Minnesota Could Jail Prediction Market Operators Under New Bill

By Brian Pempus

A new bipartisan bill in Minnesota is arguably the most restrictive proposal in the U.S. to date regarding prediction markets. Rather than regulate prediction markets, Minnesota would criminalize them.

In December, bill sponsor Sen. John Marty (40, DFL) told GamblingHarm.org that a bill was in the works. “We must stop prediction markets from taking over here if the federal courts won’t stop them,” Marty said. “Prediction market sports betting is illegal and clearly gambling.”

Unlike legislation introduced in Iowa and New York, Minnesota Senate File 4511—posted on March 13—would treat prediction markets as criminal rather than civil matters.

The federal government has drawn controversy over its regulation of prediction markets, platforms that enable peer-to-peer bets on sports and other real-world events.

Targeting MN Prediction Market Ecosystem

Specifically, the Minnesota bill would make operating a prediction market a felony and would also criminalize certain forms of betting advertising and promotion.

Minnesota would make some ads for prohibited prediction-market activity a felony if they run during certain time windows, reach sizable under-21 audiences, falsely imply legality, or appear on public property or near schools and playgrounds.

It also targets businesses and services that help facilitate prediction markets, such as companies that handle payments or assist with online promotion.

For example, after a Minnesota attorney general’s cease-and-desist letter, the state could file felony charges against payment processors, geolocation providers, gambling content suppliers, platform providers, and media affiliates.

The bill doesn’t define a media affiliate. It is typically a website or network (eg CNN) that covers prediction markets and may earn money by directing users to register and deposit with the platforms.

Broad Category Prohibition

Minnesota’s prediction market bill would cover betting markets tied to sports, casino-style gambling, people, elections, catastrophes, and death.

Polymarket, a leading prediction market, has taken bets on events related to mass shootings.

The Minnesota bill has a broader scope than some other state bills, which focus only on sports, politics, or so-called catastrophic events.

To date, Minnesota has not legalized any form of online sports betting or online casino gambling.

Bad Actor Clause?

The Minnesota prediction market bill would impose a long-term licensing penalty on prediction market operators.

In industry terms, this is similar to a “bad actor clause.” It refers to penalizing companies that operated in the market prior to formal legalization and regulation.

Traditional online sports betting operators such as DraftKings, FanDuel, and Fanatics offer prediction market products in Minnesota.

Anyone convicted under Minnesota’s new provision could be barred from receiving a gambling-related state license for 10 years.

Drawbacks, According to Legal Expert

Numerous states are challenging prediction markets in court, a legal fight that could eventually reach the Supreme Court.

According to gaming attorney Daniel Wallach, an expert on prediction markets, state bills are “premature and counterproductive” to the court cases.

“These bills are time wasters because until the courts resolve the federal preemption issue that is currently the subject of multi-circuit, multi-year litigation, any state efforts to ban or regulate prediction markets, under any state law, will get jammed up,” Wallach told GamblingHarm.org.

The ultimate question in each case is whether state law can be enforced against federally regulated prediction markets, Wallach said.

“State legislation would likely not be very effective in the interim,” he said.

Wallach added that Minnesota’s proposed law would “provide prediction markets with Article III standing to sue Minnesota in federal court and sidestep state law enforcement remedies.”

It’s a complex and fluid legal landscape regarding prediction markets.