Judge Blocks First State Ban on Prediction Markets
▼ Summary
– A federal court blocked Minnesota from enforcing its ban on prediction markets just days before it was to take effect on August 1.
– The Trump administration and prediction markets Kalshi and Polymarket sued Minnesota after the state enacted the ban in May.
– The court ruled Minnesota’s total ban likely violates federal law because the CFTC has exclusive authority to regulate many event contracts as “swaps.”
– Judge Menendez found that some event contracts on Kalshi and Polymarket qualify as swaps with clear economic consequences, placing them under CFTC jurisdiction.
– The ruling allows Minnesota to potentially prohibit some prediction-market wagers, such as bets on *Love Island USA*, which do not meet the legal definition of swaps.
A federal judge has temporarily blocked Minnesota from becoming the first U.S. state to enforce a total ban on prediction markets, issuing a preliminary injunction just days before the law was set to take effect on August 1. While the ruling halts the state’s sweeping prohibition, it leaves the door open for Minnesota to restrict certain types of event contracts in the future.
The legal battle began after Minnesota enacted the law in May, prompting lawsuits from the Trump administration and the two largest prediction market platforms, Kalshi and Polymarket. These cases were consolidated, and U. S. District Judge Katherine Menendez, a Biden appointee in the District of Minnesota, ruled yesterday that the state’s ban likely violates federal law. The core dispute centers on whether event contracts qualify as swaps, which fall under the exclusive regulatory authority of the Commodity Futures Trading Commission (CFTC).
Under U. S. law, swaps are broadly defined as contracts where payment depends on the occurrence or nonoccurrence of an event with potential financial, economic, or commercial consequences. Judge Menendez found that many trades on Kalshi and Polymarket meet this definition, making them subject to CFTC oversight rather than state prohibition. She wrote that “several examples of event contracts hosted by Kalshi and Polymarket US fit that definition because they concern the occurrence of events with clear potential economic, financial, or commercial consequences that are neither remote nor unattenuated.” Since both platforms are designated contract markets, the CFTC holds exclusive jurisdiction over their swap transactions.
Minnesota lawmakers had argued that prediction markets are indistinguishable from gambling, but the judge determined that the CFTC, Kalshi, and Polymarket demonstrated a likelihood of success on the merits. She therefore issued a preliminary injunction barring enforcement of the state’s prediction market statute until a final decision is reached. However, Menendez noted that Minnesota may still prohibit some event contracts, particularly those that do not meet the legal definition of swaps. For example, she suggested that bets on the outcome of the reality TV show Love Island USA likely fall outside the swap definition and could be regulated by the state.
This ruling marks a significant moment in the ongoing debate over prediction market regulation in the U. S., balancing federal authority against state efforts to curb what they see as unregulated gambling.
(Source: Ars Technica)
