Minnesota felony ban on prediction markets halted as federal pre-emption claim advances
A US judge blocked Minnesota's criminal ban on Kalshi and Polymarket days before it took effect, backing the CFTC's federal pre-emption case.
A US federal judge has halted Minnesota’s attempt to criminalise prediction market platforms, granting a preliminary injunction that keeps Kalshi and Polymarket operating in the state just days before a felony ban was due to take effect. The ruling, issued by US District Judge Katherine Menendez on 27 July, hands the Commodity Futures Trading Commission an early victory in its broader argument that federal oversight of event contracts overrides state-level prohibition.
For an industry that has spent the past year fighting a patchwork of state-by-state challenges, the decision is the clearest judicial signal yet that federal derivatives law may trump statehouse gambling statutes when it comes to regulated prediction markets.
A law built on felony penalties
Minnesota Governor Tim Walz signed the ban into law on 18 May, making the state the first in the country to treat prediction market operation and advertising as a criminal offence. Under the statute, operators faced up to five years’ imprisonment and fines of $10,000, with the law scheduled to bind from 1 August. Minnesota classified prediction markets as a form of illegal gambling, a designation both operators and federal regulators rejected outright.
The CFTC responded within a day, filing suit against the state on 19 May and arguing that its statutory authority over derivatives and event contracts pre-empts any state attempt to ban platforms already operating under federal registration. Kalshi and Polymarket joined the litigation, turning a single state law into a test case for the entire sector’s regulatory footing.
The pre-emption argument that persuaded the court
Kalshi’s status as a CFTC-registered exchange was central to the case. Because it already submits to federal compliance and market-integrity requirements, its lawyers argued that congressional authority over derivatives markets leaves states without the power to ban outright what federal law has already sanctioned.
Following a hearing held around 2 July, Judge Menendez found the operators had demonstrated a likelihood of success on the merits of that federal pre-emption claim, and that enforcing the ban would cause irreparable commercial harm. The injunction is preliminary, meaning the underlying lawsuit continues, but such rulings typically foreshadow how a court intends to resolve the substantive dispute.
Wider implications for state-federal friction
Minnesota is not alone in contesting jurisdiction over this asset class. Arizona has separately grappled with similar disputes over whether state gambling law can reach federally regulated event contracts, suggesting the legal battle now extends well beyond a single statehouse.
The political appetite that produced Minnesota’s ban has not disappeared with the injunction, and other state legislatures sceptical of prediction markets could still pursue their own restrictions. For UK and European observers watching how digital-asset-adjacent products are treated across US jurisdictions, the case underscores a recurring theme: as federally supervised markets expand into contested territory, courts—not statehouses—are increasingly becoming the arbiters of where regulatory authority actually sits.
Read more: CFTC repeats warning over template-style event contract filings
