Minnesota Prediction Market Ban May Turn on Whether All Contracts Qualify as Swaps

A U.S. District Court hearing Thursday centered on Minnesota’s new law banning prediction markets. Judge Katherine Menendez repeatedly returned to one question. What happens if some contracts meet the Commodity Exchange Act definition of a swap while others do not?

The case marks the first legal challenge to a state statute written specifically for prediction markets. It differs from prior disputes over whether such platforms already fall under sports betting rules. The CFTC filed the initial lawsuit. Kalshi and Polymarket joined with their own actions. The matters were consolidated.

Swaps Definition Drives the Core Arguments

Much of the hearing revisited familiar ground from earlier prediction market cases. The central issues remained what qualifies as a swap under the Commodity Exchange Act and whether that law preempts state authority.

States have contended that sports event contracts lack the required potential financial, economic or commercial consequence. Prediction market operators counter that the statutory language is intentionally broad. Menendez spent significant time seeking to understand platform mechanics. She called Kalshi general counsel Rick Heaslip to testify on the types of contracts offered.

The Partial Preemption Question

Menendez pressed both sides on the practical outcome if only a subset of contracts qualify as swaps. She asked Kalshi lawyer Colleen Sinzdak why preemption should not apply to an individual contract that clearly meets the test.

“Let’s imagine that of the thousand contracts listed for sale right now, that I could find one that I would have a very hard time believing that it has financial, economic, or commercial consequences,” Menendez said. “Why should I not be able to find that preemption applies to that contract?”

Sinzdak responded that the CFTC holds exclusive jurisdiction over contracts traded on a designated contract market. She argued the regulator, not the court or state, should make validity determinations under the CEA.

Menendez inquired whether the CFTC had removed any contracts in the last 18 months. Counsel confirmed none had been pulled. Sinzdak attributed this to exchanges fulfilling their compliance responsibilities.

CFTC and State Positions on Selective Enforcement

CFTC lawyer Henry Dickman addressed the same hypothetical. He stated that states lack authority under the CEA to enforce its provisions directly against contract markets.

“When you look at the other CEA provisions, they give states authority to enforce the CEA, not state law, against persons, but not contract markets,” he said.

Later Menendez posed a version of the question to Minnesota counsel Lindsey Middlecamp. Middlecamp offered examples across contract types. Elections and World Cup performance carry clear consequences. The length of a press conference or a player’s rebound total do not.

Middlecamp noted the court may not need to draw fine lines. If state law is not preempted it could apply across the board. Alternatively the law could take effect while discovery examines specific contract impacts.

From the supplier side this kind of judicial uncertainty complicates platform planning. Operators must prepare compliance pathways that account for potential fragmentation.

Where the Jurisdiction Risk Lies

The hearing exposed a genuine limitation in applying broad state bans to varied prediction market products. Menendez appeared conscious of the line-drawing challenge. She referenced the difficulty in educating the bench on these instruments.

A selective ruling could force platforms to segment offerings. It might also push the CFTC toward more granular contract reviews. Either path increases operational overhead for exchanges and their technology partners.

Menendez indicated a decision would arrive soon. “We will get this order out as soon as we can, I will not specify the day, and I hope I will not be the subject of any prediction market contracts between now and then,” she said.

As detailed in InGame’s reporting, the outcome will test the boundaries of federal preemption in this space. Prediction market operators and their sportsbook integration partners face a period of regulatory ambiguity. Clearer lines on swap status could accelerate compliant product development or trigger wider state-level pushback. The ruling will likely influence how quickly these markets scale alongside traditional gaming verticals.

Reporting: Could Minnesota Prediction Market Ban Only Apply To Some Contracts? (www.ingame.com)