Another Step Toward Loosening Gambling Restrictions

by Perkins Coie

On August 21, 2012, the U.S. District Court for the Eastern District of New York held that poker is a game of skill and thus running a poker game or business is not subject to federal prosecution under the federal Illegal Gambling Business Act ("IGBA"). Following on the heels of the Justice Department's September 20, 2011 ruling that the Wire Act (which prohibits using wire-line communications to place or receive bets) only applied to sports betting, last week's ruling may be another step toward legalizing online poker.

The most immediate effect of the district court's ruling is that Lawrence Dicristina, who was indicted for operating a poker club (complete with waitresses serving free food and drinks) in a warehouse where he also had a legitimate electric bicycle business, will escape federal prosecution for his poker business. However, over the long term, the ruling may have an even broader impact.

The IGBA, under which Dicristina was prosecuted, is one of several federal statutes originally aimed at providing federal authorities with a way to prosecute gambling businesses operated wholly in a single state by organized crime syndicates. In his ruling Judge Weinstein analyzed the legislative history of the IGBA, the language of the statute and the traditional definitions of "gambling" and found that "gambling" is traditionally viewed as engaging in games involving a significant degree of chance. He also found that Congress, when crafting the IGBA, was primarily concerned with numbers rackets (similar to a state lottery) and other chance-based games operated by organized crime; not poker. In fact, Judge Weinstein's review of the IGBA's legislative history revealed that Congress' discussion of various forms of gambling touched upon poker only in passing when a member expressed concern that the law was overly broad because it might prohibit even a casual poker game among friends, much like the ones that Supreme Court Justice William O. Douglas used to play with President Franklin Roosevelt. This concern was quickly disregarded by other members of Congress.

Having established that the IGBA was only intended to prohibit games involving a significant degree of chance, Judge Weinstein relied heavily on a significant amount of statistical evidence to determine that "skill, when sufficiently honed, makes the difference between winning and losing in poker" and therefore poker is a game of skill. Weinstein went on to state that "[w]hile players' actions are influenced by chance events [the hand a player is dealt], their decisions are based on skill" and that "[t]he ability of players to influence game play distinguishes poker from other games, such as sports betting, enumerated in the IGBA." Skill is a determining factor in poker because "increased proficiency boosts a player's chance of winning and affects the outcome of individual hands as well as a series of hands. Expert poker players draw on an array of talents, including facility with numbers, knowledge of human psychology, and powers of observation and deception."

The broader impact of the district court's finding is that it may reflect changing attitudes about poker and illegal gambling. Put another way, the Dicristina decision, in connection with the recent narrowing of the Wire Act, hints at the potential for continued liberalization of gambling laws; including permitting online poker in limited circumstances. Similarly, these decisions suggest a trend of shifting more gambling regulation to the States.

As Judge Weinstein was careful to note, however, many states still consider poker to be an illegal form of gambling, although this is rapidly changing. There are a number of states that are in various stages of legalizing certain forms of online gambling (Click here for more information about these states). However, others, including for example Washington, California, Idaho, Arkansas, Connecticut, Ohio and Wisconsin, still specifically consider poker to be an illegal form of gambling. In addition, there remain other federal statutes, such as the Unlawful Internet Gambling Enforcement Act, that inhibit gambling, particularly online gambling, by restricting the transfer of money.

Although the Dicristina and Wire Act decisions, along with certain states' recent legislation, indicate that legalized online poker is on its way, careful consideration must be paid to the federal law as well as the laws of a particular state before starting any brick and mortar or online gambling business. Even as online gambling is legalized, it is likely to be highly regulated, as evidenced by the current statutes in Nevada and Delaware that place significant licensing, technological and other requirements on online gambling operations.

For more information about this topic or other interactive entertainment topics, please visit our Interactive Entertainment industry group page.

The Dicristina opinion can be found here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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