A Minnesota bill would make prediction markets illegal by removing them from a futures-exchange exception in the state’s gambling laws and bar companies offering the product from gaming licenses for 10 years. But like all state prediction market bills, it is unclear whether the bill would actually be enforceable.
The bill, SF4511, was introduced Monday by Sens. John Marty, Jordan Rasmusson, Mary Kunesh-Podein, Erin Maye Quade, and Matt Klein. It has been referred to the Senate’s Judiciary and Public Safety Committee.
It would amend Minnesota’s gambling laws to state that anyone operating a business “that allows participants to place, enter, or execute wagers, bets, trades, contracts, or financial positions” on sports, casino-style games, politics, people, catastrophe, or death commits a felony, even if those transactions involve “the purchase of securities, commodities, or other similar financial products.”
The definition of bets on “people” appears wide-ranging, with the bill clarifying that it includes “an outcome that relates to an event or events happening to a natural person or group of people.” It is not clear whether this could potentially cover more traditional forms of financial contracts, such as those on the unemployment rate.
It’s also not clear whether the amendment would have any effect if it becomes law. Kalshi and other prediction market operators have repeatedly argued that they are not subject to state gambling laws; they insist that the federal Commodity Exchange Act overrules these laws. Whether it does preempt state laws appears up for debate, with district court judges ruling different ways on the subject, but prediction markets would at least be able to fight the amendment’s application in court.
Minnesota sports betting laws include futures exception
If the courts ultimately determine that prediction markets are subject to state gambling laws, the additional language could be important, because the current definition of a bet in Minnesota state law includes what may be a carve-out for exchanges registered by the Commodity Futures Trading Commission (CFTC). The definitions of sports betting in the existing law exclude “a contract for the purchase or sale at a future date of securities or other commodities.”
While event contracts are not literally a contract for the purchase or sale of a commodity, they are regulated under the same framework, which may make it harder for authorities in Minnesota to bring a case against a prediction market without changing the law.
The significance of carve-outs for traditional commodity futures could be tested in the courts soon, as Kalshi on Friday sued Arizona in order to get an injunction to prevent the state from enforcing its sports betting laws. Arizona law says, “Bona fide business transactions that are valid under the law of contracts including contracts for the purchase or sale at a future date of securities or commodities” are not bets.
Law also targets suppliers, payment processors
Another key element of the bill is that it aims to go after companies that provide services to prediction markets.
According to the bill, “Any individual, applicant, entity, financial institution, payment processor, geolocation provider, gaming content supplier, third-party processor, platform provider, or media affiliate that continues to knowingly accept, facilitate, or process payments in connection with” prediction markets in Minnesota after receiving a cease-and-desist letter commits a felony.
While prediction markets have argued that exchanges themselves are under the “exclusive jurisdiction” of the CFTC, it’s not so clear whether a state law might still apply to companies that provide services, such as payments or marketing services to a prediction market.
Ten-year gaming-license ban
In addition, the bill says that any person or business convicted under these laws cannot receive “any gaming-related license” until 10 years after the offense.
Here, state jurisdiction may be strongest, as states can have full control over who is eligible for a gambling license. Sports betting is not currently legal in Minnesota, though a bill proposed last week could change that. Like most other states without legal sports betting, DraftKings, FanDuel, and Fanatics offer sports event contracts in Minnesota, but would be among the top candidates for sportsbook licenses if the state legalized sports betting.
However, the bill states that this ban would apply only to individuals or companies convicted under the law, so if courts rule that it cannot convict prediction market operators under the law, then it may not be able to enforce the licensing ban.
Advertisements for prediction markets would also be banned under the law.
