As prediction markets’ volumes grow at a ruthless pace, their businesses are being challenged by states across the country. The federal government is fighting a multifront battle to stop the state actions and assert its regulatory authority. 

Sixteen states are involved in legal proceedings against prediction market platform companies, while one state has moved to ban them entirely.

The Commodity Futures Trading Commission argues it’s the only entity that can regulate these platforms, and the agency has sued six states to defend what it describes as its “exclusive jurisdiction” over prediction markets.

Minnesota became the latest in the government’s crosshairs Tuesday, when the commission sued the state after Gov. Tim Walz signed a law as part of a broader online safety package that would ban prediction markets from operating in the state — a first in the country.

Jeff Le Riche, a former chief trial attorney at the CFTC and now a partner at Husch Blackwell, said the aggressive strategy isn’t typical of the federal agency. “The suing of states is unusual,” he said. “That’s definitely a different tactic.”

CFTC Chair Michael Selig has been clear since his confirmation by the U.S. Senate in December about his views on the agency’s oversight of prediction markets. He also is, for now, the only member on the commission, which typically is a body of five. 

“States cannot circumvent the clear directive of Congress,” Selig said in an April press release announcing a lawsuit against Wisconsin. “Our message to Wisconsin is the same as to New York, Arizona, and others: if you interfere with the operation of federal law in regulating financial markets, we will sue you.”

Scrambling partisan divides

The battle between states and the federal government for oversight of prediction markets has scrambled typical partisan divides.

Eleven states that have ongoing legal proceedings against prediction markets have Democratic attorneys general, while five have Republican ones. Minnesota, where state legislators moved to ban prediction markets, passed the law in both its state House and Senate by wide majorities, despite those chambers being divided narrowly by party. 

“I wouldn’t say that it’s that surprising just because of the state versus federal issues,” said Jon Ammons, a partner at law firm Reed Smith who focuses on regulatory matters related to commodities, derivatives and digital assets. “I think that states have this idea that they are the ones who regulate gaming and things that look like gaming.”

While regulators in the 16 states involved in legal proceedings over prediction markets come from both sides of the aisle, the six states the CFTC has sued so far — Wisconsin, New York, Connecticut, Illinois, Arizona and Minnesota — all have Democratic attorneys general. 

“I cannot answer for the Trump Administration as to why they would have chosen to sue only certain states with Democratic leadership, bypassing others who have taken similar enforcement postures,” said Connecticut Attorney General William Tong, a Democrat, in a statement to CNBC.

The only action the CFTC has taken against a state with a Republican attorney general is in Ohio, where it filed an amicus brief defending its sole jurisdiction rationale. 

Richie Taylor, a spokesperson for Arizona Attorney General Kris Mayes, said in an email he is limited in his ability to comment due to the ongoing litigation but noted the bipartisan nature of the action by states. 

“Like red states and blue states alike, AG Mayes believes the CFTC is improperly encroaching on the right of states to enforce their gambling laws,” Taylor said. 

The battle for oversight of events contracts

States argue that prediction market platforms are running illegal sports betting operations, thanks to their related event contracts, which drive the majority of volume on the platforms. The CFTC argues that its right to regulate swaps and derivatives places all event contracts, no matter the content, under its purview. 

A spokesperson for the CFTC denied that there’s anything involved in the commission’s legal strategy beyond an attempt to defend its regulatory power. 

“These states sought to regulate or prosecute lawful, CFTC‑regulated exchanges that were operating fully in accordance with federal statutes, requiring the CFTC to intervene,” an agency spokesperson said in a statement. “It is based solely on the CFTC’s responsibility to ensure that states do not interfere with the trading of event contracts regulated under federal law.”

In its lawsuits so far, the CFTC won a preliminary injunction in Arizona to stop the state from pursuing criminal charges against Kalshi, the largest domestic prediction market platform. In the other five states, cases are still ongoing and no initial rulings have been made. 

Separately, the U.S. Court of Appeals for the Third Circuit ruled that New Jersey can’t enforce gambling laws on prediction markets. But the legal battles are in the early days, and many of those who follow them say the final verdict will likely be determined at the nation’s highest court. 

“It has the makings of a real circuit split, which does seem to indicate a high likelihood that this would go to the Supreme Court,” Ammons said.

Disclosure: CNBC and Kalshi have a commercial relationship that includes customer acquisition and a minority investment.

Alphabet‘s Google will build its first data center in Minnesota and deploy a significant amount of new renewable energy in the state under an agreement with utility Xcel, the companies announced Tuesday.

The data center will be located on a 480-acre site at Pine Island, a town of about 4,000 people some 70 miles southeast of Minneapolis. Google had not publicly disclosed its role in the project previously. The facility will be used for artificial intelligence applications as well as Google’s broader cloud business.

The proposed data center at Pine Island has faced community opposition but is supported by the city council. It has not begun construction yet. Data centers are facing political blowback in communities across the U.S. more often as people blame them for rising electricity prices in some regions and worry about their environmental impact. Data centers also consume a significant amount of water for cooling.

Google declined to disclose how much electricity the data center will consume. The tech company said it will pay for any electric grid infrastructure needed for the project. The Minnesota Public Utilities Commission still must review the agreement between Google and Xcel.

“What Google is doing is ensuring that when we show up, we aren’t putting additional costs on other ratepayers,” Amanda Peterson Corio, head of data center energy at Google, told CNBC in an interview. “We will pay 100% of our energy and electricity costs, and we will make sure that new additional capacity is put on to the grid to be able to serve our needs.”

Additional transmission infrastructure is needed for the Pine Island data center, said Bria Shea, president of Xcel for Minnesota, North Dakota and South Dakota. Google will pay for any new transmission associated with the project even if the data center does not materialize for some reason, Corio said.

Google will deploy 1,400 megawatts of wind power, 200 megawatts of solar and 300 megawatts of battery storage to the grid under the agreement with Xcel. The renewable projects will be owned by the utility. They are expected to come online in 2028 and 2029, Shea said.

Google will also pay a premium for the renewable power under a tariff designed to insulate consumers from the infrastructure costs while accelerating the deployment of clean energy in Minnesota, according to the tech company.

The town’s residents have formed a group called “Stop the Pine Island Data Center.” The Minnesota Center for Environmental Advocacy filed a lawsuit in October challenging the environmental review of the project.

Pine Island’s city council approved two preliminary development plans for the data center in December, according to local broadcaster KTTC. It also approved financial incentives that include a $36 million tax abatement in February, according to the outlet.

City Administrator Elizabeth Howard said Pine Island would collect more than $130 million in tax revenue from the project, according to KTTC.

Minnesota has not been a major data center market in the past but the big tech companies are increasingly eyeing the state. There are currently 74 data centers in Minnesota. Virginia, the largest market worldwide, has 570 such facilities, according to the Data Center Map.

Correction: This article has been updated to correct the name of the Minnesota Public Utilities Commission.