Minnesota Prediction Markets Ban Triggers Federal Lawsuit from CFTC

Minnesota enacted the nation’s first state law banning the Minnesota prediction markets ban, triggering immediate federal opposition. Governor Tim Walz signed SF 4760 into law following legislative approval by a 100-32 vote in the House and a 57-9 margin in the Senate. The Minnesota prediction market legislation prohibits contracts tied to athletic events, elections, weather, war, terrorism, public health crises, legal proceedings, deaths, and entertainment-related events. Less than 24 hours after the signing, the Commodity Futures Trading Commission filed a lawsuit in Minnesota US District Court seeking to block enforcement. The CFTC argued that prediction markets fall under federal jurisdiction, not state authority. Operators continuing services after the law takes effect on August 1, 2026, could face felony charges.

Minnesota Enacts Nation’s First Prediction Market Ban

The Minnesota prediction market ban originated as SF 4511, filed by Senator John Marty in March. The standalone bill passed the Senate 56-10 on April 30 but gained little traction in the House. Representative Emma Greenman introduced an amendment incorporating Marty’s language into SF 4760, an omnibus public safety package already moving through both chambers. The conference committee approved the combined legislation, sending it back for final votes.

The law defines prediction markets as systems allowing wagers on future outcomes, specifically targeting services like Kalshi and Polymarket. Operating or advertising such platforms becomes a criminal felony once the law takes effect. The prohibition extends to supporting services, including virtual private networks that could mask user locations.

Several carve-outs protect traditional financial instruments. The law exempts event contracts serving as insurance against harm or loss, along with securities and commodities purchases. A last-minute revision removed the weather betting ban after concerns emerged about impacts on futures markets.

Greenman argued states should determine gambling regulations to protect public safety and children. Some lawmakers supporting sports betting legalization voted for the ban because they wanted greater control over gambling regulation. Supporters pointed to insider trading concerns, citing nine connected Polymarket accounts that generated nearly $2.50 million betting on U.S. military actions.

CFTC Files Federal Lawsuit Challenging Minnesota’s Authority

The Commodity Futures Trading Commission filed a lawsuit on Tuesday seeking to block enforcement of the Minnesota prediction markets ban. The agency requested a preliminary injunction to prevent the law from taking effect on August 1, 2026. The CFTC argued Minnesota’s legislation violated the U.S. Constitution by criminalizing operations of derivatives markets governed by federal law.

“This Minnesota law turns lawful operators and participants in prediction markets into felons overnight,” CFTC Chairman Michael Selig stated. The agency described the legislation as the most aggressive move by any state to shut down CFTC-regulated markets, noting its broader reach than any other state law challenged to date, including criminalizing weather-related event contracts.

Selig emphasized impacts on agricultural producers. “Minnesota farmers have relied on critical hedging products on weather and crop-related events for decades to mitigate their risks,” he said. “Governor Walz chose to put special interests first and American farmers and innovators last.”

Kalshi, valued at $22 billion in a recent funding round, faced multiple court cases from states claiming unlicensed wagering operations. Spokesperson Elisabeth Diana called the ban “peak hypocrisy” and argued it was “illegal to ban federally regulated exchanges.” A Polymarket spokesperson said the CFTC’s case demonstrated how Minnesota’s law “runs counter to the federal government’s established framework for regulating prediction markets”.

The CFTC has sued Arizona, Connecticut, Illinois, New York, and Wisconsin over similar enforcement actions. A federal court in Arizona issued a preliminary injunction blocking criminal prosecution of prediction market operators.

Industry Operators and States Clash Over Regulatory Control

Fourteen additional states introduced legislation targeting prediction markets following Minnesota’s action. Hawaii and Kentucky advanced the furthest, with Hawaii’s House passing HB 2198 to expand gambling definitions to include prediction markets, while Kentucky’s House approved HB 757 imposing a 17.25% tax on operator transaction fees. New York lawmakers proposed the ORACLE Act, establishing comprehensive oversight including age restrictions and prohibitions on athletic event markets, political markets, and catastrophic event markets.

State regulators issued cease-and-desist letters across eleven jurisdictions, arguing prediction market operators functioned as unlicensed sports wagering services. Nevada’s Gaming Control Board prompted Kalshi to pause sports betting after a judge found the platform “indistinguishable” from state-regulated sports gambling. Court decisions produced mixed outcomes. Judges denied preliminary injunctions in Maryland and Ohio, while Kalshi secured temporary wins in New Jersey, Connecticut, and Tennessee.

Sports-related contracts dominated platform activity. During NFL season, approximately 90% of Kalshi contracts involved sports events. In February alone, Kalshi processed nearly $1.90 billion in college basketball wagers. States estimated losing over $600 million in tax revenue from wagers placed on unregulated prediction markets across all sports.

Senators John Curtis and Adam Schiff introduced the Prediction Markets Are Gambling Act, bipartisan legislation prohibiting CFTC-registered entities from listing contracts resembling sports bets or casino-style games.