A High Stakes Game for Online Gambling

September 17, 2012

Online PokwerA high stakes legal and lobbying effort is currently underway attempting to distinguish poker from other forms of gambling.  If successful, the effort could result in legalization of online poker in the United States.  Lifting the U.S. legal barriers to online poker could provide a windfall of billions of dollars to a range of online gaming companies.

An important step in the battle over poker’s status was achieved last month in federal district court in New York.  Judge Jack Weinstein determined in a case that operation of poker games out of a residence did not violate federal gambling laws because poker was a game involving skill and was not a pure game of chance.  Judge Weinstein’s ruling distinguishes poker from slot machines, roulette, and other games of pure chance.  This distinction is important as anti-gambling restrictions routinely focus their attention on games of chance, not games of skill.

Judge Weinstein’s decision included an interesting analysis of the relative levels of skill and chance involved in a variety of popular games.  At the two ends of the spectrum, Judge Weinstein offered chess as an example of a game involving pure skill and lotteries, slot machines, baccarat, and roulette as examples of games of pure chance.  He suggested that craps, sports betting, and blackjack were games consisting of more chance than skill, while bridge, golf, and poker were games involving more skill than chance.

It has been estimated that total U.S. online gambling wagers were valued in excess of $20 billion.  The level of online gambling has dramatically decreased recently in response to aggressive legal action by U.S. federal law enforcement authorities against online gambling, particularly poker.

Judge Weinstein’s decision does not immediately open the door for expansion of online poker.  His decision is likely to be appealed, and the federal ruling does not prevent state authorities from enforcing their laws against online poker.  Operators of online poker systems may also continue to be prosecuted under federal laws in addition to the Illegal Gambling Business Act and other laws directed specifically against online gambling.  For example, anti-racketeering laws have been commonly used against online gambling operations and are likely to continue to be applied.

Although Judge Weinstein’s opinion will not provide the final word on the subject, it represents an important step in the debate over online poker, and online gambling in general.  By distinguishing poker from other forms of online wagering, Judge Weinstein has provided important support for proponents of online poker.  It should be noted that those proponents include a wide range of parties extending beyond the operators of online poker systems, such as PokerStars.  Major casino operators, including Caesars Entertainment Corporation, and social network game developers such as Zynga, Inc. are active advocates of legalized online poker.

Online gambling is a multi-billion dollar global business.  The potential profits that it offers will continue to make it an alluring opportunity for a diverse, and ever-expanding, group of American businesses.  Judge Weinstein’s action may help to open the door for broader participation in that business opportunity by American enterprises in the future.