Federal and private legal challenges over prediction markets are escalating, with recent conflicts focused on Minnesota and Rhode Island.
Minnesota action and federal response
Minnesota Governor Tim Walz last week signed a law that amends state statutes to ban advertising, creating, operating or otherwise facilitating prediction market platforms. Less than 24 hours later, Commodity Futures Trading Commission (CFTC) Chair Michael Selig filed a federal lawsuit arguing the new law is the “first outright ban” on prediction markets and exceeds state authority.
Kalshi’s challenge
Prediction market operator Kalshi followed with its own federal suit challenging Minnesota’s law on constitutional grounds. Kalshi argues, alongside the CFTC, that event contracts offered by prediction markets are “swaps” traded on federally designated contract markets and therefore fall under the CFTC’s exclusive jurisdiction pursuant to the Commodity Exchange Act and the Supremacy Clause. The company says federal law preempts the state prohibition and that Minnesota’s statute is unconstitutional.
Jurisdictional dispute and the path to higher courts
Courts have split on whether event contracts are covered by the Commodity Exchange Act. Some lower courts have rejected the CFTC’s position that these contracts are federally regulated swaps; others have sided with Kalshi and the CFTC, creating the possibility of an appeal that could reach the U.S. Supreme Court to resolve the regulatory question once and for all.
Rhode Island filing and joint CFTC motion
Separately, Rhode Island Attorney General Peter Neronha sued Kalshi and rival platform Polymarket, seeking a declaratory judgment that sports-related event contracts offered by the platforms constitute unlawful bets under state law. The CFTC filed a motion to intervene jointly with Kalshi in the Rhode Island matter, reiterating its view that the agency has primary regulatory authority over prediction markets and that federal law governs these products.
Political and congressional attention
The dispute has drawn political attention. Former President Donald Trump publicly asserted on social media that the CFTC must retain sole authority over prediction markets. Trump Jr. has ties to the industry: he serves as an adviser to Kalshi and Polymarket and has invested in Polymarket through his firm, 1789 Capital.
Prediction market platforms have also come under scrutiny in Congress. The chair of the House Oversight and Government Reform Committee recently requested that the CEOs of Kalshi and Polymarket respond to questions related to possible insider trading and the companies’ policies for preventing trading by public officials or other insiders.
Why it matters
At issue is whether prediction markets will be regulated uniformly at the federal level as derivatives or left subject to differing state gambling and betting laws. A federal ruling that event contracts are swaps would preempt state bans and reshape the legal landscape for these platforms; a contrary outcome would allow states greater control over whether and how prediction markets operate within their borders.
The competing filings in Minnesota and Rhode Island, plus the split among lower courts, make this a pivotal moment for the industry and increase the likelihood of a decisive appellate ruling on federal preemption and regulatory authority.