A court has suspended the ban on prediction markets in Minnesota: Victory for Kalshi and Polymarket
A federal judge has issued a ruling that halts the enforcement of a new Minnesota law banning prediction markets. The temporary restraining order, issued just days before the law was set to take effect on August 1, marks a significant victory for platforms like Kalshi and Polymarket US, as well as the Commodity Futures Trading Commission (CFTC).
U.S. District Judge Katherine Menendez concluded that the federal Commodity Exchange Act (CEA) likely supersedes the new state law. Her ruling prohibits the application of restrictions to exchanges with DCM (Designated Contract Market) status—i.e., licensed platforms under CFTC oversight—until a final ruling on the merits of the case.
Federal Law vs. State Law
The Minnesota law (Minn. Stat. § 609.7615) imposes criminal penalties for creating and operating prediction markets, including bets on sports, elections, court proceedings, pop culture, and statements by specific individuals. It also penalizes advertising and related services for such markets.
Menendez noted that the CEA grants the CFTC exclusive authority to regulate swap transactions conducted on DCM-licensed platforms. Since Kalshi and Polymarket US are registered exchanges with DCM status, Minnesota likely lacks the authority to regulate them. The judge emphasized that both platforms execute numerous transactions—including those related to elections and global politics—which likely fall under the definition of swaps.
"Kalshi and Polymarket US are registered exchanges with DCM status, so only the CFTC can regulate transactions involving the specified swaps," the court ruling states.
Concerns of Irreparable Harm
Concerns over irreparable harm played a key role. Kalshi reported over 90,000 verified users from Minnesota as of May 26, with open interest valued in the millions of dollars. If the ban had taken effect, state immunity would have prevented the companies from recovering losses.
The judge also noted that not every event contract falls under the definition of a swap. For example, Kalshi's markets on the winners of *Love Island USA* and the number of mentions of hosts during the World Cup likely do not fall under the CEA. However, given the current situation, where both sides have built their arguments on an "all-or-nothing" basis, the court had limited room for a more targeted decision.
Expert Opinion: This ruling sets an important precedent for the entire prediction market industry. It confirms that federal CFTC regulation can serve as a shield against fragmented and often poorly considered state-level laws. However, the final ruling on the merits of the case is still ahead, and it may be less sweeping than a full repeal of the Minnesota law. Investors and market participants should closely monitor the development of this case—it could set the regulatory direction for the entire industry.