Minnesota Bans Prediction Markets as CFTC Sues to Defend Federal Authority

Kalshi lets customers trade event contracts tied to sports, elections and other outcomes and operates as a designated contract market overseen by the U.S. Commodity Futures Trading Commission. The dispute turns on whether those contracts are federally regulated derivatives or wagers that states may police under gambling laws. The answer matters beyond one platform: a federal win could preserve a national rulebook, while a state win could force prediction markets to obtain local gaming licenses, pay state taxes and follow consumer-protection rules in every jurisdiction.

New York Governor Kathy Hochul and Attorney General Letitia James sued Kalshi in state Supreme Court in Manhattan on July 31, 2026, accusing it of running an unlicensed gambling operation. The state seeks to halt the business, pay restitution, confiscate all allegedly illegal gains and impose fines equal to three times those gains; no fixed dollar amount was disclosed. The CFTC, which sued New York in federal court on April 24, is pressing emergency relief, arguing the Commodity Exchange Act gives it exclusive jurisdiction and preempts state enforcement against federally registered markets.

Prediction markets let users trade event contracts tied to sports, elections, weather and other outcomes. The core legal dispute is whether those products are gambling subject to state control or derivatives governed by the federal Commodity Exchange Act. Minnesota became the first U.S. state to enact an outright ban, escalating a nationwide jurisdictional fight between state gaming authorities and the Commodity Futures Trading Commission, which says it has exclusive oversight of swaps listed by federally regulated exchanges including Kalshi and Polymarket US.

U.S. District Judge Katherine Menendez on July 27 issued a preliminary injunction blocking Minnesota’s law days before its Aug. 1 effective date. The measure would make operating or assisting a prediction market a felony. Menendez said the CFTC, Kalshi and Polymarket were likely to succeed in showing that the Commodity Exchange Act preempts the statute for many event contracts, while enforcement would cause irreparable harm. The order remains in place until a final ruling on the merits, giving the platforms and federal regulator an interim victory.

Prediction markets allow users to trade event contracts tied to outcomes ranging from elections and economic data to sports contests. The growth of platforms including Polymarket and Kalshi has sharpened a jurisdictional dispute: whether such products are financial derivatives overseen nationally by the Commodity Futures Trading Commission, or wagers subject to state gambling laws. The distinction matters because it could determine licensing, consumer-protection and market-integrity standards across the United States.

A House Agriculture subcommittee recently held a hearing to consider whether Congress should revise the rules as prediction platforms expand into sports-related contracts. Lawmakers focused on the boundary between the CFTC’s federal authority and enforcement by gambling regulators in all 50 states. Crypto and blockchain industry groups warned that a state-by-state approach could fragment national financial-market oversight, expose platforms to conflicting requirements and raise compliance costs.

The rise of prediction-market platforms such as Kalshi and Polymarket has intensified a long-running dispute over whether they fall under U.S. federal or state oversight. States have generally treated such platforms as illegal gambling operations. But as prediction markets gain influence in events including elections, defining the respective jurisdiction of the Commodity Futures Trading Commission (CFTC) and state authorities has become a critical milestone in developing a sound market framework.

North Carolina's newly signed budget imposes a 6% tax on prediction-market platforms' net trading fees from 2027 while exempting them from state licensing requirements. The move makes North Carolina the first U.S. state to effectively recognize CFTC jurisdiction through a light-touch tax regime. It eliminates a cumbersome state application process and establishes a new regulatory model for other states.

Polymarket offers blockchain-based binary event contracts. The CFTC found that it had operated an unregistered derivatives market and, on January 3, 2022, imposed a $1.4 million penalty and ordered it to wind down noncompliant markets. Its main international platform has blocked US users since then. Lifting the ban would allow Polymarket to challenge regulated rival Kalshi in the United States with its full product offering.

Bloomberg reported on April 28 that Polymarket was negotiating with CFTC Chairman Michael Selig to amend the 2022 settlement terms and allow US traders back onto its international platform. The company has spent $112 million to acquire licensed exchange QCEX and launched the regulated Polymarket US in late 2025. It also filed a self-certification with the CFTC for sports parlay contracts on May 20, but reopening the main platform to US users still requires regulatory approval.

Prediction markets allow users to trade event contracts tied to outcomes such as elections and sporting events. The central dispute is whether these products are derivatives governed by the Commodity Exchange Act or wagers that states may regulate under gambling laws. The U.S. Commodity Futures Trading Commission argues that event contracts traded on designated contract markets fall under its exclusive federal jurisdiction. The ruling will affect whether platforms can operate across states under a single set of rules.

The Wisconsin Department of Justice sued five companies—Kalshi, Polymarket, Crypto.com, Robinhood and Coinbase—on April 23, 2026, accusing them of illegally offering sports betting. On April 28, the CFTC, together with the U.S. Department of Justice, filed suit in federal court in Wisconsin's Eastern District. It was the agency's fifth similar lawsuit against a state government. The complaint seeks a declaration that state gambling laws do not apply and a permanent injunction barring state enforcement, but requests no damages.

Prediction markets allow users to trade on the outcomes of political, sporting and other events, with trading volumes reaching billions of dollars. The U.S. Commodity Futures Trading Commission argues that event contracts traded on designated contract markets are “swaps” governed by the Commodity Exchange Act, preempting separate state regulation under gambling laws. The dispute will determine whether platforms such as Kalshi and Polymarket can operate nationwide.

Represented by the U.S. Department of Justice, the CFTC filed separate lawsuits against Illinois, Arizona and Connecticut on April 2, 2026. Since April 1, 2025, the Illinois Gaming Board had issued cease-and-desist orders to three CFTC-registered markets: KalshiEx, Crypto.com and Polymarket. The federal government is asking the courts to affirm the CFTC’s exclusive jurisdiction and permanently bar state enforcement, without seeking monetary damages.