A federal judge paused Minnesota's first-in-the-nation prediction market ban on Monday, days before the felony law was due to take effect.

Judge Katherine Menendez found Kalshi, Polymarket and the Commodity Futures Trading Commission likely to win on federal preemption grounds.

She also warned that any permanent relief could be "much narrower," because not every contract listed by the platforms qualifies as a swap.

A federal judge blocked Minnesota from enforcing SF 3432, the first state law to criminalize prediction markets, and granted Kalshi, Polymarket and the Commodity Futures Trading Commission a preliminary injunction on Monday. The statute was set to take effect on Saturday.

U.S. District Judge Katherine Menendez found the three plaintiffs likely to succeed on express preemption claims and said the platforms were likely to suffer irreparable harm. Her 44-page order bars enforcement against exchanges registered with the CFTC as designated contract markets and remains in place until a decision on the merits.

The ruling matters beyond Minnesota because it keeps the state from becoming the first to test a criminal ban against federally registered event-contract platforms while the broader legal fight is still unfolding. It also leaves in place the question of how far states can go in restricting markets that the CFTC says fall under federal commodities law.

The swap question

Whether Minnesota's law is preempted, Menendez wrote, turns on whether the trades at issue "qualify as 'swaps' within the meaning of the CEA." She found that contracts on Senate races, the World Cup winner and the reopening of the Strait of Hormuz satisfy that standard because they concern events with "clear potential economic, financial, or commercial consequences."

By contrast, Kalshi markets on who wins Love Island USA, or on what announcers say during a match, likely do not.

The distinction matters because of how the case was brought. At the July 2 hearing, the CFTC confirmed that its challenge is facial, meaning it must show there is no set of circumstances in which the law would be valid. Menendez found that the statute "may not be preempted in all its applications" but enjoined it anyway to preserve the status quo, faulting both sides for treating the dispute as "all-or-nothing propositions." She wrote that permanent relief "may be much narrower."

Where the fight goes next

Minnesota Attorney General Keith Ellison said the state "respectfully disagree[s]" with the court's reading of the status quo, which he told Courthouse News "allows predatory gambling apps to proliferate." His memorandum argued that the platforms could meet federal requirements while limiting what they offer in the state.

The CFTC has sued multiple states, including Illinois, Arizona and Connecticut, as well as Wisconsin and Minnesota, where the DOJ and the agency filed within hours of the bill becoming law. Kalshi followed days later.

The order arrived a day before a deadline the agency set for itself. In a July 24 letter, the CFTC told Menendez that if there was no ruling or stay by close of business Tuesday, it would treat its motion as "constructively denied" and seek interim relief from the Eighth Circuit. Kalshi and Polymarket said they would do the same.

The injunction follows a broader wave of legal clashes over prediction markets, with the dispute now centered on how federal commodities law applies to event contracts and how far Minnesota can go in banning them as regulators and courts sort out where swap definitions end and state gambling laws begin.