A debate has been ongoing in law enforcement and gaming circles over whether operators of online poker sites could be prosecuted for illegal gambling under federal law. Poker, so the argument has gone, is a game of "skill" and not a game of "chance" and, therefore, does not constitute "gambling" of the type that federal anti-gambling laws were intended to reach. Last year, a federal court in New York ruled that poker was a "game of skill" and, therefore, did not constitute "gambling" under the Illegal Gambling Business Act, 18 U.S.C. § 1955 ("IGBA"). United States v. DiCristina, 886 F.Supp.2d 164 (E.D.N.Y. 2012),. That ruling, which was cheered loudly by poker proponents, as well as by fantasy sports operators who highlight fantasy gaming's "skill" component, has now been completely rejected on appeal by the Second Circuit U.S. Court of Appeals. (No. 12-3720, Second Circuit, August 6, 2013).
At issue in the case was whether IGBA reached the operation of businesses that offered poker play to patrons in return for a fee. The defendant in the case, Lawrence DiCristina, was charged (along with a co-defendant) with operating a poker club in the back room of a warehouse in Staten Island, New York. DiCristina, his co-defendant, and a group of others hosted poker tables in the warehouse at which dealers collected a 5% "rake" from each pot for the house, from which was used to pay expenses (including costs of the dealers) and profits to DiCristina and the others. At trial, DiCristina argued that poker is not house-banked (i.e. the house did not compete against customers for the pot) and the outcome of each poker hand was not predominated by chance and, thus, that poker was not "gambling" for purposes of IGBA. The District Court accepted this argument, noting that, while IGBA did not contain explicit criteria for defining what was or was not "gambling" under the statute, the list of examples given within the statute all involved games of chance and, thus, it was reasonable to conclude that "chance" was a necessary element for a game to be considered "gambling" under IGBA. 886 F.Supp.2d at 234.
On appeal, the Second Circuit rejected this argument in its entirety, noting that under the IGBA definition gambling "includes but is not limited to..." the list of enumerated examples in the statute. (Slip op. at pp.11-13). Thus, the Appeals Court held, "gambling" under IGBA could include any activity defined as prohibited gambling under the laws of the state(s) in which the activity took place. Id. As a result, the Second Circuit ruled that "the question of whether skill or chance predominates in poker is inapposite to this appeal." Id. at 13. IGBA, the court held, requires only a finding that (i) the activity be gambling in violation of the law in the state in which it is conducted, (ii) the business involves 5 or more people who direct, own, manages, or finance it, and (iii) the business involves gross revenue of $2,000 in a single day or has continued for more than 30 days. Id. Since the poker club at issue operated in New York, the Court of Appeals looked to New York's Penal Law to determine whether poker constituted prohibited "gambling" under New York law. New York law provides that, "A person engages in gambling when he stakes or risks something of value upon the outcome of a contest of chance or a future contingent event not under his control or influence, upon an agreement or understanding that he will receive something of value in the event of a certain outcome." N.Y. Penal Law s 225.00(2). "Contest of chance" is, in turn, defined as "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." N.Y. Penal Law s 225.00(1). Since, as the Court of Appeals and the District Court both noted, "New York State courts have long held that poker contains 'a sufficient element of chance to constitute gambling under that state's laws," (Slip op., fn 5 quoting DiCristina, 886 F.Supp.2d at 169), the Court of Appeals had no trouble concluding that DiCristina's conduct of a "rake" poker operation violated both New York law and IGBA.
While this outcome was not wholly unexpected by the gaming legal community, it dampens the prospects for expansion of poker as a "skill" based game and provides further ammunition for law enforcement agencies and regulators seeking to stop illegal online poker operations. This, in turn, may provide renewed fuel to the efforts convince Congress that a nationwide federal framework for legal online poker is needed. It is also likely that the ruling will be cited in connection with the debates over "fantasy" sports and similar operations that have argued broadly for the past several years that gaming involving an element of "skill" cannot be prosecuted as illegal "gambling."
There remain avenues for skill-based concepts to succeed in a number of jurisdictions. Anyone considering embarking on a skill-based gaming concept should, however, review this Second Circuit decision carefully and seek the advice of experienced gaming counsel.
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