The Commodity Futures Trading Commission has filed a lawsuit against the state of Minnesota to prevent a new law from taking effect that would criminalize online prediction markets. The law, SF 4511, is set to go live on August 1 and would make it a felony to create, operate, or advertise prediction markets in the state.
What Minnesota’s law actually does
SF 4511 passed as part of a broader omnibus public safety bill in Minnesota. Under the new statute, anyone who creates, operates, hosts, or even promotes a prediction market in Minnesota faces felony charges. The penalties are serious: up to five years in prison and $10,000 in fines.
The definition of banned “event contracts” is sweepingly broad. It covers contracts tied to elections, sports outcomes, public health events, and various economic indicators.
Minnesota lawmakers have been clear about their reasoning. They view these contracts as illegal bets dressed up in financial jargon. The CFTC, unsurprisingly, disagrees. The federal agency considers prediction markets to be regulated financial instruments, specifically derivatives, that fall squarely under its authority.
The CFTC’s jurisdictional argument
The CFTC’s position is straightforward: prediction markets are derivatives, derivatives are federally regulated financial products, and states don’t get to unilaterally criminalize them. The CFTC has recently taken action against several states that have attempted to regulate prediction markets on their own, consistently reasserting its claim to exclusive federal jurisdiction over these instruments.
Why this matters for the prediction market industry
Platforms like Kalshi and Polymarket have gained significant traction, particularly around election forecasting and major geopolitical events. Polymarket, built on the Polygon blockchain, became something of a cultural phenomenon during the 2024 US presidential election cycle. Kalshi, a CFTC-regulated exchange, has been steadily expanding the types of event contracts it offers after winning its own legal battle with the CFTC over election contracts in 2024.
If a court sides with Minnesota and finds that states retain the authority to criminalize prediction markets despite federal oversight, it would blow a hole in the regulatory certainty that the entire sector depends on. Conversely, a clear ruling in the CFTC’s favor would establish strong precedent that prediction markets are federal territory.
