Gambling Law US
Is U.S. Online Poker a Game of Skill?
Is Poker in the U.S. a Game of Skill?
Gambling Related Websites
Just prior to going live for "real money" another new entry into the world of online poker cardrooms issued a press release saying:
Thus, the corporate and licensing structure used by this room is along the lines of that used by fictional Hypo Online Gambling.
This article analyzes the legality of offering poker as a skill game in the U.S. In making this analysis I have assumed that the cardroom will charge a rake in the same manner as the majority of the other dozen or so online poker rooms. That is, the players will be charged a “Nevada-style rake” where the operator of the game is paid a percentage of the amount in the pot, up to a stated maximum dollar amount per hand.
The brains behind the new room include over a half dozen well-known U.S.-resident tournament poker players who apparently personally put up some of the money and provided some of the effort to write and debug software to allow the room to operate on the Internet. They refer to themselves collectively as "the Team." The URL under which this online cardroom can be reached is shown in the domain registration records as being owned and administered by the Los Angeles-based software developer. [N.B. After the first publication of this article, the registration of the URL was changed on June 8, 2004, to the name of an offshore business, which provided the registrar's data base with an apparently fictitious telephone number. The URL, however, continues to use a domain server with a U.S. address and which is listed as belonging to a person who includes a portion of the name of the software development company in his name identification.]
No information is yet available on the place of formation of the licensee. I assume it will be in a foreign jurisdiction where it will obtain one of the easy-to-come-by cheap licenses such jurisdictions issue. See Online Gaming Licensing Reality. [N.B. After first publication of this article the licensee was disclosed. It is a business formed in Nevis and St. Kitts, one of the West Indies nations.]
When the room goes “real-money live” I assume players will provide an address for themselves and will be able to deposit money into an account maintained by the licensee. [N.B. The gaming licensing statute in Nevis requires that players be registered with the licensee using a form approved by the local gaming board and that: "A person shall not be eligible for registration as a player unless he produces evidence that satisfies the licensee of the person's identity and place of residence and that he is at least 18 years of age." Assuming the Nevis-based company secured a license from Nevis, it will be interesting to see what documentation the gaming board and the operator deem adequate to satisfy the statutory requirements. I also note that the required documents will give the operator of the site and its affiliates actual knowledge of the place of residence of the player.]
The site now has separate tables named for each of the members of the Team. Those promoters play on the site from time to time and will continue to do so in the future. Here are some of the rather mild legal disclaimers in the software developer’s recent press release:
Where are Games of Skill Permitted?
The software developer’s press release says “[This] software will give users of all skill levels the opportunity to play against these poker champions for fun or for real money where online games of skill are permitted.” The implication is that the poker games available will only be offered in states where games of skill played for money are legal. The best known games of skill played for money, which are also available online in the United States, are fantasy sports leagues. There are many such leagues. Some well-known, large companies offer such leagues. It is questionable whether fantasy sports leagues violate the anti-gambling laws of most states. For example, Anthony Cabot, a well-known gaming lawyer has said: "Whether Fantasy Sports contests are considered gambling is a matter of debate, which revolves around whether skill or chance predominates the contest. See, e.g., State v. Hahn, 586 N.W.2d 5 (Wis. 1998). Fantasy Sports contests require skill to assess players and strategy to properly draft players and make trades. Nevertheless, a significant element of chance is present. A participant can draft or trade to obtain the most talented players, but the chance that a player may become injured could eliminate his opportunity to win. Also, because fantasy league operators have yet to be prosecuted under anti-gambling laws, the legality of fantasy contests remains unresolved." Cabot and Faiss, GAMING LAW SYMPOSIUM: Sports Gambling in the Cyberspace Era, 5 Chap. L. Rev. 1. footnote 46 at 9. For an extensive note on the legality of fantasy sports leagues see Davidson, COMMENT: Internet Gambling: Should Fantasy Sports Leagues Be Prohibited?, 39 San Diego L. Rev. 201.
A prominent example is the offering of the ESPN fantasy leagues. ESPN is a part of the Walt Disney-ABC-CapCities media conglomerate. The legal restrictions that ESPN has adopted (presumably on advice of its lawyers) for its football league include:
Thus, it is clear there are some states that do not allow wagering on even games of skill. By the way, a visit to the websites of three other prominent big-name players in the online fantasy sports skill-game arena shows similar lists of excluded states. However, there is no universal agreement on which states should be included and excluded. My research has the following jurisdictions excluded on one or more of those lists: Arizona, Arkansas, Connecticut, Florida, Iowa, Louisiana, Maryland, Montana, North Dakota, Tennessee, Vermont, Puerto Rico and Quebec, Canada.
Will the software developer tell potential players from those jurisdictions what ESPN tells players on its site—you can’t win any money here?
Is “Skill” a Relevant Factor?
The next logical inquiry is whether the game being promoted by the software developer would be a game of skill that could be played for money in those jurisdictions where games of skill played for money are legal.
The answer is NO.
I have not been able to find any case law that has ever squarely held poker to be a game of skill free from illegality under applicable state anti-gambling laws. There have been some passing references to poker as a game of skill in a few cases. But these are only references that go to whether any skill is involved in the game, not to the level of that skill as compared with the element of chance in the game. The actual decisions did not involve poker, let alone the more relevant question of the legality of offering poker games in a setting where the house directly or indirectly makes money by raking the game, charging an entry fee or selling food, beverage or merchandise to players.
The decided cases hold that in order to be a “game of skill” the elements of skill must predominate over those of chance in determining the outcome.
That general rule is set forth in the California decision In re Allen as follows:
There are many “crane game” and “digger game” cases. Those games involve exercising varying degrees of skill to win a prize by grabbing it or pushing it with a remotely controlled crane-like or shovel-like object. One of those cases shows the struggle that courts can and do go to in finding a game to be one of chance and not predominately skill.
In State v. Gambling Device, 859 S.W.2d 519 (Tex.App.-Hous) (1 Dist.), 1993) the court ruled against a digger game (called a “Bulldozer” in the text) being a game of skill in the following language:
The body of law in the area of skill versus chance is a fractured one. What is needed is better understanding in statutes and case law of what constitute elements of skill, and how, in the overall balance, to compare the weigh of the particular elements of skill against the weight of the elements of chance that are present. The Wisconsin anti-gambling statute (sec. 945.01 (3)(b)(3) has a unique definition of skill in the context of machines like these. It says:
I suggest that those interested in improving the law on skill v. chance work on expanding that definition to better specify the principal elements that constitute skill and chance. A weighing mechanism that could be considered by a judge or jury should also be set forth. A few states have passed so-called Chuck E. Cheese laws to allow businesses to legally offer low-cost arcade games with prizes of a low value. That law in Georgia includes a definition of "some skill" that is of interest even though it does not cover the real question, which is what does it take for skill to be predominate. Here is the definition from the Georgia statute:
For the time being, however, the law is such that poker is not a game in which the elements of skill predominate over chance. The time frame over which the elements that constitute skill in poker work to allow the more skilled player to “obtain more frequent rewards” is both uncertain and too lengthy.
Consider that on any one hand of poker it cannot seriously be contended that skill outweighs chance. Also, the results of any given session of poker (one night, one tournament, etc.) are not likely to be determined based on the preponderant skill of any given player. Perhaps the result of playing many sessions for a whole year is indicative of skill predominating over chance. But, perhaps not. Poker "player of the year" awards have become popular over the past few years. No one has ever repeated as the winner from one year to the next. Indeed few repeat in the top ten of those lists from one year to the next.
This lack of certainty may be considered by a court in reaching the determination that while there are significant elements of skill in poker, they just do not outweigh the elements of chance caused by the fall of the cards and the erratic, unpredictable play of a large number of opponents. In an article in Card Player magazine, Lou Krieger, anticipating a field of 3,000 or more in the 2005 World Series of Poker championship event, sets up this scenario:
The long time frame may push a court to reach the conclusion that skill is not the predominate factor since, at a minimum, it takes years, or perhaps a lifetime, to determine if a person is a “winning player.” The anecdotal stories about most professional poker players, even those who were the best of their time, like Johnny Moss, Doyle Brunson and Daniel Negreanu, going broke is more “proof” of the chancy nature of the game.
In SYMPOSIUM: CROSS-BORDER ISSUES IN GAMING: The Games People Play: Is It Time for a New Legal Approach to Prize Games? Anthony N. Cabot*, Louis V. Csoka 4 Nev. L.J. 197 (Winter, 2003) the authors say: “To assess the legality of such games, most states have adopted the "predominance test." Under that test, if the winner is determined predominantly by chance, then the activity is gambling. If, however, the winner is determined predominantly by skill, then the activity is a contest. Two more traditional activities within the "grey area" are poker and backgammon, both of which have elements of skill and chance. To date, these two games have been held to be predominantly skill-based by some courts and predominately chance-based by others.” Id at 202-3 (Footnote references omitted.)
In a footnote concerning the assertion that poker is in a grey area and has been held to be predominately skill-based by “some courts” the authors state: “See, e.g., Charnes v. Cent. City Opera House Ass'n., 773 P.2d 546, 551 (Colo. 1989) (holding that, in Colorado, poker is an illegal gambling game of chance); see also United States v. Marder, 48 F.3d 564, 569 (1st Cir. 1995) (holding that, in Massachusetts, video poker is a lottery in which chance predominates); but see Commonwealth v. Club Caravan, Inc., 571 N.E.2d 405 (Mass. App. Ct. 1991) (holding that, in Massachusetts, video poker games are games of skill); cf. 1993 Colo. Op. Att'y Gen. No. 93-5 (April 21, 1993) (opining that, in Colorado, poker is a game of skill, but nevertheless illegal under specific statutory language). Id at footnote 41.
The Club Caravan case involved criminal charges brought against the owner of a club for violating several provisions of the Massachusetts anti-gambling statutes. The club owner defended as to a small number of the machines on the ground that they were eligible for licensing as automatic amusement devices under a separate state statute that legalizes games with an element of skill so long as the player can only win free plays. The court in Club Caravan said:
The authors also cite 1993 Colo. Op. Att'y Gen. No. 93-5 (April 21, 1993) for the proposition that in Colorado poker is a game of skill, at least insofar as the office of the Colorado Attorney General is concerned. That Opinion dealt with whether the Colorado legislature had the power to authorize certain games in view of the prohibition in the Colorado Constitution against lotteries. In dicta, the then Attorney General, after analyzing the predominance test said “poker is probably not a lottery because skill plays a larger, perhaps dominant role.” That observation was not crucial to the outcome of the opinion, and is certainly not supported by any case law. The opinion cites Morrow v. State, 511 P.2d 127 (Alaska, 1973) for an analysis of the elements to be considered in determining when skill predominates over chance.
In Morrow the defendant was charged with selling a lottery ticket in the form of a football line card. The purchaser/bettor picked from three to ten games, choosing the winner against the spread for the game printed on the card. The defense contended that the game did not constitute a lottery because picking the winners involved skill, not chance. The Alaska Supreme Court held against the defendant on the ground that the predominance of chance versus skill is a question to be determined by the tried of the facts. The court said:
"The following aspects are requisite to a scheme where skill predominates over chance.
Professor Daniel Kimberg, in his article Luck vs. Skill in Poker and Baseball, published in Card Player magazine, reaches these sensible conclusions:
Wither Thou Goest?
So will this new online cardroom accept any players with domestic U. S. addresses? Businesses that have U.S. licensed casinos and also operate online casinos (and one that closed its online operation), reject real money deposits from anyone with an address in the U.S. They do so because it is the view of regulators that offering online gambling without benefit of a license from an appropriate authority in the state where the bettor resides is illegal. They do not want to jeopardize their U.S. licenses nor face criminal charges.
This new online poker room differs very little from those U.S. licensed businesses. The overall promoter is a California-based company formed under California law. The bulk of its shareholders (I assume) and all of its high-profile Team members are citizens and residents of various jurisdictions in the United States. They are thus amenable to personal arrest, indictment, and trial in one or more of the states where they reside or travel to in attending poker tournaments and promoting the business of this online cardroom.
The fact of licensing what is in all likelihood a “straw” man to serve as the nominal operator of the online cardroom under a license from the Kahnawake Gaming Commission in Canada seems a flimsy defense. It is all but certain that the Los Angeles-based software developer will receive the lion’s share of the revenue generated by the operation of the online cardroom. If not, why would these talented, wealthy, young men and women have invested their time, money and prestige in bringing the site to life and promoting it?
Laws in all 50 states, and various federal anti-gambling laws, will be broken by this new online cardroom if it offers “real money” poker games under its current structure. The structure could be renovated to follow the more common practice of trying to put greater distance between the U.S. software developer and the actual named operator of the site. (3) However, that would not reduce the risk facing Team members that one or more of them may be charged with criminal violations. If the Team members actively promote, appear in advertisements for and encourage U.S. residents to play in the "real money" poker games on the site, they will be aiding and abetting the violations of the nominal operator. Aiders and abettors are equally as liable as the principal for criminal violations. In addition, a prosecutor may well convince a court to ignore the corporate shields used and hold the Team members liable as the de facto owners and operator of the online cardroom. If the Team members continue down the current path they could find themselves in serious legal difficulties.
 State v. Coats, 158 Or. 122, 74 P.2d 1102 (1938) involved the question of whether a pinball game was an illegal lottery. The Oregon Supreme Court said in that case:
“If any substantial degree of skill or judgment is involved, it is not a lottery. Of course, all forms of gambling involve prize, chance, and consideration, but not all forms of gaming are lotteries. A lottery is a scheme or plan, as distinguished from a game where some substantial element of skill or judgment is involved. Poker, when played for money, is a gambling game, but, since it involves a substantial element of skill judgment, it cannot reasonably be contended that it is a lottery.” 74 P.2d at 1106. (Emphasis supplied.)
Please note that the Oregon Supreme Court did not say that offering poker games with a rake or profit to the house was legal under Oregon law. It merely said poker would not be deemed to be a lottery since an element of skill was involved. Lawyers say that an observation like that in a case is “mere dicta”-- an opinion that has only incidental bearing on the case in question and is therefore not binding.
In the same vein, the Colorado Supreme Court in Ginsberg v. Centennial Turf Club, 126 Colo. 471, 251 P.2d 926 (1952) said:
“In Colorado a ‘lottery’ or ‘gift enterprise’ cannot be authorized by law. However, there is no prohibition in our Constitution which prevents the legislature, or the people, from authorizing certain forms of gambling. It unquestionably is true that all lotteries and gift enterprises are forms of gambling, but it does not follow that all gambling is a ‘lottery’ or ‘gift enterprise,’ as those terms are defined in law. No one would contend that a game of poker in which money is bet upon the relative value of the cards held by the participants, constitutes a lottery, but it most certainly is a form of gambling. 251 P.2d at 929
 59 Cal.2d 5, 377 P.2d 280 (1961). This case involved the game of rubber bridge and held that bridge was a game of skill. For the “skill must be predominate” proposition the court cited the following cases: People v. Settles, 29 Cal.App.2d Supp. 781, 787 [78 P.2d 274]; Boies v. Bartell, 82 Ariz. 217 [310 P.2d 834, 837]; State v. Hahn, 105 Mont. 270 [72 P.2d 459, 461]; Baedaro v. Caldwell, 156 Neb. 489 [56 N.W.2d 706, 709]; State v. Stroupe, 238 N.C. 34 [76 S.E.2d 313, 316-317]; D'Orio v. Startup Candy Co., 71 Utah 410 [266 P. 1037, 1038-1039, 60 A.L.R. 338]; see Longstreth v. Cook, 215 Ark. 72 [220 S.W.2d 433, 437]; State v. Wiley, 232 Iowa 443 [3 N.W.2d 620, 624]; Adams v. Antonio (Tex.Civ.App.) 88 S.W.2d 503, 505; cf. Brown v. Board of Police Comrs., 58 Cal.App.2d 473, 479 [136 P.2d 617].)
 The URL for the online cardroom website is normally initially registered by and then maintained in the name of the nominal operator of the site. That operator is usually a business with limited liability, such as a corporation, formed under the laws of a foreign jurisdiction that offers gambling "licenses" to such companies. Furthermore, the nominal operator takes steps to become more than being a straw party. For example, many of the online cardrooms move the day-to-day operations of the site to the foreign country, typically one of the Caribbean nations, where the operator was formed. Taking those precautions does not eliminate the illegality of the offering of the games under state laws and some federal laws. However, as a practical matter it insulates the nominal operator from being charged with criminal violations under those laws since it is difficult, if not impossible, for the charging law enforcement authority to get actual personal jurisdiction over the business and those individuals who operate it on a day-to-day basis.
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