Skill, Chance, and Online Poker

Rogier J. D. Potter van Loon, Martijn J. Van den Assem, and Dennie Van Dolder, all of the Erasmus University Rotterdam, Erasmus School of Economics, have published Beyond Chance? The Persistence of Performance in Online Poker.

A major issue in the widespread controversy about the legality of poker and the appropriate taxation of winnings is whether poker should be considered a game of skill or a game of chance. To inform this debate we present an analysis into the role of skill in the performance of online poker players, using a large database with hundreds of millions of player-hand observations from real money ring games at three different stakes levels. We find that players whose earlier profitability was in the top (bottom) deciles perform better (worse) and are substantially more likely to end up in the top (bottom) performance deciles of the following time period. Regression analyses of performance on historical performance and other skill-related proxies provide further evidence for persistence and predictability. Our results suggest that skill is an important factor in online poker.

Download the paper from SSRN at the link.

Meanwhile, U. S. District Judge Jack Weinstein ruled in August that poker is a game of skill. In U.S. v. Dicristina, Judge Weinstein wrote, in part: 

[T]he burden is on the government to show that its interpretation of the IGBA is correct. Although many states, including New York, consider poker to fall within the common law definition of gambling as a game of chance, see Part II(B)(5), supra, this factor is not determinative in construing a federal statute. The government must demonstrate that it is more probable than not that poker is predominated by chance rather than skill. It has failed to do so.

The government acknowledges that skill plays a role in poker. Game play in poker is influenced by both the cards dealt (determined by chance) and the decisions made by players (determined by skill). While players' actions are influenced by chance events, their decisions are based on skill. Players' decisions, in turn, affect game play, both in the hand being played and in subsequent hands. By bluffing, for example, players can overcome the power of chance and win a hand despite holding inferior cards.

The majority of poker hands end when one player induces his opponents to fold. See PPA Mot. for Leave to File an Amicus Br. Ex. A (Paco Hope & Sean McCulloch, Statistical Analysis of Texas Hold'em 14 (Mar. 4, 2009) (unpublished article)), Doc. Entry 74, July 3, 2012. Since the cards are never revealed or compared, the players' decisions alone determine the outcome. Id. The ability of players to influence game play distinguishes poker from the other games, such as sports betting (bookmaking), enumerated in the IGBA.

That chance plays some role in the outcome of the game does not imply that poker is predominately a game of chance rather than predominately a game of skill. Chess, a game in which all possible moves are known in advance, can be characterized as a pure game of skill, see, e.g., Gov't Expert Daubert Hr'g Tr. 40:7-12, 40:19-21. In poker, by contrast, players cannot know what cards the "luck of the draw" will deal them. The same can be said of bridge, where the "luck of the draw" is an element in overall wins and losses. Chance also influences many sports, such as golf. ... ("[G]olf is a game in which it is impossible to guarantee that . . . an individual's ability will be the sole determinant of the outcome. For example, changes in the weather may produce harder greens and more head winds for the tournament leader than for his closest pursuers. A lucky bounce may save a shot or two. . . . [C]hance may have a[n] . . . impact on the outcome of elite golf tournaments."). Yet no one would dispute that bridge and golf are games of skill.

The fundamental question is not whether some chance or skill is involved in poker, but what element predominates. To predominate, skill must account for a greater percentage of the outcome than chance—i.e., more than fifty percent.

...

The conclusion that poker is predominately a game of skill does not undermine the holding that poker is gambling as defined by New York law. While both New York State law and the IGBA require that a game involves chance, each apply different standards in determining whether a particular game is a game of chance or a game of skill. ... The test under the federal statute is one of preponderance, not material degree.

...

Because the poker played on the defendant's premises is not predominately a game of chance, it is not gambling as defined by the IGBA. That the statute was targeted at limiting the influence of organized crime, and organized crime groups have operated poker games beginning in the years since its passage, does not retroactively change the statute's scope. "The statute should not be extended . . . simply because it may seem to us that a similar policy applies, or upon the speculation that if the legislature had thought of it, very likely broader words would have been used." ...

As already noted, the IGBA is not the only tool available for the federal and state governments to prosecute organized crime involvement in poker games. If the Mafia operates such a game in an unlawful fashion (such as by also engaging in related loan sharking, extortion, or money laundering), the organizers and operators can be prosecuted under RICO.... It is notable that no such evidence was present in this case. Illustrations in the government's brief of federal poker prosecutions appear to be for racketeering under that statute. 

Even without the organized crime connection, this defendant's operations were necessarily and properly found by the jury to violate New York state gambling laws. He could have been prosecuted in state court by the Richmond County District Attorneys Office.

...

Neither the text of the IGBA nor its legislative history demonstrate that Congress designed the statute to cover all state gambling offenses. Nor does the definition of "gambling" include games, such as poker, which are predominated by skill. The rule of lenity compels a narrow reading of the IGBA, and dismissal of defendant's conviction.

A reversal of this decision and reinstatement of the jury verdict by the Court of Appeals for the Second Circuit would not violate the defendant's Double Jeopardy rights. 

...
The indictment is dismissed. The jury verdict is set aside.

 

Comments

[California Disability Lawyer]

Either it is a game of chance or skill, poker is still gambling. That means that the one who play should pay for the taxes on the accumulated winnings.