Minnesota Gov. Tim Walz signed the nation’s first law criminalizing prediction markets this week, and the Trump administration sued less than 24 hours later, setting up a federal showdown that could reshape where Kalshi and Polymarket are allowed to operate.

The CFTC’s chairman Michael Selig said the statute “turns lawful operators and participants in prediction markets into felons overnight.”

Minnesota Attorney General Keith Ellison fired back, "Prediction markets are designed to be addictive and prey especially on young people and low-income folks. They help the ultra-rich get richer and the rest of us get poorer.”

The law does not target individual bettors. It makes it a felony to host, create or advertise a prediction market in the state starting Aug. 1, and it reaches anyone providing “supportive services” or data to the platforms.

According to the lawsuit, that language could expose sports leagues, news organizations and financial institutions that feed real-time data to the exchanges.

Lawmakers moved to exempt weather-related contracts after pushback from the agricultural lobby, which argued that farmers have long relied on weather futures to hedge crop losses.

That concession may quietly bolster the CFTC’s core claim that prediction markets function as legitimate derivatives rather than gambling.

Minnesota Joins Nevada

In April, a Nevada judge granted an injunction blocking Kalshi from operating in the state, finding its contracts indistinguishable from sports betting and ruling that federal oversight was unlikely to preempt Nevada’s gaming laws.

Minnesota now attacks from the opposite direction, with a new criminal statute rather than existing gaming rules, leaving the industry fighting a two-front war.

How the federal case resolves may decide whether the Nevada approach spreads.

What Prediction Markets Say About Walz

The ban arrives as traders are wagering heavily on Walz’s future.

A Polymarket contract on whether he resigns has drawn more than $2.5 million in volume, though it prices the odds low, near 1% by June and 7% before 2027.

A separate market on whether he is criminally charged before 2027 sits around 18%.

The contracts coincide with fallout from the roughly $250 million Feeding Our Future scandal, the pandemic-era scheme the Justice Department has called the largest of its kind, in which prosecutors charged dozens of people over stolen federal child nutrition funds.

Walz, who has not been charged and whose administration faced criticism for missing early warning signs, testified before a House committee on the matter in March and has since dropped his reelection bid.

Minnesota is now moving to criminalize the platforms hosting the most liquid real-time markets on its own governor’s political survival.

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