A federal judge has halted Minnesota's groundbreaking law banning prediction markets just days before it was set to criminalize the platforms, delivering a significant victory to industry operators while leaving questions about consumer protections and state authority unresolved. U.S. District Judge Katherine Menendez ruled Tuesday that the U.S. Commodity Futures Trading Commission, Kalshi, and Polymarket would likely succeed in their legal challenge and that allowing the law to take effect Saturday would cause "irreparable harm" to the operators.
The blocked legislation would've made it a crime to create or operate prediction markets or help administer nearly any activity connected to one. It's the first state law of its kind in the nation. The law will remain blocked while the lawsuit proceeds.
State Officials Push Back on Unregulated Gambling
Minnesota Attorney General Keith Ellison didn't mince words in his response. Prediction markets are "gambling, plain and simple," he said in a statement Tuesday. "And Minnesota has every right to keep predatory gambling out of our communities." Ellison said his office disagrees with the court's decision that the "proper 'status quo' to maintain is one that allows predatory gambling apps to proliferate," though he acknowledged the legal issues are complex and pledged to continue defending the state's law.
The tension reflects a broader battle over who protects consumers when unregulated platforms offer what many states view as gambling under a different name. Kalshi, Polymarket, and the CFTC argue that federal law gives the commission exclusive jurisdiction to regulate the type of "event-contract transactions" offered by these platforms. States counter that the vast majority of business on prediction market platforms is sports betting, which they're empowered to regulate, and that it's completely different from the commodities and futures contracts the commission has historically overseen.
Industry Claims Federal Authority
Neal Kumar, Polymarket's chief legal officer, said the decision makes clear that prediction markets on commission-registered exchanges "are governed by federal law, not a patchwork of state rules." Elisabeth Diana, a Kalshi spokesperson, said that "states cannot ban things that they don't have jurisdiction over."
Menendez's decision follows a declaration in February by Trump's appointee atop the Commodity Futures Trading Commission that the agency "will no longer sit idly by" while states aim to regulate or ban prediction markets and "undermine the agency's exclusive jurisdiction."
A Growing Legal Tangle
The Minnesota case is just one front in an expanding legal war. A tangle of lawsuits is growing as states try to use their gambling laws to shut down Kalshi, Polymarket, and other prediction market operators, declaring them to be unlicensed and illegal gambling operators. In April alone, the federal government sued Connecticut, Arizona, and Illinois, challenging their efforts to regulate prediction market operators, while New York sued Coinbase and Gemini, two of the newest players in the prediction market industry.
The stakes are substantial. The American Gaming Association, which represents commercial casinos, estimates states have lost more than $1.2 billion in tax revenue from wagers since prediction markets began offering sports event contracts. Native American tribal leaders and gambling regulators also contend that betting on things like sporting events, elections, and other outcomes is unlawful gambling.
In the meantime, the Commodity Futures Trading Commission has begun a rulemaking process to consider what sorts of event contracts it would consider to be "contrary to the public interest" and bar them from being listed through a prediction market that it regulates.
Why This Matters:
The court's decision to block Minnesota's law highlights a critical gap in consumer protection as prediction markets rapidly expand without clear regulatory oversight. While industry operators claim federal authority, states argue they're left powerless to protect residents from what they view as predatory gambling platforms that operate without the licensing requirements, consumer safeguards, or tax contributions required of traditional gaming operators. The $1.2 billion in lost state tax revenue represents funding that would otherwise support public services, schools, and infrastructure. Native American tribes, which have negotiated gaming compacts with states and contribute revenue to communities, face competition from unregulated platforms that bypass these agreements. As the legal battle unfolds, millions of Americans are using prediction markets with unclear protections against fraud, manipulation, or problem gambling, while states watch revenue that could fund public priorities flow to unregulated operators.