Minnesota Bans Prediction Markets, Prompting Federal Lawsuit

In brief

Minnesota became the first state to ban prediction markets, making it a felony to operate or advertise such platforms.

Hours later, the CFTC and DOJ sued the state, arguing the ban illegally interferes with federal authority.

The clash is the latest escalation in a broader fight between states and the Trump administration over prediction market regulation.

This week, Minnesota became the first state in the country to ban prediction markets—and hours later, the Commodity Futures Trading Commission and Department of Justice sued the state over the prohibition, claiming it was illegal.

The whipsaw turn of events marks the latest escalation in an all-out jurisdictional war between states and the Trump administration over the fate of prediction markets platforms like Kalshi and Polymarket.

Numerous states across the country, red and blue alike, have sued prediction market platforms for refusing to comply with state-level gambling laws. The states claim prediction market wagers related to sports—or even in some cases to politics and entertainment—constitute illegally unlicensed gambling.

The prediction market platforms themselves, meanwhile, have argued they are immune from state-level regulation—and that their wagers, as event contracts, fall under the exclusive, federal jurisdiction of the CFTC. The Trump administration has aggressively embraced this view, countersuing several states this year over the issue.

The conflict is likely to ultimately be decided by the U.S. Supreme Court.

On Monday, Minnesota became the first state to outright ban prediction market platforms. Gov. Tim Walz signed a bill into law making it a felony crime to create, operate, manage, or advertise prediction market platforms in the state.

Within hours, the CFTC filed a lawsuit, alongside the Department of Justice, claiming Minnesota’s leaders violated federal law and encroached on the regulator’s jurisdiction by instituting the ban.

“If Minnesota’s law is permitted to go into effect, the exchanges that offer these longstanding contracts—as well as those who partner with them—can be prosecuted as felons,” the complaint reads. “This flagrant and unprecedented incursion into the Commission’s exclusive regulatory sphere must be preliminarily and permanently enjoined.”

In a statement, CFTC Chair Mike Selig claimed that, by signing the ban into law, Walz “chose to put special interests first and American farmers and innovators last.” Selig emphasized the extent to which farmers, a key constituency in Minnesota, depend on event contracts to hedge against weather and crop-related risks.

But farmers have relied on such CFTC-regulated futures contracts for decades, which have never stirred controversy among state gambling regulators.

It is only in the last 18 months that novel prediction market platforms have introduced bets on sports matches, ongoing military conflicts, the existence of aliens, and the frequency of celebrity social media posts, among other subjects—and it is those wagers that have attracted the ire of state regulators.