Meta description: Minnesota’s prediction-market ban is blocked, while New York litigation keeps Kalshi’s federal preemption fight unresolved.
Tags: Kalshi, Polymarket, CFTC, Minnesota, New York, Keith Ellison
Market platform: none-if-cross-platform
Category: Regulation
U.S. District Judge Katherine Menendez on July 27 granted a preliminary injunction blocking Minnesota from enforcing SF 4760, the state’s new felony-level prediction-market ban, before its August 1 effective date. The order gives Kalshi, Polymarket US and the Commodity Futures Trading Commission a near-term win on federal preemption, but leaves a narrower question open: which event contracts qualify as federally protected swaps under the Commodity Exchange Act.
What did the Minnesota ruling decide?
Menendez ruled in the U.S. District Court for the District of Minnesota that the CFTC, Kalshi and Polymarket US were likely to succeed on their express-preemption claims, at least as applied to many contracts listed on CFTC-registered exchanges. The preliminary injunction preserves the status quo while the case proceeds to a final merits decision.
The case challenges SF 4760, the omnibus public-safety bill signed by Gov. Tim Walz in May. The enacted law made it a felony, effective August 1, 2026, for a person, for consideration and as part of a business, to create, operate, manage, control, advertise or intentionally facilitate a prediction-market platform in Minnesota. The Minnesota Revisor’s conference-committee text also covered data, verification, payment and support services tied to prohibited prediction-market wagers.
The CFTC said in Press Release No. 9233-26, dated May 19, that it sued Minnesota to stop the law from taking effect and argued that the statute would criminalize activity on federally regulated markets. The agency described Minnesota as one of the country’s largest agricultural producers and said the law reached weather-related event contracts, a point the CFTC used to frame the dispute as a conflict with federal derivatives regulation rather than only a sports-betting fight.
Menendez’s order did not accept the broadest version of the platforms’ argument without limitation. According to reporting on the 44-page ruling by CoinDesk and The Block, the court focused on whether particular event contracts qualify as swaps under the CEA. Contracts tied to Senate races, the World Cup winner and the reopening of the Strait of Hormuz were treated as examples with clear potential economic, financial or commercial consequences. Markets tied to the winner of “Love Island USA” were cited as examples that may fall outside that category.
Why does the swap distinction matter?
The swap analysis is the core limit in the Minnesota win. The preliminary injunction blocks the state law for now, but Menendez indicated that permanent relief could be narrower if some listed contracts do not meet the CEA’s definition of swaps. That matters because Kalshi and Polymarket US do not list only elections, macroeconomic indicators or geopolitical contracts. Their catalogs also include sports and entertainment markets that states are more likely to characterize as gambling.
The CFTC’s position is that Congress gave the commission exclusive jurisdiction over transactions on designated contract markets. Kalshi and Polymarket US argue that state gambling laws cannot be used to block federally regulated event contracts. Minnesota Attorney General Keith Ellison has taken the opposite view, saying in a July 28 statement reported by the Associated Press that prediction markets are “gambling, plain and simple” and that Minnesota can keep predatory gambling out of the state.
Polymarket chief legal officer Neal Kumar, whose company has a direct stake in the ruling, said the decision showed that prediction markets on CFTC-registered exchanges are governed by federal law, not state-by-state rules, according to the Associated Press. That statement tracks the industry’s preemption argument. Menendez’s reasoning, however, suggests the federal shield may depend on the contract category rather than the platform’s registration status alone.
How is New York different from Minnesota?
New York is moving in the opposite direction at the preliminary-injunction stage. In KalshiEX LLC v. Williams, No. 1:25-cv-08846, Judge Analisa Torres of the Southern District of New York denied Kalshi’s request for a temporary restraining order and preliminary injunction on July 7. A July 13 docket order corrected a scrivener’s error in that opinion but left the denial in place.
Torres held that Kalshi had not shown a clear or substantial likelihood that New York’s gambling laws were preempted by the Commodity Exchange Act as applied to its sports-event contracts. The court assumed, without deciding, that Kalshi’s sports contracts could qualify as swaps, then found that assumption did not require displacement of New York’s gambling laws at the preliminary-injunction stage. Kalshi appealed to the U.S. Court of Appeals for the Second Circuit.
On July 27, the same day Menendez issued the Minnesota injunction, Torres denied Kalshi’s request for an injunction pending appeal, according to public docket filings and contemporaneous reporting. That left Kalshi without emergency federal protection in New York while the Second Circuit appeal proceeds.
The New York pressure increased on July 31, when Attorney General Letitia James filed a state-court action alleging that Kalshi operates an unlicensed gambling business. The Wall Street Journal reported that New York is seeking up to $36 billion in penalties, disgorgement and fines. Kalshi has argued that it is a federally regulated futures exchange overseen by the CFTC and not subject to state gambling licensing requirements for the contracts at issue.
How broad is the state-federal litigation now?
The CFTC has filed preemption lawsuits against eight states in its prediction-market campaign: Arizona, Connecticut, Illinois, New York, Wisconsin, Minnesota, New Mexico and Kentucky. CFTC releases identify the sequence of those actions, including the April 2 suits against Arizona, Connecticut and Illinois, the April 28 Wisconsin suit, the May 19 Minnesota suit, the June 12 New Mexico suit and the June 23 Kentucky suit. In Rhode Island, the CFTC described its action as a motion to intervene in an existing lawsuit rather than a standalone suit against the state.
The agency also has filed amicus briefs in related appeals, including in the Sixth Circuit and the Massachusetts Supreme Judicial Court. In CFTC Press Release No. 9230-26, the commission said its Sixth Circuit brief in KalshiEX LLC v. Schuler argued that the CEA’s regulatory structure preempts state law as applied to CFTC-regulated markets. Those filings show the agency is trying to build a national preemption position across both its own cases and private litigation brought by platforms.
States are organizing on the other side. On April 30, 2026, a coalition of 41 attorneys general filed a formal comment with the CFTC arguing that sports-related event contracts fall outside the commission’s statutory authority and should be treated as sports betting. The filing was co-led by Ohio Attorney General Dave Yost and the attorneys general of Nevada, New Jersey, New York, Tennessee and Utah, giving state opposition a bipartisan regulatory base even where individual lawsuits differ in posture, defendants and requested remedies.
What does this mean for prediction-market operators?
The immediate effect is a split map. In Minnesota, Kalshi and Polymarket US have a federal preliminary injunction blocking enforcement of SF 4760 while the case continues. In New York, Kalshi has lost preliminary relief in federal district court and faces a separate state enforcement action seeking large monetary penalties and operational restrictions.
The rulings also frame the central legal question for exchanges, regulators and investors: whether CFTC registration gives platforms a national path to list event contracts, or whether states can still apply gambling laws to sports and entertainment markets that resemble wagering. Menendez’s Minnesota order supports preemption for many event contracts but leaves room for contract-by-contract limits. Torres’s New York order gives state gambling law more room to operate, at least before appellate review.
The next concrete milestone is Kalshi’s appeal in the Second Circuit from the July 7 and July 27 Southern District of New York orders. A Second Circuit ruling will not end every state case, but it will shape how courts evaluate the CEA, state gambling authority and the legal status of sports-event contracts on federally registered prediction-market exchanges.
