The way this legal battle played out was almost cinematic. In May 2026, a law was passed in Minnesota that would make running or advertising a prediction market within the state a felony, not a misdemeanor or a civil infraction. The law was scheduled to go into force on a Saturday. A federal judge in Minneapolis blocked it a few days prior to that deadline. You can tell how close this was to a real standoff just by looking at the timing.
The case focuses on Kalshi and Polymarket, two prediction market platforms that have amassed sizable user bases by allowing users to place bets on a wide range of topics, including sports, reality TV, and election outcomes. They filed a lawsuit against Minnesota Governor Tim Walz and Attorney General Keith Ellison alongside the U.S. Commodities Futures Trading Commission, claiming that the state lacked the necessary authority to carry out its intended actions.
For the time being, U.S. District Judge Katherine Menendez concurred. Finding that the CFTC and the platforms were likely to win on their main point—that federal law, particularly the Commodity Exchange Act, grants the CFTC exclusive jurisdiction over the type of event contracts traded on these platforms—she granted a preliminary injunction stopping the law. It is argued that something that has already been approved by a federal agency cannot be effectively criminalized by a state.
The attorney general of Minnesota did not accept the defeat in silence. In a statement, Keith Ellison expressed his disagreement with the decision and his intention to continue defending the state law. Many state officials across the nation share his belief that prediction markets are gambling and that Minnesota has every right to shield its citizens from predatory gambling. On its face, it is a position that can be defended. The more difficult question is whether that perspective is consistent with the framework of federal financial law, which is exactly what this case is attempting to ascertain.
The fact that Minnesota specifically crafted its legislation to target prediction markets sets this particular lawsuit apart from the larger wave of state challenges. Kalshi and Polymarket are operating unlicensed wagering operations under laws that predate these platforms completely, according to other states that have been relying on current gaming statutes.
Minnesota took it a step further by explicitly naming prediction markets and incorporating its prohibition into a public safety bill. In public, State Representative Emily Greenman made the case that gambling has always been viewed as a public health concern and that this strategy is no exception. That framing makes sense. It remains to be seen if it can withstand federal scrutiny.
In her decision, Judge Menendez exercised caution. There may be some event contracts on these platforms that don’t neatly qualify as “swaps” under federal law, she pointed out in a footnote, because the state law may not be preempted in every potential application. However, she decided to completely halt enforcement until the full merits are resolved due to the scope of Minnesota’s statute and the impending effective date. It’s a practical decision that captures the true legal ambiguity at the heart of the matter.
It’s important to take a step back and consider what’s truly at risk outside of Minnesota. As of late May, Kalshi reported that the state had over 90,000 users and millions of dollars in active trades. Polymarket contended that an abrupt implementation of the prohibition would upset what it called a nationally homogeneous market and result in irreversible damage to the company. Tech companies have previously presented similar arguments to courts, claiming that a patchwork of state laws essentially prevents national operations. Prediction markets are now a part of this well-known tension in American commerce.
The involvement of the CFTC adds another level that is important to consider. The agency has taken a particularly strong stand in support of these platforms under the Trump administration, suing several states that have attempted to limit the activity of prediction markets. Critics have questioned whether the agency’s stance is motivated by political interest or legal principle, pointing out that Donald Trump Jr. advises Kalshi and has financial ties to Polymarket. Event contracts are clearly within the CFTC’s federal mandate, the agency has stated in public. Whether that argument will hold true for every circuit and every kind of contract these platforms offer is still up for debate.
Minnesota is not the only state resisting. Earlier this year, Arizona filed criminal charges against Kalshi, but a federal judge stopped the prosecution on preemption grounds. A temporary state ban was extended in Nevada. Kalshi was accused of operating an illicit gambling business in New York’s own lawsuit. Both platforms have been sued by the attorney general of Rhode Island. There is a clear pattern: states of all political persuasions are examining prediction markets and drawing the conclusion that something is either unregulated or regulated by the incorrect body. At least at the federal level, the platforms are winning more of these early battles than they are losing.
There is a sense that this is one of those legal disputes that, while appearing insignificant from a distance, subtly alters the regulations of a major industry. Perhaps more quickly than the legal frameworks intended to regulate them, prediction markets have expanded. Platforms that exist in a genuinely ambiguous space between financial derivatives and consumer gambling now handle billions of dollars. A higher court may eventually be required to provide a definitive answer to the questions of whether the CFTC has the authority it asserts and whether states still have any significant authority to regulate these markets within their own borders.
Minnesotans can continue to trade on Polymarket and Kalshi for the time being. The prohibition has been frozen. The lawsuit proceeds. And somewhere in a federal courtroom in Minneapolis, a case that began as a state public safety measure is subtly evolving into one of the most significant jurisdictional disputes in the history of American financial regulation.
