Poker Is Not “Gambling”

The facts in this case do not involve the use of computer technology to commit a crime.  I am doing a post on it because the holding in the court's opinion plus a recent opinion from the U.S. Department of Justice seem to open up the possibility on legal online gaming in the United States.  I’ll explain more at the end of this post.

Lawrence DiCristina, “ in partnership with two others, operated a poker club in the back room of a warehouse out of which he conducted a legitimate business selling electric bicycles.” U.S. v. DiCristina,

--> 2012 WL 3573895 (U.S. District Court for the Eastern District of New York 2012). 

Games were generally held on Mondays and Thursdays, . . .although there was some evidence to suggest this schedule was not adhered to with full regularity. . . . Games were advertised via word-of-mouth and text messages sent to potential participants by the partnership. . . . The club contained two tables, at which No Limit Texas Hold'em was played. . . .

A `1–2’ game was played at one of the tables; a `5–5’ game was played at the other. . . . In a 5–5 game, one designated player would have to bet $5 (the `small blind’) . . . and another designated player would have to bet $5 (the `big blind’) . . . , regardless of what cards they held in their hand. . . . In the 1–2 game, the small blind was $1, and the big blind was $2. . . . The average amount of chips purchased by the players . . .  ranged from $100 for the 1–2 game. . .  to $300 for the 5–5 game. . .

U.S. v. DiCristina, supra.  

DiCristina’s involvement in the poker club led to his being charged with operating an illegal gambling business in violation of 18 U.S. Code §1955, and conspiring to do so.” U.S. v. DiCristina, supra.  Dicristina “moved to dismiss the indictment on the grounds that a poker room does not fall under the definition of an illegal gambling business proscribed by the federal statute because poker is predominately a game of skill rather than chance.”  U.S. v. DiCristina, supra. 

He argued that “whether poker is a game of chance or skill” was “a mixed question of law and fact to be determined by the jury” at trial, but the federal judge who has the case ultimately “ruled that whether poker constituted gambling under the applicable federal criminal statute would be decided as a matter of law.”  U.S. v. DiCristina, supra.  In other words, he held this was an issue to be decided by the court, not by a jury. 

The judge reserved ruling on DiCristina’s motion to dismiss, the case went to trial, the jury was “instructed that poker constituted gambling under” § 1955 and DiCristina was convicted on both charges. U.S. v. DiCristina, supra.  He “then renewed his motion for a judgment of acquittal” under Rule 29 of the Federal Rules of Criminal Procedure.  U.S. v. DiCristina, supra.  In this opinion, the judge is ruling on DiCristina’s motion for acquittal.  The only issue is whether poker qualifies as “gambling” under 18 U.S. Code § 1955.

At a post-verdict hearing, “Dr. Randal D. Heeb, a respected economist, statistician, and player in national poker tournaments, testified as an expert on game theory.”  U.S. v. DiCristina, supra.  Although Dr. Heeb acknowledged that poker . . . involves an element of chance”, he ultimately “opined that poker differs from other forms of gambling, such as sports betting, because the player can rely on sophisticated skills to change the outcome of the game.”  U.S. v. DiCristina, supra. 

As the judge’s opinion notes,

[a]ccording to Dr. Heeb, `many people make a living playing poker and win consistently over time’ whereas `it is impossible to make a living and to win consistently playing casino games such as roulette’ where chance predominates. . . .This fact alone was an independent foundation for his opinion that skill predominates over chance in poker.

U.S. v. DiCristina, supra. 

In the report he submitted to the court, Dr. Heeb elaborated on this finding:

Based on his research, [he] concluded skill predominated over chance in determining the outcome of a poker game. He summarized the results of his study of 415 million hands of No Limit Texas Hold'em that were played on-line at the PokerStars website from April 2010 to March 2011. . . . To verify the reliability of the data he received from PokerStars, he obtained publicly available data from HandHQ, a company that tracks hands played on PokerStars and other online poker sites. . . .

Using this outside source, he confirmed that the data received from PokerStars was an accurate records of hands played. . . . Although his information came from internet poker, rather than face-to-face games, Dr. Heeb concluded that the data set he chose was appropriate:

`The game is a game of skill in exactly the same way, whether it's played live or played over the internet. . . . So my conclusions . . . carry over exactly to when the exact same game is played, whether it is played in person, played with cards, . . . or played electronically over the internet.

The only difference between playing live and playing in person is that the live game brings in some additional elements of skill which are not available to the internet player.’

U.S. v. DiCristina, supra.  Dr. Heeb therefore, as noted above, concluded that “ skill predominates over chance in poker.” U.S. v. DiCristina, supra. 

The prosecution’s expert, Dr. David DeRosa, another “well-qualified econometrician,” also testified at the hearing. U.S. v. DiCristina, supra.   

Unlike Dr. Heeb, Dr. DeRosa neither has any personal experience with poker . . . nor has he independently analyzed the game. Moreover, he noted that he had `not been provided with any of the data or statistical analyses summarized in Dr. Heeb's report.’

His testimony was thus limited to a critique of whether `Dr. Heeb's stated results support his overarching conclusion, namely that skill predominates over chance in poker.’ 

U.S. v. DiCristina, supra.   

While Dr. DeRosa acknowledged that `the actions of [poker] players ha[ve] some impact on the outcome [of the game] and poker is not a game of pure chance”, he had “several criticisms of Dr. Heeb's work.”  U.S. v. DiCristina, supra.   

First, he argued that Dr. Heeb's analysis erroneously relied on `relative skill rather than likelihood that a player will earn a profit.’ . . According to Dr. DeRosa:

`Poker players play poker to win money. A player will consider himself a winner if he earns a profit. The fact that he may lose less money than another player is likely to be of cold comfort. I believe that the proper metric for determining success at a session of poker is whether or not a player profits from playing the game.’

U.S. v. DiCristina, supra.   

Dr. DeRosa concluded from the fact that

so many players lose money that `if a player were to make a profit at any given session in a game where he faced a negative expected rate of return, such profit would have to be primarily as the result of luck.’ . . . Because so few players win money, he contended, skill cannot predominate over luck in poker. . . .

U.S. v. DiCristina, supra.   (The opinion notes that “Dr. Heeb's own data shows that most players lose money at poker.”  U.S. v. DiCristina, supra.)

Finally, Dr. DeRosa questioned the validity of Dr. Heeb's data set, as well as his methodology. Since the data came from an online poker website, Dr. DeRosa was concerned that it might not represent `real hands played by real players’ and might include false data points representing instances in which live players -- who may have believed that they were playing against another, similarly-situated person -- were playing against either a computer or a confederate of the gaming company.

   

U.S. v. DiCristina, supra.   

Based on this and other evidence and expert opinion, the judge began his analysis of whether DiCristina’s motion for acquittal should be granted.  U.S. v. DiCristina, supra.   

He explained that § 1955(b)(1) defines an “illegal gambling business” is one that (i) is a violation of the law of the state in which it was conducted, (ii) involves “five or more persons who conduct, finance, manage, supervise, direct, or own all or part of such business” and “has been or remains in substantially continuous operation for a period in excess of thirty days or has a gross revenue of $2,000 in any single day.” U.S. v. DiCristina, supra.  Section 1955(b)(2) defines gambling as including but not limited to “pool-selling, bookmaking, maintaining slot machines, roulette wheels or dice tables, and conducting lotteries, policy, bolita or numbers games, or selling chances therein.”  U.S. v. DiCristina, supra. 

In addressing DiCristina’s motion for acquittal, the judge reviewed the legislative history of 18 U.S. Code § 1955 and found, first, that it indicated the statute was intended to target organized crime’s involvement in gambling.  U.S. v. DiCristina, supra.  He also noted that Congress “never discussed the meaning of `gambling’” in the statute.  U.S. v. DiCristina, supra.  “It did not address whether it encompassed games of some skill, or merely games predominated by chance.”  U.S. v. DiCristina, supra. 

After reviewing the historical context in which the statute was adopted and other relevant materials, the judge noted that “[a]lthough poker and other card games requiring skill were widely played when [§ 1955]  was passed, such games are not included in that provision's list of gambling activities.”  U.S. v. DiCristina, supra.  But he also noted that “the fact that the statute does not explicitly mention poker, in itself, is not conclusive evidence that that game should not be considered gambling under” 18 U.S. Code § 1955.  U.S. v. DiCristina, supra. 

He also explained that

[p]oker is, for the purposes of this case, an elephant -- or perhaps an eight hundred pound gorilla -- that Congress would have been unlikely to ignore. The fact that card games like poker, pinochle, gin rummy, and bridge were so widely played by law-abiding individuals in noncriminal settings may explain its omission from [§ 1955]. As Sherlock Holmes would describe the clue, it is the dog that didn't bark. . . .

As a matter of statutory construction, poker must fall under the general definition of gambling and be sufficiently similar to those games listed in the statute to fall within its prohibition. . . . It does not.

U.S. v. DiCristina, supra. 

After reviewing other relevant sources, the judge found that to “constitute an illegal gambling business under [§ 1955], . . . the business must operate a game that is predominately a game of chance.”  U.S. v. DiCristina, supra.  He then held that “[b]ecause the poker played on [DiCristina’s] premises is not predominately a game of chance, it is not gambling as defined by” 18 U.S. Code § 1955.  U.S. v. DiCristina, supra. 

So he set aside the jury’s verdict and dismissed the indictment.  U.S. v. DiCristina, supra. 

This is a very abbreviated treatment of a very detailed opinion (85+ pages in length).  If you would like to read the full opinion, you can find it here.

This opinion means that 18 U.S. Code § 1955, one of the statutes federal prosecutors could use to prosecute those who engage in online gambling apparently does not apply to poker, off- or online.  And in a memo dated September of 2011 but released last December, the Justice Department reversed its longstanding opinion and said that the Wire Act, 18 U.S. Code 1084, does not apply to non-sports betting. As this article explains, the Justice Department’s memo, plus the DiCristina opinion, may are have a significant impact on the legal status of online gaming in the United States.