By ALEXANDRA BERZON
Is poker more a game of skill or of chance?
A federal judge in New York concluded this week that skill plays the bigger role in determining who wins a poker game, in a ruling that could strengthen the hand of the companies seeking to get online poker legalized in the U.S.
They range from social-games maker Zynga Inc. ZNGA -0.31% to casino giant Caesars Entertainment Corp. CZR +0.49% to Internet poker giant PokerStars, who all view online poker as a potentially rich source of revenue.
U.S. District Judge Jack Weinstein ruled Tuesday that a New York electronics dealer hadn't violated a key federal gambling law by running Texas Hold 'Em poker games out of his Staten Island warehouse because, unlike roulette or slot machines, poker isn't "predominated by chance," a common legal definition of gambling.
Associated Press
A judge said skill plays a bigger role in winning a poker game. Above, players at a Las Vegas event last month.
The federal law allows federal authorities, under certain circumstances, to prosecute violations of state gambling laws.
The ruling marked the first time a federal court has directly considered poker's status, even though it is generally treated as a game of chance that is covered by gambling laws. State courts have been divided on the issue.
Over the past decade, the question of whether poker is a game of skill or chance has taken on greater significance as Internet poker companies have fueled the game's growth online. High-stakes tournaments, meanwhile, helped transform it into a popular spectator sport with a substantial television audience.
Many of the tournaments and other events have been sponsored by Internet poker companies. More than $20.2 billion were wagered online in the U.S. in 2010, according to H2 Gambling Capital, even though these Internet poker companies operated in a legal gray area. This year, however, the total is likely to be just $3.5 billion following a crackdown last year by federal authorities, who shut down the three biggest poker websites and indicted 11 executives and payment processors.
Judge Weinstein's decision won't immediately open the Internet to would-be poker operators because other federal and state laws might prohibit those businesses. The ruling isn't binding outside of Judge Weinstein's district, and is subject to appeal.
Still, the decision puts a dent in the legal weaponry the federal government has used to curb online poker, experts in gambling law and industry insiders say. Last year, the government said it wouldn't use another law, known as the Wire Act, to prosecute online gambling companies other than sports-betting websites.
Luck or Skill
A comparison of games—and comments from Judge Weinstein:
- Pure Skill: Chess 'Chess, a game in which all possible moves are known in advance, can be characterized as a pure game of skill.'
- More Skill than Chance: Bridge, Golf, Poker 'In poker…players cannot know what cards the 'luck of the draw' will deal them. The same can be said of bridge…'Chance also influences many sports, such as golf…Yet no one would dispute that bridge and golf are games of skill.'
- More Chance than Skill: Sports Betting, Blackjack, Craps 'While a gambler with an encyclopedic knowledge of sports may perform better than others when wagering on the outcome of sporting events, unlike in poker, his skill does not influence game play.'
- Pure or Nearly Pure Chance: Slot Machines, Roulette, Baccarat, Lotteries
William Muller, executive assistant U.S. attorney for the Eastern District of New York, said the Justice Department is "reviewing the court's decisions and considering our options."
Backers of online poker hope the court ruling will spur state legislatures, Congress and the courts to open the U.S. to online poker. Some countries, such as Britain, already have created a legal framework for regulating the game.
Judge Weinstein's ruling "demonstrates that poker should be treated differently than other forms of gaming," said John Pappas, the executive director of the Poker Players Alliance, a coalition backed by PokerStars that filed a friend-of-the-court brief in the case. "Hopefully that will lead toward regulation."
Many states have laws that either explicitly or implicitly prohibit companies from taking poker bets online or in person. They have been backed by federal enforcement through laws such as the Illegal Gambling Business Act, which the Justice Department used in a pair of civil and criminal cases against the three online poker companies and their executives in last year's crackdown.
PokerStars and the two other companies charged in those cases have denied wrongdoing. All three recently reached settlements with the Justice Department, but some executives remain under criminal indictment.
With the exception of Nevada, which this year began licensing companies to run online poker games within its borders, state and the federal governments have been slower to allow online poker than many industry insiders had anticipated. Lawmakers remain deeply divided on the question of whether to legalize poker and how such games should be made available to the public, given the wide variety of business interests involved in the lobbying efforts.
The New York case focused on Lawrence Dicristina, who was accused of operating an illegal poker establishment. Authorities raided Mr. Dicristina's warehouse last year, according to Kannan Sundaram, his attorney.
Mr. Dicristina initially pleaded guilty but withdrew the plea after Mr. Sundaram learned that some lawyers for Internet-gambling companies were arguing that poker was a game of skill.
Thomas Goldstein, an attorney for PokerStars and the Poker Players Alliance, has used the argument in state courts for the past several years and argued parts of Mr. Discristina's case as a friend of the court.
New York courts have determined that operating a poker business is illegal under state laws, but it is unclear whether the federal law includes the game in its anti-gambling provision, Judge Weinstein wrote in his decision.
To determine whether poker was primarily a game of chance, the judge considered testimony from Randal Heeb, an economist, statistician and poker player who appeared for the defense.
Mr. Heeb said that while poker involves some luck, players make a large number of decisions over the course of any hand that determine the outcome. Consistent winners and losers emerge over time, he said.
Mr. Heeb said he studied 415 million hands from PokerStars to conclude that the players' skill "had a statistically significant effect on the amount of money won or lost in a particular hand of poker," the judge wrote.
The government's expert witness, econometrician David DeRosa, argued that while poker involved some skill, Mr. Heeb's analysis was misguided. He argued that the number of hands that it would take for skill to predominate over chance exceeded the number of hands played by an average player.
Mr. DeRosa added that in any given random event some players will be seen to have performed better than others after the fact. "This does not prove or disprove that their winning was a result of skill," Mr. DeRosa said.
Judge Weinstein wrote that even though he was persuaded by Mr. Heeb's argument, the federal government could still use anti-racketeering and other laws to prosecute illegal poker companies. These companies could also be prosecuted by state governments, he said.
Write to Alexandra Berzon at alexandra.berzon@wsj.com
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