A federal judge has temporarily blocked Minnesota from enforcing a law that would ban prediction markets, handing Kalshi and Polymarket an early victory in a dispute over whether states can restrict federally regulated event-contract trading.
U.S. District Judge Katherine Menendez granted a preliminary injunction Monday following a challenge brought by the Commodity Futures Trading Commission, Kalshi and Polymarket. The order stops the state from implementing its new restrictions while the lawsuit moves forward.
Minnesota’s statute, passed earlier this year and scheduled to take effect on Aug. 1, would bar the creation, operation and advertising of prediction markets in the state. The plaintiffs argue that the measure intrudes on an area governed by federal commodities law.
In her ruling, Menendez wrote that the Minnesota statute is “likely at least partially preempted by the CEA because the CFTC has been given exclusive jurisdiction over transactions involving swaps traded on DCMs.”
The Commodity Exchange Act, or CEA, is the federal law that gives the CFTC authority over U.S. derivatives markets. A designated contract market, or DCM, is a trading venue registered under that framework. Kalshi operates a CFTC-regulated designated contract market, while Polymarket has expanded its U.S. operations through a regulated structure.
The decision preserves the companies’ ability to operate in Minnesota for now and places the state’s attempted prohibition under federal judicial scrutiny before it can take effect.
Minnesota law faces federal preemption challenge
Minnesota lawmakers approved the measure as part of a push to restrict platforms that let users trade contracts tied to the outcomes of future events. Those contracts can cover subjects ranging from elections and economic data to sports, weather and entertainment.
The state law would have treated operating or promoting such markets as prohibited activity within Minnesota. Governor Tim Walz signed the legislation in May, according to the supplied account.
The CFTC, Kalshi and Polymarket filed their challenge in May, maintaining that the state cannot impose its own restrictions on transactions that fall within the CFTC’s exclusive jurisdiction under the Commodity Exchange Act.
Menendez did not issue a final ruling on the statute’s legality. A preliminary injunction means the court found that the plaintiffs had met the threshold for temporary relief while the underlying claims are litigated. Minnesota cannot enforce the challenged provisions during that period.
Her language also leaves room for further arguments over the precise scope of federal authority. The judge found the state law was likely “at least partially” preempted, rather than resolving every potential application of the measure at this stage.
That distinction may become central as the case develops. States retain substantial authority over gambling and consumer-protection matters, while federally regulated derivatives markets operate under a separate statutory regime. The legal dispute turns on whether the contracts at issue should be treated primarily as federally supervised derivatives or as activity Minnesota may prohibit under its own laws.
Courts are reaching different interim outcomes
The Minnesota order arrives amid a growing set of state-level disputes over sports-related event contracts, an area where judges have so far reached different interim conclusions.
In New York, U.S. District Judge Analisa Torres denied an emergency injunction pending appeal on Monday. Torres had also denied a request for a preliminary injunction earlier this month, according to the supplied account. Those rulings leave the challenger without the same immediate protection obtained in Minnesota.
Michigan has produced a more restrictive result. A judge issued a temporary restraining order last month blocking the offering of sports-related event contracts in the state.
A Washington court last week also temporarily blocked those contracts, citing the state’s gambling law. The cases suggest that legal outcomes can depend heavily on the wording of a state’s statute, the type of contract offered and the procedural posture of each lawsuit.
Minnesota’s case differs from a dispute focused narrowly on sports contracts because its law sought to ban prediction markets more broadly, including their operation and advertising. Menendez’s focus on the CFTC’s authority over swaps traded on designated contract markets gives the plaintiffs a potentially useful legal framework beyond Minnesota, although the ruling is not binding on other federal courts.
Market growth raises pressure for legal clarity
The court battles are unfolding as prediction-market trading has expanded sharply. The supplied trading figures put Kalshi’s June monthly volume at $33 billion, while Polymarket and its U.S. platform recorded a combined $13.95 billion during the same month.
Those figures indicate that event contracts have moved well beyond a niche product, particularly around elections, sports and major economic releases. Higher activity also increases the practical impact of conflicting state rules: platforms may face different operating conditions depending on where participants live, even when their products are structured under federal commodities regulations.
For Minnesota residents, the injunction means the Aug. 1 prohibition will not take effect while the court considers the merits of the lawsuit. For Kalshi and Polymarket, it prevents an immediate loss of access to the state and gives their federal-preemption argument its first major court endorsement in the current wave of state challenges.
The next phase will test whether Menendez’s preliminary view survives fuller litigation—and whether other courts confronting sports-event contracts adopt a similar reading of the Commodity Exchange Act.
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