Key Takeaways:
A federal judge blocked Minnesota's first-in-nation law criminalizing prediction markets, handing Kalshi and Polymarket a legal victory that could shape how states regulate event-based trading.
A federal judge blocked Minnesota's first-in-nation ban on prediction markets, siding with Kalshi and Polymarket after they sued alongside a Wall Street regulator over a law signed by Gov. Tim Walz in May 2026. The measure made it a crime to operate, host or promote a prediction market in the state, targeting platforms that let users trade contracts on the outcome of sports events, elections and economic data releases.
"The state's attempt to criminalize the operation of federally regulated prediction markets exceeds its authority under the Commodity Exchange Act," the court said in its ruling, according to people familiar with the decision. The judge found that Minnesota's law conflicts with the federal regulatory framework governing derivatives markets, where the Commodity Futures Trading Commission has asserted jurisdiction over event contracts.
Kalshi alone is valued at $22 billion and processes an annualized volume of $178 billion in trades every month, according to data cited by a coalition of consumer advocacy groups that opposed the CFTC's separate push to expand prediction market access. About 89% of Kalshi's total fee revenue comes from sports-related contracts, data from the groups show. Polymarket, a blockchain-based rival, also generates the bulk of its volume from sports and election wagering.
The ruling removes an immediate existential threat to prediction market platforms operating in Minnesota and sets a potential legal precedent against state-level bans. At least a dozen other states have considered similar legislation, according to industry trade groups, making the Minnesota case a bellwether for how far states can go in restricting event-based trading. The CFTC, meanwhile, is pursuing its own rulemaking that would give platforms like Kalshi and Polymarket a federal green light to offer sports betting nationwide, a proposal that consumer advocates have condemned as a backdoor to bypass state gambling laws.
The Legal Landscape for Prediction Markets
The Minnesota law was the first in the nation to explicitly criminalize the operation of prediction markets, drawing a swift legal challenge from the industry. Kalshi, which is registered with the CFTC as a designated contract market, argued that state-level bans interfere with federally regulated derivatives trading. Polymarket, which operates outside the traditional CFTC framework by using blockchain-based smart contracts, joined the suit on similar grounds.
The ruling comes as the CFTC considers a proposal that would allow prediction market platforms to offer sports contracts without registering as gambling operators in each state. A coalition of 15 consumer advocacy groups, including Americans for Financial Reform Education Fund and Better Markets, urged the commission to withdraw the proposal, arguing it would bypass community protections that states have built around sports betting.
What Comes Next
The state of Minnesota could appeal the ruling, though legal experts said the judge's reasoning on federal preemption creates a high bar for reversal. For Kalshi and Polymarket, the decision removes regulatory uncertainty in one jurisdiction while the broader fight over prediction market legality shifts to Washington, where the CFTC's rulemaking could settle the question of whether event contracts are derivatives or gambling.
This article is for informational purposes only and does not constitute investment advice.
