A federal judge blocked Minnesota's first-in-the-nation ban on prediction markets just days before the law was set to take effect, a ruling that hands the Trump administration and two major trading platforms an early win in a growing legal clash over who regulates online event contracts.
U.S. District Judge Katherine Menendez issued a preliminary injunction Monday stopping Minnesota from enforcing a statute that would have made it a crime to operate, host, or promote prediction market platforms like Kalshi and Polymarket in the state. The law, signed by Governor Tim Walz, was set to take effect Saturday.
Menendez, a Biden appointee, found that the plaintiffs, the Trump administration, Kalshi, and Polymarket, are "likely to succeed on the merits" in their argument that the Commodity Exchange Act, the federal law governing derivatives markets, preempts Minnesota's ban. The ruling turns on whether the event contracts traded on these platforms qualify as "swaps" under federal law, which would give the Commodity Futures Trading Commission exclusive jurisdiction over them.
The judge's written order laid out the core legal question plainly. Menendez wrote that the case hinges on "whether the state law attempts to regulate trades in event contracts that qualify as 'swaps' within the meaning of the CEA." She found that at least some of the contracts listed on Kalshi and Polymarket fit the federal definition.
The Hill reported that Menendez pointed to specific examples in her order:
"There are several examples of event contracts hosted by Kalshi and Polymarket US that fit that definition because they concern the occurrence of events with clear potential economic, financial, or commercial consequences that are neither remote or unattenuated."
That language matters. Both Kalshi and Polymarket operate as "designated contract markets", a federal classification that places them under the CFTC's regulatory umbrella. Minnesota's law tried to override that federal framework by criminalizing the platforms outright. The judge said that approach likely runs headlong into federal preemption.
But Menendez also left the door open. She cautioned that the ruling is preliminary and that not every contract on these platforms necessarily qualifies as a swap under federal law.
"The Court pauses to note that the Minnesota statute may not, ultimately, be preempted in all respects, even as to Kalshi and Polymarket US. Aside from the preliminary nature of this Court's assessment of the likelihood of success, Plaintiffs have not shown that every event contract listed on Kalshi and Polymarket US fits the statutory definition of a 'swap.'"
She added bluntly: "If they don't fit, Plaintiffs have much weaker claims that the CFTC is the only authority that can regulate them."
Minnesota Attorney General Keith Ellison responded Monday by saying the state would "respectfully disagree" with the injunction. Ellison framed prediction market platforms as harmful to consumers, arguing that the "proper 'status quo' to maintain is one that allows predatory gambling apps to proliferate."
That framing, casting Kalshi and Polymarket as gambling operations, sits at the center of the legal dispute. Ellison and officials in several other states have pushed the argument that prediction markets are just online betting dressed up in financial jargon. The platforms and the CFTC counter that event contracts are regulated financial instruments, not casino wagers, and that federal law already covers them.
Menendez sided with the federal argument, at least for now. She wrote that the "unique nature of Minnesota's prediction market statute" and the law's imminent effective date justified freezing the ban while the case proceeds on the merits, as Newsmax reported.
Minnesota's law made it the first state in the nation to outright ban prediction market platforms. Rhode Island, New Jersey, and California have pursued similar crackdowns, with officials in those states also labeling the apps as a form of gambling. Monday's ruling could slow those efforts considerably.
If a federal court holds that the CFTC has exclusive jurisdiction over event contracts that qualify as swaps, state-level bans face a steep legal climb. The Commodity Exchange Act, passed by Congress to centralize regulation of derivatives trading, was designed to prevent a patchwork of conflicting state rules from fragmenting financial markets. That is precisely the argument the Trump administration, Kalshi, and Polymarket pressed, and the argument Menendez found persuasive enough to warrant an injunction.
Prediction markets gained broader public attention during the 2024 presidential election cycle, when platforms like Kalshi and Polymarket allowed users to trade on the outcome of the race. Kalshi previously suspended a political candidate in Minnesota who bet on his own race, a detail that underscores the platforms' growing reach into political life and the regulatory questions that follow.
The Trump administration's decision to join the lawsuit alongside two private companies sends a clear signal about where the executive branch stands. The CFTC, under federal authority, already regulates these platforms. When a state tries to criminalize what a federal agency has authorized, the resulting collision is exactly the kind of dispute the Supremacy Clause was written to resolve.
Ellison and his allies in other state capitals may genuinely believe prediction markets pose consumer risks. But the proper channel for that concern is federal rulemaking or congressional action, not a state criminal statute that overrides a federal regulatory framework already in place. Menendez's ruling, even as a preliminary step, makes that distinction sharply.
The case will now proceed toward a full hearing on the merits. Minnesota can continue to press its arguments, and the judge left room for the state to prevail on contracts that fall outside the federal swap definition. But the injunction stands, the ban is frozen, and the platforms remain operational in the state.
When a Biden-appointed judge tells a progressive state attorney general that his signature law likely violates federal preemption, and sides with the Trump administration to stop it, the legal ground underneath the "ban prediction markets" movement looks a lot less solid than its backers assumed.
