A judge in Minnesota blocked the state from enforcing new laws against prediction markets, but the ruling could still lead to enforcement action against sports event contracts.
Initially, it appeared that Judge Katherine Menendez had favored Kalshi, Polymarket, and the CFTC’s argument that the Commodity Exchange Act (CEA) preempts state gambling laws.
However, gaming lawyer Daniel Wallach highlighted a footnote in the ruling that he says “makes pretty clear that Minnesota can still enforce its existing sports-betting prohibitions.”
Commodity Exemption Does Not Apply
Wallach further added that Minnesota law already prohibits sports event contracts. He highlighted § 609.76 in state law, which details what is not considered a bet. This includes “a contract for the purchase or sale at a future date of securities or other commodities.”
The keyword here is “future,” says Wallach. Kalshi and Polymarket’s platforms allow users to trade contracts in real time and would not qualify for this exemption.
Kalshi has frequently claimed that its sports markets are “swaps” under the CEA, distinct from commodity futures. The CEA expressly excludes “contracts of sale of a commodity for future delivery” from the definition of “swap,” added Wallach.
Kalshi & Polymarket Could Face Felony Charges
Minnesota state law prohibits sports betting, and efforts to legalize have failed in recent years. The state law says it is a felony to engage in sports bookmaking.
Judge Menendez’s ruling leaves the possibility that the state could attempt to enforce this law. However, her ruling does block the state from implementing an explicit ban on prediction markets that would have come into force on August 1.
The CFTC sued the state over the new legislation, citing its prohibition on weather markets as its primary concern due to the negative impact on Minnesota farmers.
Current laws would protect these kinds of markets, but Minnesota could still take action against sports prediction markets. Sports continue to make up the majority of trading at Kalshi, accounting for over 80% of all volume.
Prediction Market Celebrations Could Be Short-Lived
Kalshi and Polymarket celebrated Judge Menendez’s ruling. Kalshi spokesperson Elisabeth Diana said the new proposed ban on prediction markets runs “directly against what Congress intended when it gave explicit, exclusive jurisdiction over financial markets to federal regulators, and it hurts the traders and everyday citizens who rely on these markets. We appreciate the court’s thoughtful consideration of this matter.”
Neal Kumar, chief legal officer at Polymarket, stated, “This opinion makes clear that prediction markets on CFTC-registered exchanges are governed by federal law, not a patchwork of state rules. We look forward to continuing to serve our users in Minnesota.”
Minnesota Attorney General Keith Ellison responded to the ruling by stating, “Prediction markets are gambling, plain and simple, and Minnesota has every right to keep predatory gambling out of our communities.”
Ellison added, “We respectfully disagree with the Court’s determination that the proper ‘status quo’ to maintain is one that allows predatory gambling apps to proliferate.”
The state may now look to go down other avenues to take action against prediction markets. Other states have successfully secured rulings that state sports prediction markets are sports betting. Wallach argues Judge Menendez’s ruling could lead to the same conclusions in Minnesota if the state were to specifically challenge Kalshi and Polymarket’s sports markets.
