Judge blocks first state law that would have banned prediction markets

Minnesota could continue litigating the case in district court or ask a federal appeals court to overturn the preliminary injunction. When asked if the state will appeal yesterday’s ruling, Minnesota Attorney General Keith Ellison said he will keep defending the law and did not make any mention of an appeal. “We respectfully disagree with the Court’s determination that the proper ‘status quo’ to maintain is one that allows predatory gambling apps to proliferate,” Ellison said in a statement provided to Ars today. “However, we also acknowledge that the Court has been presented with complex legal issues that are difficult to decide quickly and without a fully developed record. We look forward to continuing to litigate this case and defend the State’s duly passed law.” Ellison also said, “Prediction markets are gambling, plain and simple, and Minnesota has every right to keep predatory gambling out of our communities.” After the sides present their cases in more detail, Menendez could issue a permanent injunction that blocks only parts of the law. She wrote: After all, as relevant here, the exclusive jurisdiction Congress gave to the CFTC extends to transactions involving swaps that are conducted on DCMs [designated contract markets], not to every conceivable event contract that Kalshi, Polymarket US, or any other DCM might host. If, as appears to be the case, Kalshi and Polymarket US are listing at least some event contracts that don’t meet the CEA’s definition of swaps, any permanent injunctive relief may be much narrower. But given the unique nature of Minnesota’s prediction market statute, the posture of these cases, and the imminent effective date of Minnesota’s statute, a preliminary injunction maintaining the status quo until the merits of this case can be fully resolved is appropriate. Menendez also stressed that “this is not a final determination of the merits, and there may be strong arguments that ultimately weigh against a conclusion that the CEA expressly preempts the statute.” Minnesota argued that “swaps should only be understood to include event contracts that are tied to some commodity,” rather than to the outcome of some future event, Menendez wrote. But the US law defining swap “has no such limiting language,” and several other courts already “found that event contracts involving the outcomes of sporting events fall within the definition’s scope,” she wrote. Menendez said some prediction-market bets clearly meet the federal definition of swaps because they are closely associated with potential financial, economic, or commercial consequences. That includes contracts that pay out based on who will win a US Senate seat, which NBA team would sign LeBron James, which team would win the World Cup, and when traffic in the Strait of Hormuz would return to normal, she wrote. But Menendez said other prediction-market transactions don’t appear to fit the definition of swaps. This includes trades predicting which couple will win season eight of Love Island USA and trades regarding what announcers would say during World Cup game broadcasts. Menendez wrote that “one is hard pressed to imagine the financial, economic, or commercial consequence of the occurrence or outcome of these events unless the words of limitation in [the federal definition] are stretched so broadly that they impose no limit on the CFTC’s jurisdiction at all.” Menendez also said that plaintiffs and defendants regrettably “treated the issues before the Court as all-or-nothing propositions,” which “provides little guidance on how the Court ought to navigate the reality that Kalshi and Polymarket US list many event contracts likely falling within the CFTC’s exclusive jurisdiction to regulate swaps on DCMs, and many falling outside of it.”