Minnesota’s nation-leading effort to put guardrails on the burgeoning prediction market industry is up against a hard roadblock: the Trump administration.

After a court ruling last week, the state’s efforts to curtail popular tech firms like Kalshi and Polymarket are on hold. That means the platforms can continue offering wagers on everything from Twins games to the Oscar haul for Christopher Nolan’s “The Odyssey” to whether Mike Lindell wins the Republican primary for governor.

The lawsuit blocking the ban originated from a federal regulatory commission increasingly supportive of the industry. It’s also the latest in a string of clashes between Minnesota and President Donald Trump’s administration, and yet another of those fights that is now playing out in the courts.

At issue is whether prediction markets, which have exploded in popularity in recent years, should be treated as a form of gambling or as federally regulated financial markets.

Minnesota lawmakers adopted broad restrictions on the tech apps, addressing concerns about gambling addiction and insider trading. The federal Commodity Futures Trading Commission (CFTC) argues prediction markets offer financial contracts and are not gambling, so they fall under the federal government’s jurisdiction.

The day after the federal court ruled in the CFTC’s favor, Gov. Tim Walz issued an executive order barring state employees from using privileged knowledge to place wagers on apps like Kalshi and Polymarket. Public servants should not “make money off insider information,” Walz said.

But it’s unclear whether the rest of Minnesota will ever see any restrictions. In U.S. District Court Judge Katherine Menendez’s ruling granting the pause on enforcement, she said the state is free to apply existing Minnesota gambling laws.

That could trigger another lawsuit. The CFTC has dragged other states into court in recent months for doing so.

Trump, whose family has wide interests in the industry, is clear on his view that prediction markets should be allowed. He said in March that the CFTC’s role is critical and its regulatory role should be “exclusive.”

The CFTC used to forbid certain derivatives contracts, commonly known as swaps, on professional sports. Since Trump started his second term, the commission has started allowing swaps on sporting events, which have become big traffic drivers on prediction market apps.

“It’s a classic regulatory capture when you look at the timeline, and how the CFTC has approached sporting event contracts for 15 years, and it all changed on a dime,” said Daniel Wallach, an attorney and sports gambling expert.

The CFTC’s role, he said, “has essentially been to do the bidding of the Trump administration.”

The closeness of the Trump family to the biggest businesses in prediction markets is drawing scrutiny.

Donald Trump Jr., the president’s eldest son, is an adviser to Kalshi and Polymarket, two companies financially benefitting from the CFTC’s lighter regulatory touch. His investment firm 1789 Capital took a stake in Polymarket as the company returned to operating in the U.S. last year. Kalshi reportedly gave the younger Trump a $300,000 stake in the company that has since surged in value, according to the Financial Times.

Concerns about the management of the markets have arisen as adoption is expanding across the country.

Prediction market event contracts have shown to carry the risk of insider trading through the use of privileged information. Though the firms running them have taken strides to prevent fraud, high-profile examples have emerged in recent months, including a soldier using classified intelligence to wager on the toppling of the Maduro regime in Venezuela and a White House teleprompter operator winning $100,000 in bets on specific words said in the president’s speeches.

Richard Painter, a University of Minnesota law professor and former chief White House ethics adviser under Republican President George W. Bush, said the Trump administration holds greater power today to fire commissioners who counter its agenda because of a recent U.S. Supreme Court decision expanding presidential power.

The decision, which upended a 91-year-old precedent, spells difficulty ahead for the CFTC and other agencies to regulate “without politics completely dominating” them, Painter said.

“They aren’t going to regulate at all if the White House doesn’t want to regulate at all,” Painter said, adding the president has “massive conflicts of interest” in cryptocurrency, which prediction market apps offer event contracts on.

Normally staffed by five members, including two from the president’s opposing political party, the lone commissioner currently running the CFTC is its chairman, Michael Selig, an attorney with a background representing prediction market and cryptocurrency firms.

The CFTC did not respond to requests for comment.

Prediction market rivals Kalshi and Polymarket have said Minnesota and other states have no place barring them from offering their popular services.

Created in 1974, the CFTC historically oversaw a corner of financial markets regulated under the Commodity Exchange Act of 1936. The derivatives markets it regulates originated as a financial tool for farmers and other merchants to hedge against market price fluctuations of crops and raw materials.

Aligning with a narrative from the prediction market industry, the CFTC has argued the outcomes of sports events, as well as other future events, qualify as a legitimate investment contract.

The federal agency’s legal theory is grounded in the newfound position that Congress, through the Dodd-Frank Act of 2010, handed the CFTC an exclusive power to say what contracts can be listed on a prediction market, regardless of apparent conflicts with state laws.

Opponents have said this viewpoint is disputed in the congressional record and contradicts a 2018 U.S. Supreme Court decision that gutted a federal prohibition and enabled states to create legalized gambling on pro sports.

In response to mounting pressure, the CFTC in June proposed an updated regulatory rule concerning prediction markets. However, the rule faces heavy criticism from state officials, the regulated gaming industry and consumer advocates.

“The proposal gives the prediction markets almost everything that they want,” said Benjamin Schiffrin, director of securities policy at the Wall Street watchdog organization Better Markets. “And that’s consistent with the role that the CFTC has played in this space.”

“It would turn the CFTC into a gambling regulator,” Schiffrin added, “and allow prediction market companies to essentially offer gambling products under the guise that they’re legitimate financial instruments.”

As major prediction markets went mainstream and exploded in trading volume, Minnesota lawmakers took a distinct path to regulation by crafting a new law that bans specific trades on war, elections and sports.

Sen. John Marty, DFL-Roseville, said the action added clarity to the state’s gambling laws and received broad support from Republicans. It was a step he took with urgency, he said, out of concern for “off-the-charts” suicide rates among gambling addicts.

“This is such a deadly addiction,” Marty said. “I think adults should be able to gamble, but when you have predatory businesses trying to profit off them, that’s the concern.”

Marty noted the legal challenge to the state’s law began with the CFTC itself, saying the federal agency is turning a “blind eye” to regulation and helping the prediction market firms “enrich themselves.”

“It’s a corruption of the regulatory agency,” the legislator said.

Marty said lawmakers took care to carve out exceptions for longstanding legitimate trades handled on financial markets. And despite the early loss in court, he remains hopeful the state’s law will ultimately be upheld.

In her ruling earlier this week, Menendez sided with arguments forwarded by the federal government and the tech firms on how to classify the contracts sold as “swaps” of real economic consequence. However, she said there could be strong arguments that support the state’s position as well.

The judge accepted that Minnesota’s law put the prediction market firms at real risk of financial harm. Kalshi has said about 90,000 people in Minnesota use its platform. Polymarket has not supplied similar figures.

It’s unclear whether Menendez’s ruling will spur the state to apply any existing gambling laws to the predictive markets.

Earlier this month, Lindsey Middlecamp, a lawyer for the Attorney General’s Office, said in court the state’s recently passed law came in addition to other gambling statutes already on the books that could apply to Kalshi and Polymarket. She said the wider ban added a belt to the state’s suspenders.

The state designates the Department of Public Safety’s Alcohol and Gambling Enforcement Division with investigating violations of its gambling laws and forwarding cases to county prosecutors for consideration of criminal charges. During a Minnesota Senate committee hearing in April, Jon Anglin, the head of the division, said his department had yet to reach a conclusion on whether prediction market activities fit into the state’s existing gambling prohibitions.

A Department of Public Safety spokesman declined to say whether the state agency views prediction market activities as illegal under current state law, or if the agency is pursuing any actions against prediction market firms, citing the state’s law being “a topic” in the federal lawsuit.

Wallach, the sports gambling expert, said the state may have faced an easier road by applying its existing gambling statutes that already outlaw sports betting. Several other states, including Michigan, Massachusetts and Nevada, have won early court victories by doing just that.

“It was a time waster, counterproductive and it placed the state in a heavily disadvantaged position by banning so much more beyond just sporting events,” Wallach said.

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