A federal judge has temporarily halted Minnesota’s landmark law banning prediction markets, delivering another legal victory for operators including Kalshi and Polymarket and intensifying the debate over whether these platforms fall under federal financial regulation or state gambling laws.

The ruling prevents the law from taking effect while litigation continues and represents the latest development in an expanding legal battle over the regulation of event-based financial contracts.

Court Sides with Federal Jurisdiction Argument

U.S. District Judge Katherine Menendez issued a preliminary injunction blocking Minnesota’s law just days before it was scheduled to take effect.

The judge concluded that the plaintiffs—including Kalshi, Polymarket, and the U.S. Commodity Futures Trading Commission (CFTC)—were likely to succeed in their argument that federal law grants the CFTC exclusive authority to regulate the event contracts offered on federally regulated prediction market platforms.

The court also determined that allowing the law to take effect would likely cause irreparable harm to the operators before the legal dispute could be fully resolved.

As a result, the Minnesota law will remain suspended until the case reaches a final decision.

Minnesota Defends Gambling Ban

Minnesota’s law would have made it illegal to create, operate, or assist with nearly any activity related to prediction markets, making it the first statewide ban of its kind in the United States.

Minnesota Attorney General Keith Ellison criticized the court’s decision, arguing that prediction markets function as gambling rather than federally regulated financial products.

Ellison stated that Minnesota has the authority to prevent what he described as predatory gambling activity and indicated that his office will continue defending the law throughout the legal process.

Operators Cite Federal Oversight

Kalshi and Polymarket maintain that their event contracts fall squarely under federal commodities law and therefore cannot be prohibited by individual states.

Polymarket’s legal team said the ruling reinforces the principle that federally regulated prediction markets are governed by national law rather than a patchwork of differing state regulations.

Kalshi similarly argued that states lack legal authority to prohibit products that fall within the CFTC’s exclusive jurisdiction.

Earlier this year, the CFTC itself signaled stronger support for federally regulated prediction markets, stating that it would actively defend its authority against state efforts to restrict or prohibit these platforms.

National Legal Battle Continues

The Minnesota case is one of several lawsuits currently shaping the future of prediction markets in the United States.

Multiple states have attempted to regulate or prohibit platforms offering contracts tied to sporting events, elections, economic indicators, and other future outcomes, arguing that such activity constitutes unlicensed sports betting.

Federal regulators and platform operators counter that these contracts are financial instruments similar to futures contracts that have traditionally been regulated by the CFTC.

The legal uncertainty has expanded beyond Minnesota, with several states pursuing enforcement actions while federal authorities challenge those efforts in court.

Casino operators and gaming organizations have also entered the debate, arguing that prediction markets compete directly with regulated sportsbooks while avoiding state licensing requirements and gaming taxes.

According to the American Gaming Association, states have potentially lost more than $1.2 billion in tax revenue since prediction markets began offering sports-related event contracts.

Rulemaking May Shape the Industry

Alongside the ongoing litigation, the CFTC has begun a formal rulemaking process to determine which categories of event contracts may be considered contrary to the public interest and therefore prohibited on federally regulated exchanges.

The outcome of both the regulatory review and the growing number of court cases is expected to play a significant role in defining the future legal framework for prediction markets in the United States.

Outlook

The temporary injunction preserves the status quo for prediction market operators while federal courts consider whether regulation of event contracts belongs primarily to the CFTC or individual states. The outcome of the Minnesota lawsuit, together with similar cases across the country and the CFTC’s ongoing rulemaking process, could establish important legal precedents for the rapidly expanding prediction market industry.