Other states press the gambling argument
Minnesota’s setback for state regulators contrasts with developments in Nevada, where gaming authorities have had more success in court. A Carson City judge recently barred Polymarket from operating in Nevada, agreeing with the state’s regulator that the platform had not shown a legal basis to continue offering event contracts there while litigation continues.
Nevada’s position reflects its role as one of the country’s most mature gambling regulatory regimes. The Nevada Gaming Control Board has argued that contracts tied to sporting events, politics and other outcomes are too close to gambling to be offered without state licensing. The board has pursued similar actions against Kalshi and Coinbase, making Nevada one of the most aggressive jurisdictions in the fight.
The split between Minnesota’s temporary injunction and Nevada’s enforcement wins shows why the industry is headed for prolonged litigation. Operators want a national rule under the CFTC. States want to preserve their authority over gambling-like products offered to residents. Courts are now being asked to decide whether the label attached to a contract — commodity derivative or wager — determines the regulator with final authority.
Arizona has also taken action against Kalshi, adding criminal pressure to the civil and administrative battles already underway. Together, these cases show that states are not waiting for Congress or the CFTC to draw sharper boundaries. They are trying to force prediction platforms into existing gambling frameworks or out of their markets entirely.
Market growth raises the stakes
The legal fight is accelerating because the business is expanding quickly. Prediction markets gained momentum through 2025, particularly around sports contracts, and major trading and crypto companies have moved to capture demand. Crypto.com recently said it would launch a standalone prediction platform, OG, days before the Super Bowl, citing rapid growth in event-contract activity.
The product’s timing showed how sports have become central to the industry’s growth. Prediction platforms increasingly compete for attention around marquee events such as the Super Bowl and college basketball postseason, even as they also list contracts tied to politics, entertainment, economic data and public companies. That breadth is part of the appeal to users and part of the concern for regulators.
Crypto.com’s move also showed how established digital-asset firms are trying to separate prediction markets from broader trading services while relying on federally registered infrastructure. The company said OG would focus on U.S. customers and operate through its existing CFTC-regulated framework. That structure mirrors the industry’s argument in court: if contracts are listed and cleared through federally overseen systems, states should not be able to ban them as illegal gambling.
For state officials, the same growth heightens urgency. Larger platforms, sports-linked contracts and national advertising can make prediction markets look less like niche financial products and more like mass-market betting services. Minnesota’s case therefore matters beyond its borders. If the injunction holds and federal preemption arguments gain traction, states may find it harder to use gambling law to block prediction markets. If later courts narrow or reject that reasoning, operators could face a patchwork of bans, licensing demands and enforcement actions across the country.
