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The federal government is fighting Minnesota's decision to outlaw prediction markets like Kalshi and Polymarket.

The Commodity Futures Trading Commission sued the state to block its new bill, signed into law Monday by Gov. Tim Walz, that among other things makes it illegal to host prediction markets or offer or advertise 'event contracts' for a wide range of events.

The Minnesota law covers athletic events, esports events and games of skill as well as trading on the outcomes of emergencies, assassinations, short-term weather events, popular culture events or even 'whether a person will make a particular statement.' Violators could be charged with felonies.

Minnesota was the first state to enact any outright ban on prediction markets. Critics of Kalshi, Polymarket and similar companies say the idea of trading 'event contracts' amounts to gambling on real-world outcomes while skirting gambling regulations. Experts also believe insider trading can run rampant in these contracts as some outcomes can be either manipulated or known in advance by certain individuals.

The law was to go into effect Aug. 1, but CFTC chairman Michael Selig said in a statement that it 'turns lawful operators and participants in prediction markets into felons overnight.'

The Trump administration's CFTC has sued five other states -- Arizona, Connecticut, Illinois, New York and Wisconsin -- for their attempts to limit prediction-market companies from offering sports contracts in their states.

Sports betting is regulated by the states, and prediction markets' entry into sports may threaten the business of others operating legally in that space.

--Field Level Media