A recent preliminary injunction has prevented Minnesota from enforcing its unique law that bans all prediction markets, contributing another victory for Kalshi, Polymarket, and the Commodity Futures Trading Commission (CFTC) in the ongoing legal battles surrounding these markets.
This ruling, issued by District Court Judge Katherine Menendez, indicates the evolving judicial landscape regarding the lawful status of prediction markets, suggesting that unresolved questions will likely advance to the U.S. Supreme Court in the near future.
The 48-page order contains a critical rebuke of both parties involved in the case, highlighting their rigid interpretations. Menendez points out that although the arguments presented are of high quality, both sides treat the issue as a binary choice: either the Commodity Exchange Act (CEA) preempts Minnesota’s law, or it does not. This framing, she argues, offers little clarity on how the court should navigate the nuances of which event contracts fall under the CFTC’s jurisdiction versus those that do not.
Menendez asserts that it would be misleading to entirely enjoin Minnesota from implementing its prediction market law when there are numerous event contracts on Kalshi and Polymarket that could potentially be legal. She underscores that not all contracts listed necessarily fit the statutory definition of a “swap” as regulated by the CFTC, suggesting that any permanent injunctive relief could be more limited than anticipated. Thus, a preliminary injunction is deemed necessary to maintain the current state of affairs until the case can be resolved.
Furthermore, the judge refrains from delving into how existing gambling laws might apply to sports-related contracts offered by the markets. Her focus remains squarely on the implications of the prediction market statute that encompasses a broad range of potential wagers.
To illustrate her points, Menendez cites specific examples from Kalshi, such as trades predicting the winner of season eight of "Love Island USA" and the commentary during World Cup games, which seem to violate the prohibitions set by Minnesota’s statute. She expresses skepticism about interpreting the CFTC’s jurisdiction so expansively that it encompasses contracts with little fiscal impact.
Lastly, there seems to be a consensus developing that criminalizing participation in prediction markets before the Supreme Court weighs in may not be feasible. The CFTC has presented sufficient evidence of an imminent threat of injury related to the enforcement of such laws, echoing findings from other courts addressing similar situations.
