Federal Judge Blocks Minnesota Prediction Market Ban Days Before Deadline

⏱ 3 min read

A federal judge has blocked Minnesota's first-in-the-nation law criminalizing prediction market platforms, handing Kalshi, Polymarket, and the Commodity Futures Trading Commission (CFTC) a significant, if provisional, legal win just four days before the ban was set to take effect. The preliminary injunction, issued on July 27, 2026 by U.S. District Judge Katherine Menendez, found that federal law likely overrides the state statute — specifically that Minnesota "cannot criminalize what federal law has authorized."

The ruling arrived the same week a Washington state court reached the opposite conclusion, blocking Kalshi's sports contracts on July 21 and finding that the federal Commodity Exchange Act does not preempt state gambling law. The dueling decisions underscore a deepening constitutional fault line over who ultimately regulates prediction markets: Washington D.C. or state capitals across the country.

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The Minnesota Ruling

In a 44-page order, Judge Menendez granted a preliminary injunction pausing enforcement of Minnesota's prediction market ban while the full case proceeds on the merits. The court found that Kalshi, Polymarket, and the CFTC are "likely to succeed on the merits" of their express-preemption argument — that Congress gave the CFTC exclusive authority over swap contracts, placing federally designated contract markets beyond the reach of state criminal codes.

The CFTC moved unusually fast, filing suit against Minnesota on May 19 — the day after Governor Walz signed the ban. The court also found plaintiffs faced "irreparable harm" if the law took effect on schedule, and that the balance of hardships supported a temporary pause.

Judge Menendez was explicit that the injunction is not a final verdict. The ruling noted that contracts resembling entertainment bets — such as reality TV show outcomes — are "harder to fit under the swap definition," meaning portions of the Minnesota statute could still survive a full merits trial.

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The Law That Was Blocked

Governor Tim Walz signed the legislation on May 18, 2026, making Minnesota the first U.S. state to classify prediction market operations as a criminal offence. Under the statute:

• Operating or advertising a prediction market platform becomes a felony
• Penalties reach up to five years in prison and a $10,000 fine
• The law was scheduled to take effect August 1, 2026

Minnesota's legislature argued prediction markets are functionally indistinguishable from sports betting, which in the state remains legal only through tribal operators on tribal lands. The state's position — shared by several other legislatures — is that rebranding a wager as a "contract" does not remove it from the orbit of gambling regulation.

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Washington Goes the Other Way

Six days before the Minnesota ruling, King County Superior Court Judge John McHale issued a preliminary injunction blocking Kalshi's sports prediction markets in Washington state. In that ruling, the court explicitly rejected the federal-preemption argument that succeeded in Minnesota, finding instead that Kalshi's sports products likely constitute unlicensed gambling under state law and that "the public interests outweigh harm to Kalshi." Enforcement is delayed until at least August 5 while parties submit further materials.

The split creates a patchwork that is difficult to operate around. Kalshi is already restricted from offering sports contracts in Nevada and Michigan. States have won 19 of 23 judicial decisions involving preliminary injunction or temporary restraining order requests in prediction market cases — a win rate that illustrates how far state regulators and the CFTC remain from alignment.

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What It Means for Operators and Bettors

The Minnesota injunction is a short-term reprieve, not a resolution. Kalshi and Polymarket can continue serving Minnesota residents while litigation proceeds, but the same federal-preemption theory has already failed in Washington. The CFTC has also filed a parallel suit against New York seeking a declaratory judgment of exclusive federal authority — a case that could ultimately push the issue toward the U.S. Supreme Court.

For licensed sportsbooks, the stakes are substantial. Prediction market volume has topped $2 billion weekly, and major operators including DraftKings and FanDuel have already launched their own prediction market products. A Supreme Court ruling that hands regulatory authority entirely to the CFTC would effectively create a parallel, nationally uniform betting market — one that bypasses the state-by-state licensing structure incumbents have spent years navigating.

Jurisdiction	Ruling Date	Outcome for Platforms	Key Finding	Next Step
Minnesota (Federal)	July 27, 2026	Ban paused — platforms can operate	CEA likely preempts state felony ban	Full merits trial, date TBD
Washington (State)	July 21, 2026	Sports contracts blocked	CEA does NOT preempt state gambling law	Enforcement from Aug 5; further briefing
New York (Federal)	Pending	No ruling yet	CFTC preemption suit in progress	Initial hearings expected late 2026
Nevada / Michigan	Early 2026	Sports contracts restricted	State regulators enforced local gambling law	Ongoing regulatory enforcement

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Sources

Reporting draws on court filings, regulator actions, and coverage from financial and legal news outlets. Primary sources listed first.

States cannot criminalize what federal law has authorized — but whether prediction markets truly fall under that authorization is a question only the Supreme Court may ultimately resolve.

— Judge Katherine Menendez, U.S. District Court, District of Minnesota · Preliminary injunction ruling, July 27, 2026