A federal judge on Monday issued a preliminary injunction that stops Minnesota from enforcing its new ban on prediction markets, just days before the measure was scheduled to take effect. U.S. District Judge Katherine Menendez ruled in favor of the Commodity Futures Trading Commission, Kalshi and Polymarket, finding the platforms and regulator are likely to succeed in showing that federal law preempts key parts of the state statute.

The decision maintains the status quo for CFTC-registered designated contract markets operating in Minnesota. It arrives after the regulator and the two platforms filed lawsuits in May challenging the law as an unlawful intrusion into federal authority over derivatives markets.

Details of the Minnesota Law

Minnesota Governor Tim Walz signed the measure on May 18 as part of a broader public safety bill. The statute makes it a felony to create, operate, host, facilitate or advertise prediction markets within the state. Violations carry potential penalties of up to five years in prison and a $10,000 fine.

The law was set to take effect on August 1. Lawmakers framed the ban as a public safety step, arguing that prediction markets function as a form of gambling that states have long regulated. State Representative Emily Greenman described gambling as an established public health and safety concern under state authority.

The statute targets companies rather than individual users. It covers markets linked to sports, elections, government actions, legal cases, popular culture and other events. Minnesota became the first state to enact an explicit criminal ban on prediction markets rather than relying solely on existing gaming statutes.

Court Finding on Federal Preemption

Judge Menendez concluded that the Minnesota statute is likely at least partially preempted by the Commodity Exchange Act. That federal law grants the CFTC exclusive jurisdiction over transactions involving swaps traded on designated contract markets.

The judge noted that several event contracts offered by Kalshi and Polymarket appear to meet the federal definition of swaps because they involve real economic or financial consequences. She found the plaintiffs had met their burden to show a likelihood of success on the preemption claims and that the platforms faced a threat of irreparable harm if the ban took effect as scheduled.

The order blocks enforcement specifically against platforms registered with the CFTC as designated contract markets. In a footnote, the judge acknowledged that the statute might not be preempted in every application. Contracts tied purely to entertainment outcomes, such as the winner of a television show, could fall outside the swap definition and remain subject to state rules. At this stage, however, the court determined a broader injunction was necessary to preserve the existing position while the cases proceed.

CFTC Role and Timing of the Ruling

The CFTC joined the platforms as a co-plaintiff, arguing that Minnesota’s measure would criminalize lawful activity under federal oversight. The regulator had previously requested an expedited decision, noting the approaching August 1 effective date. In a filing, the agency indicated it would treat its motion as constructively denied if no ruling or temporary stay arrived by July 28 and could then seek interim appellate relief.

Kalshi and Polymarket supported the request for swift action. The Monday order removed the immediate deadline pressure. The injunction remains in place until the court reaches a final decision on the merits. The judge did not resolve the platforms’ additional claims based on implied preemption or First Amendment rights at this preliminary stage.

State Response and Wider Context

Minnesota Attorney General Keith Ellison disagreed with the ruling. He maintained that prediction markets constitute gambling and that the state retains authority to keep such activity out of its communities. He indicated the legal challenge would continue.

The Minnesota case forms part of a broader series of state actions against prediction market platforms. Several states, including Nevada, New Jersey, Maryland, Illinois, Ohio, Montana, Michigan and Washington, have issued cease-and-desist orders or sought restrictions, particularly on sports-related event contracts. Results have varied, with some courts granting temporary limits on specific products while others have declined emergency relief.

Kalshi and Polymarket remain the leading platforms by trading volume. The injunction allows them to continue serving Minnesota users under federal oversight for the time being. A full trial will determine the ultimate scope of federal preemption and whether any portion of the state law can stand.

The CFTC has separately advanced rulemaking on event contracts, including a proposal for case-by-case review of certain categories involving gaming or other sensitive subjects. The public comment period on that proposal closed around the same time as the Minnesota ruling.