U.S. District Judge Katherine Menendez issued a 44-page order blocking Minnesota from enforcing Minnesota Statutes Section 609.7615 against entities registered with the CFTC as designated contract markets, preventing the statute from taking effect Aug. 1. The injunction arrived the day before the July 28 deadline set by plaintiffs Kalshi and Polymarket US, who argued that the Commodity Exchange Act gives the CFTC exclusive jurisdiction over qualifying swaps traded on federally designated contract markets. Minnesota became the first state to criminalize prediction markets directly through SF 3432, signed by Gov. Tim Walz on May 26, rather than pursuing them through existing gambling statutes.
Judge Distinguishes Federal Swaps from Non-Qualifying Contracts
Menendez identified contracts tied to a U.S. Senate election, the winner of the World Cup, and the reopening of traffic through the Strait of Hormuz as examples likely to meet the federal definition of a swap, hinging on whether an event contract is associated with a potential financial, economic, or commercial consequence. The judge rejected the idea that every contract listed on a federally registered exchange necessarily receives the same protection. A Kalshi market on which couple would win season eight of Love Island USA, along with contracts covering words spoken by announcers during World Cup broadcasts, appeared to lack the financial, economic or commercial consequences needed to qualify as swaps. Menendez similarly questioned whether a contract on one team taking a 20-point lead during a game would meet the federal definition.
Court Issues Broad Injunction While Preserving Narrow Swap Test
The CFTC confirmed at a July 2 hearing that its challenge is facial, a posture requiring plaintiffs to show there is no set of circumstances under which the law would be valid. Menendez wrote in a footnote that the statute "may not be preempted in all its applications," but found the state law "likely preempted in many respects," concluding that temporarily enjoining enforcement preserved the status quo while the issue developed further. The judge said both sides had treated the dispute as all-or-nothing propositions, despite the platforms offering many contracts that likely fall within CFTC jurisdiction and many that may not. A contract-by-contract injunction would have been difficult to administer before Aug. 1, while refusing relief altogether would have exposed the platforms to potential felony prosecution. The court therefore blocked enforcement of the statute as a whole against CFTC-registered designated contract markets while the cases proceed, cautioning that any permanent injunction may be "much narrower" because the plaintiffs had not shown that every event contract they list qualifies as a swap.
Kalshi Reports 90,000 Minnesota Users as State Vows Defense
Kalshi told the court it had more than 90,000 verified Minnesota users as of May 26, with millions of dollars in unsettled positions. Menendez found that, without an injunction, Kalshi and Polymarket US would have faced a choice between exiting Minnesota and canceling trades or continuing to operate under the threat of felony charges. Because sovereign immunity would bar the platforms from recovering damages from the state, the court treated those losses as irreparable rather than merely financial. Minnesota Attorney General Keith Ellison said the state respectfully disagreed with the ruling and would continue defending the law, describing the platforms as predatory gambling operations.
Federal Courts Reach Mixed Results on Prediction-Market Jurisdiction
The Third Circuit shielded Kalshi in New Jersey in April, while a Washington state court granted that state an injunction against Kalshi in July after rejecting the same preemption defense. Massachusetts, Michigan and Nevada have also secured orders restricting Kalshi's activities, and more than 40 states have pushed back on the CFTC's position that sports event contracts fall under exclusive federal oversight. Walz signed an earlier prediction-market ban through SF 4760 on May 18, prompting the CFTC to sue the following day and Kalshi to file on May 28. SF 3432 subsequently repealed those provisions and replaced them with the language now codified at Section 609.7615. Minnesota SF 3432 makes it a felony to create or operate covered prediction markets, facilitate their operation, supply certain data or payment services, or advertise products promoting prohibited transactions.
FAQ
What did Judge Menendez rule on Minnesota's prediction-market ban?
U.S. District Judge Katherine Menendez issued a 44-page order blocking Minnesota from enforcing Minnesota Statutes Section 609.7615 against entities registered with the CFTC as designated contract markets. The injunction arrived the day before the July 28 deadline and prevented the statute from taking effect Aug. 1.
Which contracts did the judge say likely qualify as federal swaps?
Menendez identified contracts tied to a U.S. Senate election, the winner of the World Cup, and the reopening of traffic through the Strait of Hormuz as examples likely to meet the federal definition of a swap. The judge found these contracts are associated with potential financial, economic, or commercial consequences.
How many Minnesota users does Kalshi have?
Kalshi told the court it had more than 90,000 verified Minnesota users as of May 26, with millions of dollars in unsettled positions. The platform argued that without an injunction, it would face a choice between exiting Minnesota or operating under threat of felony charges.
