Minnesota's attempt to become the first state to criminalize prediction markets has hit a wall. U.S. District Judge Katherine Menendez issued a preliminary injunction on Monday pausing enforcement of the state's SF 3432, days before the law was set to take effect on Saturday. The 44-page order keeps Kalshi, Polymarket and other CFTC-registered exchanges operating in the state while the underlying legal fight continues.
Menendez found that Kalshi, Polymarket and the Commodity Futures Trading Commission had shown they would likely succeed on their argument that federal law preempts Minnesota's statute. The ruling turns on the Commodity Exchange Act, which grants the CFTC exclusive jurisdiction over trading in "swaps" — and, crucially, on whether the contracts these platforms list actually qualify as swaps at all.
Not Every Contract Counts the Same Way
That distinction did most of the work in the order. Menendez concluded that prediction markets tied to outcomes like Senate races, World Cup winners, or the reopening of the Strait of Hormuz likely qualify as swaps because they carry "clear potential economic, financial, or commercial consequences." Markets built around reality-TV outcomes, such as results from Love Island USA, or in-game announcements during a live match, are a different story — those likely fall outside the swap definition and outside the shield of federal preemption.
The upshot is a ruling that protects the bulk of Kalshi's and Polymarket's political, financial, and macro-event contracts while leaving room for states to potentially still restrict novelty or entertainment-driven markets down the line.
Minnesota Pushes Back
State officials weren't persuaded. Minnesota Attorney General Keith Ellison said the state "respectfully disagree[s]" with the court's reasoning, describing the platforms in blunter terms as "predatory gambling apps." Ellison argued the exchanges could still comply with federal rules while facing tighter restrictions specifically within Minnesota's borders — a position the judge's order does not foreclose entirely, since it addresses preliminary relief rather than a final judgment.
Judge Menendez cautioned that any "permanent relief" ultimately granted in the case could prove "much narrower" than the scope of the preliminary injunction.
Both sides were bracing for a fast-moving appeal regardless of the outcome. The CFTC had signaled it would seek emergency relief from the Eighth Circuit Court of Appeals if Menendez hadn't ruled by July 29, and Kalshi indicated it was prepared to do the same. For now, the injunction preserves the status quo, but Menendez's own language suggests this fight over how prediction markets are regulated state by state is far from settled.
