Is Poker Gambling in New York?

In my column last week on the recent federal indictment of 11 people associated with three online poker companies, I noted that the underlying New York state offense was promotion of illegal gambling. But since New York defines gambling as "a contest of chance," it's not clear poker qualifies. I followed the column up with a blog post noting a 1995 Criminal Court of New York case that identified poker as a contest of chance. CKBWoP, the legal blogger who cited that case, explained that in New York a contest of chance is one "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." But  the question remains: What is "a material degree," and does that description apply to the role of chance in poker?

Joseph Kelly, a SUNY-Buffalo expert on gambling law,  points me to a 2009 article in the journal he co-edits, Gaming Law Review and Economics, that addresses the first part of that question. Bennett Liebman, executive director of the Government Law Center at Albany Law School, argues that the "material degree" test is essentially the same as the "dominating element" test that prevailed before a newly revised New York penal code took effect in 1967. Under the latter standard, which was established by the New York Court of Appeals in 1904 and is still used in most states, "The test of the character of a game is not whether it contains an element of chance or an element of skill, but which is the dominating element." Liebman makes a persuasive case that New York legislators did not intend to change this standard when they included the "material degree" language in the new state penal code. At most, he argues, they sought to establish a presumption that a game in which chance and skill play equal roles qualifies as gambling.

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. U.S. Attorney Preet Bharara could cite other state laws, such as Washington's, that explicitly ban online poker. But if that is the basis for the indictment, why isn't Michael Ormsby or Jenny Durkan—the U.S. attorneys for eastern and western Washington, respectively—pursuing this case? 

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  • Almanian||

    "The test of the character of a game is not whether it contains an element of chance or an element of skill, but which is the dominating element."

    You wanna BET?!

  • Fred Flinstone||

    B-b-bet bet bet b-b-bet bet bet...

  • ||

    The only gambling allowed in New York State is rolling the dice on a couple trillion bucks of sketch-mortgages with other people's money.

    But five bucks on the Yankees? Poker with $1 buy-ins? Yeah, felonies baby.

  • Rrabbit||

    Arguably it is not gambling if you have no chance to win - not a contest of chance anymore. :->

  • }||

    If poker is a contest of chance, so is Scrabble.

  • Warren||

    I dont unnerstind.

  • ||

    If large scale Scrabble betting were to start, they'd bust that too, trust me.

  • Fist of Etiquette||

    But since New York defines gambling as "a contest of chance," it's not clear poker qualifies.

    Ignorance of the law is no excuse.

  • ||

    The New York lottery isn't gambling, it's a tax on stupid people who can't do math.

  • ||

    You mean one chance in 100 billion isn't good odds?

    It's impossible to explain to such people that they're better off taking that dollar to the roulette table and betting it all on black (Wesley, never forget!), or even on 33. They just don't get it.

  • Otto||

    Fran Liebowitz once said "I don't play the lottery, because I figure you have the same chance of winning whether you play or not."

  • Night Elf Mohawk||

    It was a shame about that kiln accident, though.

  • Mango Punch||

    Where do you gamble that accepts $1 bets??

  • ||

    It was a hypothetical. Gambling is for morons. The odds are never in your favor.

    But I bet some of the rinky-dink little casinos here in WA have super low buy in tables.

  • Krusty the Clown's Accountant||

    Gambling is the finest thing a person can do . . . if he's good at it.

  • Brett L||

    Its rarely the big prize lotto where people spend all of their money. The scratchoffs are far more insidious because they payoff more than you spent "this time" just often enough to really fuck with people's rewards centers.

  • Mo||

    It can be good odds. It depends on the payout. Lotteries regularly hit the point of having a positive EV.

  • ||

    Lotteries regularly hit the point of having a positive EV.

    Not really, the positive EV is very unstable. The ones that hit that are the progressive jackpots, but they all involve splitting the jackpot if there's more than one winner. Whenever they look like positive EV, the number of tickets sold goes up so dramatically that so do the odds of a split pot increase, thus killing the supposed positive EV.

  • Mo||

    Yes, but you can get a reasonable estimate of the EV by looking at the number of tickets sold in prior jackpots and modeling how many there are. Plus, if you only look at the jackpot, you're ignoring the other, significantly smaller, prizes.

  • ||

    Yes, but the other, significantly smaller, prizes never give you anything close to positive EV. They're constant.

    Tickets sold go up in a frenzy whenever P(winning jackpot) * unsplit jackpot value > ticket price. You can't look just at previous normal jackpots.

    I offer the claim that tickets sold go sufficiently up that it still isn't worth it. It would be worth it if people didn't notice and change their behavior so sharply, but in the actual event it's no different from expecting widely advertised arbitrage profits to stick around.

  • Alan||

    can you say "Bank Fraud" that's the case, not if poker is a game of chance or skill!

  • Otto||

    Politics is also a "contest of chance." Therefore, politics should be made illegal, and professional politicians locked up.

    Preferably for life.

  • ||

    Nah this law is only against illegal gambling. Foolproof.

  • Mango Punch||

    BARNEY FRANK! BARNEY FRANK!! BARNEY FRANK!!! BARNEY FRANK!!!! BARNEY FRANK!!!!!

    At least I agree with him on one thing.

  • ||

    since it is clear that skill is ultimately more important in poker than luck

    That's hardly clear. I could never beat LeBron James in a game of one-on-one but I could beat the world's greatest poker player in a hand of Texas Hold 'em.

  • ||

    At first blush it seems clear to me. The key feature of skill vs. luck is repeatablilty. Rock Paper Scissors is a game of chance and thus you don't have the same elite players winning that stupid competition they do every year. I don't really follow poker but my understanding is there are definitely elite poker players. Looking at the list of World Series of Poker winners there certainly seems to be fewer repeat winners now than there were in the past, and I think that demonstrates that luck plays a greater role than it does in basketball (to use your example). But still, if it were purely a game of chance there would be nothing to distinguish me from Chris Moneymaker.

  • ||

    I'll also clarify that I say "at first blush" because there could be other explanations as to why there are repeat poker winners (barriers to entry being an obvious one). But until somebody provides an alternate explanation you have to start with the assumption that skill is involved.

  • Not Sure||

    "But until somebody provides an alternate explanation you have to start with the assumption that skill is involved." -- Why?

  • ||

    OK, I'll grant that I phrased that poorly. You don't have to start with that assumption, but it seems logical to me and absent an alternate explanation I'm inclined to see it as proof that skill is involved.

  • ||

    But you couldn't beat him in an eight hour session of poker-and it is possible you could get a lucky basket in your basketball game. That is, you can't judge it by one hand.

    Howard Lederer and Annie Duke (brother and sister professional poker players) came up with a perfect test on whether or not a form of gambling is luck or skill-Can you intentionally lose? If so, it's a game of skill, not luck. It is impossible to intentionally lose at the lottery, or baccarat, or the roulette wheel. It is easy to intentionally lose while playing poker for a short period of time. (Go all in with 7-2 or other bad hands preflop; fold pocket aces, etc.)

  • Xenocles||

    You can intentionally lose roulette. Just place equal bets such that every possible outcome of a particular bet type is covered. For example, bet each number plus 0 and 00 - each spin will pay 35x but you lose 36x at the same time.

    You can also throw most blackjack hands by hitting past 21. You run the risk of a natural, but you could say the same for poker- I've seen hands win at the river that had no business being played in the first place.

  • Amakudari||

    Right, but we're not talking pure luck. NY's statue seems to require merely more luck than skill.

    Of course, this distinction should be irrelevant, as it's blindingly obvious that poker harms no one. The only non-libertarian position that's even worthy of debate is assessing a tax on things like tournaments to treat problem addicts -- even then I disagree -- but everything else is pure Lawful Evil.

  • Amakudari||

    should = shouldn't

    Same thing, basically.

  • Robert||

    There are tournaments to treat people addicted to problems?

  • Amakudari||

    Yes.

  • ||

    Actually, the one sure way to intentionally lose at poker is not to move all-in before the flop, but to put in big bets and then fold later in the hand. Moving all-in, even with 7-2 offsuit, still leaves you about a 12.5 percent chance of winning even against the worst-case scenario where your opponent has A-A; you're guaranteed to lose in the long run there, but in the short term your shit could end up smelling like roses.

  • Mo||

    CKBWoP, the legal blogger who cited that case, explained that in New York a contest of chance is one '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.'

    Doesn't that definition make all investment banks, hedge funds, VCs and PE firms gambling houses?

  • ||

    You left out insurance.

  • Corporate Drone||

    And getting out of bed each day.

  • Mo||

    And technology.

  • LarryA||

    And, particularly in NYC, walking down the street.

  • ||

    While you may lump stock market activity within the realm of "gambling," that industry (and related industries) are legal under specific authorizing legislation and regulation. In addition, the UIGEA specifically exempts activity that is governed by the U.S. federal securities laws.

  • ||

    "in which the outcome depends in a material degree upon an element of chance"

    The "outcome" of any given poker hand would be 100% determined by random hands dealt, if all players place a single ante then compared the resulting cards and hand rankings.

    But obviously that's not how poker works...in fact, it looks nothing like that. So the result is dependent on the players' choices (i.e., when to fold, call, or bet, and how much), and in fact the aggregate value (or expected value) of those choices bears a near 100% correlation to skill.

    It just depends on if by "outcome" you refer to any single game (which as any player knows, can quite often come down to good luck and a bad player) or of the game, rules, and betting mechanics as a whole.

  • Corporate Drone||

    but horse racing is still okay?

  • Zeb||

    Not a game of chance, and the state is sure to get its cut.

  • Zeb||

    "it is clear that skill is ultimately more important in poker than luck"

    I'm not really convinced that this is true. Let's say that poker is 90% chance and 10% skill. A more skillful player will still come out ahead over time. So I don't think that the mere fact that one can be skilled at poker necessarily means that it is more skill than chance. To determine that, you would have to look at how a poker pro does against various novice players over time and see how much better the pro does than would be expected in a completely random game.
    In a game like chess, which is clearly mostly or all skill, a good player will practically never be beaten by a novice.

  • Zeb||

    In any case, this argument shouldn't be crucial to anyone's freedom. People should be able to bet on whatever they want to.

  • ||

    I think the real question is how do you quantify chance vs. skill? If you pit a skilled player vs. a novice, how many times must the skilled player win to qualify as "mostly skill"? Is skill distinguishable from talent? And is being a novice distinguishable from being ignorant of how to play the game?

  • ||

    I always like to use baseball as a benchmark. Very few people would claim that baseball counts as a game of chance, but at the end of the season, the very best teams have won 5/8s of their games and the very worst teams have won 3/8s of their games.

    Poker provides a much wider spread than that.

  • ||

    As I think about your example, it makes me realize that the role of luck does not necessarily mean the absence of skill. For example, luck is very much a part of baseball when the skill level is equal. It's significant when you're talking Major League baseball, and it's significant when you're talking Little League baseball. But it's NOT significant if you have a disparity in skill. If I'm trying to get a hit off of C.C. Sabathia, skill will control in a way that it won't if Albert Pujols is trying to get a hit off of him. So you can't simply look at performance between elites to determine whether or not skill is involved. If skill truly "controls," then you should be able to pit a highly skilled player against a player without skill and have the skilled player dominate.

  • Zeb||

    I don't think that really works. Top level chess players also come out pretty even in their win/loss when playing against similarly rated players. And there is little or no chance in chess. You certainly can't argue that poker is more skill based than chess. I think that the cases you have to look at are those where a good player plays a novice.

    Or perhaps we are approaching this the wrong way. In baseball, if two similarly skilled teams play each other, who wins in one game is, in some way, indistinguishable from chance. But the outcome is clearly not random. In poker, a lot of the game is random. Skill in such a game must have the effect of reducing the influence of randomness on the outcome of the game. If poker were played in a mechanical way, based only on the probabilities of certain hands coming up, it would be a totally random game of chance. So in order to see how much skill contributes to the outcome of poker, you need a good player palying against a novice or not so good player.
    Sorry if that is just rambling. It is very interesting to think about. Since poker skill has so much to do with psychology, perhaps it is not so easy to quantify.

  • ||

    I'm going to have to cover my paper with my other hand so you stop cheating off of me, Zeb. ;-)

  • Zeb||

    That is basically what I was saying. You would have to determine how far a "skilled" player's results differ from random. I'm not much of a statistician, so I am not sure how best to set up the experiment, but I bet it could be done in some meaningful way.

    Why the fuck does this have bearing on people's freedom rather than just being an interesting thing to discuss?

  • ||

    Because the laws that restrict people's freedom use this measure to determine whether freedom is restricted or not.

  • ||

    In any case, this argument shouldn't be crucial to anyone's freedom. People should be able to bet on whatever they want to.

    In fantasy world, yes. But in reality, gambling causes problems. Otherwise nobody would care.

  • Zeb||

    Yeah those people are so lucky that they are going to be locked up rather than be allowed to play more poker. Fuck you.

  • Phanatic||

    "since it is clear that skill is ultimately more important in poker than luck"

    How do you figure? I know that Matt Damon's character in _Rounders_ says "Why do you think the same five guys make it to the final table of the World Series of Poker every year? What, are they the luckiest guys in Las Vegas?"

    But he's wrong/lying, the same five guys don't. Dan Harrington and Al Krux repeated at the final table for the WSOP main event in 2004, and that's the last time anyone's even showed at the final table in a subsequent year. Only two guys have won the main event 3 times, and only four have won in two consecutive years.

    There's a tremendous amount of luck involved in tournaments that occur at the very highest levels of play. On what possible basis of evidence can you say that skill controls and luck doesn't?

  • ||

    That's certainly a good point, and the recent phenomenon of online players coming from out of nowhere also shows the element of luck involved. But as I asked above, the real question is how do you quantify the luck component? And even if you could, what's the magic number when it becomes "controlling"? It seems to me that poker is a numbers game... If you're good, and you play enough, eventually the luck washes out and the skill controls. But with that in mind I suppose you could argue that the degree of skill is actually a function of your sample size. One hand? Skill most certainly does not control. One tournament? OK, now skill plays a more significant role. One year? Now you could probably make a really strong case of skill controlling. Even if there are very few repeat WSOP winners, I would guess that the list of top money winners each year (if there is such a thing) would be more stable.

  • ||

    There's actually more of a skill component in cash games than in tournament play. Tournament play encourages strategies that are poor EV in a cash game.

  • Anonymous Coward||

    There's a very simple reason for this. In cash play, you are supposed to grind out money and wait for good hands. Tournament play grinding down other players and waiting for good hands is a bad strategy as the blinds might eat you up before those pocket Aces or Kings ever show up.

  • ||

    And the other reason is that tournament rewards are highly nonlinear compared with the chip level that you get. It encourages high risk-high reward play.

  • Robert||

    I found the format used in some televised tournaments, 2 player eliminations at hold 'em, bizarre. Hold 'em was devised for quick, aggressive play at a table with a large number of players. With just 2 players in a freeze-out format and so few cards showing, the results have more to do with who gets lucky early and winds up with a dominating position in chips than anything else. Strange path-dependent process by which that format was chosen for TV poker.

  • ||

    There is, and it is. Guys like Casey Jarzabek finish in the top 20 of online tournaments year after year after year.

  • angus||

    Does it even matter?

    They're being charged with money laundering and wire fraud which don't require the product to be illegal. Like buying potatoes whilst billing for sugar beets.

  • Anonymous Coward||

    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.

    Doesn't this qualify for most sports?

  • Grange95||

    Every court to address the issue, even those using the "predominate factor" test, have ruled that poker is a game of chance, despite the element of skill. Look up the recent Dent decision from Pennsylvania or the Joker's Club case from North Carolina (in both cases, appellate courts found poker to be a game of chance). Also keep an eye out for the South Carolina decision (likely due to be released any time in the next three months) in the Chimento case.

  • ||

    While I understand that Mr. Liebman may take the view that New York still subscribes to the "dominating element" test, can Mr. Liebman explain to me why there are no legal poker rooms in the State of New York (other than poker rooms that are in casinos that have an operating license under Native American Tribal jurisdiction) or why underground poker rooms in New York City and elsewhere continue to be raided by the police? If poker were, in fact, legal under New York state law, wouldn't you see a plethora of legal card rooms operating within the state or a lack of police prosecution of poker room operators?

    With respect to your question regarding why the U.S. Attorney's Offices in the State of Washington are not pursuing this case, it has long been a focus of the Southern District of New York to investigate and prosecute financial-related criminal activity. The case against Full Tilt, PokerStars and Cereus is just one in a long string of related cases that the SDNY has pursued in the past few years (Neteller, Anurag Dikshit / PartyGaming, Douglas Rennick, Daniel Tzvetkoff). The U.S. Attorney's Office in the SDNY need not necessarily prove a violation under New York law (although it has specifically cited New York law in the indictment), but under its interpretation of New York law, there is sufficient grounds to prove a violation of New York law. All the U.S. Attorney's Office in the SDNY needs to prove is that there is an underlying predicate offense grounded in any other state or federal law as it relates to gambling.

  • Trader Jobs||

    They should just legalize online poker and get another source of tax revenue..

  • Robert||

    Even if it turns out that poker is "gambling" under NY law and hence illegal in NY, the federal>/b> meaning of "gambling" would still be at issue in determining whether this was "illegal gambling" as written in the federal statute.

  • ||

    The federal meaning of "gambling" would still be at issue not because of the definition of "illegal gambling" but because of the definition of "betting or wagering" in the UIGEA that uses the phrase "subject to chance." "Unlawful internet gambling" under the UIGEA and "illegal gambling" under the illegal gambling business statute are defined by reference to state law violations.

  • Robert||

    But although the state determines whether an activity is illegal in that state, the federal statute still refers to "illegal gambling", not any activity illegal in the state. So the meaning of the word "gambling" in that statute is not delegated to the states!

  • Skallagrim||

    If you are going to try and decide whether skill or chance is the dominant factor in a game, you first have to define each of those factors specifically. In poker this is easy because only two things are occurring: cards are being dealt and players are making decisions to check, bet, raise call or fold. So pretty obviously the chance in poker is the deal of the cards and the skill in poker is the actions of the players.

    With that framework it is easy to show that poker is a game determined mostly by skill. A study of over 100,000,000 hands of poker showed that 76% of the hands were determined by all but one player folding. In those hands the cards were neither consulted nor revealed. Player decisions decided who won those hands not the cards. The study also showed that of the remaining 24% of hands where the cards were revealed and consulted to determine the winner, slightly more than half the time the person who was dealt what otherwise would have been the winning hand, folded prior to the final card being played and so lost.

    In only 12% of poker hands is the chance factor, the deal of the cards, solely responsible for determining who wins.

    Poker is undeniably a game where skill is the predominant element.

    And, quite frankly, I don't think an element which is used to determine results only 1/4 of the time, and is clearly compromised in 1/2 of those times, is even a "material" element in a game. Unless by 'material" you essentially mean "plays a bit part."

    But if that's what you mean, even competitive chess is a game of chance under this standard because the random method used to decide who goes first in a chess game confers a measurable advantage and therefore also "plays a bit part" in the outcome.

    Skallagrim

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