Minnesota has become the first state in the nation to ban prediction markets outright, and the move immediately drew a federal legal challenge — with the Commodity Futures Trading Commission and the Department of Justice filing suit against the state within hours of the law being signed.
The rapid sequence of events represents the latest flashpoint in a widening jurisdictional battle between state governments and the Trump administration over the regulation of prediction market platforms such as Kalshi and Polymarket.
On Monday, Gov. Tim Walz signed legislation making it a felony crime to create, operate, manage, or advertise prediction market platforms within Minnesota. The state thus became the first to move beyond lawsuits against individual platforms and impose an outright prohibition.
Hours after the signing, the CFTC and the Department of Justice filed a joint lawsuit arguing that Minnesota's leaders had violated federal law and unlawfully encroached on the regulator's jurisdiction.
"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."
CFTC Chair Mike Selig said in a statement that by signing the ban, Walz "chose to put special interests first and American farmers and innovators last." Selig stressed the degree to which farmers — a key constituency in Minnesota — rely on event contracts to hedge against weather and crop-related risks.
However, farmers have depended on CFTC-regulated futures contracts for decades without those instruments attracting controversy from state gambling regulators. The current dispute stems from a more recent development: over the past 18 months, a new generation of prediction market platforms has introduced wagers on sports matches, ongoing military conflicts, the existence of extraterrestrial life, and the frequency of celebrity social media posts, among other subjects. It is those novel bets that have drawn the attention and opposition of state regulators.
Numerous states — spanning both Republican- and Democrat-led governments — have sued prediction market platforms for allegedly failing to comply with state gambling laws. Those states contend that wagers tied to sports outcomes, and in some cases to politics and entertainment, constitute unlicensed gambling under state statutes.
The platforms themselves have countered that they are shielded from state-level regulation, arguing that their products, as event contracts, fall exclusively under federal CFTC jurisdiction. The Trump administration has forcefully backed that position, filing countersuits against several states this year in support of the platforms.
The broader conflict over who holds regulatory authority over prediction markets is widely expected to ultimately be resolved by the U.S. Supreme Court.
Why it matters
Minnesota's law makes operating or advertising prediction market platforms a felony, meaning individuals and companies could face criminal prosecution — a significant escalation beyond the regulatory disputes seen elsewhere.
The federal government's decision to sue a state within hours of a law being signed signals that the Trump administration views CFTC jurisdiction over event contracts as non-negotiable, setting up a direct constitutional confrontation over federal preemption of state law.
Minnesota is the first state to move beyond suing individual platforms and instead impose a blanket prohibition — a distinction that could influence how other states approach regulation if the federal lawsuit fails to block the ban.
