Over the past two years, prediction markets have exploded from a niche internet experiment into one of the biggest legal gray areas in American gambling and financial regulation. Platforms like Kalshi and Polymarket now allow users to trade contracts tied to everything from presidential elections and Federal Reserve decisions to weather events, celebrity news, and championship games. Supporters argue these platforms function more like financial exchanges than sportsbooks, framing them as tools for forecasting and information aggregation rather than gambling.
Critics, however, see something very different. State regulators, attorneys general, tribal gaming interests, and some lawmakers argue prediction markets are effectively unregulated betting platforms operating outside traditional gambling laws. That conflict has triggered a rapidly expanding legal battle across the country. More than 30 lawsuits and regulatory actions are now tied to prediction markets, with disputes centering on whether federal commodities law preempts state gambling authority.
Now, states are beginning to move from lawsuits to legislation. This week, a look at the growing push to regulate or outright ban prediction markets!
What Are Prediction Markets?
Prediction markets allow users to buy and sell contracts tied to future events. Instead of placing a traditional sportsbook wager, users purchase positions that rise or fall in value depending on how likely an event appears to occur.
A contract might ask:
- Will a presidential candidate win an election?
- Will inflation exceed a certain percentage?
- Will a hurricane make landfall?
- Will a sports team win a championship?
- Will Congress pass a particular bill?
Essentially, if you can think of something with a finite answer, you can take out a contract on it! If the event occurs, the contract settles at a fixed value. If it does not, the contract expires worthless.
Supporters of this "movement" so to say often compare these systems to commodities futures markets. Platforms like Kalshi argue that they operate legally under federal oversight from the Commodity Futures Trading Commission because the contracts are treated as financial instruments rather than gambling products.
That distinction is becoming the entire fight.
States traditionally regulate gambling within their borders. But prediction market companies argue federal commodities law preempts many state restrictions. The result is a rapidly escalating jurisdictional conflict between states, federal regulators, gaming commissions, and the prediction market industry itself.
And, Minnesota just became the first state to take on that fight, with an attempt a direct statutory ban.
Minnesota Draws a Hard Line
Minnesota’s SF 4760 is technically an omnibus public safety bill. Buried within the broader legislation, however, is one of the most aggressive prediction market prohibitions introduced anywhere in the country. The bill was passed mid-May and is set to take effect August 1, 2026.
The bill creates a brand-new criminal statute dedicated entirely to prediction markets. Unlike many existing gambling laws, which rely on broader definitions of wagering or gaming activity, Minnesota spells out prediction markets in extraordinary detail.
The legislation defines prediction markets as systems allowing consumers to wager on the future outcome of events not controlled by the contracting parties. The bill then lists an enormous range of prohibited event categories, including:
- Athletic events and esports
- Elections and government actions
- Wars and emergencies
- Legal proceedings
- Public health crises
- Mass casualty events
- Weather
- Entertainment awards
- Statements made by individuals
The breadth of the definition is particularly notable. The law is not narrowly targeting election markets or sports-style contracts. It instead attempts to capture nearly the entire modern prediction market ecosystem. And the penalties? Well they are severe.
What the Minnesota Bill Actually Prohibits
Under SF 4760, it becomes a felony offense to:
- Create a prediction market
- Operate or manage a prediction market platform
- Facilitate wagers through event listings or settlement systems
- Handle funds connected to prediction market activity
- Provide data or verification services to prediction markets
- Offer geolocation or payment services supporting prohibited activity
- Advertise products promoting prohibited prediction market transactions
The bill does not only target platform operators themselves. It takes a page out of other prohibitionary legislation (hello marijuana!), by attempting to limit supporting infrastructure (think payment processors, data providers, and service vendors) that knowingly assists prohibited activity. This is a major escalation compared to traditional gambling legislation, which has historically focused primarily on operators or facilitators of this activity.
The law also takes aim at advertising. I am sure you have seen Kalshi or Polymarket in the background of a recent sports match or on a bus stop. Under the bill, companies promoting prohibited prediction market activity could face felony exposure simply for marketing related products or services.
Importantly, the statute includes exemptions for activities already excluded from Minnesota’s definition of gambling and for certain federally regulated financial contracts. But where those lines actually fall will almost certainly become the subject of litigation.
The Lawsuits Started Immediately
The moment Minnesota moved forward with this bill, litigation followed. The Commodity Futures Trading Commission quickly filed suit challenging the state law, arguing that federally regulated event contracts fall under federal commodities authority rather than state gambling law. Prediction market companies and regulators are now fighting over whether states can prohibit markets approved under federal oversight.
This mirrors a broader national conflict already underway. Kalshi alone has been involved in legal battles with multiple state gaming regulators over sports-related event contracts. Several states issued cease-and-desist orders arguing the company was offering illegal sports betting products. Kalshi responded with lawsuits asserting that federal commodities regulation supersedes state gambling enforcement.
Minnesota Is Pursuing Multiple Bills
Minnesota is simply the first state trying to codify this fight directly into statute. SF 4760 is not the only prediction market legislation moving through Minnesota.
Two Standalone Prediction Market Crackdown Bills
Minnesota lawmakers are also advancing multiple standalone bills that closely mirror the prediction market provisions included in the omnibus public safety legislation. HF 4437 and SF 4511 both make it a felony to create, operate, facilitate, or advertise prediction markets tied to events such as elections, sports, weather, and other future outcomes.
Both bills go beyond simply targeting platform operators. Liability can also extend to entities involved in payment processing, event administration, transaction settlement, or other services supporting prediction market activity if they knowingly assist prohibited operations.
HF 4437 additionally places significant restrictions on advertising. The bill prohibits certain prediction market advertisements during specified broadcast windows, near schools, and in ways that may target individuals under 21. It would also disqualify individuals convicted of violating these provisions from receiving lawful gambling licenses in Minnesota.
SF 4511 similarly expands enforcement authority by allowing cease-and-desist orders and injunctions against operators or supporting entities. Together, the bills show Minnesota lawmakers pursuing a broad strategy that combines criminal penalties, advertising restrictions, licensing consequences, and aggressive enforcement mechanisms aimed at limiting prediction market activity within the state.
SF 3432 is primarily a large-scale public safety appropriations bill. But like SF 4760, it also incorporates prediction market prohibitions into broader public safety legislation. That inclusion is politically notable. Minnesota lawmakers are increasingly framing prediction markets not simply as a gaming issue, but as part of broader consumer protection and public safety concerns.
Some States Want Restrictions, Not Full Bans
Not every state is taking Minnesota’s approach. Some legislatures are attempting to regulate prediction markets rather than prohibit them outright.
Connecticut: Age Limits and Consumer Protections
In Connecticut, HB 5038 proposed restrictions focused primarily on minors and advertising. The bill would have prohibited prediction market participation by anyone under 21 while requiring identity verification, geolocation controls, and self-exclusion systems. The legislation also targeted marketing practices. Platforms would have been barred from directing advertisements toward minors or college campuses, and violations could trigger substantial civil penalties. Though the bill ultimately died, it reflects a regulatory approach focused more on consumer safeguards than outright prohibition.
Connecticut also enacted HB 5229, a broader gaming bill that includes a formal state study examining the impact of prediction markets on residents. That legislation additionally restricts certain forms of gaming-related advertising on college campuses and strengthens responsible gambling requirements.
Some States Want to Build Regulatory Frameworks
Other states are moving in the opposite direction entirely, attempting to legitimize and regulate prediction markets as a formal industry.
Illinois: Licensing and Taxation
Illinois introduced two separate prediction market bills this session. SB 4168, the Prediction Markets Regulation and Taxation Act, creates a full licensing structure for qualifying prediction market operators. Companies would need approval from the Illinois Gaming Board, pay $1 million licensing fees, and comply with responsible gambling and market integrity requirements.
The bill also imposes a strikingly large tax structure: a 50% tax on adjusted gross receipts from Illinois-related prediction market activity. Sports-style contracts would remain prohibited, but markets tied to elections or economic indicators could potentially operate under state oversight. This is another trend that seemingly appears to be taken from the national marijuana fight.
HB 5059, known as the ORACLE Act, takes a more restrictive regulatory model. It prohibits several categories outright, including political markets, death-related markets, catastrophic event markets, and athletic event contracts.
At the same time, the bill imposes extensive consumer protection rules including self-exclusion systems, deposit limits, fraud prevention requirements, advertising restrictions, and responsible gaming disclosures. Rather than banning prediction markets entirely, Illinois lawmakers appear to be debating what types of prediction markets should be allowed at all.
Pennsylvania: A Full Licensing System
Pennsylvania’s HB 2497 creates perhaps the clearest attempt to normalize prediction markets through state gaming regulation. The bill establishes a formal licensing system overseen by the Pennsylvania Gaming Control Board. Operators would face $1 million annual licensing fees, mandatory consumer protections, self-exclusion systems, and taxation on event outcome wagering revenue.
The legislation explicitly treats prediction markets as a taxable gaming industry. Revenue would fund the state general fund, gambling treatment programs, and public interest projects through additional local assessments. Rather than asking whether prediction markets should exist, Pennsylvania is asking how they should be regulated and monetized.
Sports Betting States Are Trying to Protect Existing Gaming Systems
Several states appear especially concerned about overlap between prediction markets and traditional sports betting industries.
Kentucky: Blocking Prediction Market Partnerships
Kentucky’s HB 904 primarily focuses on broader gaming reforms, fantasy contests, and fixed-odds wagering. But buried within the bill is a restriction preventing racetracks from contracting with platforms offering prediction markets.
That provision reflects growing concern from established gaming operators that prediction markets may function as a parallel betting industry outside normal state licensing structures. Kentucky lawmakers also expanded gaming oversight, raised certain wagering age limits to 21, and strengthened enforcement authority for regulators.
New Jersey: Splitting the Difference
New Jersey’s A 4689 takes one of the more nuanced approaches. The bill would prohibit certain prediction markets entirely, including markets tied to deaths, disasters, and elections. But it simultaneously authorizes athletic event prediction markets if they comply with existing sports wagering regulations.
In practice, New Jersey appears to be trying to pull sports-related prediction markets into its existing casino and sportsbook framework rather than eliminate them entirely. Operators would need gaming licenses, responsible gambling programs, fraud monitoring systems, and state oversight. The bill also imposes aggressive enforcement tools, including potential fines reaching $1 million per day for violations.
Other States Are Targeting Specific Risks
Some bills focus less on operators and more on conflicts of interest or public integrity concerns.
North Carolina: Expanding Gambling Definitions
North Carolina’s H 1171 directly amends state gambling law to include prediction markets within prohibited games of chance. The legislation specifically extends the prohibition to online platforms accessible to North Carolina residents, making participation or operation potentially punishable as a misdemeanor. It also allocates enforcement funding to the State Lottery Commission.
Ohio: Restricting Public Officials
Ohio’s HB 887 approaches the issue from a government ethics perspective. The bill would prohibit public officials and employees from participating in prediction markets or trading event contracts tied to future events. Officials would also be barred from sharing confidential information that could influence markets. The concern here is less about gambling itself and more about insider information, market manipulation, and conflicts of interest involving government actors.
The Federal Government Is Starting to Move Too
So far, most of the prediction market fight has happened at the state level through lawsuits, cease-and-desist orders, and gaming legislation. But Congress is increasingly stepping into the conversation as lawmakers begin asking a different set of questions.
Not whether prediction markets should exist, but whether government officials, regulators, and insiders should be allowed to participate in them at all.
That shift is important. Many of the emerging federal bills do not attempt to ban prediction markets outright. Instead, they focus on insider trading risks, conflicts of interest, and the possibility that public officials could profit from access to nonpublic government information.
In other words, Congress increasingly appears to be treating prediction markets less like a pure gambling issue and more like a financial ethics and market integrity issue.
HR 7004: Preventing Insider Trading in Prediction Markets
HR 7004, the Public Integrity in Financial Prediction Markets Act of 2026, takes one of the clearest approaches. The bill would prohibit elected officials, congressional staff, political appointees, and executive branch employees from participating in prediction market transactions when they possess material nonpublic information related to the contract being traded. The legislation specifically applies to prediction market contracts tied to government actions, political outcomes, or future events where insider knowledge could create an unfair advantage.
This bill effectively imports traditional insider trading concepts into the prediction market world. Rather than treating these markets solely as gambling platforms, the legislation frames them as financial systems vulnerable to the same types of abuse seen in securities trading.
HR 8148: Expanding CFTC Enforcement Authority
HR 8148, the Prediction Market RISK Act, focuses less on banning activity and more on clarifying federal regulatory authority. The legislation reinforces that the Commodity Futures Trading Commission has authority to investigate and enforce illegal trading practices involving prediction market contracts. This includes insider trading, fraud, and market manipulation tied to event-based financial contracts.
Importantly, the bill implicitly recognizes prediction markets as legitimate financial instruments falling within the CFTC’s jurisdiction. That stands in sharp contrast to states like Minnesota, which are attempting to classify many of the same activities as illegal gambling operations.
House and Senate Rules Changes: Congress Policing Itself
Congress is also considering direct ethics restrictions on lawmakers themselves. This is aligned with some other movements and news we've seen about Stock Trading within Congress.
House Res. 1248 would amend House rules to prohibit Members of Congress, House employees, and officers from participating in prediction markets involving event-based contracts tied to future contingencies or outcomes. The resolution specifically exempts lawful insurance products and traditional sports wagering.
Similarly, Senate Res. 708 would impose nearly identical restrictions on Senators and Senate employees. Both resolutions also encourage the executive and judicial branches to adopt comparable standards.
These proposals reflect growing discomfort with the idea that lawmakers could potentially trade on markets tied to legislation, government actions, elections, regulatory decisions, or geopolitical events they may directly influence. The optics alone are becoming a major concern.
S 4615: Intelligence and National Security Concerns
One of the more striking federal developments appears inside the Intelligence Authorization Act for Fiscal Year 2027. Buried within the enormous intelligence policy bill is a provision prohibiting intelligence community personnel from participating in prediction markets involving nonpublic information. The restriction applies across intelligence agencies and reflects concerns that classified or sensitive government information could be monetized through event-based trading platforms.
That inclusion is notable because it moves prediction markets into the realm of national security and intelligence ethics, not simply gambling regulation or financial oversight. Congress is increasingly recognizing that these platforms create entirely new questions around information asymmetry. If prediction markets exist at scale, what happens when participants include individuals with advance knowledge of wars, sanctions, cyberattacks, economic actions, public health emergencies, or classified operations?
That concern is now showing up directly in federal intelligence legislation.
Pulling the Trend Together
Taken together, these bills reveal a much larger debate emerging across the country. Are prediction markets: Financial exchanges? Gambling products? Forecasting tools? Commodity contracts? Sports betting alternatives? Political betting systems?
The answer determines who regulates them, how they are taxed, whether states can ban them, and whether federal law overrides state authority.
Some states, like Minnesota, are treating prediction markets as fundamentally incompatible with existing gambling policy and moving toward criminal prohibition. Others, like Pennsylvania and Illinois, are attempting to build regulatory systems that would treat prediction markets as a legal but heavily controlled gaming industry.
Meanwhile, Congress is increasingly focused on insider trading, ethics, and market integrity concerns rather than outright bans. Federal lawmakers appear less interested in eliminating prediction markets entirely and more concerned with who participates in them, what information they possess, and which agencies ultimately regulate the space.
That divide may become one of the defining legal questions surrounding prediction markets moving forward.
If courts and regulators ultimately decide these systems are primarily gambling products, states may retain broad authority to prohibit or tightly restrict them. But if prediction markets are increasingly treated as federally regulated financial instruments, state-level bans could face growing legal challenges under federal preemption doctrines.
Prediction markets may have started as a niche internet experiment, but they are now becoming one of the most contested regulatory fights in modern gambling law, financial regulation, and government ethics.
Image generated by ChatGPT.
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