Minnesota Becomes the First State to Ban Prediction Markets

Minnesota is the first state to break ranks and finally take a legal stance on prediction markets, banning them. Governor Tim Walz signed SF 4760, the Omnibus Public Safety Bill, into law on the 18th of May. With the new law in place, it is now illegal to advertize and host prediction markets in the state. Prediction markets here defined as platforms where you can place a wager on a future outcome, including those related to sports, elections, cultural events, and weather. Specifically, it is an event that is not affected by the performance of the parties to the contract – so clearly not skill based games or wagers, but prediction markets including the likes of Kalshi or Polymarket.

This law, as it stands, will go into effect from August meaning from then on it will be a criminal offense to host a prediction market in Minnesota. With real consequences of up to 5 years imprisonment and a $10,000 fine, this is nothing to be sniffed at. But it may not be final – as the Federal government sued the state the very next day. The US prediction markets battle has suddenly turned red hot, and the entire future of the industry can pivot on the events of the next days and weeks.

Minnesota Bans Prediction Markets

The Public Safety Bill, SF 4760, was first introduced to the Senate in March of this year, and was passed to the House in late April. It was reviewed, repassed, and amended in numerous hearings across the following few weeks, but finally on May 14th it was presented, and signed into law on the 18th by the Governor. As such, prediction markets are officially banned from the state of Minnesota, though the law will go into effect from August of this year. The controversial legislation ended the lawsuits, countersuits, and debates over state vs. federal authority, determining that the state of Minnesota has the right to outlaw prediction markets on its own territory.

The definition of these, and what is now illegal, is not just focused on the sports related event contracts offered at popular prediction markets. Minnesota has made these platforms illegal in their entirety. It has specially worded the description to filter out skill based games, and target prediction markets.

From August onwards, any prediction market operator that takes on Minnesota customers, or even advertizes their products to Minnesotans, is subject to fines and potential prison charges. The fines go up to $10,000 and prison sentences have a maximum duration of 5 years for committing any offense.

Other States Considering Legal Constraints

The loss of Minnesota alone for prediction markets would not really represent a massive blow to revenue. It is not really that specific market that should have prediction market operators worried, but rather the legal precedent that Minnesota has now created. For prediction markets have been under regulatory fire for months now, with state authorities frustrated by the Federal government, who have complete oversight of the sector.

Prediction markets in the US are regulated by the Commodity Futures Trading Commission, or CFTC. The sports betting style products, some platforms like Kalshi even offering parlay-style contracts, are not considered to be legal betting. Therefore, they bypass the state authorities, who cannot tax the sites, regulate the betting markets, or have any say over what prediction markets offer.

A number of state have already actively brought the fight to prediction markets, but none have ventured as far forward as Minnesota.

• Arizona: Filed lawsuits against Kalshi
• New Jersey: Attempted to block sports-style event contracts, but this was contested by the federal appeals court
• Nevada: Successfully enfored restriction as state level
• Massachusetts: Ongoing legal reviews and injunctions over prediction markets
• New York: Proposed restrictions against prediction markets
• Illinois: Bills introduced to restrict event wagering

While Minnesota currently stands alone, this move will no doubt serve as a milestone in the plight of the states vs prediction markets. But the battle is not nearly over in Minnesota, in many ways, it has really just shifted into a faster lane.

Trump Administration Sues Minnesota

The very next day after prediction markets were banned in Minnesota, the Federal government launched a lawsuit against the state. It argues that the state has no authority to outlaw prediction markets, which are protected by federal law.

The argument is that Minnesota cannot simply criminalize prediction markets, as it is not within its oversight. It violates Federal Law, and thus the US Constitution itself. The lawsuit is seeking to make a preliminary injunction against Minnesota’s new prediction market laws. If granted, this could allows prediction markets to operate while the litigation continues.

The next step is to block the enforcement of this law entirely, undermining the state’s authority and wresting back control over prediction markets to the Federal courts. If the injunction is denied, then from August 1, prediction markets will go offline in Minnesota. But regardless of whether or not the service continues, the key issue here is whether or not the state has the power to overrule the Feds and block prediction markets.

Prediction Market Regulation in the US

The CFTC was created with the Commodity Exchange Act, and this federal body presides over all “futures, options and swaps”. Prediction markets here are interpreted as a swap:

“Any transaction contingent on an event or contingency associated with a potential financial, economic, or commercial consequence”

They are therefore legally bracketed as a financial derivative exchange, with swaps. The prediction markets must operate as registered Designated Contract Markets, and obtain the DCM licenses, which are also issued by the CFTC.

But the big problem here is that the acts that would describe prediction markets, and give the CFTC control, all predate these very specific, modern platforms.

• The Commodity Exchange Act (7 U.S.C. § 2(a)(1)(A)): Gives CFTC exclusive jurisdiction over “swaps”. Law enacted in 1936
• Definition of a Swap (7 U.S.C. § 1a(47)(A)(ii)): Defines prediction markets as swaps. Part of CEA reforms (Dodd-Frank reforms) of 2010

Prediction markets were available in one form or another back in 2010, but they were decentralized, niche and often just used in academic circles rather than commercial ones. They really came to prominence around 2023 to 2024, with the Presidential Election betting hype, the CFTC began issuing licenses to prominent operators, and the betting activity on the platforms peaked around the Super Bowls. The 2024 Super Bowl was one of the most important milestones for prediction markets in their plight to shift from fringe to mainstream betting products.

Simply put, the Federal government is suing Minnesota and trying to wrestle back control over the prediction markets. The state authorities will likely hold their own and fend off these attacks, claiming the prediction markets have abused their position and not so quietly dipped into sports betting territory. But the laws assigning Federal oversight are dated, and this is an area that really should incur more laws, and a clearer line drawn between Feds and state authorities.

How This Bodes for Prediction Markets

To be fair, this is not really something that has happened out of the blue here, the buildup to this story has been over a year in the making. Outside the US, there are entire countries that have banned prediction markets, including the recent Brazilian legislation blocking prediction markets. It is pretty contentious territory, as legal sports betting spreads across the US, and more and more states have control boards or commissions that can regulate sports betting. But even they don’t have any say or input in the prediction market sector.

Prediction markets have gotten so popular, that even major sportsbook brands like DraftKings, FanDuel and Fanatics have launched their own prediction markets. And while founders, spokespeople and insiders can all make claims about how these are just secondary betting products and will never take over the real thing. They cannot undermine the scores of customers and money that is heading into these controversial platforms.

So perhaps such a bold move could work in the favor of prediction markets, should the legal action swing their way. It would, without a doubt, show everyone who really pulls the strings.

As this lawsuit was filed by the Federal Government, it will start in the US District Court, where a trial level decision must be made. Then, it will head to the US Court of Appeals, and the US Supreme Court will give the final deliberation over what should happen next. It is more than likely going to be a lengthy procedure, but one of monumental consequence. In the coming weeks and months, there will likely be more investigations, perhaps more states linking forces with Minnesota, and possibly even a restructuring of certain prediction market products. But the question that has been bounced around for over a year now finally looks like it will get an answer, at some point in the future.