If you live in Minnesota and bet on who wins the next election or which team takes the championship through a platform like Kalshi or Polymarket, the state just tried to make that illegal. Starting August 1, operating, hosting, or even promoting a prediction market in Minnesota would become a crime under a law signed Monday by Governor Tim Walz.

By Tuesday, the federal government had sued to stop it.

The Commodity Futures Trading Commission, the federal agency that oversees derivatives markets, filed a lawsuit arguing that Minnesota's law is unconstitutional. The core claim: the trades on prediction market platforms are a type of financial contract called a "swap," which falls under federal jurisdiction. A state cannot, the CFTC argues, criminalize something that federal law explicitly governs.

"This Minnesota law turns lawful operators and participants in prediction markets into felons overnight," CFTC Chairman Michael Selig said in a statement.

What prediction markets actually are

Prediction markets let users buy and sell contracts tied to the outcome of real-world events. If you think a particular candidate will win an election, you buy a contract that pays out if they do. If you're wrong, you lose what you put in. The industry is structured as financial trading, not traditional gambling, which is the legal argument at the center of all of this.

Kalshi, one of the largest platforms, was valued at $22 billion in a recent funding round. Polymarket is another major player. Both have argued that their products are federally regulated financial instruments, not state-regulated gambling operations.

States disagree. Several have argued that whatever you call the contracts, the practical effect is that adults are wagering money on the outcome of sporting events and elections, often without the consumer protections, age verification requirements, and licensing obligations that gambling laws are designed to enforce.

A fight playing out in courts across the country

Minnesota isn't alone, and neither is the CFTC. The agency has now sued multiple states to block enforcement actions against prediction market operators. It recently won a court order that stopped Arizona from pursuing a criminal case against Kalshi. Nevada is currently the only state that has a court-enforced ban on Kalshi actually in effect. Massachusetts is still working through its own legal process.

Minnesota's law is notable because it goes further than most: it's the first outright statewide ban in the country, and it carries criminal penalties rather than just regulatory ones.

The Minnesota Attorney General's office, run by Democrat Keith Ellison, said it is reviewing the lawsuit and will respond in court.

The Trump administration's CFTC has consistently sided with the platforms throughout this dispute, which is worth noting. The same agency that under a different administration might have moved to tighten oversight of these products has instead spent the past year going to court to protect them from state regulators. That political alignment gives Kalshi and Polymarket a powerful ally for now, but it also means the legal framework they're operating under could look very different if the regulatory winds shift.

For ordinary users, the immediate stakes are access: whether you can legally use these platforms depends increasingly on where you live, not just what federal law says. And for the broader question of who gets to regulate a fast-growing, multi-billion-dollar industry sitting at the intersection of finance and gambling, that question is still being settled one lawsuit at a time.