Minnesota is telling a federal court that prediction markets carry risks ranging from gambling addiction to insider trading as officials work to preserve a new state law facing challenges from Kalshi, Polymarket and the U.S. Commodity Futures Trading Commission.
In a memorandum filed June 18, state attorneys asked the U.S. District Court for the District of Minnesota to reject requests for preliminary injunctions that would block the law before its August 1 effective date. The state maintains that the measure is a valid exercise of Minnesota’s authority to safeguard residents and protect the public interest.
“States have inherent constitutional authority to enact laws that protect the public’s health, safety, morals, and general welfare,” the state wrote in its filing.
Minnesota said lawmakers responded to concerns about the growth of prediction-market wagering and the increasing popularity of betting platforms accessible through mobile apps. The filing says legislators acted amid worries about what the state described as “surging prediction market gambling.”
The latest court filing is another step in a legal fight that has drawn national attention. Earlier this year, Minnesota lawmakers advanced legislation targeting prediction market operators. The measure ultimately became part of a public safety package and would make Minnesota the first state to impose felony penalties on companies that operate, facilitate or advertise certain prediction market contracts.
Supporters of the law argued that prediction markets were functioning outside traditional gambling protections and creating opportunities for market manipulation, insider trading and excessive wagering. Companies opposing the measure have consistently argued that the contracts are financial products regulated under federal law rather than gambling activity.
The conflict intensified after Kalshi sued the state, claiming the Commodity Exchange Act preempts Minnesota’s law because Kalshi operates as a federally regulated exchange overseen by the CFTC. The CFTC later launched its own challenge, and Polymarket operator QCX LLC filed a separate case. It has since been consolidated in federal court in Minnesota.
According to the state’s memorandum, contracts tied to sports, elections, wars, legal proceedings, public emergencies and similar future events do not fall within an area of exclusive federal control. Minnesota argues that Congress never intended federal commodities laws to eliminate the longstanding authority states have exercised over gambling-related activities.
The filing also draws attention to policy concerns tied to the industry’s proliferation. Drawing on academic studies and news reports, Minnesota argues that addiction experts have warned about gambling risks, particularly among younger men, while other critics have raised concerns about insider information and self-dealing.
State attorneys referenced reports involving a servicemember allegedly placing prediction-market wagers using classified information and cited reporting that Kalshi suspended political candidates who bet on their own races. Minnesota says such examples show how these markets could create improper financial incentives and weaken trust in public institutions.
The memorandum adds that numerous countries have restricted or banned prediction markets and points to enforcement actions taken by several U.S. states. Minnesota also cited a recent filing from former CFTC Chairman Gary Gensler, including his statement: “Congress did not displace historical state police powers over sports betting through Dodd-Frank and give it to a small federal regulatory agency with no expertise in gaming regulation.”
The court has not yet ruled on the injunction requests.
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