Is Poker Gambling or a Game of Skill?

As is true for similar games like golf, billiards, and bridge, when good poker players play against bad players, the good players consistently and routinely prevail. Players who enter golf and bridge tournaments pay a fee to enter, and earn a cash reward if they win, but these games are contests of skill because their outcome is determined principally by skill. See Two Elec. Poker Game Machs., 465 A.2d at 977 (“[i]t cannot be disputed that football, baseball and golf require substantial skill, training and finesse” even though “the result of each game turns in part upon luck or chance”); In re Allen, 377 P.2d 280, 281 (Cal. 1962) (bridge requires skill and is not a “game of chance”).

So too with poker. To be sure, there is some accumulation of luck over the course of a poker match that will affect how individual players perform. That is also true, for example, of golf, where “changes in the weather may produce harder greens and more head In Texas Hold’em, each player is dealt two face-down hole cards. A round of betting follows in which players can bet, raise other players’ bets, or fold. Three community cards are then dealt face-up (“the flop”), followed by another round of betting, raising, or folding. Next, another face-up card is dealt (“the turn”), followed again by betting, raising, or folding.

One final face-up card is dealt (“the river”), followed by another round of betting, raising, or folding. At the conclusion of this round, if more than one player remains (if every player but one has folded), the remaining players show their cards (“the showdown”), and the player who can make the best five-card hand out of the two hole cards and the five community cards wins. 2 winds for the tournament leader than for his closest pursuers” or a “lucky bounce may save a shot or two.” PGA Tour, Inc. v. Martin, 532 U.S. 661, 687 (2001). But, as in golf, skill is nonetheless dominant in poker play. The fact that every hand of poker involves multiple decision points (at each of the multiple rounds of betting), multiple decisions at each decision point (bet, call, raise, or fold), and innumerable factors that call for skill to evaluate each of those decisions (for example, the player’s own cards, the odds of his hand improving, his sense of the strength of the other player’s hand, his sense of the other players’ perception of him), establishes that poker is a contest of skill.

Two general methods of determining the role of chance in an activity have developed in state courts to analyze the issue of whether a game is one of skill or chance. The first method is to evaluate the game’s structure and rules. If the structure and rules allow sufficient room for a player’s exercise of skill to overcome the chance element in the game, the game is one of skill and the gambling laws do not apply. See, e.g., In re Allen, 377 P.2d at 281-82 (bridge is not gambling). A second approach, which the scientific community favors, is an empirical approach that examines the actual play of the game. Using the well-accepted premise that in a game predominated by skill the more skillful players will consistently perform better, this approach looks for specific instances over repeated trials to see if in fact, the “more skillful players tend to score better than less skillful players.” See, e.g., Patrick Larkey et al., Skill in Games, 43 Management Science 596, 596 (May 1997)….  Each method independently— and certainly both taken together—confirms that poker is a game of skill.

I. MAKING CORRECT DECISIONS IN POKER REQUIRES A DIVERSE ARRAY OF SOPHISTICATED SKILLS THAT GAMES OF CHANCE DO NOT

The essence of poker is correct decision-making. Each time it is a player’s turn to act, he must choose among several decisions, typically whether to bet, raise, or fold. During the course 3 of a single session, a player will have to make hundreds of those decisions. In order to make the optimal decision the player must take into account a variety of factors. The importance of decision-making in poker cannot be understated: in a recent statistical analysis of millions of actual poker hands, the players’ decisions alone rather than the cards dealt accounted for the result in 76% of all the hands played. See Paco Hope & Sean McCulloch, Statistical Analysis of Texas Hold ‘Em at 5 (March 4, 2009)….. In other words, in those 76% of hands, all but one player folded, making the remaining player the hand’s winner, and the actual cards were never revealed. Moreover, according to this report, in roughly 50% of hands that do play to a showdown, FN: 2 2 A “showdown” is when all of the cards have been dealt and the players still in the hand expose their hold cards and the best hand wins the pot. It is only at the showdown where the winner is determined by the fall of the cards rather than by which players have folded in response to the moves of other players. A player who would have won had he stayed in will have folded, meaning that in only 12% of hands—that is, half of the 24% that play to showdown—does the player who was dealt the “luckiest” hand win. With player decisions deciding close to 90% of all poker hands, the players who consistently make good decisions will win. Those who do not will generally lose.

To make the right decisions consistently, poker players must employ a range of skills. By skill, the PPA does not mean simply a sophisticated knowledge of odds, which is merely a prerequisite to competent poker play. To be skilled at poker, players must develop an ability to directly influence the way an individual hand turns out—who collects the pot at the end, and how much is in the pot. As one court recently held, “[s]uccessful players must possess intellectual and psychological skills. They must know the rules and mathematical odds. They must know how to read their opponents’ ‘tells’ and styles. FN 3 They must know when to hold and fold  3 Styles and tells are not unique to the physical world, but are also involved in online poker. The tells and styles in online poker include betting amounts, betting habits, speed and timing of bets and raises. They must know when to hold and fold and raise. They must know how to manage their money.” Pennsylvania v. Dent, No. 2008-733, slip op. at 13-14 (Pa. Ct. Com. Pl. Jan. 14, 2009)…..

Of course, it is true that individual moves in poker are called “bets.” But that vocabulary is misleading. The “bet” is not a wager on a chance event. Unlike “bets” in poker, actual wagers do not alter the outcome of the event. A bet on the Super Bowl does not change the score; bets on roulette wheels are placed before the ball is dropped. Bets at a poker table are different. What is called a “bet” in poker is really a “move” like a move in any other game: it is a strategic maneuver designed to provoke the desired reaction from an opponent.

The importance of these moves is heightened because, in typical complex poker games, a player must contend with a large number of decision-making stages and a variety of possible courses of action at each stage. In each hand of Texas Hold ‘Em (or of similar games, such as Omaha), a player has four principal decision-making opportunities: the first after he receives his down cards, and the next three as the common cards are turned over in three stages. Draw games require three decisions—a “bet” after the initial draw, a decision about which and how many cards to exchange for new cards, and another “bet” after the exchange. Stud games, played with an initial deal of two cards and then additional cards dealt one at a time until each player has a total of either five (five-card stud) or seven (seven-card stud) cards, require either four or six moves, the first after the initial deal and the rest after each additional card. At each stage the player has available to him many courses of action. The focus of each decision is how worthwhile it is to risk additional chips relative to the chance of winning all the chips in the pot in that hand. These decision-making stages reduce the element of chance in the game, since logical decision-making at each of these stages allows the player to control whether, and how much, he wins or loses.

To make optimal moves at each of these stages, players must be mathematicians, observers of human nature, and capable deceivers. Poker players use their “bets” principally to communicate with, manipulate, and intimidate their opponents. Even in the 26% of hands that do go to a showdown, the players typically are not “betting” on the outcome of a chance event. For example, when a poker player bets as a bluff, he is not hoping that his cards will prove to be better than his opponents’ cards. Instead, the player hopes to win the pot by convincing his opponent to fold the best hand. As noted above, in roughly 50% of hands that do play to a showdown, a player who would have won had he stayed in will have folded, meaning that in 88% of hands the player who eventually won the hand did so by “convincing” his competitor to fold. That fact attests to the skill required of the winning player in bluffing his competitor into folding. See Hope, Statistical Analysis at 5. Of course, a player trying to chase another player out may get called and lose. But what he was betting on was not what cards his opponents held—the essence of gambling. He was betting to influence what his opponents would do—the essence of strategy.

Skeptics claim that “no amount of skill can change a deuce into an ace.” It is true that skill cannot change the cards. But skill at poker allows a player with a deuce to make his opponent believe he has an ace, causing his opponent to fold a hand that would have won the pot. As noted, more than 75% of all hands are won when one player bets and all remaining players fold in response. See Hope et al. at 5; see also Howard Lederer, Why Poker Is a Game of Skill (May 6, 2008) (unpublished manuscript….). In some of these hands, a player with a bad hand will have bluffed out a player with a better hand, overcoming the luck of the draw. Further, poker is not played one hand at a time. Over the course of an actual game, consisting of multiple hands, the skilled player will consistently prevail, regardless of an occasional unlucky turn of the card.

In any event, the fact that the winner of a small percentage of hands will be determined to some extent by the luck of the draw is insufficient to refute the conclusion that poker is a game predominately of skill. Many games have a chance element, and it is easy to say, after the fact, that the chance element was dispositive in any particular instance of play. For example, in a game of golf played on a windy day, there would always be the chance that the wind would blow the ball off target, causing a player to lose a few strokes, and possibly the game. See, e.g., Martin, 532 U.S. at 686-87 (2001) (“[G]olf is a game in which it is impossible to guarantee . . . that an individual’s ability will be the sole determinant of the outcome.”). That is a case in which a chance element, out of the golfer’s control, played a dispositive role in deciding the outcome of what is generally acknowledged to be a game of skill.

To appreciate the role that chance plays in almost every game, it is important to keep in mind just how few games exist in which luck plays no role at all. Chess is the prototypical example of a game of pure skill, because both players have perfect information regarding the other’s pieces and all that matters is how skillfully a player deploys them. But such games of pure skill are exceedingly rare; at least some degree of luck plays a substantial role in almost every game people play. In fact, between two equally matched chess players, the coin flip to determine who plays black or white may have an effect on the outcome. See, e.g., Jonathan Rowson, Chess for Zebras: Thinking Differently About Black and White at 193 (Gambit Publications 2005) (“the conventional wisdom is that White begins the game with a small advantage and, holding all other factors constant, scores approximately 56% to Black’s 44%.”).

Additionally, consider Scrabble, another game where chance plays a role. As in poker, skill largely determines the outcome in Scrabble, even though one could say of that game too that no amount of skill at Scrabble can turn a “Q” into an “E.” The outcome of a game of Scrabble may in some cases turn on the draw of the tiles just as in some cases the outcome of a round of poker may turn on the draw of the cards, but that does not make either game a game of chance.

Furthermore, the outcome of a hand of poker is not only who wins and who loses, but how much each player wins or loses. A player’s assessment of his own cards and what cards the other players are holding will affect whether and how much the player bets, meaning that even in the 12% of hands that reach a showdown and in which the best hand dealt wins the pot, the players’ skill will determine how much is won and how much is lost. Skill thus means that a good player will lose less with a deuce and win more with an ace than a bad one.

The importance of skill in poker is further demonstrated by the fact that a novice poker player can improve his talents and raise the level of his game through study and accumulating game experience. After only a short time, a player can acquire basic game skills, such as learning when to fold and how to make the basic calculations. The more a person continues to practice and learn, the more his skills will improve, something that is also true for chess, golf, and bridge players. FN 4 A significant literature is available to help the novice player develop. See, e.g., Gus Hansen, Every Hand Revealed (2008); Daniel Negreanu, Power Hold’em Strategy (2008); David Apostolico, Machiavellian Poker Strategy: How to Play Like a Prince and Rule the Poker Table (2005); Dan Harrington, Harrington on Hold ‘Em: Expert Strategy for No Limit Tournaments (2005); Eric Lindgren, World Poker Tour: Making the Final Table (2005); Blair Rodman & Lee Nelson, Kill Phil: The Fast Track to Success in No-Limit Hold ‘Em Poker Tournaments (2005); Doyle Brunson, Doyle Brunson’s Super System: A Course in Power Poker (2002); David Sklansky, Tournament Poker for Advanced Players (2002); David Sklansky, The Theory of Poker (1994)

All of the strategic decision-making skills required are the same for online poker and for live poker. A player will make the strategic decisions discussed above based on deductions about an opponent that are derived from the opponent’s moves themselves and from remembered (or recorded) prior gameplay. In fact, applying the lessons of prior gameplay to the current situation—much like a caddy’s notes on previously played holes in a golf tournament—is the skill that may be most essential to poker success. Analyzing that prior history and predicting opponents’ behavior is the same whether the play is online or live. And while a player may learn something from looking at another live player—watching facial expressions and the like for tells—online poker requires different but equivalent sensitivity to an opponent’s play. For example, players often send messages to one another during online poker play and learning to make deductions about a player’s style and hand from those messages is a skill. Similarly, being able to learn from the timing of opponents’ moves is a skill.

Indeed, online poker involves special skills not required in live play and has characteristics that reduce the role of chance in determining outcomes. First, online play typically involves many more hands than an ordinary live poker match, because hands are dealt much faster and many players play multiple tables simultaneously. Whatever element of chance is involved in individual hands thus evens out as a statistical matter more quickly than in live play. Second, players have access to tools that help heighten their play. For example, popular programs that players can run alongside their games can help them to track large quantities of data about other players’ betting patterns in great detail. Such programs help smart players make even smarter moves, based to a larger degree on logic and strategy than they are on intuition. And of course, being able to process and apply a large amount of detailed data about a number of opponents’ betting histories is a skill in itself. For all these reasons, online poker requires specialized skills that live play does not.

Together, the specific skills required to play poker in general and online poker in particular, the demonstrated fact that poker hands are won by maneuvering rather than in a showdown the vast majority of the time, and the fact that in every hand the players’ skill determines the amounts won and lost by each player, show that skill is required to be a winning poker player.

II. SKILLED PLAYERS BEAT SIMPLE PLAYERS IN SIMULATED AND REAL POKER PLAY

Several recent studies have definitively demonstrated that a player must be skilled in order to win at poker. Indeed, every single study to examine this issue has reached the very same conclusion: poker turns on skill. Until quite recently, any rigorous analysis of whether skill or chance predominated in poker could involve only an assessment of the rules of play themselves, because no research had assembled a statistical assessment of the role of skill in poker. The subject has now received academic attention, and the studies uniformly confirm that skill determines the outcome in poker games. This reflects an evolving understanding, and popularization, of the sophistication of the game of poker.

In one recent game-theoretical study, for example, the author used a computer simulation to prove that a combination of the skills discussed above is required in order to win consistently at poker. See Larkey, supra. For his 2001 paper on “Skill in Games,” Professor Larkey built a computer model of a simplified version of poker. See id. The “general behaviors mandated for player success” at this simplified game were: (a) observation, (b) memory, (c) computation, (d) knowledge of the random device, (e) misleading opponents about the actual strength of your position, and (f) correct interpretation and forecasts of opponents’ behaviors. Id. at 597. To evaluate the relative importance of these areas of skill, singly and in combination, the authors 10 programmed twelve different robot players who would compete against one another. Each was programmed to use a different combination of strategies. Id.

The simplest robot only knew the rules of the game—when to bet and how much it was allowed to bet—but aside from that essentially played randomly and without regard to its hand. A second robot understood the relative values of the hands. It would bet aggressively when it was dealt a good hand, and hold back when it got a bad hand. It ignored its opponents, while three other similar robots made conservative or aggressive assumptions about what the other player’s hands contained. Another robot bluffed aggressively. The more sophisticated robots watched their opponent’s betting patterns and made deductions about what those opponents were likely to be holding. Some of these robots would bluff by playing randomly a small percentage of the time in order to confuse other opponents capable of watching and learning.

The authors ran a tournament that pitted each robot player against each other player in 100 one-on-one games. Over the course of the tournament, the random-play robot won only 0.4% of its games. It lost $546,000. The four robots that dominated the contest were the ones capable of sophisticated calculations about their odds of winning. The robot that could only calculate odds came in fourth. The robot that could calculate odds and that also bluffed occasionally came in third. But the two most successful robots of all were the robots that most closely emulated real poker players. A robot that not only calculated odds but also observed fellow players and adjusted its style of play came in second at $400,000. The best robot of all calculated odds, learned about its opponents, and bluffed occasionally in order to throw its competitors off track.

Even in the simplified game of poker designed for the study, with simple hands and only two rounds of betting, the best robot was the robot with the essential skills that every poker 11 player learns, practices, and tries to master. It calculated the odds it was playing against, which was essential to its success. But it outperformed the others by deceiving its competitors with strategic bluffs while learning about and adjusting to its competitors’ style of play. It won 89% of the hands it played, and earned $432,000. See Larkey at 601, table 2. A substantial number of other studies—including every study ever to have addressed the issue—reach the same conclusion as Professor Larkey.

The number of identifiable skills required to excel at poker and the simulations and studies just discussed all predict that, in real life, the more skilled players will win. In fact, that is what actual poker play makes clear. The best poker players beat other poker players as often as the best golfers beat other golfers, if not more often. It is true that poker has a “random device” (see Larkey at 597) that introduces short term uncertainty into each hand, but over time the randomness of the cards evens out and all players eventually get the same share of good and bad hands. Their results differ based on how skillfully they play those hands.

A striking example of the limited role that the cards play in determining the outcome of poker matches may be found in the recent story of Annette Obrestad, a 19-year-old poker prodigy who beat 179 other players—without looking at her own cards (except one peek on one hand). See Shawn Patrick Green, Online Poker: Interview With Annette ‘Annette_15’ ObrestadObrestad’s feat shows it is the player’s skill rather than the deal of the cards that determine the outcome of poker play. FN 6 This example also refutes the conclusion that the “chance” of what a player is dealt as initial hole cards has a substantial effect on outcome; it cannot affect someone who never looks at them.

The same result is demonstrated by comparing the results of recent golf and poker tournaments. In the 25-year period beginning with 1976 and ending in 2000, 21 different players won the World Series of Poker. One player won three times in that span (Stu Ungar), and three more players won twice (Johnny Moss, Doyle Brunson, and Johnny Chan). Three of these repeat winners won back-to-back wins in consecutive years (Brunson, Ungar and Chan). Fourteen of the twenty-one were “repeat finalists” who finished among the top ten in one or more of the other tournaments.

In the same period, there were twenty-two different winners of the PGA Championship, and three multiple winners. Only Tiger Woods won back-to-back titles. Fifteen of the twenty-two champions made it into the top ten in another Championship. These numbers confirm that poker requires as much skill as golf to win consistently. Accord Croson, Fishman & Pope, supra, at 14. Two recent legal analyses reached the same conclusion. See Anthony Cabot & Robert Hannum, Poker, Public Policy, Law, Mathematics, and the Future of an American Tradition, 22 T.M. COOLEY L. REV. 443 (2005) (conducting Texas Hold ‘Em simulations to determine that skilled opponents beat unskilled ones); Michael A. Tselnik, Check, Raise, or Fold: Poker and the Unlawful Internet Gambling Enforcement Act, 35 HOFSTRA L. REV. 1617, 1664-65 (Spring 2007).

In sum, there can be no comparison between poker and a quintessential game of chance, like a slot machine, which has “an outcome that is decided solely by the circuitry of the machine that was programmed into it when its software was created. . . . [T]he player has no ability to affect the outcome of the game other than playing the game enough times that the laws of probability, and the pre-programmed circuitry, will allow him to win something at some point.” People v. Delacruz, 872 N.Y.S.2d 876, 880 (N.Y. City Crim. Ct. 2009). Poker is not a game of chance.

Poker as a Game of Skill from a Legal Perspective

Generally, each of the elements of prizechance and consideration must be present for an activity to be gambling. Morrow v. State, 511 P.2d 127 (Alaska, 1973). In traditional poker games there is no dispute that prize and consideration are present. Poker players have long believed that poker does not have the element of chance. They contend that it is a game of skill.

In most states, the determination of whether a game is one of skill or chance is based on the predominance test. The California Supreme Court said:

“The term ‘game of chance’ has an accepted meaning established by numerous adjudications. Although different language is used in some of the cases in defining the term, the definitions are substantially the same. It is the character of the game rather than a particular player’s skill or lack of it that determines whether the game is one of chance or skill. The test is not whether the game contains an element of chance or an element of skill but which of them is the dominating factor in determining the result of the game.” In re Allen, 27 Cal.Rptr. 168 at 169, 59 Cal.2d 5 at 6(Cal., 1962) (Emphasis supplied.). A listing of states that appear to follow the predominance test is set forth in the table at State Gambling Law Summary for all US States.

In rapid order there have now been two lower court cases that specifically held poker is a game of skill under the predominance test and one case that impliedly so held. Unfortunately, two of those have been reversed on appeal.

Pennsylvania v. Dent

In Pennsylvania v. Dent the court ruled:

Using the predominance test, in conjunction with analyzing skill versus chance using the four prong dominant factor test, it is apparent that skill predominates over chance in Texas Hold’em poker. First, each player has a distinct possibility of exercising skill and has sufficient data available to make an informed judgment. Second, each player has the opportunity to exercise the skill, and they do possess the skill (albeit in varying degrees. Third, each player’s skill and efforts sufficiently govern results. Fourth, the standard skill is known by the players and governs the results. Skill comes with varying degrees of competence, but that is the case with any competition involving skill.

The academic studies and the experts generally agree that a player must be skillful to successful at poker. At the outset, chance is equally distributed among the players. But the outcome is eventually determined by skill. Successful players must possess intellectual and psychological skills. They must know the rules and the mathematical odds. They must know how to read their opponents “tells” and styles. They must know when to hold and fold and raise. They must know how to manage their money.

This court finds that Texas Hold’em poker is a game where skill predominates over chance. Thus, it is not ‘unlawful gambling’ under the Pennsylvania Crimes Code.” Id at 13-14. [Footnotes and citations omitted.] The Superior Court of Pennsylvania reversed the lower court decision. 168 MDA 2009. That appellate court said:

Applying the “predominate-factor test” as enunciated by the Pennsylvania Supreme Court in Two Electronic Poker Machines, [465 A.2d 973 (Pa. 1983)] we agree … that, while the outcome of poker may be dependent on skill to some degree, it is predominantly a game of chance. While, as noted in Two Electronic Poker Machines, skill can determine the outcome in a poker game, players are still subject to defeat at the turn of the cards. Para. 21 168 MDA 2009.

The case is presently on appeal to the Pennsylvania Supreme Court.

Colorado v. Raley

Raley started a bar poker league in Greely in early 2008. Initially, about 15 players showed up at a local bar to play in a poker tournament once a week or so. Each player paid $20 to play and the league kept 10% of that to pay a player/dealer $10 for his services in dealing in the game in which he was also a player. The rest of the money withheld was used to pay various league expenses. The balance of the player’s buy-ins were awarded as prizes to the top finishers in the weekly tournament. Over the next few months the people who asked to join and were accepted into the league grew to over 100, although no more than 37 ever showed up on any given night.

Raley was charged with illegal gambling under Colo. Revised Statutes Sec. 18-10-103(1). Gambling – professional gambling – offenses. (1) A person who engages in gambling commits a class 1 petty offense. (2) A person who engages in professional gambling commits a class 1 misdemeanor. If he is a repeating gambling offender, it is a class 5 felony.

Colorado Revised Statutes Sec. 18-10-102. Definitions provides:

As used in this article, unless the context otherwise requires:

(1) “Gain” means the direct realization of winnings; “profit” means any other realized or unrealized benefit, direct or indirect, including without limitation benefits from proprietorship, management, or unequal advantage in a series of transactions.

(2) “Gambling” means risking any money, credit, deposit, or other thing of value for gain contingent in whole or in part upon lot, chance, the operation of a gambling device, or the happening or outcome of an event, including a sporting event, over which the person taking a risk has no control, but does not include: (a) Bona fide contests of skill, speed, strength, or endurance in which awards are made only to entrants or the owners of entries;

*** (d) Any game, wager, or transaction which is incidental to a bona fide social relationship, is participated in by natural persons only, and in which no person is participating, directly or indirectly, in professional gambling; ***

The defense presented two threads in its case. First, that the members of the League had a bona fide social relationship because only an existing member could introduce people he knew to join the league. Second, the defense presented Professor Robert Hannum, a tenured professor of statistics and mathematics at the University of Denver, as an expert who was accepted as such and testified that in his expert opinion poker was a game of skill. Colorado case law has not determined whether the predominance test is followed. Professor Hannum presented testimony about one of his studies that showed the “skilled” player won 97% of the time in his simulation against an unskilled player who played at random. He also testified about other studies that reached similar conclusions.

The jury came back with a not guilty verdict. Since there were no special questions propounded to the jury, there is no way to know the grounds on which they based their decision.

The prosecution gave notice of appeal of the trial judge’s decision allowing Professor Hannum to testify on the game of skill issue. The prosecution asserted that the Colorado Supreme Court has ruled that games such as poker are games of chance, and thus it was error to admit evidence that it is a game of skill. In Charmes v. Central City Opera House Association, 773 P.2d 546 (Colo., 1989) the Colorado Supreme Court said: The last element of the statutory definition of “gambling” is that the risking of a thing of value for gain be contingent in whole or in part upon lot, chance, or the happening of an event over which the person taking the risk has no control. There is no dispute here over the fact that the card games and other games of chance at the Gala were contingent in whole or in part upon lot or chance or the happening or outcome of an event over which the person taking the risk had no control. While poker and perhaps some of the wagering games might involve some skill, these games certainly are contingent “in part” upon chance, and when, as here, the games involve risking a thing of value for gain, they constitute a form of “gambling” in its commonly understood sense. See Ginsberg v. Centennial Turf Club, 126 Colo. 471, 477, 251 P.2d 926, 929 (1952) (the game of poker is not a lottery but is most certainly a form of gambling). Id. at 551. (Emphasis supplied.)

The appeal in Charmes was from a declaratory judgment. The lower court held in favor of the charity, which wanted to hold a charitable fund-raising casino night party. The basic problems with the statements about some chance in Charmes is that the issue of skill versus chance was not litigated in that case and there is some chance in all endeavors, so a standard to determine the nature of a game needs to be adopted. An overwhelming majority of jurisdictions have adopted the predominance test perhaps for this very reason.

For example, on the obverse of that point, in State ex rel. Tyson v. Ted’s Game Enters., 893 So. 2d 376 (AL, 2004) a statute authorizing “bona fide coin-operated amusement machines” defined such machines as “every machine of any kind or character used by the public to provide amusement or entertainment … the result of whose operation depends in whole or in part upon the skill of the player ….” The defendant argued that as long as its coin-operated amusement machines involved “some skill” in their operation, they met that qualification… The Alabama Supreme Court held: …[Our constitution] forbids the Legislature from enacting a statute authorizing a lottery. Thus, we hold that [this statute] may not, without contravening [our constitution], be applied so as to legalize games or activities in which skill does not predominate over chance in determining the outcome.

The prosecution’s contention on appeal to the District Court was that “The Colorado Supreme Court’s finding that poker meets the statutory definition of gambling as a matter of law was binding on the trial court. Therefore, the trial court erred when it permitted an expert to testify that the form of poker played in the present case was not illegal.” The principal case relied on for this proposition is Charnes v. Central City Opera House Association, 773 P.2d 546 (Colo.1989).

On appeal the District Court, sitting as an appellate court under applicable Colorado appellate procedure, reversed the pre-trail ruling permitting Professor Hannum to testify. The District Court accepted the prosecution’s argument based on Charnes. It also echoed the ruling of the Pennsylvania Superior Court, saying:

There is a significant distinction between a round of golf [for example] and a poker tournament. In a golf tournament, the players are presented with the same challenge, with each player determining his success by his own skill. Most certainly, some aspect of chance will intercede during a round of golf, such as a shift in the direction of the wind or a fortunate bounce, but chance is not inherent to the game of golf and it will not overcome the skill of the players. On the other hand, a poker player may give himself a statistical advantage through skill or experience, but that player is always subject to defeat when the next card is turned. In poker, the order in which the cards are dealt represents a variable that no level of skill can overcome. Case No. 09CV168, District Court for Weld County, Colorado, August 4, 2009.

The case was appealed to the Colorado Supreme Court, but the petition for review was denied. No. 09SC732, Colorado Supreme Court, Mar. 22, 2010. So, the apparent law on the status of poker in Colorado remains that it is, as a matter of law, a game of chance as was impliedly held in Charnes.

Town of Mt. Pleasant v. Chimento

In this South Carolina case five defendants were charged with gambling under the South Carolina Code of Laws Sec. 16-19-40, which makes it a misdemeanor to play cards or dice in specified locations, including a “house used as a place of gaming.” These defendants asserted that gaming and gambling are synonymous and that it is generally recognized that the three elements necessary to find gambling are prizechance and consideration. Extensive expert testimony was presented on the issue of poker as a game of skill.

The judge said “This Court…finds that Texas Hold-em is a game of skill. The evidence and studies are overwhelming that this is so. Town of Mt. Pleasant v. Chimento, Case No. 98045DB, Mt. Pleasant Municipal Court, South Carolina (rendered Feb. 19, 2009). (Available online at: http://www.scribd.com/doc/12654899/SC-Judges-Decision-on-MtPleasant-Poker-Case-021909)

The judge was not convinced, however, that the predominance test is the law in South Carolina. Therefore, he found “…[T]his Court will not set itself to definitively conclude that this State will or does follow the ‘Dominant Test’ Theory and thus is compelled, since it has no clear guideline from the Legislature or from the majority of the Supreme Court to find that defendants guilty of violating Code Section 16-19-40, and therefore are required to pay the fines and assessments required by such a violation.”

That conviction was appealed to the Court of Common Pleas sitting as a court of appeals, which found that the dominance test is, or likely would be, legally applicable in South Carolina, citing the dissent in a prior South Carolina case, Johnson v. Collins Entertainment Co., 333 S.C. 96,508 S.E.2d 575 (1998).

The prosecution has appealed the reversal to the South Carolina Supreme Court, which will hear oral argument on October 19, 2010.

The Legality of US Online Poker as a Skill Game

Just prior to going live for “real money” another new entry into the world of online poker cardrooms issued a press release saying:

“[We] will offer real money games and tournaments through…[a] licensee… in areas where online games of skill are permitted.  [Our licensee] will be licensed and regulated by the Kahnawake Gaming Commission in Canada.”

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 database 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:

“[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 online cardroom] will allow users of all skill levels to become involved in the game and learn from real champions….

“Laws and regulations permitting and when users feel ready, they can also play against [our Team] members in low-stake, real money games, courtesy of [our licensee]. Any money won by [our Team] members in those games will be donated to an international charity by [our licensee].”

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:

“This promotion is intended for play only within the 50 United States (and the District of Columbia) and Canada (except Quebec).  U.S. law governs this promotion.

“Only open to U.S. residents, 13 years of age or older only.  Void in all U.S. Territories (e.g. Guam and Puerto Rico) and where prohibited by law.

“If you are a resident of Arizona, Connecticut, Florida, Louisiana, Montana or Vermont, you are permitted to purchase and be a participant in the game, but not eligible to win any of the promotional prizes.”

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.[1]  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:

“The term ‘game of chance’ has an accepted meaning established by numerous adjudications. Although different language is used in some of the cases in defining the term, the definitions are substantially the same.  It is the character of the game rather than a particular player’s skill or lack of it that determines whether the game is one of chance or skill. The test is not whether the game contains an element of chance or an element of skill but which of them is the dominating factor in determining the result of the game.”[2]

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:

“Even a contrivance that is predominantly a game of skill may be determined by chance.  For example, assume that a novice player of Bulldozer, through a minimal exercise of skill, has a 25 percent chance of winning an award.  Assume also that an experienced Bulldozer player, through the exercise of his superior skill, has a 75 percent chance of winning an award.  Chance would appear to predominate over skill in the former case, while in the latter case; skill would appear to predominate over chance.  Yet in either case, the outcome in each particular game played is ‘determined by chance.’  A player’s level of skill may influence the degree of chance involved, but it does not eliminate the element of chance altogether. The outcome is always determined by chance because no player, through the exercise of skill alone, can control the outcome of any given trial.  It is chance that finally determines the outcome of each and every trial.  Thus, it is the incorporation of chance that is the essential element of a gambling device, not the incorporation of a particular proportion of chance and skill.” Id at 523.

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:

“In this subdivision, ‘skill’ means, within an opportunity provided for all players fairly to obtain prizes or rewards of merchandise, a player’s precision, dexterity or ability to use his or her knowledge which enables him or her to obtain more frequent rewards or prizes than does another less precise, dexterous or knowledgeable player.”

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:

“[S]ome skill” means any presence of the following factors, alone or in combination with one another:

(1) A learned power of doing a thing competently;

(2) A particular craft, art, ability, strategy, or tactic;

(3) A developed or acquired aptitude or ability;

(4) A coordinated set of actions, including, but not limited to, eye-hand coordination;

(5) Dexterity, fluency, or coordination in the execution of learned physical or mental tasks or both;

(6) Technical proficiency or expertise;

(7) Development or implementation of strategy or tactics in order to achieve a goal; or

(8) Knowledge of the means or methods of accomplishing a task.

The term some skill refers to a particular craft, coordinated effort, art, ability, strategy, or tactic employed by the player to affect in some way the outcome of the game played…  If a player can take no action to affect the outcome of the game, the bona fide coin operated amusement machine does not meet the ‘some skill’ requirement of this Code section.

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.  Lou Krieger, anticipating a field of 3,000 or more in the 2005 World Series of Poker championship event, sets up this scenario:

“Let’s take a good player. No, let’s take a great player. Make him the greatest hold’em player who ever lived. Suppose his chances are 10 times greater than those of Joe Average, even though the chasm between great and average is probably not anywhere near that deep. With that kind of edge, our hero figures to win a 3,000-player event once every 300 times. If he has a 60-year poker-playing career, he ought to win the World Series of Poker once every five lifetimes. An average player, by comparison, figures to win all the marbles only once in 50 lifetimes.”  Card Player Magazine Volume 17, No. 26 – Friday, December 17th, 2004

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:

“One of the Commonwealth’s expert witnesses, an agent of the Federal Bureau of Investigation, had told the grand jury that a video poker machine, while it failed to utilize most of the skills that make for a good poker player (e.g., the use of bluffing, raising, throwing in a hand), nevertheless employed some element of skill (albeit “less than twenty-five percent”) because it rewarded prudent calculations of the probabilities of filling in various “dealt” hands through discards and draws weighed against the known rewards if the draws should be favorable****

“Since the video poker machines involved an element of skill and ostensibly paid off winners only with free games, the judge correctly dismissed the indictments based solely on having such machines on hand for the use of patrons. The judge correctly ruled, we think, that licensed machines so used were exempt not only from G.L. c. 271, § 7, this exemption being explicit in G.L. c. 140, § 177A(7), but also from G.L. c. 271, §§ 5 and 17, seemingly overlapping statutes which in relevant part prohibit keeping a place for gaming or keeping gaming apparatus. Commonwealth v. Wetherell, 340 Mass. 422, 164 N.E.2d 889 (1960). The purpose of § 177A, to legalize and license machines that utilize some element of skill and pay off winners only with free games, would otherwise be thwarted. Marshfield Family Skateland, Inc. v. Marshfield, 389 Mass. at 441, 450 N.E.2d 605.” 571 N.E.2d 405 (Mass. App. Ct. 1991) at 406-7.

This passage clearly shows that the predominance test was not only not at issue, but that the only relevant testimony considered showed that if the issue had been raised, the court would have found that the video poker game in question would flunk the test.

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.

(1) Participants must have a distinct possibility of exercising skill and must have sufficient data upon which to calculate an informed judgment. The test is that without skill it would be absolutely impossible to win the game.

(2) Participants must have the opportunity to exercise the skill, and the general class of participants must possess the skill.  Where the contest is aimed at the capacity of the general public, the average person must have the skill, but not every person need have the skill.  It is irrelevant that participants may exercise varying degrees of skill.  Johnson v. Phinney, 218 F.2d 303, 306 (5th Cir. 1955).  The scheme cannot be limited or aimed at a specific skill which only a few possess. ‘(W)hether chance or skill was the determining factor in the contest must depend upon the capacity of the general public-not experts-to solve the problems presented.’ State ex inf. McKittrick v. Globe-Democrat Publishing Co., 341 Mo. 862, 110 S.W.2d 705, 717 (1937).

(3) Skill or the competitors’ efforts must sufficiently govern the result.  Skill must control the final result, not just one part of the larger scheme.  Commonwealth v. Plissner, 295 Mass. 457, 4 N.E.2d 241 (1936).  Where ‘chance enters into the solution of another lesser part of the problems and thereby proximately influences the final result,’ the scheme is a lottery.  State ex inf. McKittrick v. Globe-Democrat Publishing Co., supra. Where skill does not destroy the dominant effect of chance, the scheme is a lottery.  Horner v. United States, 147 U.S. 449, 459, 13 S.Ct. 409, 37 L.Ed. 237, 241 (1893).

(4) The standard of skill must be known to the participants, and this standard must govern the result. The language used in promoting the scheme must sufficiently inform the participants of the criteria to be used in determining the results of the winners. The winners must be determined objectively. Note, ‘Contest and the Lottery Law,’ 45 Harv.L.Rev. 1196, 1216 (1932).”   Morrow v. State, 511 P.2d 127 at 129-30.

Professor Daniel Kimberg, in his article Luck vs. Skill in Poker and Baseball, reaches these sensible conclusions:

“For my own purposes, I think of skill as something I work to develop and enjoy exercising, even if it takes effort. Poker certainly qualifies, but it’s also a game played in casinos, for money, and one in which you have relatively little assurance about your short-term fortunes. So, I still think it’s gambling. Some poker players believe that if you’re a gambler, you’re a loser. They may be right, but merely putting a label on the game doesn’t affect how I play, so I’m not too worried.

“So, I’ve decided not to get into any more arguments about this. The next time anyone asks me if poker is more skill or luck, I’ll tell him what I know. It takes a lot of knowledge and ability to play well. You can get better through practice and/or study, and worse through alcohol. Short-term results are highly variable, while long-term results are more reliable (at this point, I’ll pull out a little chart plotting standard deviation of outcomes against hours played). And, you can win at it….”

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.

CONCLUSION

As noted above, the common test for whether an activity is gambling or not is whether chance or skill predominates in determining the outcome of the activity. A minority of states apply a variant of this test asking whether chance plays a material or significant role in determining that outcome. For all of the reasons just stated, under any of these tests, poker is not gambling. Certainly, as the Pennsylvania decision cited above squarely held, skill predominates over chance in de


End notes:

[1] 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

[2] 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].)

[3] 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.

Contributors

● Noga Alon, Poker, Chance and Skill (attached as Ex. E.). Professor Alon provides a detailed analysis of several simplified models of poker in order to allow a precise mathematical analysis. Though simplified, these models capture many of the main properties of sophisticated poker play. The article concludes that skill is the major component in deciding the results of a long sequence of hands because knowledge of hand probabilities is a learned skill fundamental to determining and implementing an advanced strategy; and an advanced strategy will earn more than a strategy of an unskilled player in the long run. As the common practice is to play many hands, the conclusion is that poker is predominantly a game of skill.

● Laure Elie & Romauld Elie, Chance and Strategy in Poker (Sept. 2007) (unpublished manuscript, attached as Ex. F). The Elie study expands on Professor Alon’s work by testing its hypothesis not on a simplified version of poker, but on games with 2 or 4 players (up from Alon’s two-player model), with or without blind betting, and with constant or variable stakes. Using computer simulation, Elie & Elie confirmed that the quality of a player’s strategy—the skill with which the player plays the game—has an overriding influence over the game’s outcome.

● Abraham J. Wyner, Chance and Skill in Poker (Apr. 2008) (unpublished manuscript, attached as Ex. G). Reviewing the Alon and Elie & Elie studies, Professor Wyner concludes that both studies accurately described a salient fact about the game of poker: a skilled player who can calculate the odds and bet and bluff on that basis has a substantial advantage over players who lack these skills.

● Peter Borm & Ben van der Genugten, On a Measure of Skill for Games with Chance Elements (1996) (attached as Ex. H). In order for laws restricting games of chance to be sensibly applied, Borm and van der Genugten argue that some threshold level of skill must be established beyond which games cease to be games of chance and become games of skill. They developed a scale by which a game of pure chance ranks “0” and one of pure skill ranks “1,” and then sought to rank a series of games on that scale. For a “0” game, a the odds of a beginner winning are the same as those the most advanced player winning; in a “1” game, the most optimal player can always win. Blackjack, considered a game of chance, is ranked 0.16. Based on their mathematical model, the authors conclude that an extremely simplified “poker” game, with three players playing with only four 12 cards, valued at 10, 20, 30, and 40, has a skill level more than double that of blackjack.

·● Rachael Croson, Peter Fishman & Devin G. Pope, Poker Superstars: Skills or Luck? 21 Chance, No. 4, 25-28 (2008) (attached as Ex. I). The authors compared data from 81 poker tournaments and 48 Professional Golfers’ Association Tournaments in an effort to determine whether the success achieved by the elite poker players—individuals who have finished in the top 18 of at least one highstakes Texas Hold’em tournament—is due to skill or luck. Analysis of the data led the authors to conclude that poker seems to involve a significant amount of skill because success in a given tournament can be predicted based on past success in tournament play. The authors also found that there are quantifiable skill differentials between elite poker players which are similar to skill differentials between comparably elite golfers.

·● Gerard Cohen, Consultation on Professor Alon’s Poker, Chance and Skill (unpublished manuscript, attached as Ex. J). Professor Cohen confirms the validity of Professor Alon’s conclusions. According to Cohen, players must adapt their strategies to the number of players (by betting less often and with a hand that is stronger as this number increases). Moreover, the skilled player must take into account in his or her strategy the position and the order of players around the table. The importance of using these skills in real poker play, which is even more complex than in Alon’s case studies, leads him to the conclusion that skill is predominant in determining poker outcomes.

● Zvi Gilula, Expert Opinion (unpublished manuscript, attached as Ex. K). Professor Gilula concludes that winning a poker tournament is depends significantly more on the participants’ strategic capabilities and understanding than on luck. He notes that players must learn to: evaluate, within a predetermined interval of time, the strength of the hand that he holds in each stage of the game; mask his own strategy; evaluate his opponents’ strategies; and translate the insights which arise from using these other abilities into a rational decision making policy. The effect of these abilities is that the probability for an insightful player with strategic skills to win a poker tournament, when playing against a player who does not have these skills, is much higher than 50%.

● Paco Hope (Cigital Inc.) & Sean McCulloch, Statistical Analysis of Texas Hold’Em (Mar. 4, 2009), supra. Hope and McCulloch examine 103 million hands of a particular poker variant—Texas Hold’ Em—played on PokerStars. For each hand analyzed, they ask whether the hand ended in a showdown, and if so, whether the player with the best two cards won the hand. They conclude that in the majority of cases – 75.7% of the time – the game’s outcome is determined with no player seeing more than his or her own cards and some or all of the community cards. In those hands, all players folded to a single remaining player, who took the pot. In the remaining 24.3% of hands that go to a showdown, where cards are revealed to determine a winner, only 50% are won by the player who, had everyone stayed in the game, would have held the winning hand. The 13 remaining hands are won by a player with an inferior hand, because the player with the best hand folded. From this, the authors determine that the winner in a majority of games is determined by something other than randomly drawn cards.

● Kyle Siler, Social and Psychological Challenges of Poker, Journal of Gambling Studies (Dec. 25, 2009) (attached as Ex. L). After discussing the challenges of poker, Siler observes the effects of various strategies on win rates, and concludes that certain strategies work with varying degrees of success depending on the skill of other players in a game and the stakes played for. Siler also observes that a high rate of hands won correlates negatively with the amount of money a player wins, particularly in lower stakes games, because the players in those games tend to “overweight frequent small gains vis-à-vis occasional large losses.” Siler’s research at least implicitly—and indeed, fairly explicitly—reveals something similar to the other studies cited here: different strategies produce can produce substantially different outcomes, something that would be relatively surprising in a game dependent heavily on chance.

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