Minnesota Becomes First State to Ban Prediction Markets
Minnesota has enacted the nation’s first law specifically banning prediction market platforms like Kalshi and Polymarket, and the federal government has already sued to block it — setting the stage for a landmark legal battle over whether states or Washington have the authority to regulate the rapidly growing industry.
Governor Tim Walz signed the measure into law on May 18 as part of an omnibus public safety package (SF 4760). Less than 24 hours later, the Commodity Futures Trading Commission (CFTC) filed a lawsuit seeking a preliminary injunction to stop the law from taking effect on August 1, with the Department of Justice joining the action, according to NPR.
What the Law Does
The Minnesota law makes it a felony to host, advertise, or facilitate prediction markets — platforms where users buy and sell shares based on the likelihood of future events. The prohibition covers wagers on sports, elections, government actions, wars, terrorism, disasters, public health emergencies, entertainment outcomes, legal proceedings, and so-called “mention markets” that bet on whether a person will say a specific word or phrase.
The law also targets supporting services, including payment processors, geolocation providers, and virtual private networks that could help users circumvent the ban. A carve-out exempts event contracts serving as insurance against “harm or loss sustained” and traditional securities and commodities trading. Following pushback from the agricultural industry, an updated version also allows trading on weather-related contracts, according to the CFTC.
The Federal Response
CFTC Chairman Michael Selig condemned the law in stark terms, arguing it threatens legitimate financial products that Minnesota farmers have relied on for decades.
“This Minnesota law turns lawful operators and participants in prediction markets into felons overnight,” Selig said in the CFTC’s announcement. “Minnesota farmers have relied on critical hedging products on weather and crop-related events for decades to mitigate their risks. Governor Walz chose to put special interests first and American farmers and innovators last.”
The CFTC argues that prediction markets fall under its exclusive jurisdiction as derivatives exchanges under the Commodity Exchange Act — a framework established by Congress more than 50 years ago. The agency has already sued five other states — Arizona, Connecticut, Illinois, New York, and Wisconsin — over similar attempts to regulate the industry. A federal court in Arizona recently granted a preliminary injunction blocking that state from using gambling laws to prosecute prediction market operators, as DefiRate reported.
Why This Matters
Minnesota’s law represents the most aggressive state-level action against prediction markets to date. Unlike other states that have attempted to apply existing gambling laws, Minnesota enacted a tailor-made criminal prohibition targeting the most common categories of event contracts. The FinanceFeeds report noted that the law could extend criminal liability beyond platform operators to banks, payment processors, media organizations, and sports leagues that partner with prediction market companies.
More than 20 lawsuits have already been triggered nationwide over the state-federal jurisdiction question, NPR reported. The outcome of the Minnesota case could determine whether states can effectively ban prediction markets within their borders or whether the federal government retains exclusive authority.
The Legislative Strategy
The prediction market ban was not passed as a standalone bill. After the Senate-passed standalone bill (SF 4511) faced procedural obstacles in the House, Representative Emma Greenman (DFL-Mpls) inserted nearly identical language into the omnibus public safety package through a floor amendment, as detailed by the Minnesota House Session Daily.
“We as a state should decide how best and what regulations we think should attach to gambling, to protect public safety, to protect our kids,” Greenman said during floor debate, according to NPR. She also described prediction markets as “rife with shadowy self-dealing that threatens to corrupt sports, politics and policy-making.”
Some lawmakers warned the legislation would trigger costly litigation. Representative Nolan West cautioned that Minnesota could be exposing taxpayers to legal costs before courts clarify whether states can regulate federally listed prediction market contracts.
Industry and Expert Reactions
Kalshi spokeswoman Elisabeth Diana compared the ban to “trying to ban the New York Stock Exchange,” arguing that “this actively harms users because it reduces competition and drives activity offshore,” as NPR reported.
Melinda Roth, a professor at Washington and Lee University’s School of Law who studies the industry, told NPR that states are “using any tactic they can to go after the prediction market companies,” but noted the industry has “become quite mainstream” and “it will be hard to put that genie back in the bottle.”
Gaming attorney Daniel Wallach described state prediction market bills as “automatic tickets to federal court,” as DefiRate reported.
What’s Next
The CFTC is seeking a preliminary injunction before the law’s August 1 effective date. The case raises a fundamental constitutional question: Does federal commodities law preempt state gambling laws when it comes to prediction markets?
Todd Phillips, assistant professor of law at Georgia State University, told MPR News that the issue will likely reach the Supreme Court within the next year or two. “I, truthfully have no idea how it will rule,” he said.
Meanwhile, seven other states have introduced similar bills, with Hawaii and North Carolina considering outright bans, according to the National Conference of State Legislatures. Congress has yet to update the legal framework governing prediction markets, leaving the courts to resolve the growing conflict between state and federal authority.