Minnesota's prediction market ban is now a live test of whether a state can turn federally regulated event contracts into a felony. Kalshi, Polymarket, and the CFTC need Judge Katherine Menendez to act before August 1.
Five days from now, running a prediction market in Minnesota becomes a felony. Up to five years in prison, a $10,000 fine, and a criminal record for operating what the Commodity Futures Trading Commission treats as a federally regulated market. Governor Tim Walz signed SF4760 on May 18, and the law takes effect on August 1 unless U.S. District Judge Katherine Menendez blocks it first.
This isn't a tidy gambling case. It's a power fight. The CFTC sued Minnesota on May 19, one day after Walz signed the bill, and said the state was trying to undermine the federal regime Congress built more than 50 years ago. Kalshi and Polymarket also want a preliminary injunction. Minnesota Attorney General Keith Ellison has taken the opposite line, arguing in a June court filing that prediction markets are gambling and that the state has the authority to keep them out.
The courts are splitting fast
The strongest card for Kalshi is still New Jersey. In Kalshiex LLC v. Flaherty, the Third Circuit ruled on April 6 that Kalshi's sports event contracts likely qualify as swaps under the Commodity Exchange Act and that New Jersey's gambling laws are preempted when applied to contracts traded on a CFTC-licensed designated contract market. That's a real win. You don't have to be a derivatives lawyer to see why it matters: one federal appeals court has now said the CFTC's lane is broad enough to cover these contracts.
But that ruling doesn't settle the country. Courts in Nevada, Maryland, Ohio, Massachusetts, Michigan, and New York have given state regulators meaningful wins at different stages of the fight. Reuters reported on July 8 that U.S. District Judge Analisa Torres denied Kalshi's request to block New York gambling enforcement, finding the Commodity Exchange Act didn't supersede New York law as applied to Kalshi's sports contracts.
Washington added another problem last week. On July 21, Reuters reported that King County Superior Court Judge John McHale granted Washington's request for a preliminary injunction against Kalshi, saying the state had shown a likelihood of substantial consumer injury from illegal gambling activity. The Washington Attorney General's office said the court will issue a final order on August 5. That doesn't decide Minnesota, but it kills the easy story that federal preemption is rolling through every state in its path.
Menendez has already shown where the hard question sits. The Star Tribune reported that at the July 2 hearing, she asked lawyers to explain how to distinguish an illegal bet from a bona fide event contract with financial or economic consequences. She also tested the line with examples from sports and pop culture contracts. Here's the thing: if every contract on a CFTC venue is automatically protected, states lose most of their gambling power over this new market. If courts can sort contract by contract, the platforms lose the national scale they are selling to investors.
Kalshi's valuation makes the deadline sharper
The legal costs are manageable. The business risk is not. Bloomberg reported in May that Kalshi raised $1 billion at a $22 billion valuation, roughly double its value five months earlier. TechCrunch reported the same round and said the company claimed 90% of U.S. prediction market activity. Those numbers only work if Kalshi keeps operating as a national exchange - a company redrawing its map state by state is a different business entirely.
The volume is already there. PYMNTS reported, citing CoinDesk and Dune data, that Kalshi posted $31 billion in notional trading volume in June as World Cup markets drove prediction-market activity past $50 billion across major platforms. Dealroom noted reports that Kalshi has been eyeing a $40 billion valuation, while Polymarket has been linked to a $15 billion target. Treat those private-market numbers carefully, because they can move faster than the court docket. But they explain why Minnesota matters now, not later.
The CFTC's own campaign has also grown. Its public releases show lawsuits against Arizona, Connecticut, Illinois, Minnesota, New Mexico, and other states, while recent litigation trackers put the total at nine states. That is a lot of simultaneous litigation for an agency trying to act as the platforms' national regulator. Each state win adds friction. Each platform win makes the case for Congress to draw a clearer line instead of leaving the same question to district judges from Minneapolis to Manhattan.
Minnesota's statute is harsher than most because it doesn't just threaten a cease-and-desist order. It creates a felony for operating, hosting, facilitating, or advertising a prediction market, with exceptions for areas such as insurance and certain regulated contracts. If Menendez blocks it, other states considering similar bills will read the order closely. If she lets it take effect, you should expect more statehouses to test the same move.
That is why the August 1 deadline matters. The platforms can survive losing one state, but they can't ignore a model for turning prediction markets into criminal conduct. For Kalshi and Polymarket, Minnesota is not just another venue on the litigation map. It is the place where the preemption argument either starts looking national, or starts looking fragile.
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