Prediction Markets Still Legal in Minnesota, but Kalshi at Risk of New York Ban

Prediction market operators Kalshi and Polymarket got mixed news out of federal courts this week. On Monday, a judge in Minnesota blocked the state’s first-in-the-nation criminal ban on prediction markets just days before it was set to take effect. Hours later, a New York federal court dealt Kalshi a setback, rejecting its bid for an emergency injunction that would have kept the platform operating in the state while its appeal plays out.

The split outcomes highlight just how unsettled the legal landscape remains for prediction markets nationwide, as state regulators and federal officials continue to clash over who actually has authority to police the fast-growing industry.

Minnesota’s Ban Put On Ice

Minnesota Governor Tim Walz signed SF 3432 in May, a law that would have made it a felony to create, operate, manage, or control a prediction market platform in the state. The statute was scheduled to take effect August 1 and would have forced platforms like Kalshi and Polymarket to exit the state entirely or face criminal charges.

Kalshi, Polymarket, and the Commodity Futures Trading Commission (CFTC) sued to stop the law, arguing that prediction market contracts qualify as “swaps” under the Commodity Exchange Act (CEA) and therefore fall under exclusive federal jurisdiction, not state gambling statutes. U.S. District Judge Katherine Menendez agreed, at least for now, granting a preliminary injunction on Monday that keeps the ban from taking effect while the underlying case proceeds.

Menendez found that the companies and the CFTC were “likely to succeed” in showing federal law preempts Minnesota’s ban and that the platforms would face irreparable harm without the injunction. She noted, however, that not every event contract listed on Kalshi and Polymarket necessarily meets the CEA’s definition of a swap, meaning a permanent injunction down the road could end up narrower than the current pause. Polymarket’s chief legal officer, Neal Kumar, called the ruling confirmation that prediction markets on CFTC-registered exchanges “are governed by federal law, not a patchwork of state rules.”

New York Tells A Different Story

The picture looks far less favorable for Kalshi in New York. The company has been fighting the state since last October, when the New York State Gaming Commission sent it a cease-and-desist letter over allegedly operating an unlicensed sports wagering platform. A federal judge already denied Kalshi’s request for a preliminary injunction against the state’s enforcement effort back on July 7, ruling that the CEA does not shield the company’s federal designation from New York’s gambling laws.

Kalshi appealed that decision, and this week the U.S. District Court for the Southern District of New York rejected the company’s emergency bid for an injunction pending that appeal. That leaves Kalshi without a courtroom shield in New York for now, exposing it to potential state enforcement action while the appeal to the Second Circuit continues to play out. New York Governor Kathy Hochul and Attorney General Letitia James have both publicly cheered the state’s wins in the case, framing prediction markets as a form of unregulated gambling that needs to be reined in under existing consumer protection laws.

Why This Matters

The dueling rulings underscore a growing split among federal courts over whether the CFTC’s oversight of prediction markets as regulated derivatives exchanges overrides individual state gambling laws. Massachusetts, Nevada, and Michigan have also taken action against prediction market platforms, while other states are watching the litigation closely before deciding whether to follow Minnesota’s lead or New York’s approach.

For now, bettors and traders in Minnesota can keep using Kalshi and Polymarket without fear of the felony provisions that were about to kick in, while customers in New York face a murkier future depending on how quickly the state moves to enforce the underlying gambling statute. With appeals pending in both cases and courts around the country reaching different conclusions on preemption, the fight over how — and whether — states can regulate prediction markets looks likely to end up in front of a higher court before it’s fully resolved.

In the meantime, sports bettors looking for a clearer regulatory path might want to stick with licensed sportsbook reviews while the prediction market legal fight continues to sort itself out state by state.