A federal judge has temporarily blocked Minnesota’s first-in-the-nation law banning prediction markets, preventing the measure from taking effect while a legal challenge proceeds and marking another development in the growing debate over how the industry should be regulated.
The law had been scheduled to take effect Saturday and would have made it a crime to create or operate prediction markets or assist in administering most activities connected to them. U.S. District Judge Katherine Menendez ruled Monday that allowing the law to take effect could cause “irreparable harm” to prediction market operators and found that the plaintiffs were likely to succeed in arguing that federal law preempts the state measure.
The lawsuit was filed by prediction market platforms Kalshi and Polymarket, together with the U.S. Commodity Futures Trading Commission (CFTC). The plaintiffs argue that federal law gives the CFTC exclusive authority to regulate event contracts offered on federally regulated exchanges. The injunction will remain in effect while the case moves through the courts.
Legal Dispute Centers on Regulatory Authority
The case centers on whether prediction market contracts are governed by federal commodities law or state gambling laws.
Kalshi, Polymarket and the CFTC argue that event contracts traded on CFTC-regulated exchanges fall exclusively under federal jurisdiction. Minnesota and several other states contend that many of the products offered on those platforms function as sports betting and therefore fall within state regulatory authority.
Minnesota Attorney General Keith Ellison defended the state’s position Tuesday.
“Prediction markets are gambling, plain and simple,” Ellison said in a statement.
“And Minnesota has every right to keep predatory gambling out of our communities.”
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Ellison said his office disagrees with the court’s conclusion that maintaining the status quo means allowing prediction market platforms to continue operating but acknowledged the legal issues are complex and said the state will continue defending the law.
Polymarket Chief Legal Officer Neal Kumar welcomed the ruling, saying it reinforces the view that prediction markets operating on CFTC-regulated exchanges are governed by federal law rather than “a patchwork of state rules.”
Kalshi spokesperson Elisabeth Diana similarly said states cannot prohibit activities that fall outside their legal jurisdiction.
Similar Legal Battles Expand Nationwide
The Minnesota case is part of a broader series of legal disputes over the regulation of prediction markets across the United States.
In February, the Trump administration’s leadership at the Commodity Futures Trading Commission announced that the agency would no longer permit states to regulate or prohibit prediction markets in ways it believes interfere with the commission’s exclusive jurisdiction.
According to The Associated Press, the federal government sued Connecticut, Arizona and Illinois in April over state efforts to regulate prediction market operators. During the same month, New York filed lawsuits against Coinbase and Gemini, two companies that have expanded into prediction market offerings.
Industry organizations have also entered the debate. The American Gaming Association estimates that states have lost more than $1.2 billion in tax revenue from wagers since prediction markets began offering sports-related event contracts.
Native American tribal leaders and state gambling regulators have likewise argued that wagering on sporting events, elections and other outcomes through prediction markets constitutes unlawful gambling under state law.
Federal Rulemaking Continues
While the court challenges proceed, the Commodity Futures Trading Commission has begun a rulemaking process to determine which categories of event contracts should be considered “contrary to the public interest” and therefore prohibited from trading on federally regulated prediction market platforms.
The outcome of that process, together with the expanding litigation across multiple states, is expected to play a significant role in shaping the future regulatory framework for prediction markets in the United States.
This report is based on reporting by The Associated Press.
