What was once viewed as a niche financial product has since grown to become one of the most contentious issues in US gambling regulation. States call them illegal betting, federal regulators insist they fall under financial law and courts are increasingly asked to way in and make a decision.

On this episode of the iGaming Daily podcast, business journalist for SBC Americas Justin Byers sits down with host Fernando Noodt to discuss how the legal battle for (and against) prediction markets is shaping up in the United States.

Minnesota Declares War

Minnesota Governor Tim Walz signed the first piece of legislation banning prediction market platforms from operating in the state – not as a standalone measure, but as part of a larger government bill covering fraud and criminal policy reform. 

What makes the bill so significant is the provisions within it. Walz’s ban covers war, sports, political and cultural event contracts, all core product categories that platforms like Kalshi and Polymarket deliver to American consumers daily. 

“This is some real movement we’re seeing here,” Byers said of the prediction market ban. Until now, legal battles surrounding prediction markets had largely played out as cease-and-desist orders, court filings and regulatory warnings.

But Walz’s legislation marks a serious shift in tone within the US towards prediction market platforms. 

The CFTC’s Response

Not long after Walz’s legislation announcement, the Commodity Futures Trading Commission (CFTC) filed a suit against Minnesota and key state officials arguing that prediction markets and event contracts fall under federal authority via the Commodity Exchange Act – meaning states do not have the jurisdiction to ban them.

 “This is a real landmark moment,” Byers added, “we’ll see if this is a trend […] if lawmakers around the country take note of Minnesota and their ability to pass legislation related to this”.

The implication here extends well beyond prediction markets. If the courts ultimately side with the CFTC, it could establish a precedent, constraining state gambling regulators from acting against emerging financial products that resemble gambling, but are structured as commodity contracts. 

The Rhode Island Approach

While Minnesota framed its ban largely around legality and consumer protection, Rhode Island’s attorney general Peter Neronha took a different approach to his suit against prediction market platforms. 

“Rhode Island is openly arguing that prediction markets are hurting tax revenues and regulated sports books,” argued Byers. Licensed operators in the US have built their businesses under substantial tax contributions, compliance investments and ongoing regulatory oversight.

Prediction markets are under no similar obligations and yet are competing for the same customers. “I think sports books are sweating a little bit because prediction markets are able to pull some of their customers and some of the betting handle that’s turning into trading volume. And that’s pretty daunting in my opinion,” said Byers.

Enter: The Supreme Court

It’s unlikely that the Minnesota CFTC lawsuit will be the final word here. Legal proceedings in New Jersey over a Kalshi cease-and-desist order are already moving in the direction of the Supreme Court, meaning Minnesota may follow a similar trajectory.

“Its only a matter of time before we see the Supreme Court involved in this”, said Byers, highlighting how any ruling by the Court would be a landmark moment for the entire US gambling industry.

But landmark rulings usually take time, and it’s unlikely that a decision will be made in the near future, but the direction of travel has so far pointed in one direction, suggesting that some day soon, a definitive answer will be reached, for better or for worse.