Is poker illegal gambling in New York?

One of the Black Friday charges made by the U.S. Attorney for the Southern District of New York involved violation of the UIGEA, which, basically, prohibits financial transactions done for the purpose of illegal gambling--that is, gambling which is in violation of any applicable state or federal law. (Forgive the imprecision; I'm trying to skip quickly over the technicalities without getting bogged down in order to get to the main point.) One presumes that their intention is to prove that the transactions in question were illegal under the UIGEA because the poker they were intended to facilitate is illegal under New York law.

In the midst of a discussion of whether they would be able to make that case, Jacob Sullum of Reason magazine did a blog post in late April in which he questioned whether poker was, in fact, illegal gambling under New York statutes. He cited a 2009 article by somebody named Bennett Liebman in a journal called Gaming Law Review and Economics. The article is titled, "Chance v. Sill in New York's Law of Gambling: Has the Game Changed?"

You can see the first page of the article here, but in order to read the whole thing you'd have to have a paid subscription to the journal or belong to an institution (e.g., a university) that does. That left me out. But every time I've thought about this, I've been intrigued by the potential. Could it really be possible that there's something important that everybody has been missing, and that poker would not be ruled by New York courts to be illegal gambling?

Earlier this week I had to go to Lied Library at UNLV to look up some other unrelated stuff, and it occurred to me to see if they had this journal. They did. I copied the article and have now read it. I will attempt a one-paragraph summary:

The New York Court of Appeals (which is what every other state would call its supreme court) established in 1904 what has subsequently become a nearly universal legal test for whether some given activity constitutes gambling. This included, among other things, determining whether skill or chance was the "dominating element." In 1967 the New York legislature adopted an overhaul of its penal code. Rather than leave things undefined or leave them to the definitions the courts had devised, the new statutory scheme included a definition of "contest of chance," which is one necessary element of "gambling." This definition provided that a "contest of chance" was "any contest, game, gaming scheme or gaming device in which the outcome depends in a material degree upon an element of chance, notwithstanding that skill of the contestants may also be a factor therein." On the surface, this appears to lower the threshold from the common-law definition; now a prosecutor did not have to prove that chance was the "dominating element," but only that the outcome depends on chance "in a material degree." The whole point of the Liebman paper is to demonstrate that there is actually not a meaningful difference between these two tests, despite the facial appearance. He gets at this in what I found to be a reasonably persuasive manner, citing scholarly commentary, court cases decided subsequent to the 1967 revisions, and some logical absurdities that would result if the two tests were actually substantially different.

Let's gloss over his arguments for now, because it would be really tedious for me to try to present them in more detail than I just did, and really tedious for you to try to follow. Let's assume that he's right--that is, that even though at a glance the "material degree" statutory test looks as if it sets a much lower threshold for the role of chance than did the old "dominating element" test, there is, in reality, no meaningful difference between them. If Liebman is correct, does that get us anywhere favorable?

Sullum wrote:

If Liebman is right, there is a strong case that poker does not qualify as "a contest of chance" under New York law, since it is clear that skill is ultimately more important in poker than luck; otherwise it would not make sense to distinguish between good and bad poker players. That calls into question the whole premise that PokerStars CEO Isai Scheinberg and the other defendants broke the law by serving customers in the Southern District of New York, where they were indicted.

Well, yes and no. To anybody who plays poker for a while, there is no doubt that skill dominates luck in terms of determining long-term win/loss results. But what is "clear" to poker players is not necessarily "clear" to courts.

I'm a fan of Sullum's writing, but he's out of his element here. His usual beat is legal prohibitions and restrictions on drugs, alcohol, tobacco, and other such substances. On that subject, there is nobody better informed or more persuasive, in my opinion. (See especially his two books, here and here.) But I'm afraid that his analysis of the significance of Liebman's argument rushes to home plate without having touched all the bases first.

Professor I. Nelson Rose has returned to the skill-versus-luck debate frequently. He is adamant that courts should find poker not to be a game of chance when the "dominating element" test (also called the "dominant factor" test) is used. See, e.g., these columns in his long-running "Gambling and the Law" series:

http://www.gamblingandthelaw.com/columns/153-proving-poker-is-a-game-of-skill.html

http://www.gamblingandthelaw.com/columns/171-pennsylvania-court-rules-poker-is-a-game-of-skill.html

http://www.gamblingandthelaw.com/columns/172-second-court-rules-poker-is-a-game-of-skill.html

http://www.gamblingandthelaw.com/columns/147-a-modest-proposal-is-poker-a-game-of-skill.html

http://www.gamblingandthelaw.com/columns/135-world-series-proves-poker-game-of-skill.html

Unfortunately, Prof. Rose's arguments have not been the ones that win in court. Chuck Humphrey has an extended discussion of the uphill battle poker has had getting defined as a game of skill in court here. He concludes:

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.

I can't tell when that was written, but I think it was several years ago.

There was a glimmer of hope in 2009 when two courts, one in Pennsylvania and one in Colorado, held poker to be a game of skill rather than chance. See the second and third Rose links above, and this follow-up article by Humphreys summarizing them: http://apps.americanbar.org/buslaw/committees/CL430000pub/newsletter/200905/humphrey.pdf

But both cases were reversed on appeal, leaving the current case law in both states to be that poker is a game in which chance dominates over skill. See Humpheys on these losses here. The Pennsylvania court's opinion, with an extensive discussion of other states' cases with respect to whether poker was a game of predominantly skill or chance, is here.

In 2007, an appellate court in North Carolina made a very similar ruling, available here. A case is pending in the supreme court of South Carolina that turns on the same question. My friend Grange95 has carefully reviewed both the legal briefs for that case and an unrelated recent case decided by the South Carolina Court of Appeals that discussed the dominant-factor test under state law, as applied to a non-poker game. Both analyses left him pessimistic that that state's supreme court decision will be one poker players are happy about.

Note that all four of these relatively recent cases included hearings in which there was ample testimony provided by credible experts about skill dominating over luck in the long-term outcome of poker. They have used sources such as the Poker Players Alliance and its "white paper" written specifically to tackle this legal argument with a barrage of facts. And yet we're running zero for three in the highest state courts to take up the cases, with zero for four likely to be the score when South Carolina gets decided any day now. That does not leave much room for hope that courts in New York would suddenly break with the trend if forced to decide the same question in connection with the Black Friday cases.*

This is especially so since there is already at least one post-1967 New York case on record that discusses whether poker would be considered a "contest of chance." The case actually involved "three-card monte," but in dicta (discussion of matters outside the questions the court is required to address) the court considered other games for purposes of comparison:

Games of chance range from those that require no skill, such as a lottery, to those such as poker or blackjack which require considerable skill in calculating the probability of drawing particular cards. Nonetheless, the latter are as much games of chance as the former, since the outcome depends to a material degree upon the random distribution of cards. The skill of the player may increase the odds in the player’s favor, but cannot determine the outcome regardless of the degree of skill employed.

People v. Turner, N.Y.S. 2d 661 (N.Y. City Crim. Ct. 1995)

To an experienced poker player, this reads like nonsense--because the "outcome" we care about is the long run, not any one hand--but the sad fact is that modern courts just have not shown the slightest tendency to see things that way.

As a result, I'm forced to conclude that Sullum's optimism is misplaced. Even if Liebman is right that the superficially lower standard of "material element" is no different from the "dominating element" test, that conclusion will do no good for either the Black Friday defendants or for poker in general.

I cannot improve upon the level-headed conclusion that Grange95 came to after discussing the Pennsylvania appellate case:

The "poker is a game of skill" meme is entirely correct. The continuing legal campaign premised on using that meme to exempt poker from gaming laws is utterly quixotic. The PPA (and poker players in general) need to understand that the battle to legalize poker will not—indeed cannot—be won in court. At its core, the poker legalization debate is not about “skill vs. chance” at all. As a practical matter, poker is firmly entrenched in the public’s mind as a form of gambling. Look again at the Pennsylvania decision—it cites cases from nine states covering more than a century of legal decisions, all concluding that poker is gambling. In states with legalized gambling, poker is treated as just another casino table game, subject to the same general gaming regulations as blackjack, baccarat, craps, and roulette. Popular culture depicts poker players as swaggering gamblers and/or con men (e.g., The Sting, The Cincinnati Kid, Maverick, the new Casino Royale, and yes, even Rounders); to those not familiar with the game, poker as depicted in these movies is really indistinguishable from blackjack in 21, or baccarat in several James Bond flicks....

Given the publicly ingrained view of poker as gambling, attempting to persuade appellate courts to declare that poker is not gambling is ultimately a fool’s errand. Courts are inherently conservative institutions, reluctant to issue decisions that contradict a community’s long-standing and widely-held beliefs and values, absent some compelling argument. “Poker is a game of skill”—even though logically correct—is not particularly compelling beyond the insular poker community. Poker players probably gain some psychological boost from being able to convince their friends and family (and themselves) that their game is really different from other casino games. Poker books and websites benefit from persuading poker players that they can learn to win (if only they purchase specific products, of course). But setting aside laws that are more than a century old? If the PPA’s best argument is to parse the differences between Hold ‘Em and Let It Ride, they’ve already lost. Better for the PPA to spend its resources lobbying state legislatures and Congress for explicit legalization and regulation of poker, including provisions for low-stakes, not-for-profit home games.

It’s time to stop tilting at the “poker is not gambling” windmill.

*Federal courts typically look to unambiguous state appellate court decisions when required to interpret state law. In a situation such as this, where there is no New York appellate case law specifically answering whether poker runs afoul of the "material element" test, a federal court would have to either make a prediction as to how the state courts would rule, or ask for an advisory opinion from the New York Court of Appeals.