Kalshi, Polymarket fight to block Minnesota ban on prediction markets

MINNEAPOLIS (CN) — Prediction market giants Kalshi and Polymarket urged a federal judge Thursday to prevent Minnesota from enforcing a first-of-its-kind law that would outright ban their platforms from operating within the state.

Alongside the federal government, the two platforms are seeking a preliminary injunction halting Minnesota’s bill, SF 3432.

Set to take effect in August, the statute makes it a felony to create, operate, manage or control a prediction market platform — effectively forcing these exchanges to exit the state or face charges.

Backed by federal laws and regulation, Kalshi and Polymarket argued Minnesota lacks authority to override the Commodity Exchange Act — which grants the federal government exclusive jurisdiction over event contracts and prediction markets — or to suppress their right to broadcast truthful commercial information utilized by citizens across the country.

While Thursday’s hearing consisted of significant debate over the platforms’ mechanics, the crux of the hearing fell on federal preemption and the supremacy clause of the U.S. Constitution, with the government arguing Minnesota is attempting to seize regulatory territory expressly reserved for the federal government.

“This law from start to finish is directed at the CFTC’s jurisdiction,” Henry Dickman, attorney for the CFTC, said. “This is not like other actions you’ve seen in other states; this is a statute that, by design, is curtailing our authority. We see this as a direct invasion on our jurisdiction.”

Kalshi and Polymarket claim if Minnesota’s ban goes into effect, it will create an impossible legal paradox where the platforms must remain open to all eligible U.S. citizens and also block access in Minnesota to comply with state law.

“What the state can’t do is regulate agreements that are on a designated contract market because the state thinks there shouldn’t be,” Colleen Sinzdak, Kalshi’s attorney, said. “What Congress did not want was 50 different states looking at 50 different contract markets and reviewing every contract.”

As the nation’s first outright ban on prediction market platforms, the statute has sparked immense backlash and a swift wave of litigation.

The federal government got the ball rolling in May, filing a lawsuit just one day after Minnesota Governor Tim Walz signed the ban into law. According to federal attorneys, the ban is a “flagrant and unprecedented” incursion into federal regulation.

In the following weeks, both Kalshi and Polymarket filed their own lawsuits challenging Minnesota’s statute. The platforms frame their products as “event contracts,” which legally qualify as “swaps” under the federal Commodity Exchange Act.

Kalshi and Polymarket claim state action would fragment a nationwide market and jeopardize critical banking and commercial relationships.

Minnesota, represented by Assistant Attorney General Lindsey Middlecamp, counters it is exercising its historic “police powers” to protect public safety, health and welfare. The state contends its newly enacted statute aligns with existing state laws prohibiting sports betting and other forms of unlicensed wagering.

“It is likely that many of the wagering activities that take place could also constitute violations of existing gaming laws, and that this statute is expanding to make sure it includes other wagers,” Middlecamp said.

Minnesota officials made it a point to clarify that traditional agricultural risk-hedging transactions — long used by local farmers to mitigate financial losses during droughts and other events — remain unrestricted under the ban, as do standard transactions involving securities or commodities.

During Thursday’s hearing, U.S. District Judge Katherine Menendez addressed both the constitutional and regulatory boundaries of Minnesota’s law.

Polymarket took the reins on First Amendment claims — which Menendez, a Joe Biden appointee, noted had likely never been argued in other legal challenges involving prediction markets.

Tom Dupree, Polymarket’s attorney, said Minnesota’s ban is a direct attack on the market’s First Amendment rights to broadcast and share information about its commercial services, and on the citizens’ right to receive it.

Dupree noted Polymarket does not just provide “wagering,” but rather highly accurate, real-time public forecasting data, risk analysis and pricing info that would be heavily impacted if Minnesota criminalized this form of information sharing.

Polymarket said Minnesota’s statute potentially criminalizes sports leagues, news organizations and other entities with contracts or agreements in place to provide information to prediction market platforms.

“The practical consequence, and why this is a First Amendment nightmare, is because it threatens felony prosecutions on news organizations,” Dupree said. “The fact that a news provider would be threatened with a felony prosecution for giving us information, it is going to chill our ability to get that information.”

Kalshi, meanwhile, led the defense on platform mechanics when questioned by Menendez over the classification of prediction market trades.

Kalshi argued its products are strictly structured as “trades” and financial contracts bound by robust internal rules, pushing back against the characterization of them as simple gambling or “wagers.”

Menendez pressed both platforms on where the line between a financial hedge and a pop-culture gamble lies, noting Kalshi users can bet on everything from the outcome of presidential elections to who will be the bridesmaids at Taylor Swift and Travis Kelce’s wedding — which the judge remarked has little to do with real economic or commercial consequences.

Kalshi countered, even if a contract seems unconventional, it is legally executed as a clear financial trade under a federally approved set of rules, protecting it from state action.

“States don’t get to enforce the CEA against designated contract markets,” Sinzdak said. “If a state thinks a particular trade does not somehow fit into the definition of swaps, what it can do is go to the CFTC and say ‘you’re allowing a form of transaction that doesn’t fit there.’ What they cannot do is bring an enforcement action.”

Menendez, noting sports gambling regulation has historically been left to the states, questioned how to consider the rise of sports betting through prediction markets, which largely began in January 2025.

“If DraftKings changes the format of the same exact service, changes the wagers and turns them into predictions, Minnesota will not be able to do anything about that,” Menendez said, rebuking Kalshi’s argument that the structure of the platform is fundamentally different from traditional sports betting sites.

“It’s not different to the 20-year-old sitting in his basement, to the 20-year-old kid who emptied his savings on the outcome of a World Cup game. The fact that it might not fit a particular set of language means very little,” she said.

The judge appeared sympathetic to Minnesota’s argument that Kalshi, Polymarket and other prediction markets have far exceeded what Congress initially intended when creating the Commodity Futures Trading Commission’s framework in 1974.

“It’s an uphill battle to convince me that somebody’s individual rebound count has economic or commercial consequences,” Menendez said.

Minnesota’s underlying intention with the statute is to close what it views as a regulatory loophole being used to offer event contracts analogous to addictive sports wagers.

“Prediction markets are gambling, plain and simple, and Minnesota has every right to keep predatory gambling out of our communities,” Attorney General Keith Ellison said in a June 18 press release. “States regulate gambling so closely because it can be incredibly addictive and immensely harmful without the proper guardrails. Wrapping an old vice in new technology does not change that fact, and it does not change our obligation to protect the people of Minnesota.”

The litigation comes amid a broader, nationwide battle over prediction markets. The CFTC has filed similar lawsuits against at least five other states, including Rhode Island, New Jersey and California, as it seeks to establish its authority over the emerging platforms.

In April, the Third Circuit issued a massive ruling in favor of Kalshi in its fight against the New Jersey Division of Gaming Enforcement, finding sports event contracts traded on regulated exchanges are legally “swaps” under the CEA.

Other states, including Nevada, Michigan and Massachusetts, have secured early victories against prediction markets, with federal and state courts finding states retain police powers to protect their local gaming industries and consumers from what amounts to unlicensed sports betting.

Following the lengthy arguments, Menendez took the matter under advisement, concluding the hearing with a nod to the nature of the case.

“I hope that I will not be the subject of any prediction markets between now and when I get there,” she said.