State blazes a trail
Minnesota has become the first state to ban prediction markets, after Governor Tim Walz signed SF4760, a public safety bill, into law. The bill was previously passed overwhelmingly by both chambers of the state legislature.
The new law makes it a felony to create, operate, and even advertise prediction markets; penalties are up to five years in prison and a $10,000 fine. Bettors, though, would not face criminal punishment.
At an April committee hearing, Senator Jordan Rasmusson said, “It’s important that the state of Minnesota put a marker in the sand and say that the Legislature should be able to debate and look at what forms of gambling we want to legalize.”
Sports betting is banned in Minnesota – one of just 11 states that have not legalized the industry – but until this legislation, prediction markets were legal in all 50 states. The reason: prediction markets found a loophole, claiming that their mechanic of formatting bets as financial contracts and setting up markets for them to be traded like stocks is not actually gambling.
Trump admin backs prediction markets
What was a niche industry a decade ago has exploded in the last couple of years, as people around the world use prediction markets to bet on anything and everything. Sports betting companies, in turn, have embraced them, launching their own prediction market products as quickly as possible to get around state laws.
In January, the US Commodity Futures Trading Commission (CFTC) announced its support for prediction markets, saying that it would draft regulations for event contract sites and would freely weigh in on legal cases. It was a direct shot at states, which have historically regulated gambling themselves.
Under the Biden administration, the CFTC attempted to ban prediction markets from offering betting on sports and elections. The Trump administration withdrew that rule. While no funny business has been proven, many experts see a possible conflict of interest in the CFTC’s support for prediction markets. President Donald Trump’s son, Donald Trump, Jr., is an advisor to the two leading prediction market companies, Kalshi and Polymarket (paid by the former). He is also an investor in Polymarket. Thus, he stands to gain financially from the success of the sites.
The Trump Family’s company, Trump Media, has also wanted to launch its own prediction market site, Truth Predict.
The day after Governor Walz signed the bill to ban prediction markets, the CFTC filed a lawsuit to stop the law from taking effect, saying that it is the federal government that regulates prediction markets, not the states. The CFTC claims that prediction markets serve a useful purpose as a financial hedge and thus accuses Minnesota and Walz of not caring about farmers.
“Minnesota farmers have relied on critical hedging products on weather and crop-related events for decades to mitigate their risks. Governor Walz chose to put special interests first and American farmers and innovators last,” wrote CFTC Chairman Michael Selig in Tuesday’s press release.