A fresh legal clash is unfolding over the future of prediction markets in the United States after federal regulators moved to stop Minnesota from enforcing a sweeping new ban aimed at platforms such as Kalshi and Polymarket.
The U.S. Commodity Futures Trading Commission filed suit Tuesday against the state, arguing that Minnesota crossed a constitutional line by attempting to criminalize markets that federal law already governs.
The dispute erupted only a day after Governor Tim Walz signed legislation that would make it illegal, beginning August 1, to operate, promote, or host a prediction market anywhere in the state. The measure marks the first outright statewide prohibition of its kind in the country.
Prediction platforms have exploded in popularity by allowing users to trade contracts tied to real-world outcomes — from elections and sports results to economic events. Supporters describe them as financial forecasting tools. Critics see little difference between them and online gambling.
At the center of the industry’s legal war is Kalshi, a rapidly growing exchange recently valued at roughly $22 billion. Several states have accused the company of running unauthorized betting operations, especially because younger adults can participate in certain markets.
The CFTC, however, has increasingly sided with the platforms under President Donald Trump’s administration, maintaining that these event-based contracts qualify as federally regulated derivatives rather than state-controlled gambling products.
In its court filing, the agency argued Minnesota’s law improperly intrudes on federal authority by turning legally operated derivatives markets into criminal enterprises at the state level.
CFTC Chairman Michael Selig said the Minnesota statute would effectively make lawful market participants “felons overnight.”
Minnesota Attorney General Keith Ellison signaled the state intends to fight back in court. He argued prediction markets pose social and financial risks, particularly for younger residents and lower-income communities.
According to Ellison, the platforms are structured in ways that encourage addictive behavior while concentrating profits among wealthy operators and traders.
Both major prediction market companies quickly rallied behind the federal lawsuit. A spokesperson for Polymarket said the case highlights how Minnesota’s ban conflicts with the federal government’s existing regulatory framework. Kalshi, meanwhile, argued the law would suppress competition and push trading activity toward offshore operators beyond U.S. oversight.
The Minnesota case is only the latest battle in a widening national struggle over who controls the booming prediction market business.
Federal regulators have already launched similar legal efforts against states attempting to curb the industry. Arizona recently lost a bid to pursue criminal action against Kalshi after a court intervened in the company’s favor.
Nevada remains the lone state to secure an active court-backed restriction against Kalshi, while Massachusetts’ highest court is still weighing whether sports-event contracts offered by the company should remain blocked there.
