tag:blogger.com,1999:blog-11692810961179130242024-03-18T04:47:52.776-05:00crAAKKerExploring rigidly defined areas of doubt and uncertainty.Grange95http://www.blogger.com/profile/01857460215043659894noreply@blogger.comBlogger390125tag:blogger.com,1999:blog-1169281096117913024.post-9025301329668009752017-01-31T07:49:00.002-06:002017-01-31T08:09:25.693-06:00Would a Justice Hardiman Doom New Jersey's Chances for Sports Betting?President Donald Trump is set to <a href="https://www.nytimes.com/2017/01/30/us/politics/trump-supreme-court-nominee.html" target="_blank">announce his pick</a> for the open U.S. Supreme Court (SCOTUS) seat this evening on prime time TV. Presumably, Trump will have the three finalists—Third Circuit Judge Thomas Hardiman, Tenth Circuit Judge Neil Gorsuch, and Eleventh Circuit Judge William Pryor, Jr.—engage in a <i>Celebrity Apprentice</i>-style competition where they raise funds for the Trump Foundation while creating marketing campaigns for the Trump hotel chain, all under the watchful eye of Trump's children-judges, Eric, Ivanka, and Don Jr.<br />
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Once confirmed by the Senate, President Trump's SCOTUS nominee will unquestionably have an immediate impact on the closely divided Court. But President Trump's SCOTUS pick may impact the Court even prior to confirmation of the nominee by affecting how the Court chooses cases to fill its docket for the remainder of the current Term and the beginning of the next Term. If the Court feels it is likely the new justice will be joining the Court yet this Term, the Court may well take up important cases (grant certiorari or "cert") where the current Court is likely closely divided, on the premise that the new justice will be available to serve as a decisive vote if needed. In other cases where the Court is uncertain whether to take a case, the Court may hold the case pending addition of the new justice before making a final decision as to whether to grant cert.<br />
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Two key cases which may feel the immediate effects of Trump's SCOTUS nomination are <i><a href="http://www.scotusblog.com/case-files/cases/christie-v-national-collegiate-athletic-association-2/" target="_blank">Christie v. NCAA</a> </i>and <i><a href="http://www.scotusblog.com/case-files/cases/new-jersey-thoroughbred-horsemens-association-inc-v-national-collegiate-athletic-association-2/" target="_blank">New Jersey Thoroughbred Horsemen’s Association, Inc. v. NCAA</a> </i>(collectively <i>"Christie II"</i>), the linked cases by which New Jersey is challenging the constitutionality of the <a href="https://www.law.cornell.edu/uscode/text/28/3702" target="_blank">Professional and Amateur Sports Protection Act</a> ("PASPA"), the federal statute which bars states from authorizing legal sports betting (except for Nevada and a couple of other "grandfathered" states). New Jersey has been on a multi-year losing streak in court tilting at PASPA and the sports betting windmill. In 2013-14, the state challenged the law, losing in federal district court, losing before a three-judge panel in the Third Circuit Court of Appeals, and being rejected by SCOTUS which denied cert. Undeterred, New Jersey came right back with a new law and "new" (or repackaged) legal arguments in late 2014. Since then, the state has run its record to a Cleveland Browns-esque 0-6, <a href="http://www.legalsportsreport.com/10951/new-jersey-loses-sports-betting-case-again/" target="_blank">adding new losses</a> before the <a href="http://craakker.blogspot.com/2014/11/why-new-jersey-cant-have-nice-things.html" target="_blank">federal district court</a>, a new three-judge panel in the Third Circuit Court of Appeals, and a full twelve-judge <a href="http://www2.ca3.uscourts.gov/opinarch/144546p1.pdf" target="_blank"><i>en banc </i>panel</a> of the Third Circuit.<br />
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New Jersey is once again appealing to SCOTUS, and this time, SCOTUS has thrown New Jersey a bit of a lifeline. In a <a href="http://www.legalsportsreport.com/12679/scotus-on-nj-sports-betting-case/" target="_blank">recent order</a>, the Court requested the views of the Solicitor General as to whether the Court should grant cert. Of course, with the recent change in Administrations, it will take some time for a new Attorney General and Solicitor General to be appointed by President Trump and confirmed by the Senate. So it remains to be seen whether the Department of Justice will continue to strongly defend PASPA against New Jersey's attacks. But the views of the Solicitor General may all be academic if President Trump nominates Judge Hardiman to SCOTUS.<br />
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<b><span style="color: #0b5394;">I. Justice Hardiman would be recused from <i>Christie II</i>, making it more likely the Court would reach a split decision, thus making it less likely the Court would grant cert.</span></b><br />
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</b> Because Judge Hardiman participated in the Third Circuit <i>en banc</i> panel and joined the majority opinion in <i>Christie II</i>, as a SCOTUS Justice he would almost certainly recuse himself from considering any action with respect to <i>Christie II</i> before SCOTUS. This would include both the decision whether to grant cert and, if cert is granted, consideration of the merits of the case.<br />
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So, if Trump nominates Judge Hardiman for the Court, the current Court will have to decide whether to grant cert without his vote. Worse, the Court will also have to consider the case with only eight justices participating. Those justices tend to be closely divided, particularly on issues of ideological doctrine; as will be discussed below, commandeering is one such issue potentially dividing the Court on liberal-conservative lines. This potential for ideological divide, of course, raises the specter of a tied decision, a result SCOTUS abhors (the Court takes cases primarily to resolve major legal disputes). Added to other factors weighing against a grant of cert—the lack of a circuit split, the fact the Court previously passed on this same case with essentially the same commandeering argument—the potential for a tied decision might be the final straw in a decision to deny cert.<br />
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<b><span style="color: #0b5394;">II. New Jersey almost certainly needs the vote of the new justice to prevail.</span></b><br />
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</b> New Jersey's challenge to PASPA rests on a constitutional theory known as <i><a href="http://tenthamendmentcenter.com/2013/12/28/states-dont-have-to-comply-the-anti-comandeering-doctrine/" target="_blank">commandeering</a></i>—the idea that there are limits on the ability of the federal government to directly or indirectly force states to implement federal policy prerogatives. It's a doctrine which has been rarely invoked, and it is even rarer for the Court to find there has been unconstitutional commandeering. In fact, the Court has only struck down two laws on commandeering grounds. In 1992, in <i><a href="https://en.wikipedia.org/wiki/New_York_v._United_States" target="_blank">New York v. United States</a></i>, the Court struck down a federal law requiring states either to regulate nuclear waste or to take title to the waste. And in 1997, in <i><a href="https://en.wikipedia.org/wiki/Printz_v._United_States" target="_blank">Printz v. United States</a></i>, the Court found that the Brady Handgun Violence Prevention Act unconstitutionally required local and state law enforcement officials to implement federal gun policy by requiring local and state officials to perform background checks required by federal law. That's it—that's the whole enchilada of wins for commandeering at SCOTUS.<br />
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Because commandeering as a constitutional doctrine sounds in Tenth Amendment states' rights theory, commandeering is, or at least has been to date, a conservative judicial doctrine (conservatives tend to believe in strong state sovereignty while liberals tend to believe in strong federal sovereignty). Right now, SCOTUS is in a 4-4 conservative-liberal deadlock. The Court's most recent commandeering decision, <a href="https://supreme.justia.com/cases/federal/us/521/898/case.html" target="_blank"><i>Printz</i>, was a 5-4 decision</a>. Two of the justices in the majority in <i>Printz</i>—Thomas and Kennedy—remain on the Court today as part of the Court's conservative bloc (they were also in the 6-3 majority in the earlier <a href="https://supreme.justia.com/cases/federal/us/505/144/case.html" target="_blank"><i>New York</i> commandeering decision</a>) . Two of the dissenting justices in <i>Printz</i>—Ginsburg and Breyer—remain on the Court today as anchors for the liberal bloc. Justice Scalia, whose seat is being filled by President Trump, wrote the <i>Printz</i> majority decision.<br />
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Against this backdrop, it is difficult to see how New Jersey can find five votes out of the current eight SCOTUS justices. Although Chief Justice Roberts, and Justices Thomas, Kennedy, and Alito are likely at least sympathetic to a commandeering argument, it is difficult to imagine any of the four liberal justices—Ginsburg, Breyer, Sotomayor, or Kagan—jumping sides and providing a fifth vote for New Jersey (although Justice Kagan might change sides and provide a <i>sixth</i> vote if the cause is already lost, out of a concern for the Court's reputation and for strategic reasons). Of course, this assumes New Jersey can rally the votes of the four current conservative justices; PASPA is a bit of a black swan statute, and with gambling as its core topic, it's not guaranteed to be an attractive vehicle for conservatives to expand the commandeering case law. Recall that this current Court lineup <i>with </i>Justice Scalia already rejected consideration of nearly identical arguments in <i>Christie I</i>. And Judge Hardiman, viewed by most Republicans as sufficiently conservative to replace Justice Scalia, has already weighed in on New Jersey's PASPA challenge and found it lacking. So New Jersey's PASPA challenge is no slam dunk even with the Court's current conservative justices.<br />
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Given the potential votes in play, it seems likely New Jersey's best chance for prevailing requires it to pick up the vote of whatever new conservative justice is appointed by President Trump. But, if Judge Hardiman is the nominee, he will be forced to recuse himself from the case. And if Judge Hardiman is recused, New Jersey likely remains one vote shy of victory on the merits even if the state can get the four votes it needs for the Court to grant cert.<br />
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<b><span style="color: #0b5394;">III. Justice Hardiman would likely be a vote against future PASPA challenges.</span></b><br />
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Finally, playing the hypothetical forward, let's assume Judge Hardiman is appointed to SCOTUS, and the Court declines to hear the <i>Christie II</i> challenge with new Justice Hardman recused. The next litigation avenue could be for New Jerey to pass another sports betting statute and mount a new court challenge to PASPA, though this fight would be uphill against the Third Circuit's decision in <i>Christie II</i>. A more plausible course might be for another state in a different circuit to attempt to legalize sports betting; New York and Mississippi seem likely candidates, though more states are beginning to look at the issue. These states could then bring court actions challenging PASPA in front of different Circuit Courts of Appeal not bound by <i>Christie II</i>, hoping to create a circuit split and force SCOTUS to confront and resolve the conflicting decisions.</div>
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And waiting there for the challengers as the likely decisive swing vote will be Justice Hardiman, who would be the sole supreme court justice to have previously wrestled with the issue of PASPA and commandeering, and found PASPA to be a valid exercise of federal authority.</div>
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New Jersey and any other states wanting to expand legalized sports betting better root for Judge Gorsuch to be the new SCOTUS nominee.<br />
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</b> Grange95http://www.blogger.com/profile/01857460215043659894noreply@blogger.com104tag:blogger.com,1999:blog-1169281096117913024.post-69781751121205377582016-11-22T22:48:00.000-06:002016-11-23T09:58:24.737-06:00Dancing Gorillas at the Poker Table<b>Bonus update (23 Nov 2016): </b><i>My good friend <a href="https://twitter.com/PokerGrump" target="_blank">Poker Grump</a> wrote a <a href="https://www.pokernews.com/strategy/focus-creates-blindness-things-you-dont-see-in-poker-26085.htm" target="_blank">great article over at Poker News</a> on the same issue of selective attention a few weeks back. His article is better because he has a Penn & Teller magic video. So go read that article then come back here for dancing gorilla videos.</i><br />
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<span style="color: #0b5394;"><b>* * * * *</b></span></div>
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After several stressful months at the office, not to mention a <a href="http://craakker.blogspot.com/2016/11/the-resiliency-of-america.html" target="_blank">mind-boggling Presidential election</a>, a trip to Las Vegas came at just the right moment. A few days to unplug from the world were just what the doctor ordered. Poker. Good food. Cocktails. Friends. The <a href="http://www.runrocknroll.com/las-vegas/" target="_blank">Vegas Rock 'N Roll Half Marathon</a>. Well, the last one was more the excuse for Vegas than the highlight, yet there is something awesome about being mere yards from a stage where Snoop Dogg is rapping about peace, love, and weed, before running for two hours in the neon glow of the Vegas Strip at night.<br />
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As has become the norm for my Vegas trips, I made my headquarters at Aria; still the best value for upscale hotel rooms, awesome poker room, and great mid-Strip location. But there may have been a donkalicious late night drinking session of 2-6 spread limit Hold Them at Monte Carlo. <i>Allegedly</i>. Unquestionably there was a side trip for a session of Pot Limit Gambooool at the new <a href="https://twitter.com/WynnPoker?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Eauthor" target="_blank">Wynn poker room</a> (actually in Encore). This is a fantastic room, with restrooms and a sports book window conveniently located in the room, lots of space between tables, top shelf drinks, and a cool, upscale vibe. And, of course, no Vegas poker trip is complete without a late night session of Poker With The Drunks at <a href="https://twitter.com/PH_POKER" target="_blank">Planet Hollywood</a>, where I cashed out for nearly a grand in profit. P-Ho remains the gold standard for lucrative late night poker.<br />
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Monday morning rolled around, and I decided to squeeze in a last three hour poker session at <a href="https://twitter.com/ariapoker?lang=en" target="_blank">Aria</a>. My legs were a little sore from the race, but I was rested, caffeinated, and sober. I should have been ready to play my A-game. Instead, I ended up looking like a total idiot.<br />
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But, for a moment, let's digress. Take a quick look at this video.<br />
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<iframe allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/IGQmdoK_ZfY" width="560"></iframe><br />
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You may well have already seen this video, which was the centerpiece of an exceptional bit of psychological experimentation. The point of the experiment was to test how people observed an overall situation when they were focused on one aspect of the situation. Here, where people were focused on the task of counting the number of passes made by the people in white t-shirts, <i>half of the observers completely missed the gorilla walking through the scene</i>. That's right. People who were intently focused on tracking one part of the scene were utterly oblivious to another part of the scene, even something as absurd as a gorilla.<br />
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The researchers called this <a href="http://theinvisiblegorilla.com/gorilla_experiment.html" target="_blank">psychological phenomenon</a> <i style="font-weight: bold;">selective attention</i>. Essentially, when your brain is focused on one task, it mutes or outright ignores information unrelated to the task at hand. And it can manifest itself in a wide range of daily activities. Including poker. And in a game where observation is a key skill, overlooking important information can be a costly leak.<br />
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Back to my session at Aria. I got into a game where most of the players had been at the table together since early in the morning. And it was quickly obvious why. Most of the players were over $500 deep, with several having over $1,000 stacked behind. The table economy ran through a total maniac across the table who raised preflop more than two out of three hands. His standard play was to raise preflop by splashing a random handful of chips into the pot, usually $30-$80. Then, he would c-bet nearly every flop by jamming a big stack of $80-$150 into the middle. Of course, the maniac attracted multiple callers every hand, with players looking to catch a hand and take a bite out of the maniac's stack. For his part, the maniac, as maniacs are wont to do, caught improbable hand after improbable hand to vacuum up chips from tilty nits.<br />
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So how many times did I screw up in this session? The number of the counting shall be three ....<br />
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<b>Hand #1:</b> Early in the session, I had roughly my $300 starting stack and was in the small blind. Maniac raised to $20, and I called with <b>75 soooted</b> along with three other players. Flop was a gorgeous <b>7-7-5 with two hearts</b>. Catamaran! We checked it around on the flop. Turn was another <b>5</b>. Boo! I led out for $50, and got called by the big blind. Maniac and another guy folded, but the cutoff—a fairly standard older nit—raised to $150. Damn, pretty clear he has the other 7 and we're chopping the pot. So, I shoved, expecting the big blind to fold, the nit to call, and to run out the board.<br />
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Except the big blind didn't fold. Instead, he kept looking at his cards and thinking. He cut out chips for a call, and kept looking back at his cards and the board. Eventually, he sighed and mucked. I rolled my cards and said, "I flopped it, but guess now we'll chop it."<br />
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It was only then that I realized the old nit in the cutoff hadn't snap-called! That was ... awkward. And seconds ticked by as the nit stared at my hand, the board, and his hand. Finally, he reluctantly folded. Obviously he didn't have the last 7, so he might have had something like an overpair or possibly an open-ended straight flush draw. In any event, I likely cost myself his $100 or so call.<br />
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<b>Hand #2:</b> Later in the session, I was on the button with the <a href="http://craakker.blogspot.com/search/label/Spanish%20Inquisition" target="_blank">Spanish Inquisition</a>—<b>6h3s</b>. The table maniac raised to $30 and I called, along with three other players. The flop was interesting—<b>9h5h4h</b>—giving me an open-ended straight draw, but presenting the danger of drawing dead, I was prepared to fold to any bet, on the theory there is always a better place to get it in bad. But instead it checked around, and I gladly asked the dealer for a free card.<br />
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The turn was even more interesting—the <b>2s</b>—giving me the straight. This time, the maniac threw out $50, basically 1/3 of the pot. Two players flat called, and I made the reluctant crying call.<br />
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The river was the <b>2h</b>. Although I doubted there had been a slow-played set or two pair that boated, the fourth heart on the river was almost certainly the nail in the coffin for my straight. The other players took turns looking at their hole cards and checking. I checked and waited to see the inevitable showdown between big single hearts in the hole. As everyone stared at each other, I rolled my cards and dramatically announced, "I have a straight to the six!" hoping to prod the other players to show down and move things along.<br />
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Knowing my hand wasn't good, I looked over at the TV, waiting for the next hand. I heard the dealer announce "Flush wins." Well duh. But then, I saw the dealer pushing the pot to me. What the heck??<br />
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Oh yeah. I had a baby heart in my hand, so I had a flush, not a straight. Of course, I could only beat a naked 3h in the hole, but that was the only other heart held by anyone in the hand at showdown. Cha-ching! Feel like I missed a value bet there with that monster ....<br />
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<b>Hand #3:</b> Once again, maniac opened in middle position for $35. Once again I called on the button with 8s7s. But to my surprise, the rest of the table folded. The flop was pretty good—<b>Ah9s6c</b>—giving me an open-ended straight draw. Maniac bet $50, I raised to $130, and the maniac auto-called. <i>Hmm, he might have a hand this time.</i> Turn was interesting—<b>9c</b>. Maniac checked, I bet $200, he called. At this point, if I didn't hit my straight, I was done with the hand. It was far too probable maniac had an Ace or 9.<br />
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River was not just a blank, it was a killer card—6h. Basically, if maniac has any Ace, 9, 6, or pocket pair, he wins. Maniac checked, and I checked. Maniac says, "You win," I respond, "I have eight high" and flashed my hand. Maniac goes, "Oh, I can beat that!" and tables <b>QcJc</b>. Ahhh, so he chased a flush draw, missed, and still has me beat. Sucks to be me.<br />
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I went to muck my loser hand when the guy next to me says, "Wait, you chop!" I paused, then realized that maniac and I were both playing the board because the Ace on board was the kicker for each of our hands. I tabled my cards, and we chopped the pot.<br />
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I ended up stacking maniac when I slow-played QhQd preflop, and we got it all-in on a flop of <b>AsQcTc</b>. Maniac showed <b>Ac2c</b>, which was stronger than I hoped. But the board ran out blanks and my set held up for a monster pot.<br />
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So back to selective attention. In each of these hands, I was so focused on one thing—a player's action or chasing my draw—that I missed other important developments. Of course, having it happen three times in a three hour session is not something I am terribly proud of. I'm certain that the circumstances—a last quick session, some residual fatigue, playing a maniac—contributed to the problem. But it's also a phenomenon that happens even to the best trained professionals; for example, a decent percentage of <a href="http://www.cbsnews.com/news/can-you-spot-the-gorilla-in-this-ct-scan-most-radiologists-couldnt/" target="_blank">radiologists failed to detect a gorilla shape</a> when reviewing CT scans for tumors. And for you smug folks who saw the gorilla in the first video and who are laughing at my stupidity, try this follow up test:<br />
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<iframe allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/z9aUseqgCiY" width="560"></iframe><br />
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In any event, being aware of this psychological phenomenon will hopefully make it less likely to recur in my future poker sessions.<br />
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Or I'm just getting old.<br />
<br />Grange95http://www.blogger.com/profile/01857460215043659894noreply@blogger.com67tag:blogger.com,1999:blog-1169281096117913024.post-17761198621283341492016-11-09T00:15:00.002-06:002016-11-09T18:44:59.696-06:00The Resiliency of AmericaElections mean everything.<br />
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But not because our favored candidate wins or loses. I'm old enough now to have experienced the highs and lows of many, many elections. Elections for Presidents, Senators, Representatives, Governors, legislators, and even city council members. Won some. Lost some. Cried in jubilation. Cried in despair.<br />
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But here's the thing. America has been the greatest nation on Earth for going on nearly a quarter of a millenium. Our nation is the first and greatest experiment in Democracy, the idea that the will of the People will govern the People. We've had great leaders. We've had terrible leaders. And yet, here we are. Still Number One on the Charts, Number One in Their Hearts. The rest of the world still looks to America as the great beacon of Hope, of Freedom, of Opportunity.<br />
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Last May, I was in Las Vegas with a diverse group of friends to run a half marathon and share some good fellowship. We talked some politics. One member of our group is a hard-core conservative. When others in our group expressed fear of a Trump presidency, I noted that Trump would be constrained by the American power structure—Congress, the Executive bureaucracy, the courts. In an age of expansive Presidential power, these constraints may not mean as much as they did in prior ages. But they are there, and they are real.<br />
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At this moment, the election hasn't been officially called, but it looks like Donald Trump—yes, the <i>Celebrity Apprentice </i>"You're fired!" Donald Trump—will most likely be our next President. I'm <a href="http://craakker.blogspot.com/2016/02/rino-for-dayinside-iowa-republican.html" target="_blank">on record</a> thinking Trump will be a disaster as President. I would have voted for Jeb! Bush, John Kasich, or Marco Rubio over Hillary Clinton, and basically any Joe or Jane Schmoe over Donald Trump. Yet, here we are. A majority of Americans (or close enough as to make no difference) prefer Donald Trump.<br />
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That's the beauty of democracy. The will of the People prevails. And it seems America wants to go a direction I think is folly. But who am I to say I know better than the People? Maybe the People as a whole are smarter than I am, <a href="https://en.wikipedia.org/wiki/Wisdom_of_the_crowd" target="_blank">Wisdom of the Crowd</a> and all. In two years there will be another Congressional election, and in four years there will be another Presidential election. And if Trump is a disaster, if our country has lurched into a ravine, then my side will presumably win a victory or two, and maybe even claim a mandate. And if Trump is successful? Well, then America as a whole presumably is doing well and my fears were misplaced.<br />
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I know my Democratic friends will run through the list of unfair disadvantages Clinton faced. Gerrymandering. Voter suppression. Media fawning over Trump. FBI Director Comey's absurd injecting of himself into the last two weeks of a presidential race. Third-party candidacies by Libertarian Gary Johnson and Green Jill Stein. Irrational and even rabid investigations by a Republican House. And yes, still in 2016, residual sexism.<br />
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It's all bullshit.<br />
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Trump was the weakest potential candidate in a large Republican field. President Obama is as popular as President Reagan was at the end of his second term. The economy is doing well, and unemployment is under 5%. This loss is squarely on Hillary Clinton. Clinton, who already faced skepticism and distrust, chose to use a personal email server while Secretary of State, feeding into a narrative of dishonesty and lawlessness, creating a scandal that was both meritless and defining. She chose to give speeches to Wall Street companies for large fees. She chose to limit her campaign efforts in the Upper Midwest, taking the traditional support of blue-collar union workers for granted. Clinton had the most amazing possible opposition research to turn into anti-Trump ads, focusing on Trump's sexist, racist, and generally unsavory actions and attitudes. Even Trump's greatest strength—his self-acclaimed business acumen—turned out to be as much a fraud as the candidate himself. <br />
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Clinton's failure to capitalize on all of these inherent advantages is a testament to her weakness as a candidate. She failed to connect to ordinary Americans who have been left out of the economic recovery. She failed to explain how she would change the status quo, how she would represent those who aren't part of the social and economic elite. She failed to make a case why her Presidency would move America forward in a significant way other than being "not Trump". She simply failed to connect with We the People.<br />
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So, here we are. The American People have spoken. The People want change. The People want not-Clinton. The People want Donald Trump to look President Obama in the eye and say "You're Fired!" And in a democracy, the will of the People prevails.<br />
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So to all of my friends who are anti-Trump: Do not despair. Trump and the Republicans now have full and unfettered power. Everything is on them. If they let Obamacare fail without a safety net, it's on them. If Russia hacks our government computers, it's on them. If there is a terrorist attack or if the Middle East falls into chaos, it's on them. If the economy tanks, it's on them. If they repeal civil rights legislation, it's on them. And if the Republicans do any of these things, well there is always the next election. And today begins the next election. Today is the first day to start to make the case for change. Today is the day to begin recruiting candidates for city councils, state legislatures, and Congress. Today is the day to start the opposition to Donald Trump.<br />
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But remember, millions of people around the world don't have the ability to participate in an election. Many people around the word have no say in their governance. They have no say in who runs their country, no say in who speaks for them on the local or international stage, no say in who makes policies that affect their lives.<br />
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Elections mean everything. And that's a beautiful thing.Grange95http://www.blogger.com/profile/01857460215043659894noreply@blogger.com9tag:blogger.com,1999:blog-1169281096117913024.post-24521999242603498502016-11-08T19:09:00.000-06:002016-11-08T19:09:28.736-06:00Kumbaya and the Limits of EmpathyBoy have we come a long way since the <a href="http://craakker.blogspot.com/2016/02/rino-for-dayinside-iowa-republican.html" target="_blank">Iowa caucuses</a>. As we await the results of yet another hotly disputed presidential election, my thoughts have turned to the widening and seemingly unbridgeable gulf between Republicans and Democrats, conservatives and liberals, right and left. In recent days, two prominent articles (one in the <i><a href="https://www.washingtonpost.com/news/inspired-life/wp/2016/11/02/what-is-this-election-missing-empathy-for-trump-voters/" target="_blank">Washington Post</a></i>, the other in the <i><a href="http://www.wsj.com/articles/how-to-get-beyond-our-tribal-politics-1478271810" target="_blank">Wall Street Journal</a></i>) have suggested that liberals need to learn to "empathize" with conservatives—in particular, blue-collar white voters.<br />
<br />
These and similar empathy-trolling articles are based on the premise of finding a way to join hands and sing kumbaya after an election. This kumbaya mentality held a certain essential truth in the wake of the bitter, fractious elections from 2000-2012. Growing up in a small town in rural Nebraska, I understand <a href="http://www.cracked.com/blog/6-reasons-trumps-rise-that-no-one-talks-about/" target="_blank">the angst and even despair</a> of those who feel left behind in the rapidly changing world. And I agree many liberals would be well-served to better understand and, yes, <i>empathize </i>with conservative voters.<br />
<br />
But this election is different. We are far past differences in policy. We are even past disagreements as to basic facts; the <a href="http://pressthink.org/2016/11/miss-bigger-missed-story-final-reflections-trump-press-2016/" target="_blank">rejection of shared</a> facts by many conservative politicians and voters has only exacerbated our political divide. We are in a new and dangerous place where we no longer even share a concept of American democracy.<br />
<br />
Trump has built his campaign on a base of alt-right, white nationalist support. This is <b>not</b> saying that all, or even a large number of his supporters are alt-right white nationalists. But that base, the ones supporting Trump because he wants to deport millions of Hispanics because they are "rapists and murderers", fueled his nomination. And we should rightly be disgusted by and reject them.<br />
<br />
But even that is not the real problem with the kumbaya argument. The highly partisan, polarizing elections off 2000-2012 were fought within the shared boundaries of American democratic discourse. But Trump and the alt-right (with the tacit support of mainstream Republican leaders) have abandoned all pretense of those shared democratic values. Trump got his start with his alt-right base by championing the "birther" movement, attacking the legitimacy of Obama's presidency. Trump has only thrown gas on the alt-right fire with his rhetoric during the present campaign.<br />
<br />
Trump not only claims polls are skewed, he and his alt-right supporters also assert the political process itself is rigged. Linking back to the racist base of his candidacy, Trump this week suggested the Nevada elections are "rigged" because polling places were only kept open for a "certain group" of voters. Or how about his rhetoric toward Clinton. Calling a political opponent "crooked" and "corrupt" is fair (if rough and tumble) commentary. Calling her a "criminal" and promising to throw her in prison is the stuff of fascism.<br />
<br />
But this is just the tip of the iceberg. In even <a href="https://www.washingtonpost.com/opinions/republicans-debate-kill-hillary-or-merely-jail-her/2016/07/20/5fb65424-4ec7-11e6-a7d8-13d06b37f256_story.html" target="_blank">more heated rhetoric</a>, Clinton is no longer merely a "criminal"; Trump and other <a href="https://twitter.com/jpodhoretz/status/795473631392526341" target="_blank">Republican leaders</a> are asserting that Clinton and President Obama are "traitors" or have committed "treason"--treason, of course, is one of the few federal crimes for which there is a death penalty. And don't forget Trump suggesting that, if the election goes the wrong way, his supporters should <a href="http://www.theatlantic.com/politics/archive/2016/08/trumps-latest-joke-cannot-be-excused/495284/" target="_blank">use their Second Amendment rights</a> (a dog whistle to the alt-right, where the right to bear arms is held to be part of a right to armed rebellion against a perceived tyrant). And as the election drew to a close, Trump has even refused to state if he will accept the results as legitimate in the event he loses.<br />
<br />
Of course, it's hard to know whether and to what extent Trump and other Republican leaders are drinking the alt-right Kool-Aid. For some, whipping up crowds chanting "Lock her up!" is only a tool to energize their voting base. Yet, when those chants turn to "<a href="http://www.thenewcivilrightsmovement.com/davidbadash/trump_rally_today_includes_chants_of_lock_her_up_and_execute_her_video" target="_blank">Execute her!</a>", those same Republican leaders turn mum, offering at best tepid rebukes, afraid of losing their base (or worse, becoming a target in their next primary).<br />
<br />
It's one thing to argue that we should all find common ground and respect each other after a bitter campaign like Bush-Gore or Obama-Romney. But it's an entirely different argument when the Trump/alt-right wing of the Republican party rejects the legitimacy of our shared democratic norms. How, exactly, are we supposed to engage post-election, particularly if Clinton is elected? How is that conversation at the office or church supposed to go?<br />
<br />
<b><i>"Clinton is a criminal who ought to be thrown in jail."</i></b><br />
<b><br /></b>
<b>"I guess I don't agree. I get your frustration, but you know, she hasn't even been charged with a crime."</b><br />
<b><br /></b>
<b><i>"The corrupt system is just protecting her. She's a traitor and ought to be executed."</i></b><br />
<b><br /></b>
<b>"Well, I see where you're coming from, and I can agree Clinton has had some shady moments, but I guess I can't agree with you about her being a traitor."</b><br />
<b><br /></b>
<b><i>"Thomas Jefferson once said, 'The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants.' And that's why we have the Second Amendment."</i></b><br />
<b><br /></b>
<b>"Interesting point. Never thought of that perspective. Not sure I agree with you, but let me mull it over. Want to go grab lunch?"</b><br />
<br />
Sorry, but certain ideas are sufficiently dangerous to a functioning democracy that they cannot be given false equivalency and treated as a legitimate part of political discourse. Rejecting the legitimacy of an anti-democratic argument is <b>not </b>"dehumanizing" those who advocate it; it's a defense of basic American values.<br />
<br />
Sometimes, it's not about empathy. You understand your opponent's argument perfectly. And the only rational response is to say their idea is batshit insane.<br />
<br />
So, until the Republican party rejects the batshit insane, anti-democratic, anti-American alt-right, I'm all out of empathy.<br />
<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhencSc3JPyT0dHjbYyIKtQaJsItjqb6ig09el25TL7i7thkr65l15-4ei1TxHkcTRXxNHveYECQNTAN3SV1-YnROuBdOGn0I9SPpQ1b_pcIBspXnTn1ZJtlibiUTHqIlCJG2qsFsmu3Y-_/s1600/IMG_2366.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="640" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhencSc3JPyT0dHjbYyIKtQaJsItjqb6ig09el25TL7i7thkr65l15-4ei1TxHkcTRXxNHveYECQNTAN3SV1-YnROuBdOGn0I9SPpQ1b_pcIBspXnTn1ZJtlibiUTHqIlCJG2qsFsmu3Y-_/s640/IMG_2366.JPG" width="480" /></a></div>
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<b><br /></b></div>
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<b>Empathy, anyone?</b></div>
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<b><br /></b></div>
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<b><i>(Billboard posted by a resident of an affluent </i></b></div>
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<b><i>West Des Moines, Iowa neighborhood.)</i></b></div>
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<br />Grange95http://www.blogger.com/profile/01857460215043659894noreply@blogger.com1tag:blogger.com,1999:blog-1169281096117913024.post-30470587189804184552016-06-21T22:03:00.001-05:002016-06-21T22:03:08.893-05:00Running v. Poker—Heads Up for RollzI'm a simple guy. I go to work. I come home. I walk the dog. I watch some TV. Lather. Rinse. Repeat.<br />
<br />
I only have two major hobbies—running and poker. Both are good ways to unwind. Both can be fun. Both can be challenging. Both can kick you in the nuts.<br />
<br />
But, which one is the superior hobby? Let's break it down.<br />
<br />
<br />
<b><span style="color: #0b5394;">Nutrition</span></b><br />
<br />
<b>Poker: </b> Pizza.<br />
<br />
<b>Running:</b> <a href="https://shop.guenergy.com/collections/energy/products/energy-gel?_ga=1.82654047.879975542.1466558252&variant=12137541505" target="_blank">Gu gel</a>.<br />
<br />
<b>Winner: </b> Poker. And don't get me started about <a href="http://www.clifbar.com/products/Athlete-Series/organic-energy-food/pizza-margherita" target="_blank">pizza-flavored gels</a>.<br />
<br />
<br />
<b><span style="color: #0b5394;">Financial Leaks</span></b><br />
<br />
<b>Poker:</b> Tournament entry fees. Bad bluffs. Sports wagers.<br />
<br />
<b>Running:</b> Race entry fees. Travel expenses. Shoes.<br />
<br />
<b>Winner: </b> Running. At least you still have shoes.<br />
<br />
<br />
<span style="color: #0b5394;"><b>Health Risks</b></span><br />
<br />
<b>Poker:</b> Back pain. High blood pressure. Depression. <a href="http://craakker.blogspot.com/2010/03/imop-memories-beatdown-at-bally.html" target="_blank">Assaults</a>.<br />
<br />
<b>Running:</b> Knee injuries. Blisters. Chafing. <a href="http://www.runnersworld.com/trail-running/race-director-recalls-bear-attack-on-runner" target="_blank">Bear attacks</a>.<br />
<br />
<b>Winner:</b> Running. #TeamGrizzly<br />
<div>
<br /></div>
<div>
<br /></div>
<b><span style="color: #0b5394;">Free Beverages</span></b><br />
<br />
<b>Poker:</b> Red Bull. Beer. Captain & Coke.<br />
<br />
<b>Running: </b> Gatorade. Chocolate milk. <a href="http://www.nbcnews.com/id/40010281/ns/health-fitness/t/weird-energizers-runners-share-secret-food-weapons/#.V2nr6_krLIU" target="_blank">Pickle juice</a>.<br />
<br />
<b>Winner: </b> Poker. Even when you add in the tip.<br />
<br />
<br />
<b><span style="color: #0b5394;">Attire</span></b><br />
<br />
<b>Poker:</b> Hoodie. Headphones. Sunglasses.<br />
<br />
<b>Running: </b> Neon-colored shorts. Headphones. Sunglasses.<br />
<br />
<b>Winner:</b> There are no winners here.<br />
<br />
<br />
<b><span style="color: #0b5394;">Embarrassing Moments</span></b><br />
<br />
<b>Poker:</b> Misreading a hand. Bluffing into the nuts.<br />
<br />
<b>Running:</b> <a href="https://www.buzzfeed.com/mjs538/can-you-make-it-through-this-post-and-still-want-to-run-a-ma?utm_term=.pjmqQ6YX8#.xb0e47QMv" target="_blank">Bloody nipples</a>. <a href="http://gawker.com/what-happened-to-the-runner-who-shit-himself-during-a-h-1681442684" target="_blank">Runner's trots</a>.<br />
<br />
<b>Winner:</b> Poker. In a gawddamn landslide.<br />
<br />
<br />
<b><span style="color: #0b5394;">Bad Beat Stories</span></b><br />
<br />
<b>Poker: </b>"I had a huge stack on the bubble of this WSOP tourney. I had pocket Kings, flopped a set, and got it all in versus the chipleader. He had Aces and went runner-runner for a flush."<br />
<br />
<b>Running:</b> "My shoelace came untied, so I had to stop and retie it. I missed qualifying for Boston by 30 seconds."<br />
<br />
<b>Winner: </b> Running. Dante really should have devoted an entire level of Hell to poker players who tell bad beat stories.<br />
<br />
<br />
<b><span style="color: #0b5394;">Inspirational Movies</span></b><br />
<br />
<b>Poker:</b> <i>Rounders</i>. <i>Maverick</i>. <i>The Cincinnati Kid</i>.<br />
<br />
<b>Running:</b> <i>Chariots of Fire</i>. <i>Prefontaine</i>. <i>Forrest Gump</i>.<br />
<br />
<b>Winner: </b> Five great flicks, plus that Tom Hanks dud. <i>Rounders </i>captures the seedy, degenerate side of poker, while <i>Forrest Gump</i> is like a box of chocolate gel packs. Poker with the easy win.<br />
<br />
<br />
<b><span style="color: #0b5394;">Soundtrack</span></b><br />
<br />
<b>Poker:</b> "Poker Face"—Lady Gaga. "Ace of Spades"—Motörhead. "The Gambler"—Kenny Rogers.<br />
<br />
<b>Running:</b> "Running Down a Dream"—Tom Petty. "Born to Run"—Bruce Springsteen. "Run Like Hell"—Pink Floyd.<br />
<br />
<b>Winner:</b> Usually a lineup of Petty, Floyd, and The Boss would cruise to victory. But <a href="https://en.wikipedia.org/wiki/Lemmy" target="_blank">Lemmy</a> makes this a draw.<br />
<br />
<br />
<b><span style="color: #0b5394;">Amateur Aspiration</span></b><br />
<br />
<b>Poker:</b> Cash in a WSOP event.<br />
<br />
<b>Running:</b> Qualify for the Boston Marathon.<br />
<br />
<b>Winner: </b> Running. Your family and co-workers have actually heard of the Boston Marathon.<br />
<br />
<br />
<b><span style="color: #0b5394;">Worst Aspect</span></b><br />
<br />
<b>Poker:</b> Playing Limit Omaha-8.<br />
<br />
<b>Running:</b> Running up a mountain.<br />
<br />
<b>Winner:</b> Running. Both are agonizing, but with running you have a great view and a legitimate shot at dying as an exit strategy.<br />
<br />
<br />
<b><span style="color: #0b5394;">Conclusion</span></b><br />
<br />
There you have it. The analysis is irrefutable. Running is slightly superior to poker.<br />
<br />
And running is freaking stupid.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_y3h41i5wMjszU56f2hgj9mOnSlsh7pgy1fOxLKTqmqB4t4NZpeFJLk59uxGDkbrknJeLJJ01dKhnxxLQ_y8vxwSTf6KVpKs6FiRvfH4_YN1M5x2PQOKK8NIF9g2ZwGE6H239PZSBeNA-/s1600/Mt.+Evans+2015.6.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="400" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_y3h41i5wMjszU56f2hgj9mOnSlsh7pgy1fOxLKTqmqB4t4NZpeFJLk59uxGDkbrknJeLJJ01dKhnxxLQ_y8vxwSTf6KVpKs6FiRvfH4_YN1M5x2PQOKK8NIF9g2ZwGE6H239PZSBeNA-/s400/Mt.+Evans+2015.6.jpg" width="266" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Mt. Evans Ascent—June 2015</td></tr>
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<br />Grange95http://www.blogger.com/profile/01857460215043659894noreply@blogger.com11tag:blogger.com,1999:blog-1169281096117913024.post-84550399822932217302016-04-26T18:12:00.001-05:002016-04-26T18:12:26.954-05:00Chopping the PrimariesAs another set of presidential primary results come in tonight, it is interesting to note how the different delegate selection systems used by the Democrats and Republicans have had significantly different effects on how each party's eventual candidate will be selected. Let's look at these effects by using poker tournaments as an analogy.<br />
<div>
<br /></div>
<div>
Each state is essentially a separate poker tournament, offering a prize pool of delegates. The size of the prize pool (number of total delegates available) will vary based on the nature of the tournament. For example, some tournaments have smaller buy-ins or fewer participants, and have a smaller prize pool, while other tournaments have larger buy-ins or more participants, and have a larger prize pool. Under this analogy, California is the Main Event of the presidential primary season. You have to win a lot of smaller tournaments (or a lot of Nebraskas and Delawares) to net as many delegates as a win in the Main Event.</div>
<div>
<br />
Even more important than the prize pool, however, is the payout structure. On the <a href="http://www.realclearpolitics.com/epolls/2016/president/democratic_delegate_count.html" target="_blank">Democratic side</a>, all states award delegates on a proportional basis—win 55% of the vote, get roughly 55% of the delegates (in states with small numbers of delegates, the delegate counts may deviate slightly due to rounding, such that a 52%-48% "win" results in an equal split of delegates). On the <a href="http://www.realclearpolitics.com/epolls/2016/president/republican_delegate_count.html" target="_blank">Republican side</a>, however, early primaries were proportional (with a qualifying threshold), while most later-stage primaries are winner-take-all or winner-take-most affairs. In those states, a simple plurality of the vote—maybe as little as 40%—can win 90-100% of the delegates.<br />
<br />
Viewed as poker tournaments, the Democratic primaries essentially are structured such that the candidates are required to "chop" every primary. As my poker-savvy readers know, chopping is an agreement to split the prize pool rather than playing out the tournament to its end. Chopping is common in poker tournaments, and is a method for reducing variance (being the chip leader is great until a couple of short stacks get lucky and knock you out with a small payout). Chopping is usually <a href="http://www.pokernews.com/strategy/let-s-make-a-deal-chip-count-and-icm-deals-20868.htm" target="_blank">tied to chip stack size</a>, recognizing that players with more chips have a better chance of winning. One basic method of chopping is a "chip-chop" where every player is paid last place money, and the remaining prize pool is divided proportionally to chip stack size. So, players with larger chip stacks get larger percentages of the prize pool, but everyone gets more money than last place money.<br />
<br />
The Republican primaries—at least those remaining—are more akin to poker tournaments with top-heavy payout structures. Poker tournaments with guaranteed payouts (such as the <a href="http://www.wsop.com/news/2015/Jun/6293/ADRIAN-BUCKLEY-WINS-2015-WSOP-MILLIONAIRE-MAKER-CHAMPIONSHIP.html" target="_blank">WSOP "Millionaire Maker"</a>) often feature large payouts to the winner or top few players, with little or no prize money for lower finishers.<br />
<br />
These structural differences are critical to the underdogs in both races. On the Democratic side, the primary was essentially decided by Super Tuesday, when Hillary Clinton opened up a sizable pledged delegate lead. Although Bernie Sanders has won numerous primaries and caucuses since then, most of those were in smaller states with fewer delegates. Even worse for Sanders, the proportional award of delegates made it difficult for Sanders to make an appreciable dent into Clinton's delegate lead because Clinton will pick up sizable numbers of delegates even in states she loses. Effectively, Sanders can never come close to sweeping a state's delegates. Based on projections by FiveThirtyEight.com, Sanders will likely need to win 65% of the delegates in the late-stage Democratic primaries, which translates into this essentially impossible scenario:<br />
<blockquote>
"Based on these estimates, Sanders would need to beat Clinton by 26 percentage points in California, 28 points in Indiana and 16 points in New Jersey, all states where he trails Clinton in polling averages. He’d also need to win Western states like Oregon and Montana by 50 or more percentage points."<br />
<br />
~ <a href="http://fivethirtyeight.com/features/today-is-clintons-chance-to-end-the-groundhog-day-campaign/" target="_blank">FiveThirtyEight.com</a></blockquote>
By contrast, the top-heavy structure of the late Republican primaries offers Ted Cruz an opportunity to quickly close the delegate gap on Donald Trump if he is able to score even narrow wins in most of the larger remaining Republican primaries. Even though that scenario is unlikely to lead Cruz to a majority of delegates, Cruz still has a decent shot of winning enough delegates to deny Trump a majority of delegates, enabling Cruz to make it past a first ballot and into a scenario where delegates would no longer be pledged to Trump and could throw their support to Cruz (or John Kasich or Marco Rubio).<br />
<br />
In short, Sanders could close out the remaining primaries on a string of 60%-40% victories and handily lose the Democratic nomination, while Cruz could close out the remaining primaries on a string of 40%-35%-25% victories and win the Republican nomination. Of course, the most likely scenarios are for Clinton and Trump to score solid victories in most of the remaining primaries (starting tonight) and wrap up majorities of pledged delegates prior to the party conventions. But the difference in delegate selection structure means Clinton is essentially on cruise-control while Trump will be in a dogfight to control Cruz.<br />
<br /></div>
Grange95http://www.blogger.com/profile/01857460215043659894noreply@blogger.com3tag:blogger.com,1999:blog-1169281096117913024.post-72612492392412711282016-02-03T20:16:00.002-06:002016-02-12T22:14:52.277-06:00RINO for a Day—Inside the Iowa Republican Caucuses<b><i>I am a Republican.</i></b><br />
<b><i><br />
</i></b> There. It feels better to have that secret out there. It has been a terrible burden to bear.<br />
<br />
I haven't always been a Republican, though I did grow up in one of the most reliably Republican congressional districts in America—<a href="https://en.wikipedia.org/wiki/Nebraska%27s_3rd_congressional_district" target="_blank">Nebraska District 3</a>—which covers pretty much everywhere in Nebraska that isn't Omaha or Lincoln. Republicans in partisan elections can rely on running up 70-80% of the vote in this largely rural district where you find fifth and sixth generation family farmers and ranchers, and county seats with populations in the low-to-mid thousands. Social life revolves around school, church, and Huskers football. Guns and God (and running the dang ball) are a way of life, not a punchline. My hometown actually sits on the banks of the Republican River.<br />
<br />
Still, in my very first Presidential election, I voted Democrat, supporting Jimmy Carter in his 1976 victory over Gerald Ford. I suppose <i>technically</i> my vote only counted in the highly influential <i><a href="https://en.wikipedia.org/wiki/Weekly_Reader" target="_blank">Weekly Reader</a></i> presidential poll, considering I was a first grader and couldn't get around that pesky 26th Amendment. Still, my guy had won, so being a Democrat meant being a winner. So I was a Democrat. Of course, I'm still bitter about the other big election that fall, when my elementary school voted on the color of the new tornado slide. Informal recess polls had red and gold neck-and-neck during election week, but somehow blue pulled off the upset victory. I still suspect those shady 5th and 6th graders committed election fraud.<br />
<br />
The Iowa caucus system strongly resembles a school election. Voters are crammed into churches, schools, and community centers. The pledge of allegiance is recited. Some self-important busybody serves as chair because nobody else wants to run the show, and everyone mostly wants to get home to watch Netflix. Speeches are given and ignored. In lieu of a raffle or bake sale, envelopes are passed around for cash donations, with a reminder to keep it below the mandatory reporting threshold; nobody wants to do homework.<br />
<br />
My first two forays into the caucuses were as a Democrat in 2004 (Edwards) and 2008 (Obama). Those were the first caucuses of the social media era, and turnout was substantially greater than anticipated. Democrats those years were motivated, organized, <i>energized</i>. We left the caucuses feeling that our votes <i>mattered</i>.<br />
<br />
This year, I had planned to skip the caucuses. I had switched my voter registration to Independent in 2010, and the Democratic race seems to hold little actual suspense—it's your standard race between a candidate who would fail an open-book exam in Economics 101 and a candidate who would need a cheat-sheet to pass Intro to Ethics.<br />
<br />
But then, around Thanksgiving, a sign appeared.<br />
<br />
No, really. An actual freaking sign. In fact, it was this particular billboard mounted on a fence in my neighborhood:<br />
<br />
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjwyVsl1Um_nTYdTvAnso37VyX_GKRr5vKj3kAGnqoyxvTB8xajfGTOYFFzDYHxTibrBRHN4DYLAdpyFLWG0TZ_RgKCiSFsjFY_PBVUyJeM4WRrlSNzWU_TJZOAqclLXW6oKtN9MRwe0hmE/s640/blogger-image-375370468.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="640" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjwyVsl1Um_nTYdTvAnso37VyX_GKRr5vKj3kAGnqoyxvTB8xajfGTOYFFzDYHxTibrBRHN4DYLAdpyFLWG0TZ_RgKCiSFsjFY_PBVUyJeM4WRrlSNzWU_TJZOAqclLXW6oKtN9MRwe0hmE/s640/blogger-image-375370468.jpg" width="480" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><b><i>Donald Trump billboard (12/8/2015), West Des Moines.<br />
2016 Iowa Republican Caucuses.</i></b></td></tr>
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This sign is four blocks from my house. It is mounted overlooking the corner where my street intersects with one of the busiest parkways in the Des Moines metro area. In an unintentional homage to the modern Republican Party's core constituencies, the sign sits smack between the biggest evangelical mega-church in the metro and the largest shopping mall in the state. Given that I run, walk, and drive past that corner several times each day, I've gotten to see a lot of that sign. And as the caucus season progressed, it drew <a href="https://www.yahoo.com/politics/the-superfan-behind-the-trump-billboard-in-iowa-224432151.html" target="_blank">plenty of attention</a> from visitors and the media.<br />
<br />
As Donald Trump might say, the sign is <i>yuuuuge</i>.<br />
<br />
Now my significant other and I enjoy watching Trump's reality TV show, <i>Celebrity Apprentice</i>. On the show, Trump can be a bullying buffoon, but he's an <i>entertaining</i> buffoon. Trump as President? Not nearly so entertaining. For that matter, I wasn't particularly enamored of several other Republican candidates. But what could I do?<br />
<br />
Then, Monday morning as I passed the Trump sign on my way to work, it occurred to me—why not caucus <i>as a Republican</i>? If I'm not thrilled with the Democratic candidates, why not help support a better (<i>i.e</i>., more tolerable) Republican candidate? At the very least, why not see who these people are who think Trump should be President? Maybe the Trump sign guy would even speak!<br />
<br />
Iowa allows same-day voter registration, including changing parties to cross-over and vote in a primary or caucus. A quick form to complete online and print out, and presto! I was a newly minted Republican.<br />
<br />
Caucus night was exciting. It was a five minute drive to the large Catholic church where our precinct (West Des Moines 221) and four other precincts (the efficiently numbered West Des Moines 222-225) would gather. We arrived at 6:40, and the line stretched around the building. More doors were opened, and the lines collapsed into a black hole inside the church with folks jostling to get in the right registration line. Based on official tallies, 1,203 people voted at our location, with the largest group (406) being from our precinct.<br />
<br />
Organizers had not anticipated the large number of caucus participants. There were too few people working registration. Ballots ran out and had to be printed. Lines ground to a halt. In the midst of the chaos, candidate Carly Fiorina was giving a TV interview, presumably setting expectations for a "win" as outpolling Mike Huckabee and <a href="https://en.wikipedia.org/wiki/Deez_Nuts_(politician)" target="_blank">Deez Nuts</a>.<br />
<br />
Suddenly, a murmur broke out. There, walking through the crowd as if he were parting the Red Sea or walking the Oscars red carpet, was <i>Donald Trump</i>. The crowd acted like he was a Hollywood star, maybe George Clooney on a bad hair day. Trump smiled and basked in the crowd's adoration, gave brief remarks to a TV crew, then headed to the front of the church. Love him or hate him, the Donald exudes charisma.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgsAKQ0nzFvZcBQHFN1Na7HyLfBwPpD9S6wBLV5vJJuHSYv22qSixlHKe2-JOQQm4CfPJuTfmVYK9kmCsF8GXv8F_-5pkatyErYnEsdcl0soo69zgm3b-kzbHYAOxdznWcm8Lg3eTX_ST2P/s640/blogger-image--1882646492.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgsAKQ0nzFvZcBQHFN1Na7HyLfBwPpD9S6wBLV5vJJuHSYv22qSixlHKe2-JOQQm4CfPJuTfmVYK9kmCsF8GXv8F_-5pkatyErYnEsdcl0soo69zgm3b-kzbHYAOxdznWcm8Lg3eTX_ST2P/s640/blogger-image--1882646492.jpg" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><b><i>Donald Trump arrives at the Iowa Republican Caucuses.<br />
St. Francis Church, West Des Moines, 2/1/2016 .</i></b></td></tr>
</tbody></table>
Despite the registration backlog, the caucus was brought to order at 7:15 PM. At least 800 people were crammed into the fellowship hall, with the remaining 400 or so of us out in the adjoining entry room, many still waiting to register. A Boy Scout troop posted the American and Iowa flags, and we all recited the Pledge of Allegiance, because we're Americans, not Socialists, dammit. The temporary chair appointed by the state party was then elected to be permanent chair because nobody else wanted the hassle. And then, as I remained 25 people back in the glacial registration line, the main event was underway.<br />
<br />
Each campaign was given three minutes to bore or annoy the crowd with a last minute sales pitch to those oddballs who, despite months of campaign mailers, TV ads, debates, and candidate appearances at local fairs and pancake dinners, still found themselves <i>undecided</i> mere minutes before voting. Carly Fiorina and Donald Trump each spoke for themselves at the beginning, followed by precinct representatives for the other campaigns in alphabetical order. Here are my summaries of their speeches. Keep in mind I was trapped in the undertow of the registration line the entire time, so my notes were minimal. Paraphrasing is likely to be inaccurate, while direct quotes are probably unusually inaccurate paraphrases.<br />
<br />
<b>Fiorina:</b> Drawing on her experience as a failed CEO, Carly gave a wonderfully upbeat speech filled with corporate jingoism meant to distract from her campaign's lousy performance in the 4th quarter of 2015. She closed with an appeal for "enough votes to attract a leveraged buyout or vice presidential nomination."<br />
<br />
<b>Trump:</b> The Donald is loud! He's successful! He's rich! He's an outsider! He will be a winner! Every other candidate is a loser! Free walls for everyone! Mexico will host an open bar with free margaritas and walls! <i>Note</i>: The WALL <span style="font-size: xx-small;">(TM)</span> thing has me curious. Is Mexico using MasterCard, and if so, what kind of airline miles or cash back multiplier are they getting for construction-related purchases? Will Mexico pay for my new backyard retaining wall? Because <i>that </i>would be <i>amazing</i>.<br />
<br />
<b>Santorum:</b> Rick's wife, Karen, reminded the crowd that the Muslim terror group, ISIS, wants Rick dead, which is sad and puzzling because they share those strong Christian values of demonizing gays and returning civilization to the good ol' days of the Dark Ages. Also, the electoral system is rigged against those who dare to speak against the Republican establishment, particularly if your name happens to rhyme with "Dick Mantorum." Karen closed with an anecdote about how Rick likes to make blackberry jam. But either she forgot to bring jam, or there wasn't enough for those of us in back. Trump would've had jam for everyone, and it would've been award-winning, amazing jam, and Venezuela would've paid for it with a post-dated check. Anyway, no jam, no vote.<br />
<br />
<b>Bush:</b> Jeb! can win Florida. Jeb! can win Ohio. In a close election, Jeb! can win in the Supreme Court. Basically, Jeb! has a <a href="http://www.esquire.com/entertainment/movies/a31775/taken-speech/" target="_blank">very particular set of skills</a>, and at this point, he expects you to vote for him, because if you don't, he's going to torture you with more cheesy super-PAC ads.<br />
<br />
<b>Carson:</b> Doctor Ben is a regular guy. He'd totally drop by your house on Thanksgiving. "By the way, we're all neighbors. You're supposed to love your neighbor. How many of you even <i>know</i> your neighbor?" [<i>crowd shuffles uncomfortably</i>] [<i>Note</i>: This was a totally real quote.]<br />
<br />
<b>Cruz:</b> Ted is a good person. Ted believes in God. He reads the Bible. Ted believes in the Constitution. It's not clear if he has read the Constitution. Ted will ban gay marriage, abortion, and the designated hitter. Ted makes the apple-iest apple pie. Ted is not only <i>not </i>Canadian, he is the only candidate willing to carpet bomb ISIS in Canada.<br />
<br />
<b>Huckabee:</b> No one spoke for Huckabee. For the first time ever, I agreed with every word said by Huckabee's campaign.<br />
<br />
<b>Kasich:</b> Only John can save the United States. Only you can prevent forest fires.<br />
<br />
<b>Paul:</b> Rand's niece, Lisa, spoke. "Dammit Jim! Rand is a doctor, not a career politician!" <i>Note</i>: This <a href="http://knowyourmeme.com/memes/dammit-jim-im-a-doctor-not-a-x" target="_blank">message </a>would probably work better if Rand wasn't badly trailing a world-renowned neurosurgeon who actually has never held political office.<br />
<br />
<b>Rubio:</b> "Marco is very religious, but doesn't want to flaunt it. He keeps it private. Like this past Sunday when he came to Mass at this very church. And again <i>both</i> the Saturday <i>and </i>the Sunday before that. Marco <i>loves</i> Mass at this church." Also, Marco is the best candidate for beating Hillary in the general election. There are three <a href="https://en.wikipedia.org/wiki/Gnomes_(South_Park)" target="_blank">important points</a> to remember about Marco:<br />
<br />
1. Experience<br />
2. Judgment<br />
3. ???<br />
<br />
Profit!<br />
<br />
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj4WQ8F5M0MjDi0gumLh_9p_1ZYwqVOTaS9LWGtA3P_lHKc8iI8yMMfkhr3EgkjBRNSQCkYK71b87u17-kq9BC62VmlSpv3InPmcnhTPxm1lChm0vGKQp2GR1ybDUUaoWZNpHsZLIU47Ykz/s640/blogger-image--1484391523.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj4WQ8F5M0MjDi0gumLh_9p_1ZYwqVOTaS9LWGtA3P_lHKc8iI8yMMfkhr3EgkjBRNSQCkYK71b87u17-kq9BC62VmlSpv3InPmcnhTPxm1lChm0vGKQp2GR1ybDUUaoWZNpHsZLIU47Ykz/s640/blogger-image--1484391523.jpg" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><b><i>Official ballot, West Des Moines Precinct 221.<br />
Iowa Republican Caucuses, 2/1/2016.</i></b></td></tr>
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjnd8ABZXxPHkgaruE-ygU21ZK9C4YA8mE4ybWA3uJoZSQc4RihW9f0w2WmLMjG5hCojdyROnMhfec3h-Q_UNUuf_QNpwq4BVzW3mgvDRIX_W2al1cOuTspEi11h18JQXiQxFPgDbpDJ6Rq/s640/blogger-image--1204287013.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjnd8ABZXxPHkgaruE-ygU21ZK9C4YA8mE4ybWA3uJoZSQc4RihW9f0w2WmLMjG5hCojdyROnMhfec3h-Q_UNUuf_QNpwq4BVzW3mgvDRIX_W2al1cOuTspEi11h18JQXiQxFPgDbpDJ6Rq/s640/blogger-image--1204287013.jpg" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td class="tr-caption" style="font-size: 12.8px;"><b><i>High tech ballot box, West Des Moines Precinct 221.<br />
Iowa Republican Caucuses, 2/1/2016.<br />
"White" label distinguishes white ballots from Precinct 221<br />
from different colored ballots from other precincts at the caucus site.</i></b></td></tr>
</tbody></table>
</td></tr>
</tbody></table>
Following the campaign speeches it was time to vote. In the Democratic caucuses, participants physically gather themselves into groups by candidate, then spend an hour playing a ritualized version of Red Rover as each campaign poaches people from and lends people to other campaigns to maximize their delegates while minimizing the delegates of selected rivals. The Republican Party, however, is much more modern and simply casts a statewide straw poll using cutting edge technology designed to expedite voting and thwart election fraud—paper ballots and golf pencils. Basically it was just like that <i>Weekly Reader</i> election back in 1976, except instead of the sainted Mrs. Pearson counting the ballots, it was a committee of party hacks in a back room, supervised by the caucus chair who also totally coincidentally was also Marco Rubio's precinct captain.<br />
<br />
After dropping our ballots in the color-coded and completely secure homemade ballot boxes—our precinct was awkwardly designated the "White" precinct—we had the option of leaving or sticking around for a business meeting about organizing the precinct and electing county party leaders and committees. We skipped out before we could be drafted to make glitter signs and hang crepe paper in the gym or whatever.<br />
<br />
Unfortunately, it turns out I was on the wrong end of this grown up <i>Weekly Reader</i> poll. In selecting a candidate to back, my first criterion was "Don't Be Batshit Insane". Right away that knocked out Trump, Cruz, Carson, Paul, Santorum, and Huckabee. Christie is a jerk. Fiorina lacks experience. I could find myself supporting Jeb!, Rubio, or Kasich even if I don't agree with some/many of their policy positions; unlike the rest of the field, they seem qualified to <i>govern</i>.<br />
<br />
In the end, I went with Jeb! while my precinct went with Rubio. In fact, Rubio (160 votes) essentially tied the combined votes of Trump (86 votes) and Cruz (75 votes) who finished second and third in the precinct. The aggregate votes for the five precincts at our location had a similar pattern, with Rubio (455 votes) far outpacing Trump (240 votes) and Cruz (228 votes). Although Rubio finished third overall in the state, he clearly attracts the support of middle-class suburban voters who will be critical to the success of any candidate in the general election (statewide precinct level results have been compiled by the <i><a href="http://www.nytimes.com/interactive/2016/02/01/us/iowa-caucus-republican-precinct-results.html?_r=0" target="_blank">New York Times</a></i> and the <a href="https://www.iagopcaucuses.com/#/state" target="_blank">Iowa Secretary of State</a>).<br />
<br />
So much for the good signs. The bad omen is that Trump and Cruz are both still ahead of Rubio and the rest of the pack. Trump looks to win New Hampshire. Trump and Cruz are both strong in South Carolina. Rubio or any other "establishment" or "mainstream" Republican candidate will need to find a way to tap into the anti-establishment energy driving this campaign or be left in the dust.<br />
<br />
Although the presidential primary marathon has only begun, Iowa's turn in the spotlight is blessedly over. Now it's up to the next wave of primary states to further clarify who will represent the Republican Party. As for me, my 48 hours as an Iowa Republican have been exhilarating and embarrassing. At least if Trump is nominated, I can say I played my part in the resistance. But sometime in the next few weeks, this Republican will turn back into an Independent.<br />
<br />
In the meantime, I have a hankering for some homemade blackberry jam.<br />
<br />
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjPHSyT5F7JULe9_ucNGIFnaMDJN_uYDzm22Dr6r23GOKz_-YygXe_m0jOfXOTG7628npa2RfHn-fQm5u5QF7egoOmvhINA0_NhGEd0y1Y9gGY8tHUOturTBKYwEtMIyNKxzv74hMtWWfX5/s640/blogger-image--1458565288.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="300" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjPHSyT5F7JULe9_ucNGIFnaMDJN_uYDzm22Dr6r23GOKz_-YygXe_m0jOfXOTG7628npa2RfHn-fQm5u5QF7egoOmvhINA0_NhGEd0y1Y9gGY8tHUOturTBKYwEtMIyNKxzv74hMtWWfX5/s400/blogger-image--1458565288.jpg" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><b><i>Standing room only at St. Francis Church, West Des Moines.<br />
Iowa Republican Caucus, 2/1/2016</i></b></td></tr>
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg7_WC6T_qIOPgRjcgHVKbFLsP20GDZD4RWm2q9j7XUhMwDLNA5bnhMR0ib_Ne3GxYURGmqSztijnWRSbrlkjNlw-JCEsS7A9_1fgxyC1zRl2goYq9hFtJpUh8LgKMX9JbVsgRFgLx0FjG1/s640/blogger-image--531836206.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="300" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg7_WC6T_qIOPgRjcgHVKbFLsP20GDZD4RWm2q9j7XUhMwDLNA5bnhMR0ib_Ne3GxYURGmqSztijnWRSbrlkjNlw-JCEsS7A9_1fgxyC1zRl2goYq9hFtJpUh8LgKMX9JbVsgRFgLx0FjG1/s400/blogger-image--531836206.jpg" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td class="tr-caption" style="font-size: 12.8px;"><b><i>Standing room only at St. Francis Church, West Des Moines.<br />
Iowa Republican Caucus, 2/1/2016</i></b></td></tr>
</tbody></table>
</td></tr>
</tbody></table>
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjk7ZUplGDxIIVlxPhNvTKuqTeg-HEUnZfgaJB1jYYpO-LdidqpayfTs8QYbgqnjpYkiAOyZpyw4ceIz8cqxVsh1fj-IgNzvgFTJHu1Kl54yxYs6fBio58WcJ1rcklV8mFbqXWj-AxsAzXn/s640/blogger-image-2142943413.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjk7ZUplGDxIIVlxPhNvTKuqTeg-HEUnZfgaJB1jYYpO-LdidqpayfTs8QYbgqnjpYkiAOyZpyw4ceIz8cqxVsh1fj-IgNzvgFTJHu1Kl54yxYs6fBio58WcJ1rcklV8mFbqXWj-AxsAzXn/s640/blogger-image-2142943413.jpg" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><b><i>Donald Trump enters the Iowa Republican caucuses.<br />
St. Francis Church, West Des Moines, 2/1/2016.</i></b></td></tr>
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhx2Y51F6G6IjihlR3qTViWcScbq1n74u2bMYB69g9MlW-zKPktCV_j2WfaH1WBkBp_wdUnR3Xg1At90tkjIhHAWW-f0GvFUtVcvjTcJ7KUYEtHj5csixDlsnrnZTcXhPHWXspKBYaXsiV0/s640/blogger-image-744935143.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhx2Y51F6G6IjihlR3qTViWcScbq1n74u2bMYB69g9MlW-zKPktCV_j2WfaH1WBkBp_wdUnR3Xg1At90tkjIhHAWW-f0GvFUtVcvjTcJ7KUYEtHj5csixDlsnrnZTcXhPHWXspKBYaXsiV0/s640/blogger-image-744935143.jpg" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><b><i>Crowds waiting to register for Iowa Republican Caucuses.<br />
St. Francis Church, West Des Moines, 2/1/2016.</i></b></td></tr>
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgUFcW6B9PtIGZvJmcwV8Q13eT6_2MH7WBsA4jyYEVJBEdSrHeH9HNmxgvpyiNb8fZXJsN40e94DDAZ00ZuRR9rHYSgt2pBde2eYtuDfZUJgX6eSMfHzTFckZz0q9_1-ZWCNZra36b_ZtKa/s640/blogger-image--33101721.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgUFcW6B9PtIGZvJmcwV8Q13eT6_2MH7WBsA4jyYEVJBEdSrHeH9HNmxgvpyiNb8fZXJsN40e94DDAZ00ZuRR9rHYSgt2pBde2eYtuDfZUJgX6eSMfHzTFckZz0q9_1-ZWCNZra36b_ZtKa/s640/blogger-image--33101721.jpg" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><b style="font-size: 12.8px;"><i>Crowds waiting to register for Iowa Republican Caucuses.<br />
St. Francis Church, West Des Moines, 2/1/2016.</i></b></td></tr>
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Grange95http://www.blogger.com/profile/01857460215043659894noreply@blogger.com22tag:blogger.com,1999:blog-1169281096117913024.post-64196179928064569892016-01-08T19:23:00.000-06:002016-01-09T10:36:03.639-06:00Always Protect Your Beverage <span id="fullpost"> </span><br />
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An axiom of live poker is: "Always protect your hand." If a hand is fouled or mucked by mistake, a player often has no recourse. To protect their cards from misadventure, many players will use a card protector or "capper"—a chip, coin, medallion, or small trinket placed on top of their cards to weigh them down and signal to the dealer the hand is live. 2004 WSOP Main Event champion Greg "<a href="https://twitter.com/FossilMan" target="_blank">FossilMan</a>" Raymer famously uses small fossils as card protectors, and often gives them away to players who beat him.</div>
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I got to thinking today about the "protect your hand" rule and card protectors because of a blog post by <a href="https://twitter.com/robvegaspoker" target="_blank">Rob</a>, over at the cryptically named <i><a href="http://robvegaspoker.blogspot.com/" target="_blank">Rob's Vegas & Poker Blog</a></i> (here's my <a href="http://craakker.blogspot.com/2013/01/seven-virgins-mule-and-gypsy-queen.html" target="_blank">memory</a> of one of my first times meeting Rob). Rob may be the last poker blogger left in the wild. He writes regularly, often posting entertaining trip reports (remember those?) about his poker outings in Vegas. With posts filled with wacky hand histories, outlandish characters, and hilarious hijinks, Rob keeps it old school. Nobody consistently puts the "long" in "longform" quite like Rob.</div>
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Today, Rob posted a <a href="http://robvegaspoker.blogspot.com/2016/01/the-mystery-of-stolen-diet-coke.html" target="_blank">vignette</a> (an "anecdote" by Rob's standards) about having his drink "stolen" from him while he stepped away from the poker table during a tournament at <a href="https://twitter.com/ARIAPoker" target="_blank">Aria</a>. Now "stolen" is probably a bit of an overstatement. In reality, what likely happened is that a cocktail server saw a glass which appeared abandoned and picked it up in the normal course of her rounds. Look, beverages are free in Vegas poker rooms (though Rob, like most poker players, typically tips the server a buck per drink). So if your glass is picked up with a couple of sips left, no big deal, right? Well, not for Rob, who has—to date—been inspired to pen more than 2,500 words over <a href="http://robvegaspoker.blogspot.com/2014/05/things-that-piss-me-off.html" target="_blank">two posts</a> on the grave injustice of removing his beverage glass before he has consumed every drop of liquid and every cube of ice. </div>
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Given the quirky nature of many poker players, it should not surprise anyone that some poker players can be a little over-protective of their free beverages. Back during our annual <a href="http://craakker.blogspot.com/search/label/Ironman%20of%20Poker%20%28IMOP%29" target="_blank">Ironman of Poker (IMOP)</a> trip in March 2012, my buddy Santa and I were playing 4/8 Limit Omaha8 at Venetian. As you might expect for such a game, Santa and I were the only players born after World War II. One of the players—let's call her Ruth—reminded me of a raptor; beady-eyed, with talon-like hands that pounced on any pot she drug. </div>
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Ruth, like most of the other players, was a regular in the game. Also like most of the regulars, Ruth complained loudly about everything—the room temperature, the drafty ventilation, her chair, the dealers, the other players, her cards, the board cards, the food and beverage service, the comp system, and whatever topic was brought up at the table. I think it's safe to say that low stakes Omaha8 players are the pettiest, most miserable class of people in any poker room, and possibly in the entire casino.</div>
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I had the dubious privilege of sitting next to Ruth. Needless to say, a couple of drunk young guys yucking it up and splashing around did little to lighten the mood at the table. Losing money to a couple of luckboxes who played too many hands and chased (and caught) too many draws was just the latest indignity the regulars had to endure; many of the regulars, including Ruth, were rather vocal in sharing their displeasure at our style of play.</div>
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At some point, Ruth ordered dinner. When her food was delivered, it was placed on a side table between us. Of course, we heard a litany of complaints—service was slow, they hadn't gotten her special instructions right, the food was too cold, blah, blah, blah. Nonetheless, Ruth ate her dinner, then got up and went for a walk.</div>
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About 15 minutes later, a food server came by and asked if he could remove the dishes from the side table. I told him he could. The server left the side table because I and another player had our drinks sitting on it (the Venetian's tables did not have cup holders).</div>
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Another 15 minutes went by, and Ruth returned. Immediately upon sitting down, she snapped: "Where is my soda? Who took my soda?" At that outburst, I remembered Ruth had been drinking a soda with dinner out of a standard glass. When she left, the glass was less than half full, and she had tossed her napkin over it. It certainly had appeared ready to be cleared. But ...</div>
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"Why would they take my soda? </div>
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"I told them I thought you were done with dinner."</div>
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"I was done <i>eating</i>." Beady eyes glared at me. "Why did you tell them they could take my soda? I put my napkin over it so they wouldn't take it."</div>
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Now, I'm not certain if a napkin over a glass is a high society etiquette maneuver which indicates, "please don't take my beverage", or if the Venetian's napkins serve as magical cloaks of beverage invisibility. But Ruth was clearly peeved about her missing soda. So naturally, every server the rest of the evening was given imperious instructions not to touch her beverage glass. And, every time she left the table, the dealer was given strict orders to protect her beverage as though it were an irreplaceable family heirloom. I got the impression—via several glares and snide comments—that Ruth did not find the situation nearly as amusing as I did. Of course, I may have needled her just a little whenever she brought up the topic.</div>
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In any event, about a month later I was back in Vegas for a work conference. One night I went over to Venetian to play 1/2 NLHE. As I wandered through the room, I noticed Ruth was back at the 4/8 Omaha8 game. And again, Ruth had a side table next to her to hold her dinner plate and a glass of soda. But this time, Ruth was prepared. Covering her glass was a laminated coaster with a straw hole. Above a large black skull and crossbones on bright yellow background was neatly typed:</div>
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<b>"PLEASE—DO NOT TAKE THIS DRINK"</b></div>
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Based on Rob's posts, I bet there's an untapped market for poker drink protectors.</div>
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgTVvbVA50cdTA3NV30mOvPXIDV6gVAcdVrqreVjWfqT0J_BodHrI5EuYwVIDIx0paVLrbmpAS7EmW_foRaV5MoKiOYekkA6AF8K4WiKi9aDhYnL8I2MtS-zaWpbu-TIGu3z_on_5ZXQOOv/s640/blogger-image-795334433.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="640" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgTVvbVA50cdTA3NV30mOvPXIDV6gVAcdVrqreVjWfqT0J_BodHrI5EuYwVIDIx0paVLrbmpAS7EmW_foRaV5MoKiOYekkA6AF8K4WiKi9aDhYnL8I2MtS-zaWpbu-TIGu3z_on_5ZXQOOv/s640/blogger-image-795334433.jpg" width="478" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><b>"Please Do Not Take This Drink"<br />
--Venetian Poker Room (April 2012)</b></td></tr>
</tbody></table>
Grange95http://www.blogger.com/profile/01857460215043659894noreply@blogger.com11tag:blogger.com,1999:blog-1169281096117913024.post-86956342481078810022015-12-16T22:29:00.001-06:002015-12-17T12:52:01.473-06:00O'Bannon v. NCAA—College Athletes Get a Lump of CoalIn August 2014, a <a href="http://espn.go.com/college-sports/story/_/id/11328442/judge-rules-ncaa-ed-obannon-antitrust-case" target="_blank">federal judge ruled</a> in <i><a href="http://i.usatoday.net/sports/!Invesitgations-and-enterprise/OBANNONRULING.pdf" target="_blank">O'Bannon v. NCAA</a></i> that the NCAA's amateurism rules were an unlawful restraint of trade in violation of the <a href="https://en.wikipedia.org/wiki/Sherman_Antitrust_Act" target="_blank">Sherman Antitrust Act</a> because colleges improperly prevented their athletes from being compensated for the use of their names, images, and likenesses (NILs). The judge entered an order <a href="http://www.usatoday.com/story/sports/college/2014/08/08/ed-obannon-antitrust-lawsuit-vs-ncaa/13801277/" target="_blank">requiring the NCAA</a> to place some portion of the money colleges earned from athletics—up to $5,000 per athlete per year—into a trust fund which athletes could access once their collegiate careers had concluded. Not surprisingly, the NCAA appealed.<br />
<br />
In September, a three-judge panel of the Ninth Circuit Court of Appeals issued an <a href="http://cdn.ca9.uscourts.gov/datastore/general/2015/09/30/14-16601%20Opinion.pdf" target="_blank">opinion</a> largely affirming the district court's determination that the NCAA violated antitrust law by restricting compensation paid to college athletes to the cost of attending school (tuition, room and board, books, and fees). The panel, however, limited the athletes' relief to expanding athletic scholarships to the full cost of attendance, but struck the district court's order to establish an athlete trust fund. Today, the full <a href="https://www.ca9.uscourts.gov/content/view.php?pk_id=0000000757" target="_blank">Ninth Circuit denied</a> the athletes' petition for rehearing en banc, leaving the panel's appeal decision as the final ruling in the case, barring an improbable appeal to the United States Supreme Court.<br />
<br />
Although the <i>O'Bannon</i> decision has been rightly hailed as significant blow to the NCAA's claim of general exemption from federal antitrust law, the Ninth Circuit's opinion is actually a major loss for college athletes. Surprised? Let's take a closer look.<br />
<br />
In applying what is known as the "<a href="https://en.wikipedia.org/wiki/Rule_of_reason" target="_blank">Rule of Reason</a>" analysis to the NCAA's amateurism rules, the district court and appellate court each agreed that the NIL rules actually provided a pro-competitive effect which was beneficial to the schools and athletes by creating special market conditions for college athletics. Both courts agreed that the benefits of the NIL rules included “preserving the popularity of the NCAA’s product by promoting its current understanding of amateurism” and “integrating academics and athletics.”<br />
<br />
Of these supposed benefits of the NCAA's NIL rules, the more important was the public appeal of amateurism. Citing a U.S. Supreme Court decision, the Ninth Circuit noted that paying college athletes would potentially damage the NCAA product by transforming amateur college athletes into poorly paid minor league athletes. In other words, college athletics exists as a lucrative product in large part because athletes are not paid, so requiring athletes to be paid might destroy the very market upon which college athletics depends (italics in original):<br />
<blockquote>
"We cannot agree that a rule permitting schools to pay students pure cash compensation and a rule forbidding them from paying NIL compensation are both equally effective in promoting amateurism and preserving consumer demand. Both we and the district court agree that the NCAA’s amateurism rule has procompetitive benefits. But in finding that paying students cash compensation would promote amateurism as effectively as not paying them, the district court ignored that <i>not paying student-athletes is precisely what makes them amateurs</i>.<br />
<br />
Having found that amateurism is integral to the NCAA’s market, the district court cannot plausibly conclude that being a poorly-paid professional collegiate athlete is “virtually as effective” for that market as being as amateur. Or, to borrow the Supreme Court’s analogy, the market for college football is distinct from other sports markets and must be 'differentiate[d]' from professional sports lest it become 'minor league [football].'"</blockquote>
<b>Denying college athletes any share in the mountains of cash they earn for the NCAA and its member schools, in the court's view, is a feature, not a bug in the collegiate sports business model.</b> Now the Ninth Circuit grudgingly acknowledged that the meager NIL payments ordered by the district court would likely not cause significant harm to the concept of amateurism for the sports-consuming public. Yet, the Ninth Circuit noted that payments of any kind would inevitably lead to slippery slope demands for greater payments to college athletes:<br />
<blockquote>
"The difference between offering student-athletes education-related compensation and offering them cash sums untethered to educational expenses is not minor; it is a quantum leap. Once that line is crossed, we see no basis for returning to a rule of amateurism and no defined stopping point; we have little doubt that plaintiffs will continue to challenge the arbitrary limit imposed by the district court until they have captured the full value of their NIL. At that point the NCAA will have surrendered its amateurism principles entirely and transitioned from its 'particular brand of football' to minor league status."</blockquote>
The upshot of the Ninth Circuit decision is a bright line determination that any payment in excess of the costs of attending college is substantively compensation for play, and athletes are instantly transformed from amateur to professional. Because the court determined that preservation of the amateur athletic paradigm is a pro-competitive purpose for the NCAA's business model, the Ninth Circuit has given the NCAA a green light to enforce a hard line rule against any NIL payments in excess of the cost of attending school. Essentially, while paying lip service to antitrust law, the <i>O'Bannon</i> decision actually provides the NCAA and its members schools a virtually unassailable get-out-of-jail-free card—"protection of amateurism"—which effectively trumps antitrust law and prevents athletes from obtaining any meaningful monetary compensation.<br />
<br />
With <i>O'Bannon</i> in its hip pocket, the NCAA and its member schools are essentially free to continue to rake in <a href="http://sports.usatoday.com/ncaa/finances/" target="_blank">billions of dollars of revenue</a> (and in many cases, still <a href="http://www.washingtonpost.com/sf/sports/wp/2015/11/23/running-up-the-bills/" target="_blank">run large deficits</a>) without paying its labor force anything remotely close to their fair market value for their work. The relief the <i>O'Bannon</i> decision affirmed—increasing scholarships to the full cost of attendance—is a hollow victory, as major conferences had <a href="http://www.al.com/sports/index.ssf/2015/06/sec_coaches_cost_of_attendance.html" target="_blank">already adopted</a> these minor scholarship enhancements. The <i>O'Bannon</i> decision also likely guts <a href="http://www.nytimes.com/2015/10/02/sports/case-that-could-erode-amateur-model-takes-a-small-step.html" target="_blank">other pending athlete compensation class action cases</a>; if modest compensation of $5,000 per year is out of bounds for athletes as a threat to amateurism, how can a court award the even greater unlimited "market value" compensation sought in these pending cases? Throw in the recent <a href="http://www.si.com/college-football/2015/08/17/northwestern-football-players-union-vote-appeal-decision-nlrb" target="_blank">National Labor Relations Board decision</a> to deny college athletes the ability to form labor unions, and it's pretty much business as usual for the NCAA.<br />
<br />
So, as you sit back to enjoy the upcoming college football bowl games this holiday season, rest easy that America's colleges will take on the terrible burden of divvying up a <a href="http://espn.go.com/college-football/story/_/id/12688517/college-bowl-game-payouts-surpass-500-million-first-year-college-football-playoff" target="_blank">half a billion dollars in revenue</a> so that their athletes remain true amateurs. It's all about the <a href="http://www.statisticbrain.com/college-bowl-game-payouts/" target="_blank">integrity of the game</a>.Grange95http://www.blogger.com/profile/01857460215043659894noreply@blogger.com5tag:blogger.com,1999:blog-1169281096117913024.post-17257192428847200292015-12-01T23:22:00.001-06:002016-01-15T14:00:22.943-06:00DFS and the Puritan Problem<i>Daily fantasy sports (DFS) contests are under legal and regulatory attack in multiple states, and face litigation in New York and possibly other states over the question of whether DFS is illegal gambling. This battle is one recently waged—and resoundingly lost—by online poker sites. DFS supporters seem to be repeating the mistakes made by online poker supporters, failing to take these legal challenges seriously because they believe their game is self-evidently different from gambling.</i><br />
<i><br />
</i><i>What DFS and online poker supporters fail to appreciate is that while online gaming is essentially a brand new game, the laws being applied to online gaming are often centuries old. Many state gaming laws have their roots in religiously driven anti-gambling movements from the middle and late 1800s; those movements have their own roots in religious doctrines dating back to America's Colonial period and before. DFS and online poker advocates ignore these morality arguments at their peril.</i><br />
<i><br />
</i> <i>In other words, John Calvin is why we can't have nice things. </i><br />
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<b><span style="color: #0b5394;">* * * * *</span></b></div>
<blockquote>
<b>"Those who work their land will have abundant food,<br />
but those who chase fantasies will have their fill of poverty.<br />
<br />
A faithful person will be richly blessed,<br />
but one eager to get rich will not go unpunished."</b><br />
<br />
~ Proverbs 28:19-20 (NIV)</blockquote>
Last Wednesday, a New York state court judge held a <a href="http://www.legalsportsreport.com/6533/new-york-dfs-ruling/" target="_blank">hearing</a> to determine whether daily fantasy sports (DFS) contests are illegal "gambling" under state law. The DFS court hearing came on the eve of Thanksgiving, our annual gluttonous commemoration of the Pilgrims who in 1620 established the <a href="https://en.wikipedia.org/wiki/Plymouth_Colony" target="_blank">Plymouth Colony</a> in what is now Massachusetts. Ironically, the court's decision on the legality of a modern, digital game like DFS may well turn on anti-gambling legal principles first introduced into American law by the Pilgrims nearly four centuries ago.<br />
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<br />
<b><span style="color: #0b5394;">I. Pilgrims and Puritans—America's Founding Fun-Haters</span></b><br />
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The <a href="https://en.wikipedia.org/wiki/Pilgrim_Fathers" target="_blank">Pilgrims</a> and their <a href="http://people.opposingviews.com/puritans-pilgrims-protestants-4563.html" target="_blank">close religious cousins</a>, the <a href="https://en.wikipedia.org/wiki/Puritans" target="_blank">Puritans</a> (who would establish the nearby <a href="https://en.wikipedia.org/wiki/Massachusetts_Bay_Colony" target="_blank">Massachusetts Bay Colony</a>), were sects within the broader <a href="https://en.wikipedia.org/wiki/Calvinism" target="_blank">Reformed Christianity</a> movement. As such, they were close followers of the teachings of the influential <a href="https://en.wikipedia.org/wiki/Protestantism" target="_blank">Protestant Reformer</a>, <a href="https://en.wikipedia.org/wiki/John_Calvin" target="_blank">John Calvin</a>. According to <a href="https://en.wikipedia.org/wiki/Calvinism" target="_blank">Calvinist doctrine</a>, people are born into a state of "total depravity" or absolute sin. God has preordained which people will be redeemed to eternal salvation, and which people are damned to eternal suffering. This concept of <i><a href="https://en.wikipedia.org/wiki/Predestination_(Calvinism)" target="_blank">predestination</a></i> implies that nothing people can do will affect their eternal fate. However, Calvinists believe that one's fate can be learned through seeing which people God blesses in this life. Consequently, pious living, frugality, hard work, and financial success were taken as signs of God's blessing and the election of particular individuals for salvation. Although predestination was rejected by most non-Calvinist Protestant traditions, this attitude toward the spiritual benefits of hard work and frugal living were widely shared by most Protestant reformers, and gave rise to what is commonly referred to as the "<a href="https://en.wikipedia.org/wiki/Protestant_work_ethic" target="_blank">Protestant work ethic</a>".<br />
<br />
Calvinism, as you might imagine, was not exactly a barrel of laughs. During his heyday, John Calvin essentially ran the city of Geneva, Switzerland as a <a href="http://www.traditioninaction.org/religious/e034rpCalvin_Franca05.htm" target="_blank">theocracy</a>. City laws were based on Calvin's biblical teachings, including <a href="http://www.goddiscussion.com/43661/john-calvins-geneva-theocracy-a-study-in-religious-tyranny-part-1/" target="_blank">strict bans</a> on all manner of entertainment—gambling, drinking to excess, ostentatious attire and hairstyles, singing of non-religious songs, musical instruments, theatre, and dancing. Punishments were often severe with public shamings, whippings, or even exile being preferable to a death sentence by drowning, beheading, hanging, or burning at the stake. <a href="http://www.patheos.com/blogs/frankviola/shockingbeliefsofjohncalvin/" target="_blank">Calvin had a child executed</a> for striking a parent, but in fairness, also had his own step-daughter and son-in-law executed for adultery.<br />
<br />
Given their fervent religious beliefs, it is hardly surprising the Pilgrims and Puritans imported much of Calvinism's ascetic morality into the New World. Almost as soon as the first Puritans set foot in America, they <a href="http://www.newenglandhistoricalsociety.com/puritans-ban-gambling-whole-lot-things/">banned gambling in 1631</a>, declaring:<br />
<blockquote class="tr_bq">
"It is … ordered that all persons whatsoever that have cards, dice or tables in their houses, shall make away with them before the next court under pain of punishment."</blockquote>
The Puritans also banned other common vices including drinking to excess, fornication and adultery, working or traveling on the Sabbath, and participating in or attending theatre productions. The Pilgrims were not much better, making gambling, drunkenness, and tobacco abuse illegal, among a <a href="http://www.histarch.illinois.edu/plymouth/ccflaw.html#IIb" target="_blank">lengthy list of crimes</a> (though the <a href="http://news.almy.us/art0402.htm" target="_blank">punishment</a> for minor vices like gambling tended to be a fine rather than whippings, time in the stocks, or public shaming, which were reserved for adultery, fornication, blasphemy, or lying).<br />
<br />
America's founders were also our first fun-haters.<br />
<br />
<br />
<b><span style="color: #0b5394;">II. The Puritan Case Against Gambling</span></b><br />
<br />
A prominent and influential Puritan minister in the Massachusetts Bay Colony, <a href="https://en.wikipedia.org/wiki/Increase_Mather" target="_blank">Increase Mather</a>, preached against the evils of gambling, <a href="http://www.covenanter.org/reformed/2015/8/19/increase-mathers-testimony-against-that-prophane-and-superstitious-custom-of-theatre-going-1687" target="_blank">authoring a pamphlet</a> in 1687 decrying, among other evils, "Games of Hazard and Chance, such as Dicing and Cards, and Sundry Games at Tables". Mather's critique of gambling began with the declaration that <b>gambling was immoral because it was addictive and led to disastrous financial and social consequences</b>:<br />
<blockquote>
"It has been observed by many that there is a secret Curse attending these Games. Hence it is that when persons have once a little used themselves hereunto, they can know no bounds therein. They are so bewitched with a Gaming Humor, as that they will lose their Friends, Esteem, Estate and every thing else that’s desirable, rather then play no more at Cards. Infinite Evils and Miseries have sprung up from this bitter Root."</blockquote>
Increase Mather also asserted the Calvinist position that it was <b>sinful to win money by gambling rather than by industrious labor, comparing gambling winnings to the proceeds of theft</b>:<br />
<blockquote>
"It is common for such Gamesters to play away their Estates, or to get other men’s Estates in this way, both which are exceeding sinful. When God has possessed a man of an Estate which he has a just Title unto, now for him to make it a Question whether this Estate shall be his or another mans, and then to decide the controversy by the shuffling of Cards or the cast of a Die, is unworthily to abuse the good Providence of God, and so to transgress the third Commandment. This is also to break the 8th Commandment in a very High Degree. To get another mans goods, at an under price is injustice and theft, and clearly against the Rule of Righteousness, how much more to take from another his Money and give him nothing at all in lieu thereof? It is a crying sin! ...<br />
<br />
Money gotten by Gaming is like the goods of them that dye of the plague, which commonly bring a Pest with them. He that shall add but a little to his Estate by getting money from another in any such unrighteous way, will perhaps find that little to be like a Moth that shall consume, and bring a secret Blast of God upon all that he enjoys. And He that gets Riches and not by Right (the man that gets a sum of Money by playing at Cards, has gotten Riches and not by Right) He shall leave them in the midst of his Days, and at his end be a Fool. Jer. 17:11. I would seriously advise all such persons, so far as they are capable, to return back their ill gotten goods again, as ever they desire pardoning Mercy at the Hands of God against whom they have grievously sinned."</blockquote>
Finally, Mather also declared that gambling was <b>slothful laziness, a sinful waste of precious time better spent preparing for Heaven</b>:<br />
<blockquote>
"For a Christian ... to waste so much Time in any Recreation, though never so innocent and laudable, as Gamesters usually do at Cards and Dice, and Tables, is hainously sinful. Every mans Eternity in another world, will be according to his improvement of time here. What a sad account will they be able to give to the Son of God at the last Day, who have spent a very great part of that Time wherein they should have been preparing for eternity, in nothing but idleness & plays?"</blockquote>
Of course, in the same tract, Mather preached against other "Superstitious and Prophane" evils to be avoided, such as toasting another person with alcohol, attending the theatre, and observing the Christmas holiday (one of the earliest examples of a "war on Christmas"). And Increase Mather and his son, prominent minister Cotton Mather, were both important figures in the infamous <a href="https://en.wikipedia.org/wiki/Salem_witch_trials">Salem Witch Trials</a>—both defended the trials, though Increase Mather opposed the use of "spectral evidence", declaring that "It were better that Ten Suspected Witches should escape, than that one Innocent Person should be Condemned".<br />
<br />
<br />
<span style="color: #0b5394;"><b>III. Protestants and American Gambling</b></span><br />
<br />
Under the influence of the Puritans and other Protestant sects, anti-gambling laws were enacted throughout the American Colonies. Of course, early immigrants did not all follow the Puritan faith, and in fact many colonists were followers of religious faiths more accepting of gambling or simply were not particularly devout. Many colonists also adopted the widespread British embrace of gambling upon the restoration of the monarchy in 1660 by King Charles II, a notorious gambler.<br />
<br />
By the time of the American Revolution, gambling laws remained on the books in the Colonies, but were little-enforced; General George Washington actually was <a href="http://www.history.org/foundation/journal/autumn08/gamble.cfm" target="_blank">forced to issue an order</a> to his soldiers to cease gambling so as to maintain order and morale. Following the Revolution, every one of the new States sponsored lotteries, while gambling was widespread, particularly in frontier areas which were attracting settlers.<br />
<br />
American attitudes toward gambling changed, however, with the onset of the spiritual movement known as the <a href="https://en.wikipedia.org/wiki/Second_Great_Awakening" target="_blank">Second Great Awakening</a>. During this period which ran from the early 1800s until the early 1850s, many Protestant denominations evangelized aggressively through the use of mass meetings and traveling ministers, resulting in millions of religious converts. The movement also focused on social reform issues such as abolition of slavery, temperance, womens' rights, and prison reform. This wave of renewed Protestant spirituality led to the <a href="http://www.library.ca.gov/crb/97/03/chapt2.html" target="_blank">abolition of state-sponsored lotteries</a> in nearly every state by 1840.<br />
<br />
Gambling in the West was little-affected by the anti-gambling religious forces of the mid-1800s. The California gold rush of the late 1840s and 1850s in particular attracted and cultivated gambling. But, concerns about the violence and corruption connected with gambling led to <a href="http://www.library.ca.gov/crb/97/03/chapt2.html" target="_blank">laws cracking down</a> on professional gamblers, and a ban in 1860 on all house-banked games.<br />
<br />
Following the Civil War, many states, particularly in the South, turned to state-sponsored lotteries to raise revenue. Horse racing was also common. This return to gambling was short-lived, however. A renewed Protestant spiritual movement, referred to as the <a href="https://en.wikipedia.org/wiki/Third_Great_Awakening" target="_blank">Third Great Awakening</a>, ran through America from the 1850s until the early 1900s. This religious movement built on the social reform movement associated with the Second Great Awakening, and led to the rise of the <a href="https://en.wikipedia.org/wiki/Social_Gospel" target="_blank">Social Gospel</a> movement.<br />
<br />
Protestants associated with the Third Great Awakening and the Social Gospel movement were <i><a href="https://en.wikipedia.org/wiki/Postmillennialism" target="_blank">postmillennialists</a></i>. Postmillennial doctrine holds that Christ cannot return for the "Second Coming"" until after an age (a "millenium") of governance under Christian morality which will create peace and prosperity. Postmillennial Protestants, therefore, were greatly concerned with issues of public morality and social justice, and were a driving force for abolition of slavery, prohibition of alcohol, protection of children and other vulnerable people, and women's suffrage. The Social Gospel movement eventually gave rise to many Progressive reforms in the early 20th century.<br />
<br />
Puritans and <a href="https://en.wikipedia.org/wiki/Progressive_Era" target="_blank">Progressives</a> rarely have much in common, so when they join forces, it's usually a good bet something is getting banned for the "public good". Although not as prominent an issue as prohibition, gambling joined alcohol as a casualty of the forces of the Third Great Awakening. Anti-gambling forces certainly raised traditional morality arguments consistent with the Puritan arguments made by Increase Mather. But there were new moral arguments to make, based on protection of the poor and vulnerable (<i>e.g.</i>, children, the elderly, the mentally ill) from the evils of gambling; lotteries and similar "get rich quick" schemes were seen as particularly immoral. Also, anti-gambling advocates capitalized on <a href="http://www.library.ca.gov/crb/97/03/chapt2.html" target="_blank">cheating scandals</a> in horse-racing and corruption scandals in the state lotteries (the <a href="https://en.wikipedia.org/wiki/Louisiana_State_Lottery_Company" target="_blank">Louisiana Lottery</a> was the last and perhaps most corrupt of the era) to generate public outrage and support.<br />
<br />
In response to the anti-gambling movement, many states added prohibitions on lotteries to their state constitutions, or adopted broad anti-gambling laws; Arizona and New Mexico were <a href="http://jacjamul.com/news/docs/cornell.pdf" target="_blank">required to add constitutional bans on gambling</a> as a condition of admittance to the Union. As a result of this religious anti-gambling crusade, gambling was essentially banned throughout the United States (other than in Nevada) from roughly 1910 until the 1960s, when states again turned to lotteries to raise revenue, eventually kicking off the modern wave of legalized and regulated gambling.<br />
<br />
<br />
<b><span style="color: #0b5394;">IV. Protestant Origins of American Gambling Laws</span></b><br />
<br />
Interestingly, the Bible is silent on the issue of gambling, at least insofar as it never discusses gambling directly nor condemns it as a sin. The Catholic Church teaches that gambling is not inherently immoral, though it may pose moral concerns if abused:<br />
<blockquote>
"Games of chance (card games, etc.) or wagers are not in themselves contrary to justice. They become morally unacceptable when they deprive someone of what is necessary to provide for his needs and those of others. The passion for gambling risks becoming an enslavement. Unfair wagers and cheating at games constitute grave matter, unless the damage inflicted is so slight that the one who suffers it cannot reasonably consider it significant."<br />
<br />
~ <a href="http://www.vatican.va/archive/ccc_css/archive/catechism/p3s2c2a7.htm">Catechism of the Catholic Church</a>, Sec. 2413</blockquote>
American gambling laws did not follow this Catholic viewpoint for several reasons. Most significantly, early American colonists were overwhelmingly Protestants, and <a href="https://en.wikipedia.org/wiki/History_of_Roman_Catholicism_in_the_United_States" target="_blank">Protestant denominations dominated</a> American life and politics into the late 1800s. Further, there was <a href="https://en.wikipedia.org/wiki/Catholic_Church_in_the_United_States" target="_blank">significant anti-Catholic bias</a> in America until the mid-20th century, in part because of centuries-old doctrinal disputes carried over from Europe, and in part because of resentment of the waves of Catholic immigrants who arrived in the late 1800s and early 1900s. So, America's significant anti-gambling movements were largely driven by Protestants, resulting in gambling laws largely written by Protestant legislatures and largely interpreted by Protestant judges.<br />
<br />
The Protestant Christian movement has a messy and complex history, leading to <a href="http://christianityinview.com/protestant/denominations.html" target="_blank">multiple branches</a>, denominations, and sects with significant and often irreconcilable <a href="http://www.infoplease.com/encyclopedia/society/protestantism-branches-sects.html" target="_blank">doctrinal differences</a>. Yet each of the major Protestant denominations in the United States shares the Puritan view on the immorality of gambling. This staunch moral opposition to gambling spans the fundamentalist, evangelical, and mainline Protestant traditions, and encompasses every major doctrinal branch—Calvinist/Reformed, Methodist, Lutheran, Baptist, Anabaptist, and Pentecostal (representative church statements on the morality of gambling are gathered in Appendix A at the end of this post).<br />
<br />
The Protestant position on the immorality of gambling traditionally focuses on several interrelated factors:<br />
<ul>
<li>Gambling can become addictive or compulsive, overriding one's self-control.</li>
<li>Gambling can lead to financial ruin with devastating consequences for self, family, and community.</li>
<li>Gambling can lead to other sins—greed, coveting, theft, lying, cheating, and violence.</li>
<li>Gambling is poor stewardship of money—one should not risk God's bounty and blessings on a game of chance, while gambling winnings always come at a cost to another person.</li>
<li>Gambling is antithetical to the duty to work hard by creating a hope of winning something of great value for little or no investment.</li>
<li>Gambling encourages laziness and idleness.</li>
<li>Gambling takes advantage of the poor and vulnerable (youth and elderly).</li>
<li>Gambling can lead to corruption of the game (scams) and corruption of the government (bribes and kickbacks for gambling licenses and franchises).</li>
</ul>
Recognizing the Protestant influence on American gaming laws is important for two reasons. First, a surprising number of current anti-gambling provisions in various state constitutions and state gaming laws were enacted in the 1800s or early 1900s in response to advocacy by religious groups. These antiquated anti-gambling provisions remain on the books and are in full force today, though in many cases amended to permit certain kinds of state-sanctioned gambling. Thus, modern gaming innovations like poker/online poker, online casino gaming, social gaming, video poker, and even DFS are being judged against laws written to address the social and religious concerns of a much different era.<br />
<br />
Second, a great deal of common law developed around anti-gambling statutes from the 1850s through the 1940s as courts struggled to define the boundaries of gambling. Many of these cases reflect a broad suspicion of even a hint of gambling, and justify sweeping relatively minor or even harmless games, marketing campaigns, or entertainment devices into the category of "lotteries" and "gambling" by appealing to moral arguments against gambling that could have been lifted from the local minister's Sunday sermon. A great deal of gambling case law developed during this religious era, and much of that case law reflects the religious and moral arguments of its day. And, it must be emphasized, much of that case law remains good law today. <b>In fact, the </b><b>New York Attorney General's </b><b>Memorandum of Law in support of his application for a preliminary injunction against DraftKings and FanDuel cites to five cases decided in the 1800s, and fifteen cases decided from 1900-1949.</b><br />
<div>
<b><br />
</b></div>
A few court opinions from the era of gambling prohibition provide good examples of the adoption of Protestant morality and even religious language in support of a broad interpretation of anti-gambling statutes. For example, in 1879, the United States Supreme Court weighed in on efforts to ban lotteries:<br />
<blockquote>
"They [lotteries] are a species of gambling, and wrong in their influences. They disturb the checks and balances of a well-ordered community. Society built on such a foundation would almost of necessity bring forth a population of speculators and gamblers, living on the expectation of what, ‘by the casting of lots, or by lot, chance, or otherwise,’ might be ‘awarded’ to them from the accumulations of others. Certainly the right to suppress them is governmental, to be exercised at all times by those in power, at their discretion."<br />
<br />
~ <i>Stone v. State of Mississippi</i>, 101 U.S. 814, 11 Otto 814, 25 L.Ed. 1079, 1 Ky.L.Rptr. 146 (1879).</blockquote>
Or how about this New York court opinion evaluating whether a newspaper advertising scheme distributing coupons with numbers used in prize drawings was gambling; the judge's language might have been written by any Protestant minister of the era, or even Inrease Mather himself:<br />
<blockquote>
"Furthermore, it is argued that the precise mischief that the Legislature sought to correct is present in the transaction shown in this information; that not for any purpose of benevolence, but for gain derived from classes of persons easily subject to temptation and who can ill afford such use of scanty means of subsistence, the defendants developed and nurtured in those who yielded the perverted moral nature of the gamester, fascinated by hope and expectation of fortune’s favor, which may give him without service or effort on his part the benefit of others’ toil, thus engendering or increasing deteriorating and destructive emotional qualities, selfish greed, false standards of conduct, diseased sensationalism, and resultant slothfulness and dishonesty, and impeding the cultivation of wholesome character, the spirit of service and honor which makes the good citizen; that it would be unworthy of enlightened jurisprudence to allow the evident legislative intent of guarding the public welfare from the influence of this nefarious evil to be defeated by an ingenious device to evade the law by a mere variance of form of procedure, which leaves unchanged all the injurious effects."<br />
<br />
~ <i>People v. Mail and Express Co.</i>, 179 N.Y.S. 640 (NYC Ct. Spec. Sess. 1919).</blockquote>
Even cases from the latter part of the gambling prohibition era relied upon the standard Protestant arguments against gambling, as in this 1937 opinion from the New Mexico supreme court:<br />
<blockquote>
"The evil flowing from them [lotteries] has been the cultivation of the gambling spirit—the hazarding of money with the hope by chance of obtaining a larger sum—often stimulating an inordinate love of gain, arousing the most violent passions of one’s baser nature, sometimes tempting the gambler to risk all he possesses on the turn of a single card or cast of a single die, and ‘tending, as centuries of human experience now fully attest, to mendicancy and idleness on the one hand, and moral profligacy and debauchery on the other.’<br />
<br />
....<br />
<br />
'Almost all modern states have, at some period of their history, employed lotteries as a means of revenue. But though they supply a ready mode of replenishing the public treasury, they have always been found to exert a mischievous influence upon the people. The poor are invited by them rather than the rich. They are diverted from persistent labor and patient thrift by the hope of sudden and splendid gains; and as it is the professed principle of these schemes to withhold a large part of their receipts, a necessary loss falls upon that class which can least afford to bear it.'"<br />
<br />
~ <i>City of Roswell v. Jones</i>, 67 P.2d 286 (N.M. 1937) (citations omitted).</blockquote>
In many modern cases, court interpreting gambling statutes have cited to more recent social concerns, most notably the potential for gambling to be linked with the evils of organized crime and money laundering. These issues began appearing in court decisions in the years following Senator Estes Kefauver's <a href="https://en.wikipedia.org/wiki/United_States_Senate_Special_Committee_to_Investigate_Crime_in_Interstate_Commerce" target="_blank">famous 1950s investigation</a> of the Mafia's involvement in Las Vegas casino gaming.<br />
<br />
Nonetheless, even in contemporary gambling cases, many courts continue to rely on the traditional Protestant morality arguments in justifying broad applications of state gambling statutes. For example, in 2012, the South Carolina supreme court <a href="http://craakker.blogspot.com/2012/11/same-song-different-verse-poker-players.html" target="_blank">considered a challenge</a> to that state's expansive and archaic anti-gambling statute as applied to a low-stakes home poker game. At issue was a state anti-gambling statute more than two centuries old which contained a broad ban on "any game with dice or cards"; by its language, the statute could comfortably construe a family game of Yahtzee or Old Maid as gambling. Despite admitting the statutory language was vague and overbroad to the point of being unconstitutional, Chief Justice Toal provided the decisive vote for finding poker to be illegal gambling, primarily because of her concerns about the effect on public morals if the court voided the state's gambling statute:<br />
<blockquote>
"In my opinion, striking this language would also open the door wide to <i>all</i> heretofore illegal gaming practices in this state, including video poker. Because of this very real consequence, I am concerned that striking this critical language from the statute would beget, as elucidated by the General Assembly in 1816 when amending section 16-191-40, the <b>"impoverishment of many people, corruption of the morals and manners of youth, ... the tendency which is vice, misery and crime, as examples in this state have abundantly proven." These dire concerns resonate as much today as they did nearly 200 years ago. I do not need to remind any person of the havoc wreaked upon this State as a result of the "pernicious" practice of video poker.</b> Although there are other sound provisions outlawing video poker, I am loathe to strike the critical language from the general ban on gaming in the event that it guts these provisions, and consequently, South Carolina's longstanding prohibition against gambling."<br />
<br />
~ <i><a href="http://www.sccourts.org/opinions/HTMLFiles/SC/27197.pdf">Town of Mount Pleasant v. Chimento</a></i>, <a href="https://scholar.google.com/scholar_case?case=7235898979417991360&hl=en&as_sdt=6&as_vis=1&oi=scholarr">737 S.E.2d 830</a> (S.C. 2012) (Toal, C.J., concurring) (citations omitted) (italics in original, emphasis added).</blockquote>
These cases are barely the tip of the judicial iceberg (additional excerpts from other representative opinions are gathered in Appendix B at the end of this post). There are literally hundreds of court decisions on the books which wrestle with the issue of whether particular games, contests, and marketing schemes qualify as illegal lotteries or gambling. Most of those decisions make at least passing reference to some of the traditional Protestant anti-gambling arguments. And the courts invariably interpret and apply gambling statutes in an exceedingly broad manner, particularly where the contest or scheme at issue resembles traditional gambling or poses some threat to the general public, with little or no regard for the relative roles of chance and skill involved.<br />
<br />
<br />
<b><span style="color: #0b5394;">V. The Protestant Case Against DFS</span></b><br />
<br />
So what does this fusion of Protestant morality and gambling law mean for DFS? The primary danger for DFS advocates is to focus exclusively on the "skill versus chance" argument while ignoring or dismissing appeals to traditional morality arguments. Yet that is essentially <a href="http://www.legalsportsreport.com/6329/new-york-ag-vs-fanduel-draftkings/" target="_blank">the approach taken</a> by FanDuel and DraftKings in the pending New York litigation. And DFS advocates in media appearances, op-eds, and other public statements likewise focus on the skill game argument nearly to the exclusion of other issues.<br />
<br />
The DFS industry focus on the skill game argument may yet win the day. But it seems a high-risk approach when there are traditional moral issues in play both in public and in the courts.<br />
<br />
For example, just days prior to the <a href="http://www.legalsportsreport.com/4548/draftkings-data-leak-faq/" target="_blank">DFS insider-trading scandal</a>, the Southern Baptist Convention (SBC) <a href="https://erlc.com/article/the-nfl-commissioner-has-a-gambling-problem">openly criticized</a> DFS as immoral gambling. Writing for the SBC's influential <a href="https://erlc.com/erlc/about/">Ethics and Religious Liberty Commission</a>, Pastor David E. Prince explicitly called out NFL Commissioner Roger Goodell for his hypocrisy in claiming DFS is a wholesome form of family entertainment:<br />
<blockquote>
"Goodell, the guardian of the integrity of the game, says he does not consider these [DFS] leagues gambling. Goodell said, 'We don’t put fantasy football in that [gambling] category at all... Fantasy has a way of people engaging more with football, and they do it in a fun, friendly, in this case, a family manner.' The commissioner would have us believe that his implicit support of these fantasy football operations has nothing to do with the ratings and money fantasy football generates for the NFL; it is merely about building stronger families.<br />
<br />
<b>In reality, these fantasy football gambling leagues are affecting families by relentlessly catechizing an entire generation watching these NFL games on the acceptability and excitement of sports gambling. How does the NFL get around the reality that these leagues constitute gambling?</b><br />
<br />
....<br />
<br />
<b>Gambling entrepreneurs have turned a geekish and fun hobby into a relentless, daily, predatory lure of fast cash and easy money.</b> The NFL relationship with these fantasy gambling leagues is so cozy USA Today recently reported, 'FanDuel, the nation's biggest daily fantasy sports company, has signed multi-year sponsorship agreements with 15 NFL teams.' This should deeply trouble those of us who love Jesus and delight in sports as a good gift from God.<br />
<br />
<b>Simply put, gambling is a societal evil that preys on those most in need.</b> While some may say, 'You don't have to participate in gambling, so it’s nothing to be concerned about,' that way of thinking does not hold for one who desires to follow Christ. Our Lord does not call us to love ourselves; rather, we are to love him and to love our neighbor (Matt. 22:37-40).<br />
<br />
The biblical witness is clear that one of the vital ways we love God is by loving our neighbor. <b>Gambling appeals to greed, and there is simply no way for a follower of Jesus to gamble to the glory of God and the good of his neighbor.</b> Proverbs 28:25 says, 'A greedy man stirs up strife, but the one who trusts in the Lord will be enriched.' <b>Anyone who has ever witnessed the devastation wrought by people who gamble their future away, attempting to get something-for-nothing, knows well the expansive tornadic path of destruction gambling greed produces.</b>"<br />
<br />
~ "<a href="https://erlc.com/article/the-nfl-commissioner-has-a-gambling-problem">The NFL Commissioner Has a Gambling Problem</a>," David E. Prince, The Ethics & Religious Liberty Commission of the Southern Baptist Convention (Oct. 1, 2015) (emphasis added).</blockquote>
The SBC's criticism of DFS hits on several traditional Protestant moral arguments against gambling:<br />
<ul>
<li>Playing DFS is "predatory" to the detriment of the weak and comes at the expense of one's neighbors.</li>
<li>Playing DFS is addictive (a "relentless, daily ... lure").</li>
<li>Playing DFS promises "fast cash and easy money", enticing players with the promise of "something-for-nothing".</li>
<li>Playing DFS can result in personal ruin.</li>
<li>Playing DFS can result in adverse consequences for others.</li>
</ul>
In the pending New York litigation, the Attorney General repeatedly sounds similar morality-based themes:<br />
<ul>
<li>"The <b>[DFS] contests are streamlined for instant-gratification</b>, letting bettors risk up to $10,600 per wager and enter contests for a chance to win jackpots upwards of $1 million."</li>
<li>"The <b>DFS operators themselves profit from every bet</b>, taking a 'rake' or a 'vig' from all wagering on their sites."</li>
<li><b>Like a lottery, DFS sites promise something for nothing</b>: "With commercials depicting cash falling from the ceiling and oversized novelty checks, the message is clear: anyone can play DFS and anyone can win. 'Try it,' one FanDuel ad urges. 'It takes a few minutes. ... I’ve deposited a total of $35 on FanDuel and won over two million!' 'Taking home your share is simple,' a DraftKings ad promises, 'It’s the simplest way of winning life-changing piles of cash.'”</li>
<li>"For those struggling with <b>gambling addiction</b> or those who are vulnerable to it, certain structural characteristics make DFS particularly dangerous." Further, "Problem gamblers are increasingly being seen at Gamblers Anonymous meetings and at counselors’ offices addicted to DFS. For DraftKings, at least, this should not come as a shock: records show that their customer service representatives have responded to pleas from self-described gambling addicts to close accounts and permanently ban them from the site."</li>
<li>DFS results in <b>significant sums changing hands based on the functional equivalent of a roll of the dice or turn of the card</b>: "For a real-life illustration, consider the Monday night NFL game on November 9, 2015. As the game entered its final moments, the Chicago Bears were leading by a tight margin. In a common strategic move, Quarterback Jay Cutler took a knee to run out the clock and assure victory. This play cost the Bears one yard, and reduced Cutler’s total fantasy production by <i>one-tenth</i> of one point—and reportedly cost one unlucky FanDuel player $20,000; he had apparently picked Cutler and the one-tenth of a point reduction spelled the difference between winning $50,000 in first place and $30,000 in second place. (By contrast, that same one-tenth of a point reduction was a lucky break for the DFS player who took first prize.)"</li>
<li>Even the DFS sites' strongest evidence of the element of skill backfires as a moral issue, <b>painting the sites and top players as being predatory</b>: "With poker and DFS, professional players, known as 'sharks,' profit at the expense of casual players, known as 'minnows.' The numbers show that the vast majority of players are net losers, losing far more money playing on the sites than they win. DraftKings data show that 89.3% of DFS players had an overall negative return on investment across 2013 and 2014."</li>
<li>DFS sites are <b>unregulated and at risk for cheating and corruption</b>. In reference to a recent "insider-trading" scandal, the Attorney General noted "Until recently, for example, both DraftKings and FanDuel <i>explicitly</i> encouraged their employees to play DFS games on competitors’ platforms—competing against regular customers who had no knowledge of the extent of the DFS employees they were competing against. FanDuel recognized that this policy would be ill-received, instructing employees to minimize their public presence 'so users are less likely to be suspicious or angry' and avoid becoming 'among the top five players by volume' because 'top players frequently become targets for accusations.'”</li>
</ul>
The briefs filed by FanDuel and DraftKings are essentially silent as to these moral issues, instead focusing entirely on the narrow legal issue of whether DFS is a game of skill. Technically speaking, the moral issues are irrelevant to the resolution of whether DFS is illegal gambling. But decades of case law suggest that moral issues often color and even control the courts' analysis of gambling issues.<br />
<br />
DFS advocates need look no further than recent poker litigation to see this effect. Poker advocates raised a similar skill game argument in the <i>Chimento</i> case discussed earlier; the South Carolina supreme court ultimately found poker to be illegal gambling precisely because of moral concerns.<br />
<br />
Likewise, when considering a challenge to a state ban on all online gambling brought by the PPA, the Washington supreme court noted that the state had a compelling reason to regulate gambling in general and online gambling in particular because of the moral risks posed by gambling. Interestingly, the court identified moral concerns related both to consumer perils and to criminal activity:<br />
<blockquote>
"The State wields police power to protect its citizens' health, welfare, safety, and morals. On account of ties to organized crime, money laundering, gambling addiction, underage gambling, and other societal ills, '[t]he regulation of gambling enterprises lies at the heart of the state's police power.'<br />
<br />
<b>Internet gambling introduces new ways to exacerbate these same threats to health, welfare, safety, and morals. Gambling addicts and underage gamblers have greater accessibility to on-line gambling-able to gamble from their homes immediately and on demand, at any time, on any day, unhindered by in-person regulatory measures. Concerns over ties to organized crime and money laundering are exacerbated where on-line gambling operations are not physically present in-state to be inspected for regulatory compliance.</b> Washington has a legitimate and substantial state interest in addressing the effects of Internet gambling."<br />
<br />
~ <a href="http://caselaw.findlaw.com/wa-supreme-court/1539177.html"><i>Rousso v. State</i></a>, 239 P.3d 1084 (Wash. 2010) (citations omitted) (emphasis added).</blockquote>
DFS advocates have a strong case to make that DFS is a true game of skill exempt from gambling laws. That argument may yet carry the day in court challenges. But in both the court of law and the court of public opinion, traditional moral issues still carry significant weight. DFS advocates are truly rolling the dice if they ignore those moral concerns.<br />
<br />
<div style="text-align: center;">
<span style="color: #0b5394;"><b>* * * * *</b></span></div>
<br />
<b><span style="color: #0b5394;">Appendix A—American Church Positions on Gambling</span></b><br />
<br />
Not all Christians follow all of the moral teachings of their particular denomination; plenty of Christians (even Protestants) gamble. And, not all Christian denominations oppose gambling. The Catholic Church—the largest Christian denomination in the United States—takes the <a href="http://www.uscatholic.org/blog/201308/what-are-chances-gambling-sin-27655#sthash.svSlywMp.dpuf">official view</a> that gambling is not inherently immoral, but can become so if abused:<br />
<blockquote>
"The <a href="http://www.vatican.va/archive/ccc_css/archive/catechism/p3s2c2a7.htm">Catechism of the Catholic Church (no. 2413)</a> briefly mentions that games of chance and wagers are not bad. It is the emotions that come from gambling that the church feels negatively about. Greed, coveting, selfishness, indulgence, power, worship of money, all of these things can control the mind and soul. Once these emotions are thrown into the mix, God’s law is violated. These emotions must have been St. Augustine’s justification for saying, 'The Devil invented gambling.'<br />
<br />
As long as the games are played in moderation, so as not to become enslaved by the addiction and evil emotions, and are conducted fairly so no one is cheated, robbed, or unjustly taken advantage of in any other way, we Catholics are free to enjoy the excitement that comes from taking risks."</blockquote>
Still, there unquestionably exists a strong vein of Christian opposition to gambling in contemporary America, particularly among Protestant Christian denominations, the modern-day descendants of the Puritans. Polls consistently confirm that Protestants are <a href="http://www.pewsocialtrends.org/files/2010/10/Gambling.pdf" target="_blank">significantly less supportive</a> of legalized gambling than other Americans.<br />
<br />
The <a href="https://en.wikipedia.org/wiki/United_Methodist_Church">United Methodist Church</a>—the largest mainline Protestant denomination and third-largest Christian denomination overall in the United States—maintains a <a href="http://www.umc.org/what-we-believe/gambling">strong anti-gambling position</a>, which it has explicitly extended to online gambling:<br />
<blockquote>
"Gambling, as a means of acquiring material gain by chance and at the neighbor's expense, is a menace to personal character and social morality. Gambling fosters greed and stimulates the fatalistic faith in chance. Organized and commercial gambling is a threat to business, breeds crime and poverty, and is destructive to the interests of good government. It encourages the belief that work is unimportant, that money can solve all our problems, and that greed is the norm for achievement. It serves as a "regressive tax" on those with lower income. In summary, gambling is bad economics; gambling is bad public policy; and gambling does not improve the quality of life. <br />
<br />
....<br />
<br />
Because computer usage is available in the privacy of one's home and even in churches, the potential for access to gambling websites and addiction to Internet gambling is great. Internet gambling is an international problem and it is virtually unregulated which has led to corruption, money laundering, and funding of terrorist organizations. Individuals and local churches should seek to educate themselves on the easy access to Internet gambling Web sites. The social cost of addiction to Internet gambling is great and leads to bankruptcy, suicide, and family discord. Young adults and senior citizens are among the most vulnerable populations at risk to gambling addiction. Parents and caregivers should take steps to ensure that children and the elderly with access to computers not be exposed to Internet gambling Web sites. Local churches and annual conferences should provide educational resources for parents and caregivers on the dangers of Internet gambling and enact strict oversight of church-owned computers."</blockquote>
Similarly, the <a href="https://en.wikipedia.org/wiki/Southern_Baptist_Convention">Southern Baptist Convention (SBC)</a>—the largest overall Protestant denomination and second-largest Christian denomination in the United States—also has <a href="http://www.sbc.net/resolutions/about/gambling">long maintained an anti-gambling stance</a>. As early as 1890, the SBC <a href="http://www.sbc.net/resolutions/557/resolution-on-gambling">took a position against</a> state run lotteries. In 1934, the SBC adopted another <a href="http://www.sbc.net/resolutions/559/resolution-on-gambling">resolution</a> in response to the rise of efforts to legalize gambling:<br />
<blockquote>
"The Southern Baptist Convention hereby deplores the widespread revival of the gambling spirit in our American life and expresses its hearty and unqualified disapproval and censure of all forms of gambling and all games of chance. Hardly anything could be more demoralizing or destructive of all the regular commercial and industrial activities and prosperity of our people, or could more thoroughly debase their morality than a widespread prevalence of gambling."</blockquote>
The SBC continued to oppose the "immoral" spread of state-sanctioned gambling throughout the 1980s and 1990s, <a href="http://www.sbc.net/resolutions/563/resolution-on-gambling">repeatedly decrying</a> the "increasingly large number of compulsive gamblers in the United States" as well as characterizing gambling as an"immoral effort to get something for nothing [which] contributes to the moral decline and family instability of our nation." In another <a href="http://www.sbc.net/resolutions/569/resolution-opposing-gambling-and-its-advertisement">resolution</a>, the SBC asserted that the "tidal wave of gambling in our country has left in its wake pain and destruction in the lives of countless people, especially the children, poor, and elderly." In 2014, the SBC explicitly adopted a <a href="http://www.sbc.net/resolutions/2248/on-ending-government-sponsorship-of-casinos-and-lotteries">resolution</a> calling for the end of all government-sanctioned gambling and opposing the adoption of regulated internet gambling (emphasis added):<br />
<blockquote>
"WHEREAS, Government has become an advocate for the transformation of gambling from a private and local activity into a revenue source as significant and accepted as taxation; and<br />
<br />
WHEREAS, Government sponsorship of casinos and lotteries is <b>predatory in that it exploits primarily poor, vulnerable, and disadvantaged citizens by promoting participation in highly addictive behaviors which often result in financial disadvantage or ruin</b>; and<br />
<br />
WHEREAS, Government, by sponsoring and promoting gambling, is actively encouraging and profiting from the statistical certainty of citizens losing their money over time; and permitting such a process to occur under the full protection of the law conflicts with the public interest and historically has been viewed as dishonest; and<br />
<br />
WHEREAS, <b>Government-sponsored casinos and lotteries promote and perpetuate the mentality of getting something for nothing, which is contrary to Scripture and replaces biblical teachings of working for a living </b>(Proverbs 13:11; 2 Thessalonians 3:10; 1 Timothy 6:9–10); and <br />
<br />
WHEREAS, Both federal and state governments are now considering authorizing, regulating, or sponsoring <b>internet gambling, which would open a casino or a lottery outlet virtually everywhere in America</b>; and<br />
<br />
WHEREAS, Government sponsorship of casinos and lotteries is inconsistent with its role to protect the people (Romans 13:1–7; 1 Peter 2:13–17); now, therefore, be it<br />
<br />
RESOLVED, That the messengers to the Southern Baptist Convention meeting in Baltimore, Maryland, June 10–11, 2014, reaffirm our long-standing opposition to government sponsorship of gambling ....</blockquote>
The <a href="http://www.spiritualabuse.org/issues/position/gambling.html">United Pentecostal Church International (UPCI)</a> proclaims that gambling is a "moral fungus that eats at the very core and fabric of our society." UPCI further states:<br />
<blockquote>
"I Corinthians 10:21 declares you cannot drink of the cup of the Lord and eat at the devil's table. Is a gambling table anything less than that of Satan? <br />
<br />
Gambling violates the biblical principles of stewardship with regard to property, money, and its appropriate use. The Bible blesses the use of money or property which are in accord with the intention of God. Thus, money may be used to provide for our basic needs (II Thessalonians 3:10), support of one's family (I Timothy 5:8), to contribute to the Lord's work (I Corinthians 16:1-3), to meet human need (Ephesians 4:28, II Corinthians 9:6-15), to give to the poor (John 13:29), and to pay taxes (Matthew 22:21, Romans 13:7). Such conscientious handling of one's resources precludes gambling. Giving to a game of chance with the blessings of God is not mentioned anywhere in the Holy Writ. <br />
<br />
Gambling is greed and exploitation of others. It ignores the command to love our neighbor. We are enjoined to abstain from all appearance of evil (I Thessalonians 5:22), to hate what is evil (Romans 12:9). The actions of the individual Christian are to be disciplined toward the moral and spiritual welfare of others (Romans 14:13-21). Our influence as Christians is to be exerted in a positive, aggressive, and godly fashion for the building of a Christian influence in the community. <br />
<br />
Gambling contributes nothing to the common good. It undermines values, mocks work, finances crime, robs children, enslaves its addicts, subverts government, and poisons whatever it touches. Biblical insights lead us to reject the false promise of gambling and to cleanse ourselves from all filthiness of the flesh and spirit. <br />
<br />
....<br />
<br />
The General Board of the United Pentecostal Church International, on behalf of our constituency, does firmly affirm its conviction that gambling is both un-biblical and morally wrong. Politicians may tell us that it is the way to raise revenue for the needs of education, roads, etc. If something is morally wrong it cannot possibly be politically right. <br />
<br />
Gambling is wrong because it is addictive. Gambling is wrong because it is not consistent with the scriptural work ethic. Gambling is wrong because it ignores valid stewardship. Gambling is wrong because it involves monetary gain to the hurt and suffering of the less fortunate. <br />
<br />
In the light of biblical revelation, we cannot sit idly by while this plague rips our nation apart. Neutrality is impossible. There are certain responsibilities to speak out. We cannot ignore them. We urge those who want to live in harmony with the Almighty and whose lives are dedicated to His pleasure to refrain from any form of gambling. We call upon our people everywhere to do all within their power to discourage the legalization of gambling."</blockquote>
The Evangelical Lutheran Church in America (ELCA) has long opposed gambling as a "<a href="http://download.elca.org/ELCA%20Resource%20Repository/GamblingASLC38.pdf?_ga=1.224996633.242561735.1448820714" target="_blank">moral and spiritual evil</a>". More recently, the <a href="http://stoppredatorygambling.org/wp-content/uploads/2012/12/Gambling-and-the-Public-Good-A-Statement-of-the-American-Lutheran-Church.pdf" target="_blank">ELCA has acknowledged</a> that the Bible is silent on the issue of gambling, but has identified numerous issues of concern:<br />
<blockquote>
"the gambler neither renders a constructive service to obtain the thing desired, nor offers a fair price or value in exchange, nor does he or she receive it as a voluntary gift from a generous benefactor. ...<br />
<br />
....<br />
<br />
5. Other concerns about various forms of gambling have been expressed at a more personal level. Legalized gambling can be regarded as detrimental to persons and communities when it:<br />
<br />
a) increases the number or further degrades those maladjusted persons who take refuge from the problems of life by indulging compulsively in gambling;<br />
b) diverts personal and family incomes from basic business, professional and civic services essential to community well-being;<br />
c) contributes to an increase in broken homes or undermines the moral fiber, character, and integrity of people and community by giving public sanction to covetous desires to get rich quickly, at the expense of neighbors, without providing any skills or services which enrich the life of the community. ...."</blockquote>
The <a href="http://www.presbyterianmission.org/ministries/101/gambling/">Presbyterian Church (U.S.A.)</a> has a long history of opposition to all forms of gambling as an "an unchristian attempt to get something for nothing or at another’s expense", and has advocated against the spread of all forms of gambling and in favor of regulation of existing gambling with a goal of eventual abolition.<br />
<br />
The <a href="http://ag.org/top/beliefs/topics/contempissues_05_lottery_gambling.cfm">Assemblies of God</a> proclaim that "gambling is a form of evil" to be avoided because it is an attempt to "gain something for nothing" and because it can lead to greed, addiction, financial ruin, and broken families.<br />
<br />
The <a href="https://www.adventist.org/en/information/official-statements/statements/article/go/0/gambling/">Seventh-Day Adventists</a> "have consistently opposed gambling as it is incompatible with Christian principles":<br />
<blockquote>
"It [gambling] is not an appropriate form of entertainment or a legitimate means of raising funds.<br />
<br />
Gambling violates Christian principles of stewardship. God identifies work as the appropriate method for gaining material benefit; not the playing of a game of chance while dreaming to gain at the expense of others. Gambling has a massive impact on society. Financial costs result from crime committed to pay for the gambling habit, increased policing, and legal expenses, as well as associated crimes involving drugs and prostitution. Gambling does not generate income; rather it takes from those who often can ill afford to lose and gives to a few winners, the greatest winner of course being the gambling operator. The idea that gambling operations can have a positive economic benefit is an illusion. In addition, gambling violates the Christian sense of responsibility for family, neighbors, the needy, and the Church.<br />
<br />
Gambling creates false hopes. The gambling dream of "winning big" replaces true hope with a false dream of a statistically-improbable chance of winning. Christians are not to put their hope in wealth. The Christian hope in a glorious future promised by God is "sure and certain"- unlike and opposite to the gambling dream. The great gain that the Bible points to is 'godliness with contentment.'<br />
<br />
Gambling is addictive. The addictive quality of gambling is clearly incompatible with a Christian lifestyle. The Church seeks to help, not blame, those suffering from gambling or other addictions. Christians recognize that they are responsible before God for their resources and lifestyle."</blockquote>
The <a href="https://www.rca.org/gambling">Reformed Church in America</a> also takes a moral position opposing gambling:<br />
<blockquote class="tr_bq">
"Gambling has become an addictive and detrimental part of this culture, as people seek easy answers and easy money instead of hard work and community responsibility. Too many individuals and too many governments have become addicted to the false promises of gambling. It is time to renew the call for RCA congregations and individuals to work against this scourge of society…Gambling distorts one’s view of the sovereignty and providence of God, it encourages greed and covetousness, it reflects a deficient perspective on work, and it promotes poor stewardship of resources."</blockquote>
The <a href="http://www.bibleviews.com/gambling.html">Mennonite Church</a> strongly opposes gambling and many quasi-gambling activities such as high-risk investments, raffles, and sweepstakes:<br />
<blockquote>
"Gambling in its many different forms has been a problem to society for generations. It has been the ruin and destruction of many people who have willingly or otherwise fallen into its heartbreaking trap. Gambling includes such things as casino gambling, horse racing, high risk investments, state-sponsored lotteries, and church- and civic group-sponsored raffles. Sweepstakes may also constitute a form of gambling, and we would caution our members regarding any such involvement.<br />
<br />
We believe that all forms of gambling are wrong and that Christians who are serious about their faith and practical holiness will want to avoid involvement in any way. Gambling promotes the myth that there is a shortcut to financial success apart from God-honored labor (Eph. 4:28). It promotes pleasure at another's expense and emphasizes getting rather than giving (Acts 20:32-35). Churches and charitable organizations sometimes use raffles and games of chance for fund-raising purposes. They may rationalize that the end justifies the means or follow situational ethics in these instances, but that does not make it right.<br />
<br />
....<br />
<br />
Gambling often becomes an addiction and is a continual source of heartache, poverty, and suffering to those homes where one or more members are ensnared. The existence of groups such as Gamblers Anonymous, which attempt to help individuals over come their addiction, confirms the seriousness of this problem.<br />
<br />
....<br />
<br />
We believe the state-sponsored lottery is not a Scriptural way to raise funds for even the most noble of causes. It promotes the illusion to the poor that they may soon be the recipients of instant wealth and released from the hopeless cycle of poverty in which they find themselves. In reality, many of the poor waste some of their limited resources on the lottery."</blockquote>
The United Church of Christ (UCC) also preaches against the perils of online gambling:<br />
<blockquote>
"[T]he Internet is fraught with forces that can alienate us from God. Because the Internet is world wide and distributed, the influence of these 'demonic' forces can be so widespread as to overwhelm the beneficial influences of the Internet. Users can succumb to broken, alienating lifestyles—isolation, gambling, pornography, character assassination to name a few. As followers of Jesus we are called to continue his ministry of exorcism, as he exorcised the 'unclean spirit', so we are called to 'exorcise” these alienating influences."<br />
<br />
~ Rev. John A. Mills, "The Internet and God's Grace", <a href="http://uccfiles.com/pdf/commonlota.pdf"><i>Common Lot</i>, No. 115,</a> pp. 16-17 (Winter 2009).</blockquote>
<div style="text-align: center;">
<span style="color: #0b5394;"><b>* * * * *</b></span></div>
<br />
<b><span style="color: #0b5394;">Appendix B—Representative American Court Opinions re Gambling</span></b><br />
<br />
<br />
<b><span style="color: #0b5394;">I. The Third Great Awakening & Social Gospel Era (1850s - 1910s)</span></b><br />
<blockquote>
"The suppression of nuisances injurious to public health or morality is among the most important duties of government. Experience has shown that the common forms of gambling are comparatively innocuous when placed in contrast with the wide-spread pestilence of lotteries. The former are confined to a few persons and places, but the latter infests the whole community; it enters every dwelling; it reaches every class; it preys upon the hard earnings of the poor; it plunders the ignorant and simple."<br />
<br />
~ <i>Phalen v. Commonwealth of Virginia</i>, 49 U.S. 163, 8 How. 163, 12 L.Ed. 1030 (1850).</blockquote>
<br />
<blockquote>
"If lotteries are to be tolerated at all, it is no doubt better that they should be regulated by law, so that the people may be protected as far as possible against the inherent vices of the system; but that they are demoralizing in their effects, no matter how carefully regulated, cannot admit of a doubt. When the government is untrammelled by any claim of vested rights or chartered privileges, no one has ever supposed that lotteries could not lawfully be suppressed, and those who manage them punished severely as violators of the rules of society and morality. <br />
<br />
....<br />
<br />
They [lotteries] are a species of gambling, and wrong in their influences. They disturb the checks and balances of a well-ordered community. Society built on such a foundation would almost of necessity bring forth a population of speculators and gamblers, living on the expectation of what, ‘by the casting of lots, or by lot, chance, or otherwise,’ might be ‘awarded’ to them from the accumulations of others. Certainly the right to suppress them is governmental, to be exercised at all times by those in power, at their discretion."<br />
<br />
~ <i>Stone v. State of Mississippi</i>, 101 U.S. 814, 11 Otto 814, 25 L.Ed. 1079, 1 Ky.L.Rptr. 146 (1879).</blockquote>
<br />
<blockquote>
"By incorporating the interdict of lotteries in the constitution, and associating it with the fundamental guaranties of life, liberty, and property, the people of New York signalize by the most emphatic manifestation their sense of the enormity of the evil they so seek to suppress. That evil consists in the temptation and facilities afforded by the lottery for the indulgence of the passion of gambling—an indulgence, by all experience, as inimical to the well-being of the state as of the individual."<br />
<br />
~ <i>Irving v. Britton</i>, 28 N.Y.S. 529, 529-30, 8 Misc. 201 (NYC Ct. Common Pleas 1894).</blockquote>
<br />
<blockquote>
"Furthermore, it is argued that the precise mischief that the Legislature sought to correct is present in the transaction shown in this information; that not for any purpose of benevolence, but for gain derived from classes of persons easily subject to temptation and who can ill afford such use of scanty means of subsistence, the defendants developed and nurtured in those who yielded the perverted moral nature of the gamester, fascinated by hope and expectation of fortune’s favor, which may give him without service or effort on his part the benefit of others’ toil, thus engendering or increasing deteriorating and destructive emotional qualities, selfish greed, false standards of conduct, diseased sensationalism, and resultant slothfulness and dishonesty, and impeding the cultivation of wholesome character, the spirit of service and honor which makes the good citizen; that it would be unworthy of enlightened jurisprudence to allow the evident legislative intent of guarding the public welfare from the influence of this nefarious evil to be defeated by an ingenious device to evade the law by a mere variance of form of procedure, which leaves unchanged all the injurious effects."<br />
<br />
~ <i>People v. Mail and Express Co.</i>, 179 N.Y.S. 640 (NYC Ct. Spec. Sess. 1919).</blockquote>
<br />
<blockquote>
"It is the one playing at the game who is influenced by the hope enticingly held out, which is often false or disappointing, that he will, perhaps and by good luck, get something for nothing, or a great deal for a very little outlay, This is the lure that draws the credulous and unsuspecting into the deceptive scheme, and it is what the law denounces as wrong and demoralizing.<br />
<br />
....<br />
<br />
'Had not this plan [a lottery scheme] been watched by the vigilance of the law, can there be any doubt that numerous persons would have purchased tickets, prompted by the hope of gain? Are there not inseparably connected with it the same fascination and excitement and intense desire for gain, which gather around the gaming table? Like any other species of gambling, lotteries have a pernicious influence upon the character of all engaged in them. This influence may be as direct and the immediate consequences as disastrous, as in some kinds of gambling, which rouse the violent passions and stake the gambler’s whole fortune upon the throw of a die. The temptations, however, are thrown in the way of a larger number and a better class. The evil may spread more widely and infect more deeply.'"<br />
<br />
~ <i>State v. Lipkin</i>, 84 S.E. 340 (N.C. 1915) (citations omitted).</blockquote>
<br />
<blockquote>
"Gambling is there recognized as an evil, and those provisions are designed to operate against it. The evils of gambling are matters of common knowledge. It tempts men to squander the money needed by their families or their business. It tempts trusted employes to embezzle and risk their employers’ money in the hope of making great gains. It creates dissatisfaction with the slow rewards of steady industry. It ruins both those who lose and those who win."<br />
<br />
~ <i>Zeller v. White</i>, 106 Ill.App. 183 (1902).</blockquote>
<br />
<b><span style="color: #0b5394;">II. Abolition Era (1920s - 1950s)</span></b><br />
<br />
<blockquote>
"The evil flowing from them [lotteries] has been the cultivation of the gambling spirit,—the hazarding the money with the hope by chance of obtaining a larger sum,—often stimulating an inordinate love of gain, arousing the most violent passions of one’s baser nature, sometimes tempting the gambler to risk all he possesses on the turn of a single card or cast of a single die, and ‘tending, as centuries of human experience now fully attest, to mendicancy and idleness on the one hand, and moral profligacy and debauchery on the other.’<br />
<br />
....<br />
<br />
'Almost all modern states have, at some period of their history, employed lotteries as a means of revenue. But though they supply a ready mode of replenishing the public treasury, they have always been found to exert a mischievous influence upon the people. The poor are invited by them rather than the rich. They are diverted from persistent labor and patient thrift by the hope of sudden and splendid gains; and as it is the professed principle of these schemes to withhold a large part of their receipts, a necessary loss falls upon that class which can least afford to bear it.'"<br />
~ <i>City of Roswell v. Jones</i>, 67 P.2d 286 (N.M. 1937) (citations omitted).</blockquote>
<br />
<blockquote>
"The lust for profit by catering to and commercializing the gambling spirit has given rise to many ingenious devices resulting in very may decisions by the courts dealing with the application of lottery statutes similar to ours.<br />
<br />
....<br />
<br />
Obviously the increased income above noted must come from paid admissions. Paid for what? Paid for the chance to draw the prize or jack pot. Thus 'the hazarding of money with the hope of obtaining by chance a larger sum' is of the essence of the scheme.<br />
To the extent this gambling spirit is aroused in the community, the higher the gambling fever rises, the more successful the enterprise."<br />
<br />
~ <i>Grimes v. State</i>, 178 So. 73 (Ala. 1937).</blockquote>
<br />
<blockquote>
"The purpose of the Legislature was to discourage and repress gambling in all its forms and the law is to be construed so as to accomplish, so far as possible, the suppression of the mischief against which it was directed. The evil which the law chiefly condemns is betting and gambling organized and carried on as a systematic business. The reason is obvious. Curb the professional with his constant offer of temptation, coupled with ready opportunity, and you have to a large extent controlled the evil. ...<br />
<br />
The root of the evil lies in the explotation by professionals of the gambling instinct innate in human nature. This, the statute condemns and seeks to eliminate not by regulatory prohibitions but by absolute suppression. ...<br />
<br />
It is not questioned that gambling, in the various modes in which it is practiced, is demoralizing in its tendencies and therefore an evil which the law may rightfully suppress without interfering with any of those inherent rights of citizenship which it is the object of government to protect and secure. Gambling is injurious to the morals and welfare of the people and it is not only within the scope of the state’s police power to suppress gambling in all its forms, but its duty to do so. The present tendency of courts and Legislatures is to extend the law of nuisances to every sort of gaming. Am.Jurisprudence, Vol. 24, ‘Gaming & Prize Contests’, Sections 3 and 11. <b>Gambling is a pernicious practice, the offspring of idleness, and the prolific parent of vice and immorality, detrimental to the best interests of society, and encouraging wastefulness, thriftlessness and a belief that a livelihood may be earned by means other than honest industry. The use of these machines is a racket and constitutes a fraud on the innocent public who are unaware of the insidious evil of the display. They contribute directly to delinquency among children and instill and develop a desire to gamble among those who frequent them.</b>"<br />
<br />
~ <i>People v. Gravenhorst</i>, 32 N.Y.S.2d 760, 771, 778 (Ct. Spec. Sess. 1942) (emphasis added) (finding pinball machines to be illegal gambling devices).</blockquote>
<br />
<blockquote>
"The evils attending a system of lotteries, and against which the laws of this State arraign, consist in the risk which people are willing to take in hazarding their money with a chance of losing the same, without any or but very little benefit whatsoever, and with but a remote prospective gain. This species of gambling which inflicted serious injury upon certain classes of the community, prompted the prohibition of lotteries in this State."<br />
<br />
~ <i>People v. Psallis</i>, 12 N.Y.S.2d 796, 797 (NYC Mag. Ct. 1939)</blockquote>
<br />
<blockquote>
"‘But casual betting or gaming by individuals as distinguished from betting or gambling as a business or profession, is not a crime. ... The evil which the law chiefly condemns (N.Y.Const. art. I, § 9) and makes criminal (Penal Law, art. 88) is betting and gambling organized and carried on as a systematic business. The reason seems obvious. Curb the professional with his constant offer of temptation coupled with ready opportunity, and you have to a large extent controlled the evil. It is clear that in the eye of the law the professional gambler and his customer do not stand on the same plane.' ...<br />
<br />
....<br />
<br />
The passion for gambling permeates all strata of society. Among the poor its psychological root may be found in the dull and prolonged monotony of uninteresting drudgery which makes up the normal workaday life of large masses, affording but little scope for spontaneity or self-expression. Gambling furnishes an escape—hence arises their instinctive zest for the unexpected and the hazardous, as salt to an otherwise tasteless fare. In addition, the desire for gain and the hope that fortune will smile upon them, so that with the winnings they may obtain something hitherto unobtainable because of limited income, are strong motivating forces. At the other end of the economic scale, in the leisure classes, we find that the ennui resulting from idleness and dilettantism furnishes the same stimuli to gambling and other excesses as do monotony and acquisitiveness among the poor. In between, among people of the so-called middle classes, the spread between earnings and necessary spending is greater than among the poor. Having more money at their disposal than is absolutely needed for necessities, they have the wherewithal for speculation. The desire to increase one’s wealth in that manner, though operating with diminishing force, is still present; and added to that, the gaming impulse is sometimes stimulated by the conscious or unconscious aping of the customs and habits of those in the upper levels.<br />
<br />
Thus, assured of generous patronage from all walks of life, the inventive genius of man has devised many plans and ways by which those who like to gamble may satisfy their desires. It is unnecessary here to describe these various forms. Each has its countless followers of both sexes, with large numbers of people indulging in more than one form. It is evident, therefore, that gaming is too widespread and too general for society to shun its devotees as pariahs: there would be too many such outcasts. Of course, it cannot be defended upon ethical grounds. Moralists and economists decry the vice as a canker upon our social structure. They condemn it as leading to habits of recklessness, waste, and idleness. They deplore it because it cultivates a distaste for honest labor and a desire to obtain riches without working for them. As we approach an ideal state of living, gambling may die—its demise hastened by an aroused public conscience and by a more general realization of its harmfulness; or perhaps the solution may be found in channeling the passion into more useful fields of endeavor. Until that day arrives, however, or until our lawmaking body expressly decrees otherwise, people have the legal right to gamble, and that right cannot be restricted to special forms or to certain classes of people. To permit some to hazard fortunes on the fluctuations of the stock market; to permit others to wager, in sepulchers of plush and gold, hundreds of dollars on the turn of a card or the spin of a roulette wheel; to permit still others to bet varying numbers of dollars on the outcome of a horse race; to hold immune from prosecution purchasers of lottery and sweepstakes tickets and even tax their winnings as income—in short, to tolerate participation in all other forms of gambling, but to deny to persons of limited means the right to wager a few cents on the selection of policy numbers, is in effect class discrimination without logic or reason behind it. None of these groups of chance-takers is any wiser than the others—all may be properly regarded as foolish—but the foolishness of the policy player is no more antisocial than that of the rest, and therefore cannot be regarded as criminal in the light of present-day public opinion."<br />
<br />
~ <i>People v. Revolta</i>, 295 N.Y.S. 102, 104-06, 162 Misc. 555, 558-59 (NYC Mag. Ct. 1937) (citations omitted).</blockquote>
<br />
<blockquote>
"In this scheme there is present every element of the evils attendant upon mass gambling. A small stake concealed within the price of admission gives its chance for a large prize, which may become large enough to arouse intense cupidity; there is the excitement of drawing a lucky number with its attendant exultation for one fortunate individual; there is depression and disappointment for a thousand losers, many of whom must think enviously of what they could do with so much money had they won it, and there is the constant temptation to continue to play in the hope of winning. We have thus created cupidity, envy, jealousy and temptation—the very things sought to be avoided by that enlightened public policy of most of the world which has outlawed lotteries."<br />
<br />
~ <i>Iris Amusement Corp. v. Kelly</i>, 8 N.E.2d 648 (Ill. 1937).</blockquote>
The New York Court of Appeals also noted the negative effects of large-scale illegal policy and numbers syndicates. With respect to a conviction of a member of the Dutch Schultz gang for bribery of public officials in connection with a policy syndicate, the court found the gang was "a well-organized business, successful in effective corruption of police and magistrates and in the destruction of public confidence in the orderly processes of justice in a democracy." <i>People v. Hines</i>, 284 N.Y. 93, 100, 29 N.E.2d 483, 487 (NY Ct. App. 1940).<br />
<br />
<br />
<b><span style="color: #0b5394;">III. Modern Era (1960s - 1990s)</span></b><br />
<br />
<blockquote>
"It seems to us that, if we are to apply the strong public policy test to the enforcement of the plaintiff’s rights under the gambling laws of the Commonwealth of Puerto Rico, we should measure them by the prevailing social and moral attitudes of the community which is reflected not only in the decisions of our courts in the Victorian era but sharply illustrated in the changing attitudes of the People of the State of New York. The legalization of pari-mutuel betting and the operation of bingo games, as well as a strong movement for legalized off-track betting, indicate that the New York public does not consider authorized gambling a violation of ‘some prevalent conception of good morals (or), some deep-rooted tradition of the common weal.’ <br />
<br />
The trend in New York State demonstrates an acceptance of licensed gambling transactions as a morally acceptable activity, not objectionable under the prevailing standards of lawful and approved social conduct in a community. Our newspapers quote the odds on horse races, football games, basketball games and print the names of the winners of the Irish Sweepstakes and the New Hampshire lottery. Informed public sentiment in New York is only against unlicensed gambling, which is unsupervised, unregulated by law and which affords no protection to customers and no assurance of fairness or honesty in the operation of the gambling devices."<br />
<br />
~ <i>Intercontinental Hotels Corp. v. Golden</i>, 203 N.E.2d 210, 213, 254 N.Y.S.2d 527, 531 (N.Y. Ct. App. 1964) (citation omitted).</blockquote>
<br />
<blockquote>
"There are some forms of speculative enterprise which are pure gambles, but which nevertheless, by virtue of legislative fiat, are given public sanction—most notably pari-mutuel betting, bingo (N.Y.Const., Art. I, s 9) and the State Lottery. These exceptions to the rule are hedged about with safeguards—on the theory, I suppose, that a restricted public evil becomes a public good."<br />
<br />
~ <i>Liss v. Manuel</i>, 296 N.Y.S.2d 627,631, 58 Misc.2d 614, 617 (NYC Civ. Ct. 1968). </blockquote>
<br />
<blockquote>
"Gambling in this State in general is prohibited (General Obligations Law § 5–401). The Lottery is authorized because it is operated with the specific purpose of raising funds for education (see, NY Const, art I, § 9; Tax Law § 1600 et seq.). Public policy continues to disfavor gambling; thus, the regulations pertaining thereto are to be strictly construed."<br />
<br />
~ <i>Ramesar v. State</i>, 636 N.Y.S.2d 950, 224 A.D.2d 757 (S. Ct. 3d App. Div. 1996). </blockquote>
<br />
<blockquote>
"With regard to the first asserted interest—alleviating the social costs of casino gambling by limiting demand—the Government contends that its broadcasting restrictions directly advance that interest because “promotional” broadcast advertising concerning casino gambling increases demand for such gambling, which in turn increases the amount of casino gambling that produces those social costs. Additionally, the Government believes that compulsive gamblers are especially susceptible to the pervasiveness and potency of broadcast advertising. Assuming the accuracy of this causal chain, it does not necessarily follow that the Government’s speech ban has directly and materially furthered the asserted interest. While it is no doubt fair to assume that more advertising would have some impact on overall demand for gambling, it is also reasonable to assume that much of that advertising would merely channel gamblers to one casino rather than another. More important, any measure of the effectiveness of the Government’s attempt to minimize the social costs of gambling cannot ignore Congress’ simultaneous encouragement of tribal casino gambling, which may well be growing at a rate exceeding any increase in gambling or compulsive gambling that private casino advertising could produce. And, as the Court of Appeals recognized, the Government fails to “connect casino gambling and compulsive gambling with broadcast advertising for casinos”—let alone broadcast advertising for non-Indian commercial casinos.<br />
<br />
....<br />
<br />
Ironically, the most significant difference identified by the Government between tribal and other classes of casino gambling is that the former is “heavily regulated.” Brief for Respondents 38. If such direct regulation provides a basis for believing that the social costs of gambling in tribal casinos are sufficiently mitigated to make their advertising tolerable, one would have thought that Congress might have at least experimented with comparable regulation before abridging the speech rights of federally unregulated casinos. While Congress’ failure to institute such direct regulation of private casino gambling does not necessarily compromise the constitutionality of § 1304, it does undermine the asserted justifications for the restriction before us. There surely are practical and nonspeech-related forms of regulation—including a prohibition or supervision of gambling on credit; limitations on the use of cash machines on casino premises; controls on admissions; pot or betting limits; location restrictions; and licensing requirements—that could more directly and effectively alleviate some of the social costs of casino gambling."<br />
<br />
~ <i>Greater New Orleans Broadcasting Ass’n, Inc. v. U.S.</i>, 527 U.S. 173, 119 S.Ct. 1923, 144 L.Ed.2d 161 (1999) (citations omitted).</blockquote>
<br />
<blockquote>
"In 1808 the British Government appointed a Select Committee to inquire into the evils of lotteries and the effect of the laws which had been instituted to regulate them. We quote the following discussion of its report from Williams, Flexible Participation Lotteries (1938), Chap. II, page 5:<br />
<br />
‘In the report of this committee, many instances were adduced of the most serious evils arising from lotteries. These included cases where people living in comfort and respectability had been reduced by their speculations to ‘the most abject state of poverty and distress’; cases of domestic quarrels, assaults, and the ruin of family peace; fathers deserting their families and falling into want and disgrace; mothers neglecting their children, sometimes leaving them destitute; wives robbing their husbands of the earnings of months and years; and the pawning of clothing, beds and wedding rings in order to indulge in speculation. ‘In other cases children had robbed their parents, servants, their masters; suicides had been committed, and almost every crime that can be imagined had been occasioned, either directly or indirectly, through the baneful influence of lotteries.’’<br />
<br />
It is abundantly clear from this description of the evils attending ‘lotteries,’ as that term was commonly understood, that they were the result of speculation. Their operation depended upon the wagering by the participants of money or something of monetary value on the chance that they would win something of far greater value."<br />
<br />
~ <i>Cudd v. Aschenbrenner</i>, 377 P.2d 150 (Or. 1962).</blockquote>
<br />
<blockquote>
"However, assuming that not all gambling activities are inherently injurious to public morals, and may be considered merely as a type of trade, occupation or fundraising activity, it is well established that if the manner in which a trade, occupation or other activity is conducted will probably result in injury to the public order or morals, the police power of the State may lawfully be used to eliminate the hazard. We conclude that the legislature could reasonably determine that commercialized gambling for profit is typically conducted in such a manner as to threaten the public order and morals, and seek to suppress it, while allowing religious and charitable organizations to conduct bingo games and raffles without violating the due process rights of individuals such as defendant McCleary.<br />
<br />
....<br />
<br />
We find that the distinction made between individuals and organizations conducting lotteries for personal profit and the exempt organizations, which, by virtue of their legal status, are not allowed to profit from their activities except in such a way as to promote purposes and goals that proceed from charitable, civic or altruistic motivations is a reasonable one and that it bears a rational relation to the purpose of the gambling prohibitions in general. The reasons traditionally cited for prohibiting gambling fall into two basic categories: (1) that the activity is inherently immoral or that it tends to weaken morals and encourage idleness, and (2) that the unwary public needs to be protected from the unscrupulous operator. The legislature in 1979 could reasonably have concluded that bingo games and raffles are not inherently immoral, and that they do not have a totally pernicious influence on the character of the player. Further, that the player’s motivation of personal gain through gambling is tempered by the knowledge that his or her 'donation' is going to generally charitable or public service purposes. In addition, it could reasonably be determined that the consequences to society are not the same as those where the profit goes to commercialized gambling, or that the danger to society is different from that posed by professional gambling inasmuch as the game operator is, for example, a regulated charitable or religious organization and not a 'fakir' or 'nimble trickster.'"<br />
<br />
~ <i>State v. McCleary</i>, 308 S.E.2d 883 (N.C. Ct. App. 1983) (citations omitted).</blockquote>
<br />
<span style="color: #0b5394;"><b>IV. Contemporary Era (2000 - Present)</b></span><br />
<br />
<blockquote>
"While it is undeniable that recreational gambling for those who can afford it has become more socially acceptable than it once was, the suspicion which Ohioans have regarding the potential negative effects of gambling was reaffirmed in 1996 when a proposal to amend Ohio’s Constitution to allow riverboat casinos was defeated 62 percent to 38 percent. Many arguments in favor of a Constitutional ban on lotteries (and legal prohibition of many other forms of gambling) retain much of their force. Such arguments provide the rationale for the once total, but now partial, ban on lotteries:<br />
<br />
1. There appear to be certain persons who are more vulnerable to the lure of gambling than others. Indeed, the parties in this case have stipulated that one of the plaintiffs is a “recovering addicted gambler.” Because of the large prizes, lotteries can provide a special challenge to such persons.<br />
<br />
2. Even if one adopts the position that such persons are totally responsible for their gambling conduct and that, therefore, the state should not concern itself with the effects of the gambler’s “weak character” on himself/herself, the compulsive gambler’s family members and friends, who cannot be regarded as responsible, also suffer.<br />
<br />
3. The resources of both charitable and public social service agencies end up being used to deal with the effects of excessive gambling, instead of being used for other beneficial purposes for which they might be used if there were no legalized lotteries.<br />
<br />
4. Gambling has the reputation of being associated with racketeering and organized crime. Gambling, because of its suggestion of easy money, would be especially attractive to persons who are interested in acquiring wealth, but who lack a sense of obligation to return value to others in the form of services or products. Hence, gambling has a reputation for being a magnet for the criminally inclined type of person. Hence, even legalized gambling threatens to become the locus of illegal activity.<br />
<br />
5. Ill-gotten gains from such illegal activities could then be used as seed money for other illegal ventures.<br />
<br />
6. Any increased racketeering and organized crime, not to mention the lotteries themselves, increase the opportunities and motives for the corruption of public officials. Because of the large amounts of money involved in state lotteries, not to mention multi-state lotteries, and the fact that results might be subject to being manipulated by a relatively small number of public officials, the temptation for public corruption is present.<br />
<br />
7. Once a public official has engaged in such corrupt activity, then blackmail and connections with organized crime established in the initial corrupt enterprise, may make it more difficult for the public official to choose to refuse to engage in further corrupt activity.<br />
<br />
8. By allowing lotteries and gambling, and especially by sponsoring lotteries and gambling, the state encourages gambling behavior and, thereby, increases the likelihood of all of the negative effects summarized in items 1 through 7.<br />
<br />
When the people of Ohio decided to constitutionally ban lotteries, it was presumably based upon ideas such as these about the likely effects of permitting lotteries. When they later decided to amend the ban three times so as ultimately to allow only two exceptions to the ban which serve important social functions (public education and charity), the people demonstrated that they remain suspicious of lotteries, and are willing to accept the risks associated with partially lifting the constitutional ban on lotteries only when doing so serves some important social function."<br />
<br />
~ <i>Ohio Roundtable v. Taft</i>, 773 N.E.2d 1113 (Ohio Ct. Common Pleas 2002). </blockquote>
<br />
<blockquote>
"In my opinion, striking this language would also open the door wide to <i>all</i> heretofore illegal gaming practices in this state, including video poker. Because of this very real consequence, I am concerned that striking this critical language from the statute would beget, as elucidated by the General Assembly in 1816 when amending section 16-191-40, the <b>"impoverishment of many people, corruption of the morals and manners of youth, ... the tendency which is vice, misery and crime, as examples in this state have abundantly proven." These dire concerns resonate as much today as they did nearly 200 years ago. I do not need to remind any person of the havoc wreaked upon this State as a result of the "pernicious" practice of video poker.</b> Although there are other sound provisions outlawing video poker, I am loathe to strike the critical language from the general ban on gaming in the event that it guts these provisions, and consequently, South Carolina's longstanding prohibition against gambling."<br />
<br />
~ <i><a href="http://www.sccourts.org/opinions/HTMLFiles/SC/27197.pdf">Town of Mount Pleasant v. Chimento</a></i>, <a href="https://scholar.google.com/scholar_case?case=7235898979417991360&hl=en&as_sdt=6&as_vis=1&oi=scholarr">737 S.E.2d 830</a> (S.C. 2012) (Toal, C.J., concurring) (citations omitted) (italics in original, emphasis added).</blockquote>
<br />
<blockquote>
"The State wields police power to protect its citizens' health, welfare, safety, and morals. On account of ties to organized crime, money laundering, gambling addiction, underage gambling, and other societal ills, '[t]he regulation of gambling enterprises lies at the heart of the state's police power.'<br />
<br />
<b>Internet gambling introduces new ways to exacerbate these same threats to health, welfare, safety, and morals. Gambling addicts and underage gamblers have greater accessibility to on-line gambling-able to gamble from their homes immediately and on demand, at any time, on any day, unhindered by in-person regulatory measures. Concerns over ties to organized crime and money laundering are exacerbated where on-line gambling operations are not physically present in-state to be inspected for regulatory compliance.</b> Washington has a legitimate and substantial state interest in addressing the effects of Internet gambling."<br />
<br />
~ <a href="http://caselaw.findlaw.com/wa-supreme-court/1539177.html"><i>Rousso v. State</i></a>, 239 P.3d 1084 (Wash. 2010) (citations omitted) (emphasis added).</blockquote>
<br />
<br />Grange95http://www.blogger.com/profile/01857460215043659894noreply@blogger.com1tag:blogger.com,1999:blog-1169281096117913024.post-70565875777637556282015-11-24T12:41:00.001-06:002015-11-24T18:19:50.359-06:00Did the New York AG Wait Too Long to Attack DFS Sites?For those following the recent legal upheaval in the daily fantasy sports (<a href="http://www.legalsportsreport.com/" target="_blank">DFS</a>) industry, tomorrow will mark an important turning point in the battle over the future of DFS. A New York state court judge will <a href="http://www.legalsportsreport.com/6309/draftkings-fanduel-ny-restraining-orders/" target="_blank">hear arguments</a> related to the New York Attorney General's request for an injunction prohibiting continued operations of several DFS sites. A flavor of the main arguments can be found on <a href="http://www.legalsportsreport.com/6523/draftkings-fanduel-ny-responses/" target="_blank">Legal Sports Report</a>, or by following attorney <a href="https://twitter.com/WALLACHLEGAL" target="_blank">Daniel Wallach on Twitter</a>. As might be expected, the parties primarily spar over our old friend, the "skill game" argument (see <a href="http://craakker.blogspot.com/2010/04/tilting-at-poker-windmills.html" target="_blank">HERE</a> and <a href="http://craakker.blogspot.com/2010/06/why-poker-litigation-fails.html" target="_blank">HERE</a> for my now well-aged discussions of the "skill game" argument in the context of poker).<br />
<br />
There is one side argument that is worth additional discussion. In a recent <a href="http://m.nydailynews.com/opinion/david-boies-schneiderman-overreach-fantasy-sports-article-1.2442103" target="_blank">op-ed piece in the <i>New York Daily News</i></a>, David Boies, the highly regarded attorney retained by DraftKings, argued:<br />
<blockquote>
"One major problem with the attorney general’s argument is that he has been attorney general for six years, and for each of those years, FanDuel has operated openly in New York without a single suggestion from him or anyone else that its operations were at all legally suspect. DraftKings entered about four years ago and has likewise operated openly and continuously without question or complaint ever since.<br />
<br />
During those years, major companies like NBC Sports, Fox Sports, Comcast and private equity firm KKR have invested hundreds of millions of dollars in building platforms to offer daily fantasy-sports contests; none of them had any doubts about the legality of those contests either."</blockquote>
DFS supporters have echoed these comments on social media, wondering why the New York Attorney General waited so long to act against the DFS industry if DFS were so clearly illegal. Some commentators have gone so far as to suggest it is too late for the Attorney General to act, that the industry cannot be attacked now after so many companies have invested so much money building up what they were led to believe was a legal enterprise condoned by the state (attorney <a href="https://twitter.com/WALLACHLEGAL/status/668987678571028480" target="_blank">Daniel Wallach declares</a> this to be one of the best arguments for the DFS sites). But will this argument ultimately matter in court?<br />
<br />
<b><span style="color: #0b5394;">A. Laches and the Limits of Equity</span></b><br />
<br />
At least on the surface, it seems unfair for the state of New York to sit back for several years and let the DFS industry grow, only to swoop in and declare that the entire business operations of several multi-million (or even billion) dollar companies are in violation of state gaming laws. Shouldn't the Attorney General have filed for an injunction years ago? Isn't it too late for the Attorney General to do anything now?<br />
<br />
Some attorneys following the New York DFS case <a href="https://twitter.com/JFielkow/status/668870873496035328" target="_blank">have suggested</a> that the principle of <i><a href="https://draft.blogger.com/the%20legal%20doctrine%20that%20a%20legal%20right%20or%20claim%20will%20not%20be%20enforced%20or%20allowed%20if%20a%20long%20delay%20in%20asserting%20the%20right%20or%20claim%20has%20prejudiced%20the%20adverse%20party%20(hurt%20the%20opponent)%20as%20a%20sort%20of%20%22legal%20ambush.%22%20%20Read%20more:%20http://dictionary.law.com/default.aspx?selected=1097#ixzz3sPRvnEo7" target="_blank">laches</a> </i>might bar the Attorney General's lawsuit. <b><span style="color: #0b5394;">[FN1].</span></b> Laches (pronounced "latches") is an equitable doctrine which prohibits a party from sitting on his rights to bring a legal claim until after others have acted to their detriment in reliance on the party's silence. Laches generally requires not just that there was a delay in asserting a legal right, but that the delay was both unreasonable and prejudicial. A classic example would be where a landowner knows his neighbor is constructing a building partially across a boundary line, but waits to assert a legal claim related to the property line until after the construction is completed.<br />
<br />
Interestingly, laches can in some cases operate to bar a claim even where the claim is timely pursuant to a statute of limitations. For example, in the 2012 presidential primaries, a suit by several Republican candidates to be included on the Virginia primary ballot was rejected because the candidates had waited to file the suit until too close to the election date. The <a href="http://www.ca4.uscourts.gov/Opinions/Unpublished/121067R1.U.pdf" target="_blank">Fourth Circuit Court of Appeals cited</a> the "disruption" to the electoral process and resulting "turmoil" to the nominating process caused by the "tardy" filing of the lawsuit at the "eleventh hour" as the basis for its decision to dismiss the suit on the basis of laches.<br />
<br />
Although laches might appear to be an appealing argument in the New York DFS litigation, the reality is that laches would be a losing argument for the DFS sites. This is because principles of <a href="http://legal-dictionary.thefreedictionary.com/Sovereign+Immunity" target="_blank">state sovereign immunity</a> require courts to apply a different set of rules when the state is a litigant. <b>In New York (as in most states), many equitable principles, including laches, simply do not apply against the state.</b><br />
<br />
The principle that laches cannot be asserted against the state is well-established. For example, in <i><a href="http://www.leagle.com/decision/197780792Misc2d715_1679/STATE%20OF%20NY%20v.%20TIRACO" target="_blank">State v. Tiraco</a></i>, the New York Attorney General sought to enforce state securities registration laws against a company selling shares in a theatrical company; the appellate court needed only three sentences to summarily reject the defendants claim of laches: "Laches is not available as a defense as the prosecution is in the public interest." Similarly, in a more recent decision, a New York appellate court confirmed that "the equitable doctrine of laches may not be interposed as a defense against the State where, as here, it is acting in a governmental capacity to enforce a public right or protect a public interest." <i>In re LaPine</i>, 18 A.D.3d 552, 795 N.Y.S.2d 294 (N.Y. Sup. Ct. 2d Div. May 9, 2005). <b><span style="color: #0b5394;">[FN2].</span></b><br />
<br />
In sum, the doctrine of laches will be a non-starter in the pending DFS litigation.<br />
<br />
<b><span style="color: #0b5394;">B. The Florida <i>Faircloth</i> Decision—A Slender Reed</span></b><br />
<br />
Legal commentators <a href="https://twitter.com/WALLACHLEGAL/status/668986605529653249" target="_blank">have also pointed</a> to a Florida appellate case as authority for the position that a state's failure to enforce gambling laws against certain games over a period of years prevents the state from later taking a different position on the issue. <i><a href="http://www.leagle.com/decision/1967810202So2d608_1675/FAIRCLOTH%20v.%20CENTRAL%20FLORIDA%20FAIR,%20INC.">Faircloth v. Central Florida Fair, Inc.</a></i>, 202 So. 2d 608 (Fla. Ct. App. 1967). The <i>Faircloth </i>court was presented with the question of whether certain carnival midway games were illegal under state gaming laws. The relevant passage from the court comes at the tail end of the opinion, after extensive statutory analysis (emphasis added):<br />
<blockquote>
"There is a further basis for our decision, suggested ironically by the defendant himself. As suggested, we discard the mantle of naivete and recognize that, <b>if these midway games do come within the gambling laws, they have nevertheless been played throughout the state for years with the knowledge and consent of public officials, law enforcement officers and state legislators.</b> We will not adopt an unnecessarily strict and artificial construction of our statutes which will result in further hypocritical noncompliance with our gambling law."</blockquote>
The <i>Faircloth</i> opinion will be of only limited value to the DFS sites in the pending litigation for several reasons. First, the decision was from a Florida court interpreting Florida gaming statutes; New York courts will give little weight to a decision involving significantly different state gaming laws.<br />
<br />
Second, the court's language in <i>Faircloth</i> is supported only by a general citation to a law review article and a Mississippi appellate decision (<i><a href="http://www.leagle.com/decision/19661007187So2d820_1987/STATE%20v.%20WOOD" target="_blank">State v. Wood</a></i>) which really does not support the <i>Faircloth</i> court's argument. It is hardly surprising, then, that only one appellate court from another state (the Arizona supreme court) has ever cited <i>Faircloth</i>, and then only for the unrelated proposition that "wagers" or "bets" are legally distinguishable from "entry fees" for contests. <i><a href="https://www.courtlistener.com/opinion/1204367/state-v-american-holiday-assn-inc/" target="_blank">State v. American Holiday Ass'n</a></i>, 727 P.2d 807 (1986). <b><span style="color: #0b5394;">[FN3].</span></b> No other appellate court has ever cited let alone adopted the <i>Faircloth</i> rationale that lax enforcement of gaming laws is relevant to an analysis of whether a particular game constitutes illegal gambling.<br />
<br />
Third, and most important, the <i>Faircloth</i> decision ultimately turned on the language of the relevant Florida statutes. In <i>Faircloth</i>, a statute had authorized by name twenty-three specific carnival midway games which could be played at public fairs, and were subject to licensing requirements. The court concluded that this statute thereby implied a distinction between the specifically identified "games of skill" and those "games of chance" which were otherwise prohibited by law. In New York, by contrast, no statute exists which implicitly or explicitly suggests DFS is a game of skill or otherwise exempt from the state's general gambling prohibition statutes.<br />
<br />
<b><span style="color: #0b5394;">C. Legal Irrelevance</span></b><br />
<br />
Ultimately, the issue of why the state of New York and its Attorney General have waited several years to pursue legal action against the DFS sites is nothing more than a legal red herring. If the DFS sites establish that DFS is legal under New York law, then whether the Attorney General improperly delayed in bringing the enforcement action becomes a moot issue.<br />
<br />
On the other hand, however, if the court determines that DFS in fact is illegal gambling, there is no legal basis for the court to give the DFS sites a "get out of jail free card" and hold that the sites can continue to operate an active illegal gambling business merely because the state took its time to bring an enforcement action. <b><span style="color: #0b5394;">[FN4].</span></b> Courts recognize that the state has limited resources and must make judgment calls as to how best use those resources. Just because the state does not arrest every driver who speeds or bust every home poker game does not mean that the state cannot enforce traffic or gaming laws in specific instances (absent an illegal discriminatory intent). <b><span style="color: #0b5394;">[FN5].</span></b> Here, the state can plausibly argue that DFS was, until recently, sufficiently small-scale so as not to warrant the Attorney General's attention. The recent dramatic uptick in advertising and the claim of potential for "insider trading" and other unfair anti-consumer practices easily justify the Attorney General's decision to take a closer look at the DFS industry in recent weeks. Essentially, DFS sites got too big and too brazen to be ignored, much like the difference between small-stakes home poker games and multi-million dollar online poker businesses.<br />
<br />
<b><span style="color: #0b5394;">D. Rhetorical Value</span></b><br />
<br />
David Boies is an exceptional attorney, and has to realize that the DFS sites' argument about the state's delay in bringing an enforcement action is ultimately beside the point as a legal argument. What, then, is the point of making this argument a cornerstone of the DFS defense?<br />
<br />
Let's look at more of Boies' op-ed piece:<br />
<blockquote>
"Nothing has changed about the nature of the contests FanDuel and DraftKings offer.<br />
<br />
What changed is that the attorney general’s office suddenly decided without notice or discussion that daily fantasy sports contests represented a violation of the law and a threat to public morals that had to be stamped out.<br />
<br />
There are many things wrong with that decision, but right or wrong, no one can pretend that the illegality of these contests is clear or obvious—it certainly was not clear or obvious to Schneiderman or his predecessor, who, for eight years, did not think there was a problem.<br />
<br />
If the attorney general (or anyone else) doesn’t like the law, the proper course of action is to get the law changed. Changing the law is up to the Legislature, not any single public official, no matter how well-intentioned. The attorney general is entitled to change his mind. He is not entitled to unilaterally change the law."</blockquote>
Boies' purpose for this argument is threefold. First, he wants to establish a sense of unfairness—his clients have been operating in New York for years, and now the Attorney General wants to change the rules without notice (though in fairness to the Attorney General, there was no actual "change" in opinion; the Attorney General went from having no opinion on the legality of DFS to determining DFS was illegal gambling under state law). This "innocent victim" rhetoric may not matter legally, but it can help generate both public support and political support; DFS's legal status will be a legislative rather than a judicial decision in the long run.<br />
<br />
Second, and perhaps most important for the pending court cases, Boies wants to suggest to the judge that the legal status of DFS is, at best, murky under New York law. If DFS were clearly illegal, the state would have acted long ago. Boies' rhetoric thus is attempting to create judicial skepticism regarding the Attorney General's claims that DFS is unquestionably illegal gambling under New York law. This skepticism creates space for the DFS industry to not only advance their "skill game" arguments, but to otherwise highlight differences between DFS and traditional forms of gambling (notably sports gambling and poker).<br />
<br />
Finally, Boies' rhetoric highlights the relative roles of the legislature and the courts. Although old laws are regularly applied to new technologies and industries, here Boies suggests that the state's delay in bringing an enforcement action demonstrates the ambiguity surrounding the status of DFS under New York's established gaming laws. Boies then argues the Attorney General was wrong to turn to the courts to resolve that ambiguity; instead, the issue of how to deal with the new DFS industry is best resolved by the legislature.<br />
<br />
In an <a href="http://fortune.com/2015/11/24/draftkings-david-boies-strategy/?xid=soc_socialflow_twitter_FORTUNE" target="_blank">interview today with <i>Fortune</i></a>, Boies reiterated his rhetorical points about the perceived sudden "change" in the law, and declared: "We feel good about the position we’re in. I think we look very strong. I’d rather have our hand than the Attorney General’s hand." Boies is a brilliant lawyer, and he has some good arguments to make on the "skill game" issue. But the smart money, as always, is to bet on the state.<br />
<br />
<div style="text-align: center;">
<span style="color: #0b5394;"><b>* * * * *</b></span></div>
<br />
<b><span style="color: #0b5394;">[FN1].</span></b> In law, principles of fairness are generally governed by the rules of equity. Years ago, there were separate courts of law and courts of equity. Courts of law were concerned with bright line rules; if you signed a contract, the law wouldn't care that you agreed to terrible terms, but would hold you to your obligations. Courts of equity, however, were concerned with issues of fairness, and operated to provide relief from overly harsh or technical applications of the law; if you could prove you signed a contract because of fraudulent misrepresentations by the other side, you could ask the court to rescind the contract.<br />
<br />
Today, courts of law and equity have generally been combined, but the distinction between law and equity remains important, particularly in the realm of remedies. If a claim is brought at law, a court will generally be limited to awarding damages (money). If a claim is brought in equity, a court will award other forms of relief, such as restitution, rescission, injunctive relief, or declaratory relief.<br />
<br />
<b><span style="color: #0b5394;">[FN2].</span></b> Laches may be available against the state where the state is not acting in its governmental capacity, but instead is operating in a "private or proprietary capacity" (<i>e.g</i>., in a manner akin to a private company). <i><a href="https://casetext.com/case/matter-of-carney-v-newburgh-park-motors" target="_blank">Carney v. Newburgh Park Motors</a></i>, 84 A.D.2d 599, 444 N.Y.S.2d 220 (N.Y. Sup. Ct. 3d Dep't 1981). Also, the legislature can limit the state's sovereign immunity by explicitly making the state subject to statutes of limitations or other time requirements. <a href="https://www.law.cornell.edu/nyctap/I02_0059.htm"><i>State v. Seventh Regiment Fund</i>, <i>Inc</i>.</a>, 98 N.Y.2d 249, 774 N.E.2d 702 (N.Y. Ct. App. 2002). However, neither of these limited exceptions are applicable to the present DFS litigation.<br />
<br />
<b><span style="color: #0b5394;">[FN3].</span></b> Ironically, the Arizona opinion in <i><a href="https://www.courtlistener.com/opinion/1204367/state-v-american-holiday-assn-inc/" target="_blank">American Holiday Ass'n</a></i> also cites an old New York court of appeals decision, <i>People v. Fallon</i>, 152 N.Y. 12, 46 N.E. 296 (1897), for the proposition that there is a distinction between a wager and a contest entry fee:<br />
<blockquote class="tr_bq">
"There is a plain and obvious distinction between a race for a prize or premium contributed [by the association] and a race where the stake is contributed by the participants alone, and the successful contestant is to have the fund thus created. The latter is a race for a mere bet or wager, while the former is for a prize offered by one not a party to the contest."</blockquote>
Considering the DFS model relies on participant entry fees going into a common prize pool with prizes being paid out of that pool (less house rake/fees), the <i>Fallon</i> decision is decidedly a negative for DFS operators in New York.<br />
<br />
<b><span style="color: #0b5394;">[FN4].</span></b> "[T]he doctrine of laches has no application when plaintiffs allege a continuing wrong." <i><a href="http://www.leagle.com/decision/In%20NYCO%2020140612257/CAPRUSO%20v.%20VILLAGE">Capruso v. Village of Kings Point</a></i>, 23 N.Y.3d 631, 16 N.E.3d 527, 992 N.Y.S.2d 469 (N.Y. Ct. App. 2014).<br />
<br />
<b><span style="color: #0b5394;">[FN5].</span></b> New York courts follow the rule that a selective enforcement claim will fail without evidence of improper discriminatory intent (<i><a href="https://casetext.com/case/matter-303-west-42nd-v-klein" target="_blank">In re Matter of 303 West 42nd v. Klein</a></i>, 46 N.Y.2d 686 (N.Y. 1979)):<br />
<blockquote>
"The burden of proving a claim of discriminatory enforcement is a weighty one. Common sense and public policy dictate that it be so. The presumption is that the enforcement of laws is undertaken in good faith and without discrimination (<i>see</i>, <i>e.g</i>., <i>United States v Falk</i>, 479 F.2d 616, 620). Moreover, latitude must be accorded authorities charged with making decisions related to legitimate law enforcement interests, at times permitting them to proceed with an unequal hand. For example, it has been held that, in order to bring an appropriate case to test a new regulation or statute, or because of limited manpower or other resource inadequacies, or for the purpose of deterring other potential transgressors, certain violators may be selected for prosecution out of the class of all known violators (<i>see People v Utica Daw's Drug Co.</i>, 16 A.D.2d 12, 21, <i>supra</i>; Comment, 61 Col L Rev 1103, 1119-1133). Such an enforcement strategy may also permissibly be directed at only serious violations (<i>see English v Town of Huntington</i>, <i>supra</i>, p 323 [enforcement of building and zoning codes only against buildings where fire and sanitary hazards had gone far beyond tolerable limits]) or those occurring in a geographic area where the probability or rate of violations is high (see, generally, Tieger, Police Discretion and Discriminatory Enforcement, 1971 Duke LJ 717). The reasoning goes that these instances of legitimate law enforcement should not be hampered by requiring that a hearing be held every time one subject to a regulatory or criminal penalty feels he has been unfairly singled out."</blockquote>
Grange95http://www.blogger.com/profile/01857460215043659894noreply@blogger.com7tag:blogger.com,1999:blog-1169281096117913024.post-71734104562780501442015-10-02T00:49:00.001-05:002015-10-02T19:48:08.967-05:00PokerStars in New Jersey—Back to the Silver Age of Poker?<blockquote class="tr_bq"><b>"Here I come to save the day!"</b><br />
<br />
~ Mighty Mouse</blockquote><br />
American comic books have followed an interesting historical arc. The "<a href="https://en.wikipedia.org/wiki/Golden_Age_of_Comic_Books" target="_blank">Golden Age</a>" spanned the era from the Great Depression through the post-World War II days, and saw the debuts of classic clean-cut All-American heroes like Superman and Captain America. After a period of decline for traditional comics, the "<a href="https://en.wikipedia.org/wiki/Silver_Age_of_Comic_Books" target="_blank">Silver Age</a>" and "<a href="https://en.wikipedia.org/wiki/Bronze_Age_of_Comic_Books" target="_blank">Bronze Age</a>" of comics marked a resurgence of classic comic heroes and story lines. A turn in the mid-1980s toward darker and more dystopian themes and the rise of more conflicted heroes and anti-heroes marked the beginning of the "<a href="https://en.wikipedia.org/wiki/Modern_Age_of_Comic_Books" target="_blank">Modern Age</a>" of comics.<br />
<br />
Online poker has followed a strikingly similar course. The Golden Age of online poker ran from the rise of sites like Paradise Poker and Party Poker in the late 1990s and early 2000s through the passage of UIGEA in 2006. The Silver Age of online poker saw the rise of PokerStars and Full Tilt as the new heroes for poker players, and came to an end when Black Friday destroyed online poker in the U.S. in 2011. After enduring a Dark Age with no online poker, the Modern Age of online poker began with the rise of regulated online poker in a handful of states, set against a bleak landscape of poker prohibition, populated by a gallery of newly reinvented and rebooted heroes—Party Poker and 888 are back from exile, Caesars has been transformed from super-villain to crusading hero, Full Tilt is an ally of its former archenemy PokerStars, and everyone is threatened by a new cyborg super-villain named "SH3LD0N".<br />
<br />
Online poker's historical arc came to mind this week when, after months of speculation and anticipation, the online poker world finally received some transformative news—as first reported by <a href="https://twitter.com/DustinGouker" target="_blank">Dustin Gouker</a> at <a href="http://www.onlinepokerreport.com/18251/pokerstars-new-jersey-site-approved-by-regulators/" target="_blank">Online Poker Report</a>, PokerStars has been approved by New Jersey gaming regulators to operate an online poker site. But does this key development mark a return to the Silver Age of online poker, or is it another step forward into the Modern Age?<br />
<br />
<br />
<b><span style="color: #0b5394;">Market Expansion or Cannibalization?</span></b><br />
<br />
The literally million dollar question is less whether PokerStars will be a major player in the New Jersey online poker market and more where PokerStars' market share will come from. PokerStars will inevitably draw players away from its established competitors. And many in the poker community seem to hold as an article of faith that PokerStars' entry into the market will create a new poker boom, greatly expanding the player base. Respected poker industry insider <a href="https://twitter.com/nolandalla" target="_blank">Nolan Dalla</a> expresses what seems to be the <a href="http://www.nolandalla.com/one-small-step-for-pokerstars-and-one-giant-leap-for-online-poker/" target="_blank">prevalent view</a> that PokerStars will cannibalize little of its player base from established competitors, and that PokerStars will significantly expand the market. But are these presumptions reasonable? Color me skeptical.<br />
<br />
When regulated online poker launched in New Jersey, there was an initial surge of play, fueled by a combination of pent-up consumer demand from former online players and a wave of marketing recruiting new players to the pool. That surge, however, quickly subsided. During the heady post-launch days, online poker in New Jersey <a href="https://www.playnj.com/new-jersey/revenue/" target="_blank">generated revenues</a> exceeding $2.5 million per month over the first five months, with three months exceeding $3 million in revenue. Yet by six months post-launch, revenues settled into a rate of roughly $2 million per month, plus or minus 10% depending on seasonal variance. As we approach the two-year mark, those revenues are at best stable, and possibly in a slow decline when viewed on a year-over-year basis.<br />
<br />
The bullish case for robust market expansion—summarized nicely by <a href="https://twitter.com/SteveRuddock" target="_blank">Steve Ruddock</a> at <a href="http://www.onlinepokerreport.com/17335/pokerstars-advertising-positive-effect-nj-online-poker/" target="_blank">Online Poker Report</a>—forecasts PokerStars will expand the market and increase revenues to $3-$4 million per month. That would be an increase of 50% to 100% over current revenues. This optimistic vision is predicated on a combination of PokerStars' established branding and reputation within the poker community combined with an aggressive marketing campaign drawing in new players.<br />
<br />
This rose-colored scenario seems implausible. Although the PokerStars brand remains strong among established poker players, those players are almost certainly already playing online on one of the existing poker sites. Even if PokerStars wins over many of these established players, they will be cannibalizing the market, not expanding it. Certainly a PokerStars marketing campaign could attract new players. But nearly two years post-legalization, it is questionable how large a pool there is of people in New Jersey who want to play online poker and who, for whatever reason, have not started playing on one of the existing sites. And, there is the problem of retaining new players once the initial marketing surge is past, a problem reflected in the sharp decline in online poker revenues mere months following legalization.<br />
<br />
Ruddock and Dalla both assert that large numbers of New Jersey residents are unaware they can legally gamble online. According to <a href="http://www.nolandalla.com/one-small-step-for-pokerstars-and-one-giant-leap-for-online-poker/" target="_blank">Dalla</a>:<br />
<blockquote>"A recent poll in New Jersey revealed some staggering statistics that about 60 percent of the residents of the Garden State still are not aware that online poker/gambling is legal. Despite numerous marketing campaigns and a flood of advertising, a majority of citizens have no idea they can play poker legally on their computer. One expects that given PokerStars immense success cultivating and growing immature markets in numerous foreign countries over the past decade, with such vast resources they should have little trouble jump starting New Jersey’s online poker market into overdrive."</blockquote>First off, Dalla doesn't specify or link to the survey he is citing. The only survey with results tracking Dalla's claims I could find <a href="http://www.pokernews.com/news/2013/11/half-of-new-jersey-residents-unaware-16764.htm" target="_blank">dates back to November 2013</a>, when online gaming was just beginning to launch. If this is the survey Dalla relies on, the results are understandable and irrelevant to the current state of the New Jersey market. But even if a more recent survey shows a high percentage of consumer confusion regarding online gaming, it is a mistake to conflate poker and casino gaming in this context. Online poker in New Jersey is most certainly <i>not</i> an "immature market". Online poker was available and heavily advertised for the better part of a decade prior to Black Friday, and has been available again and advertised again over the past two years. Online casino gaming, however, is in its infancy. So, while public knowledge of and comfort with online casino gaming may be low, there is no reason to assume that the same holds true for online poker.<br />
<br />
Measuring PokerStars' success may well be a matter of managing expectations. There is nothing wrong with being bullish on PokerStars' impact on the New Jersey market; PokerStars has been the long-term industry leader for a reason. But, nobody should be shocked if the bulk of PokerStars' customers are cannibalized from the existing sites. This is not inherently a bad result, as healthy competition among the poker sites should benefit players. Further, in light of the currently stagnant-to-declining market, success for PokerStars might realistically mean expanding the New Jersey online poker market by 10% in the first year (average monthly revenues of $2.2 million/month), and 25% over three years ($2.5 million/month). Increasing the market by 50%—up to the $3 million in monthly revenues experienced immediately after legalized poker launched—should be considered a home run. Expecting PokerStars to double the market is setting everyone up for disappointment.<br />
<br />
<br />
<b><span style="color: #0b5394;">Will Regulation Change PokerStars?</span></b><br />
<br />
Poker players expecting the same online experience at the new PokerStars as they had with the Silver Age PokerStars are likely to be disappointed (<a href="https://twitter.com/OPReport" target="_blank">Chris Grove</a>, editor of Online Poker Report, <a href="http://www.onlinepokerreport.com/13408/pokerstars-new-jersey-answers/" target="_blank">highlights many of the key issues</a> facing PokerStars). Between being purchased by a publicly traded company (<a href="http://www.bloomberg.com/quote/AYA:CN" target="_blank">Amaya Inc.</a>) and being licensed by New Jersey to offer online gaming, PokerStars is now subject to a host of regulations which will inevitably change how it operates. Some of the more obvious changes:<br />
<ul><li><b>Ring-fencing and liquidity:</b> The most obvious change from the Silver Age is that players will not have access to PokerStars' global network of players. For that matter, players won't even have access to the broader U.S. market. Being limited to an in-state pool means PokerStars will likely not offer the same broad array of cash games and tournaments as in the Silver Age.</li>
<li><b>Age verification:</b> In the Silver Age, PokerStars nominally had a minimum age for players of 18, though the age requirement seemed more a guideline than a rule. The current regulatory environment means strict enforcement of the minimum age of 21 for players, which will require PokerStars to shift from those parts of its prior marketing models directed at younger players. Frankly, the age 21 requirement will make it more difficult for PokerStars to attract new players on a long-term basis, as potential players are exposed to competing games such as e-sports and daily fantasy sports which do not have the same minimum age requirements.</li>
<li><b>Payment processing:</b> Operating in a regulated environment will make moving money onto and off of PokerStars easier and more secure than in the Silver Age. But, PokerStars will have to comply with anti-money laundering and tax reporting regulations which may affect players used to the previous shadow economy of the unregulated Silver Age poker world.</li>
<li><b>Speed to market:</b> Deployment of new software and innovative games (<i>e.g.</i>, Rush Poker, and Spin 'N Go Tournaments) may be delayed by the regulatory approval process.</li>
<li><b>Financial market pressures:</b> PokerStars' new owner, Amaya, will face pressure from its shareholders to meet certain financial benchmarks for revenues and earnings. This will impose limits on the amounts PokerStars will be able to invest in marketing campaigns, tournament guarantees, and player rewards. This is true even if PokerStars views New Jersey as worth running short-term losses to establish a strong market presence, and even if spillover effects such as improving its standing in other states are factored into the equation. At some point, even PokerStars has to worry about return on equity from its New Jersey operation.</li>
</ul>Of course, in the regulated New Jersey market, <i>every</i> poker site will have to contend with the same set of regulatory issues. There is no reason to think PokerStars will have trouble adjusting to the new market conditions. But players expecting a return to the Silver Age may be unhappy about some aspects of the regulated version of PokerStars.<br />
<br />
<br />
<b><span style="color: #0b5394;">End of the Line for "Bad Actor" Laws?</span></b><br />
<br />
One important effect of the New Jersey decision to approve PokerStars is that the "<a href="http://www.onlinepokerreport.com/15945/heavyweight-tribal-coalition-says-latest-california-online-poker-bill-is-fatally-flawed/" target="_blank">bad actor</a>" debate may finally be put to rest. Immediately after Black Friday, there were strong policy reasons for legislators to cite in support of keeping PokerStars out of the U.S. market. After all, PokerStars had arguably (unquestionably, outside the poker community echo chamber) offered unlicensed gaming in violation of many state and federal laws, and had allegedly engaged in legally questionable practices in processing player fund deposits, all of which gave it an unfair advantage over companies which had followed the law strictly and stayed out of the U.S. market.<br />
<br />
Nearly five years post-Black Friday, those arguments are obsolete, having been overtaken by events. PokerStars' competitors have enjoyed a two-year advantage in establishing a presence in the New Jersey market. More importantly, the sale of PokerStars to Amaya marked the exodus of indicted PokerStars founder Isai Scheinberg and other top executives. Consistent with how Nevada and New Jersey <a href="http://www.onlinepokerreport.com/13808/mgm-nj-return-bodes-well-for-pokerstars/" target="_blank">regulators have treated other gaming licensees</a> with connections to individuals with sketchy legal issues, Amaya's clean record should make PokerStars a suitable operator in every state ... but for the impact of politics.<br />
<br />
The bad actor (and related "tainted assets" provisions) have been incorporated into Nevada law and have most recently played a <a href="http://www.onlinepokerreport.com/15945/heavyweight-tribal-coalition-says-latest-california-online-poker-bill-is-fatally-flawed/" target="_blank">pivotal role</a> in blocking passage of an online poker legalization bill in California. Such provisions have rightly been criticized as being economic protectionism for brick-and-mortar and tribal gaming interests dressed up in consumer protection and suitability clothing. But such arguments carried the veneer of legitimacy so long as the company founder remained under federal indictment. Now, with a respected state gaming board having investigated and given its stamp of approval to the new Amaya version of PokerStars, the bad actor bluff has effectively been called. The bad actor issue has always been more a political than a legal issue, but those seeking bad actor provisions will find it difficult to continue to argue that PokerStars is unsuitable in the face of the New Jersey DGE licensing decision.<br />
<br />
<br />
<b><span style="color: #0b5394;">Conclusion</span></b><br />
<br />
The return of PokerStars to the United States market is unquestionably good for poker. Yet, PokerStars is burdened with the unrealistic expectation of returning online poker to the Silver Age, when million dollar tournament guarantees fell like manna from heaven, and rakeback flowed like milk and honey. It's simply unfair to saddle PokerStars with such a fevered vision. Far better to appreciate the return of PokerStars for what it is—an important step forward as online poker moves into the Modern Age as a regulated, legitimate, and accepted part of the American gaming experience.Grange95http://www.blogger.com/profile/01857460215043659894noreply@blogger.com4tag:blogger.com,1999:blog-1169281096117913024.post-89150819552891359582015-08-06T20:22:00.001-05:002015-08-06T20:25:17.797-05:00Will the Supreme Court Finally Play a Hand of Poker?For more than a decade, many online poker advocates have chased a <a href="http://craakker.blogspot.com/2010/04/tilting-at-poker-windmills.html" target="_blank">quixotic dream</a> of having poker declared legal in various states or even throughout the United States by judicial fiat. The ultimate dream was a favorable ruling from the Supreme Court of the United States (SCOTUS) which would sweep away legal prohibitions against poker. Yet the path to SCOTUS has proved tough to navigate for poker advocates. Prior to Black Friday, the <a href="http://theppa.org/" target="_blank">Poker Players Alliance</a> (PPA) brought an ill-considered court challenge to Washington state's ban on online gambling (the <i><a href="http://craakker.blogspot.com/2010/05/pokers-terrible-horrible-no-good-very_24.html" target="_blank">Rousso</a></i> case), a challenge swiftly and <a href="http://craakker.blogspot.com/2010/09/down-goes-rousso-washington-supreme.html" target="_blank">predictably rejected</a> by the Washington supreme court. Despite asserting a federal constitutional argument for the legalization of poker, the PPA <a href="http://craakker.blogspot.com/2010/12/ppa-throws-in-towel-on-rousso-v-state.html" target="_blank">chose not to pursue an appeal</a> to SCOTUS, recognizing—belatedly—the futility of their case. More recently, poker advocates' hopes were dashed when SCOTUS <a href="http://craakker.blogspot.com/2014/02/garnishing-turd-part-iv-dicristina-ends.html" target="_blank">rejected an appeal</a> of the Second Circuit's <a href="http://craakker.blogspot.com/2013/08/dicristina-midnight-strikes-for-pokers.html" target="_blank"><i>DiCristina</i> decision</a> which held the federal Illegal Gambling Business Act applied to poker.<br />
<br />
Poker may soon get its day in court, and in front of SCOTUS, to boot. Two recent decisions by the Seventh and Ninth Circuit Courts of Appeal have created a scenario where SCOTUS could reasonably feel compelled to confront the legality of poker head on. There is one catch, however. The cases do not involve online poker or even poker in general. Rather, the issue raised in these cases is whether states which prohibit poker must nonetheless permit poker at Indian tribal casinos within their borders.<br />
<br />
<br />
<b><span style="color: #0b5394;">I. <i>Cabazon </i>and the IGRA</span></b><br />
<br />
The law governing the regulation of Indian gaming ranges from complex (being charitable) to messy (being blunt). This complexity arises from the concept of <i><a href="https://en.wikipedia.org/wiki/Tribal_sovereignty_in_the_United_States" target="_blank">sovereignty</a></i>, by which Indian tribes retain significant control and authority to govern their people and lands. Indian tribal sovereignty, generally speaking, is co-equal to the sovereignty of the states, and can only be limited by Congress. So, a state cannot enforce its laws on tribal lands without an explicit grant of authority from Congress to do so.<br />
<br />
Tribal sovereignty became a key issue in the realm of gaming in 1987, when SCOTUS decided <i><a href="http://caselaw.findlaw.com/us-supreme-court/480/202.html" target="_blank">California v. Cabazon Band of Mission Indians</a></i>. In <i>Cabazon</i>, the Court was confronted with the issue of whether California could enforce its state gaming laws to prohibit bingo and poker games conducted in casinos and card rooms on tribal lands. The Court held that, because California permitted a lottery, parimutuel horse betting, and poker rooms, the state's gaming laws were regulatory (civil) rather than prohibitory (criminal) in nature. Thus, there was no basis for California to intrude on tribal sovereignty and enforce its gaming regulations on tribal lands.<br />
<br />
In response to <i>Cabazon</i>, Congress promptly passed the <a href="https://www.law.cornell.edu/uscode/text/25/chapter-29" target="_blank">Indian Gaming Regulatory Act</a> (IGRA). Pursuant to IGRA, gaming is divided into three classifications. Class I gaming is limited to certain ceremonial games with modest prizes; Indian tribes retain full authority to regulate such games. Class II gaming includes bingo and pull-tabs, and also includes non-banked card games which are authorized by the state where the tribal lands are located. Indian tribes retain authority to regulate Class II gaming, subject to oversight by the National Indian Gaming Commission (NIGC). Class III gaming includes all other forms of gaming, including all slot machines and house-banked table games associated with traditional casino gaming. Class III gaming can only be conducted on tribal lands pursuant to a compact between the tribe and the state.<br />
<br />
Under the IGRA scheme, poker is an obvious fit for Class II gaming in states which authorize poker to be played in card rooms or casinos. In those states, tribes may offer poker at tribal card rooms and casinos within the same general limits on hour of operations and wagering (<i>e.g</i>., limits on bet or pot sizes) as imposed by the state for non-tribal poker rooms. In states which do not authorize poker, however, poker is considered Class III gaming, and tribes wishing to offer poker must do so, if at all, pursuant to a compact with the state.<br />
<br />
As it turns out, drawing the line between regulating poker as Class II or Class III gaming is more difficult in practice than the IGRA contemplated. In keeping with American tradition, the issue has found its way to court.<br />
<br />
<br />
<b><span style="color: #0b5394;">II. The Seventh Circuit—<i><a href="http://www.indianz.com/IndianGaming/2015/04/30/14-2529.pdf" target="_blank">Wisconsin v. Ho-Chunk Nation</a> </i>(April 29, 2015)</span></b><br />
<br />
Wisconsin has compacts with several Indian tribes, permitting them to offer Class III gaming so long as gaming is approved by referendum in the county where the tribe intends to offer gaming. Dane County (Madison) voters rejected a referendum on Class III gaming in 2004. The Ho-Chunk Nation subsequently began offering electronic poker (traditional poker played in-person at electronic tables without a live dealer or physical chips) at its Madison casino, asserting poker was a Class II game. Wisconsin sued in federal court, requesting an injunction prohibiting poker at the casino, asserting it was a Class III game. The district court agreed with the State, and the Nation appealed.<br />
<br />
In <a href="http://www.indianz.com/IndianGaming/2015/04/30/14-2529.pdf" target="_blank">analyzing the issue</a>, the Seventh Circuit first looked at the definition of Class II gaming in IGRA:<br />
<blockquote>
(A) The term “class II gaming” means—<br />
....<br />
(ii) card games that—<br />
(I) are explicitly authorized by the laws of the State, or<br />
(II) are not explicitly prohibited by the laws of the State and are played at any location in the State,<br />
<br />
but only if such card games are played in conformity with those laws and regulations (if any) of the State regarding hours or periods of operation of such card games or limitations on wagers or pot sizes in such card games.<br />
<br />
<a href="https://www.law.cornell.edu/uscode/text/25/2703" target="_blank">25 U.S.C. § 2703(7)(A)(ii)</a></blockquote>
The interesting thing about Wisconsin is that poker is not only banned by the state's <a href="http://docs.legis.wisconsin.gov/statutes/statutes/945.pdf" target="_blank">broad gambling statute</a>, it is also banned by the state constitution. In fact, the Wisconsin state constitution specifically authorizes a lottery, bingo, and parimutuel on-track betting, but explicitly prohibits casino gaming and identifies numerous prohibited games—including poker—by name (<i>see</i> <a href="https://www.wisconsin.edu/general-counsel/download/contracts/Wisconsin%20Constitution.pdf" target="_blank">Wisconsin State Const. Art. IV, § 24(6)(c)</a>). Pretty compelling case that Wisconsin does not authorize and in fact explicitly prohibits poker, right? Not so fast, said the Seventh Circuit.<br />
<br />
The court noted that the "Indian law canons"—rules for interpreting statutes touching on Indian sovereignty—require that any statutory ambiguities be resolved in favor of the Nation, and that the IGRA be interpreted broadly as protecting the Nation's sovereignty unless Congress had clearly limited that sovereignty. Consequently, the court determined it was compelled to read the definition of Class II gaming in IGRA § 2703 in conjunction with the regulatory provisions of IGRA § 2710 which provides:<br />
<blockquote>
(1) An Indian tribe may engage in, or license and regulate, class II gaming on Indian lands within such tribe's jurisdiction, if--<br />
(A) such Indian gaming is located within a State that permits such gaming for any purpose by any person, organization or entity (and such gaming is not otherwise specifically prohibited on Indian lands by Federal law) ....<br />
<br />
<a href="https://www.law.cornell.edu/uscode/text/25/2710" target="_blank">25 U.S.C. § 2710(b)(1)(A)</a></blockquote>
Well, again, if Wisconsin's constitution and statutes ban poker, the state can hardly be "permitting" poker to be played, right? The court, however, felt the issue was not so clear cut. Instead, the court felt compelled to apply the <i>Cabazon</i> regulatory/prohibitory analysis to Wisconsin's ban on poker, even though the IGRA was enacted after <i>Cabazon</i> was decided. In the court's view, Congress wrote the IGRA with <i>Cabazon</i> in mind, and did nothing to reject <i>Cabazon</i>'s regulatory/prohibitory approach. In fact, the court noted that some legislative history suggested Congress intended for the <i>Cabazon</i> analysis to be used in implementing the IGRA.<br />
<br />
Once the court applied the <i>Cabazon</i> regulatory/prohibitory analysis, the jig was up. The court noted that Wisconsin had moved away from a complete prohibition on gambling in favor of a system where certain types of gambling—notably the lottery and parimutuel betting on horse and dog races—were permitted. Thus, the court determined that the state's endorsement of certain forms of gaming indicated a public policy which favored regulated gaming over a prohibition on gaming. As the court concluded, "Wisconsin has not been willing to sacrifice its lucrative lottery and to criminalize all gambling in order to obtain authority under <i>Cabazon</i> and § 2710(d)(1)(b) to prohibit gambling on Indian lands." Rather, "The establishment of a state lottery signals Wisconsin's broader public policy of tolerating gambling on Indian lands."<br />
<br />
The court also questioned the state's contention that it had fully banned poker. The court noted that, if the state truly had a ban on poker, then a mere municipal referendum could not override the constitution to permit poker on tribal lands. The fact that the state had negotiated with other tribes to permit poker on their tribal lands further undermined the state's position that poker was prohibited as a matter of public policy. Finally, the court noted that in 1999, the state had decriminalized video poker machines in taverns. The state essentially made possession of five or fewer video poker machines subject only to a civil penalty of $500 per machine, and further provided that possession of video poker machines could not be used as a basis for revocation of a liquor license. As the court reasoned: "Wisconsin cannot have it both ways. The state must entirely prohibit poker within its borders if it wants to prevent the Nation or any other Indian tribe from offering poker on the tribe's sovereign lands." Thus, the court ultimately concluded: <br />
<blockquote class="tr_bq">
"[T]he states lack statutory authority to deny an Indian tribe the ability to offer gaming that is roughly equivalent to what the state allows for its residents. A state must criminalize a gambling activity in order to prohibit the tribe from engaging in it. Wisconsin does not criminalize nonbanked poker; it decriminalized that type of gaming in 1999. IGRA thus does not permit it to interfere with Class II poker on tribal land. This means that the Ho-Chunk Nation has the right to continue to offer nonbanked poker at its Madison facility."</blockquote>
The Seventh Circuit's conclusion that Wisconsin's explicit constitutional and statutory ban on poker is less than a prohibition of poker might be viewed by non-lawyers as something of a head-scratcher. But in the realm of statutory interpretation, words and phrases often take on odd meanings and peculiar usages. Still, the court's reasoning is questionable in places; we will look at some criticisms of the decision in Section IV.<br />
<br />
<br />
<b><span style="color: #0b5394;">III. The Ninth Circuit—<i><a href="http://cdn.ca9.uscourts.gov/datastore/opinions/2015/07/22/14-35753.pdf" target="_blank">Idaho v. Coeur d'Alene Tribe</a></i> (July 22, 2015)</span></b><br />
<br />
Moving westward, a similar dispute arose between the state of Idaho and the Coeur d'Alene Tribe over whether poker was Class II or Class III gaming. Like Wisconsin, Idaho's constitution and gaming statutes specifically permit only charitable bingo and raffles, a state lottery, and parimutuel race betting (<i>see</i> <a href="http://legislature.idaho.gov/idstat/IC/ArtIIISect20.htm" target="_blank">Idaho State Const. Art. III, § 20</a>). Also, several traditional casino games, including poker, are explicitly named as prohibited games in both the state constitution and its enabling statute:<br />
<blockquote>
GAMBLING DEFINED. "Gambling" means risking any money, credit, deposit or other thing of value for gain contingent in whole or in part upon lot, chance, the operation of a gambling device or the happening or outcome of an event, including a sporting event, the operation of casino gambling including, but not limited to, blackjack, craps, roulette, <b>poker</b>, bacarrat [baccarat] or keno, but does not include:<br />
<br />
(1) Bona fide contests of skill, speed, strength or endurance in which awards are made only to entrants or the owners of entrants; ....<br />
<br />
<a href="http://legislature.idaho.gov/idstat/Title18/T18CH38SECT18-3801.htm" target="_blank">Idaho Code § 18-3801</a></blockquote>
In the early 1990s, the state and the Tribe litigated a disagreement as to whether the state's adoption of a lottery and parimutuel betting had opened the door for broad Class III gaming on tribal lands pursuant to their gaming compact. The <a href="http://law.justia.com/cases/federal/district-courts/FSupp/842/1268/1461338/" target="_blank">Idaho federal district court determined</a> that the state constitution authorized only charitable bingo and raffles, a state lottery, and parimutuel betting, and that the state's public policy clearly prohibited all other forms of gaming, including Class III gaming. Thus, the Tribe was barred from offering Class III gaming.<br />
<br />
In 2014, the Tribe announced plans to offer live poker—specifically, Texas Hold 'Em tournaments—at a casino located on its tribal lands. The state promptly brought suit in federal court and obtained an injunction prohibiting the Tribe from offering poker. The Tribe appealed to the Ninth Circuit.<br />
<br />
Now, although the <i>Coeur d'Alene</i> case centered on a state constitutional prohibition on poker as had the <i>Ho-Chunk</i> case, the <a href="http://cdn.ca9.uscourts.gov/datastore/opinions/2015/07/22/14-35753.pdf" target="_blank">Ninth Circuit's analysis</a> took an entirely different path than that laid out by the Seventh Circuit. For example, while the Seventh Circuit focused on the history of the IGRA and relied on the Indian law canons to interpret the IGRA, the Ninth Circuit rejected use of the Indian law canons, finding that the critical analysis was interpretation of Idaho's constitution and gaming statute rather than the IGRA. In fact, IGRA § 2710, which was critical to the Seventh Circuit's analysis, is essentially ignored by the Ninth Circuit in its analysis. Similarly, the Seventh Circuit relied heavily on the <i>Cabazon</i> regulatory/prohibitory analytical framework, while the Ninth Circuit ignored <i>Cabazon</i> in its analysis.<br />
<br />
Given the widely divergent analytical path it took, it is hardly a surprise the Ninth Circuit found itself reaching a conclusion diametrically opposed to that of the Seventh Circuit. The Tribe offered three main contentions for why poker was not illegal under Idaho law:<br />
<ul>
<li><b>Poker is a skill game, not gambling.</b> Yes, our old friend, the skill game argument, returns for an encore performance with predictable results. Here, the Tribe argued that the Idaho gambling statute contained a carveout for "bona fide contests of skill, speed, strength or endurance in which awards are made only to entrants or the owners of entrants". Because poker is a skill game (at least in the form of Texas Hold 'Em), the Tribe argued that it should fit into this exemption from the gaming statute. The court rejected this argument, noting that the statute specifically identifies poker as a prohibited form of "casino gambling", and thus, the more general "skill game" exemption could not plausibly be read to permit poker. Further, the court noted that interpreting the statute to permit poker would contravene the state constitutional ban on poker; courts will generally interpret a statute so as to prevent a constitutional conflict.</li>
<li><b>Poker is permitted under a "promotional contests" exclusion to the state gaming statute.</b> Here, the Tribe tried to make use of case law which had held in other states that the authorization of "casino night" charitable events constituted authorization of gaming sufficient to permit tribes to offer Class II gaming. The court, however, noted that the Idaho statute prohibited promotional contests from giving any consideration for such events, which is inconsistent with the offering of real-money poker.</li>
<li><b>The state does not evenly enforce its prohibition on poker.</b> This argument is essentially that because the state admitted it does not always enforce its ban on private poker games (<i>i.e</i>., the state does not prosecute all private poker games known to law enforcement), the state is <i>de facto</i> authorizing or permitting poker to be played within the state. The court rejected the argument, noting that to fit within the IRGA § 2703 definition of Class II gaming, the Tribe must show <i>both </i>that poker "[is] not explicitly prohibited by the laws of the State and [is] played at any location in the State." Although poker might be played within Idaho, it is explicitly prohibited by law, so the Tribe could not establish one of the required statutory elements. The court also found that use of prosecutorial discretion in some cases did not rise to the level of <i><a href="https://en.wikipedia.org/wiki/Desuetude" target="_blank">desuetude</a></i>—the abandonment of a law to the point where it becomes unenforceable—particularly where the state had not disavowed the ban on poker and in fact prosecuted cases under the statute. <b><span style="color: #0b5394;">[FN 1].</span></b></li>
</ul>
The Ninth Circuit also considered and rejected two procedural arguments raised by the Tribe. First, the court found that the dispute over poker could be resolved in court without being submitted to arbitration. Second, the court found that the State-Tribe compact encompassed all Class III gaming, rather than a limited subset of games, such that poker was a game properly covered by the compact and the court had jurisdiction over the current dispute.<br />
<br />
Based on its analysis of Idaho's prohibition of poker, the Ninth Circuit ultimately concluded that poker was Class III gaming under Idaho law and the IGRA, and thus the Tribe had no right to offer poker at its casino.<br />
<br />
<br />
<b><span style="color: #0b5394;">IV. Wisconsin's Petition for Writ of Certiorari (July 28, 2015)</span></b><br />
<br />
Wisconsin has filed a <a href="http://www.doj.state.wi.us/sites/default/files/2015-news/state-of-wisconsin-v-ho-chunk-nation-us-supreme-court-petition-20150728.pdf" target="_blank">petition for writ of certiorari</a>, asking SCOTUS to review the case. Appeals to SCOTUS are discretionary, so the state must persuade the Court to accept the case ("grant cert" in legal lingo). The state has identified three main arguments for the Court to review.<br />
<br />
For its first assigned error, the state asserts the Seventh Circuit erred in applying the <i>Cabazon</i> regulatory/prohibitory test in analyzing the IGRA's definitions of Class II and Class III gaming. As the state points out, <i>Cabazon</i> interpreted an older federal Indian regulatory law (Public Law 280) which is not at issue in the current litigation. In fact, <i>Cabazon</i> predated the IGRA (and the IGRA was a Congressional response to <i>Cabazon</i>). So, the proper focus for interpreting the IGRA is the language of the IGRA itself, and <i>Cabazon</i> has no role to play in that analysis.<br />
<br />
The state then criticizes the Seventh Circuit's analysis of the IGRA. The state notes that IGRA § 2703 defines Class II gaming as gaming which is either expressly authorized by the state, or not explicitly prohibited. Because poker is explictly prohibited by the state constitution and gaming statute, the state contends the IGRA analysis should end at that point with poker not qualifying as Class II gaming. In the state's view, the language of the IGRA is clear and resolves the issue in its favor.<br />
<br />
The state also took issue with other parts of the Seventh Circuit's analysis of the IGRA. The state notes that whether the state permitted poker via tribal gaming compacts was irrelevant. The IGRA only looks to whether poker is authorized by state law, and a gaming compact is a contract, not a state law. Similarly, the state's limited decriminalization of video poker machines was irrelevant to the IGRA analysis because video poker is house-banked and thus is substantially different than regular poker, which remains illegal under Wisconsin law. Finally, the state asserts the Seventh Circuit's analysis was faulty because the court relied on IGRA § 2710(b)(1)(A) in defining poker as Class II gaming. In the state's view, Class II gaming is defined by IGRA § 2703, while IGRA § 2710 imposes an additional condition on tribes seeking to offer Class II gaming. As the state puts it, by looking to IGRA § 2710 to define Class II gaming, "the Seventh Circuit's analysis placed the cart before the horse."<br />
<br />
For its second assigned error, the state takes issue with the Seventh Circuit's use of the "Indian law canons" in interpreting the IGRA. Recall that the Indian law canons require a court to interpret ambiguous statutes in the light most favorable to preserving Indian tribal sovereignty. The state asserts that use of the canons was improper where the text of the IGRA is unambiguous. Instead, the proper analysis is to give full effect to the terms of the statute, which, as previously discussed, means that poker in Wisconsin does not fit within the definition of Class II gaming because the state prohibits poker entirely.<br />
<br />
For its third assigned error, the state notes that the Seventh Circuit's decision conflicts with the Ninth Circuit's decision in <i>Coeur d'Alene</i>. Now the Seventh Circuit has no obligation to follow a Ninth Circuit decision. And, obviously, the <i>Coeur d'Alene </i>decision was entered three months after the <i>Ho-Chunk</i> decision, so the Seventh Circuit had no opportunity to review and analyze the Ninth Circuit's decision. In fact, one could argue that the Ninth Circuit should have considered and explicitly applied or distinguished the Seventh Circuit's <i>Ho-Chunk</i> analysis. In any event, Wisconsin argues that the Ninth Circuit got it right in <i>Coeur d'Alene</i> by analyzing the IGRA so that the definition of Class II gaming is limited to the express terms of § 2703, without reference to § 2710, and without use of the Indian law canons or application of the <i>Cabazon</i> regulatory/prohibitory test.<br />
<br />
<br />
<b><span style="color: #0b5394;">V. Will SCOTUS Intervene?</span></b><br />
<br />
As noted earlier, SCOTUS has complete discretion whether to accept cases on appeal. When it comes to granting cert, SCOTUS is the ultimate nit, the cranky old guy who sits at the poker table all day to rack up hours for a comped buffet and a shot at the bad beat jackpot. But when it comes to actually playing poker, he just folds everything except Aces and Kings. As I pointed out in the context of the <a href="http://craakker.blogspot.com/2014/01/garnishing-turd-dicristina-goes-to.html" target="_blank"><i>DiCristina</i> petition for cert</a>:<br />
<blockquote>
[SCOTUS] receives in excess of 7,000 petitions for writs of certiorari every year, yet takes fewer than 100 cases. Even after adjusting for the <i><a href="https://en.wikipedia.org/wiki/In_forma_pauperis" target="_blank">in forma pauperis</a></i> petitions filed by indigent criminal defendants and prisoners which are much less likely to be granted cert, the Supreme Court still grants cert in <a href="http://www.reedsmith.com/files/Publication/69c3a6b3-7831-45da-b86e-73f13bc2a1c0/Presentation/PublicationAttachment/02277900-671e-4a59-baa1-cde13c77339a/Deciding%20When%20to%20Go%20Forward.pdf" target="_blank">less than 4% of cases</a>. The Supreme Court is not interested in merely correcting legal errors—that is the role of the Circuit Courts of Appeal and state appellate courts. Instead, the Supreme Court's task is to <a href="https://www.law.cornell.edu/rules/supct/rule_10" target="_blank">select cases</a> which either pose important questions of federal law or which resolve significant conflicts between lower appellate courts.</blockquote>
As I <a href="http://craakker.blogspot.com/2014/02/garnishing-turd-part-iii-will-scotus.html" target="_blank">correctly predicted</a>, SCOTUS did not find <i>DiCristina</i> worthy of cert, most likely because there was no split among the Circuits as to the proper interpretation of the Illegal Gambling Business Act and because determining whether poker was covered by the IGBA did not present an important question of federal law.<br />
<br />
The state of Wisconsin, however, has a much better shot of getting SCOTUS to grant cert in <i>Ho-Chunk</i>. First, SCOTUS has historically considered Indian tribal sovereignty issues to be important questions of federal law, and Indian law issues regularly appear on the SCOTUS docket. In fact, in the Court's most recent Term, the Court issued an important tribal sovereign immunity <a href="http://www.scotusblog.com/case-files/cases/michigan-v-bay-mills-indian-community/" target="_blank">decision arising out of the IGRA</a>, holding that the federal courts had no jurisdiction over tribal gaming conducted off of tribal lands. Considering how central the Class II / Class III gaming issue is to the operation of the IGRA, SCOTUS might well grant cert in <i>Ho-Chunk</i> solely to resolve yet another significant sovereignty issue created by the IGRA.<br />
<br />
The odds of SCOTUS granting cert in <i>Ho-Chunk</i> are augmented by what is at least arguably a Circuit split on the proper method for analyzing whether a game explicitly barred by a state constitution and statute is Class II or Class III gaming. Certainly the Seventh and Ninth Circuits took widely divergent analytical paths to reach opposite conclusions. But, those differences are due in large part to how the cases were briefed and argued. In <i>Coeur d'Alene</i>, the Tribe <a href="https://turtletalk.files.wordpress.com/2014/10/coeur-dalene-tribe-opening-brief.pdf" target="_blank">did not argue</a> that the <i>Cabazon</i> regulatory/prohibitory test should be applied. In fact, the Tribe only referenced <i>Cabazon</i> briefly, and then only with respect to the issue of interpreting the scope of the underlying State-Tribe gaming compact. Also, although the Tribe in <i>Coeur d'Alene</i> did argue in passing that the Indian law canons and IGRA § 2710 supported its position, the centerpiece of its argument was the "skill game" exemption in the Idaho gaming statute, an argument missing from the <i>Ho-Chunk</i> decision. Frankly, in terms of arguments and analysis, the <i>Ho-Chunk</i> and <i>Coeur d'Alene</i> decisions are the proverbial ships passing in the night. Still, given the factual similarities in the cases, SCOTUS may view the divergent results as a sufficient sign of a Circuit split in analyzing the Class II / Class III gaming question to merit granting cert to provide uniform resolution of that issue.<br />
<br />
An additional factor that might weigh in favor of SCOTUS granting cert in <i>Ho-Chunk</i> is if a petition for cert is also filed in <i>Coeur d'Alene</i>. Multiple petitions for cert on the same issue out of different Circuits would highlight for the Court the importance of the issue raised, and would demonstrate the frequency at which the issue is confronted by the lower courts. A petition for cert in <i>Coeur d'Alene</i> would improve the chances of SCOTUS granting cert in both cases (in such situations, the Court could either consolidate the cases for joint consideration, or could stay one case pending its decision in the other case).<br />
<br />
Should SCOTUS grant cert in <i>Ho-Chunk</i>, its ultimate decision on the merits will likely not have a significant impact on the poker industry as a whole. At most, the decision would potentially permit poker to be offered by tribal casinos and card rooms in those relatively few states which currently prohibit poker. The language of any such decision might also shed indirect light on the issue of whether tribes can offer online poker hosted on tribal lands but involving players outside tribal lands, an issue where the Class II / Class III gaming analysis and tribal sovereignty are in full play. The tribal-based online poker issue, however, will almost certainly be the subject of its own round of <a href="http://www.onlinepokerreport.com/wp-content/uploads/2014/12/santa-ysabel-TRO-decision.pdf" target="_blank">intense litigation</a>, should a state and tribe come into conflict on that issue (<i>e.g.</i>, the recent and ongoing dispute between <a href="http://www.onlinepokerreport.com/13067/santa-ysabel-private-table-online-poker/" target="_blank">California and the Santa Ysabel tribe</a>).<br />
<br />
In any event, the smart money, as always, is on SCOTUS denying cert. Yet, the odds of SCOTUS granting cert in <i>Ho-Chunk</i> are not nearly as long as for most cases. <i>Ho-Chunk</i> is a potentially attractive case for SCOTUS to take up, and it will certainly be given serious consideration by the Court. Don't be surprised if Justice Scalia gets all "<a href="http://www.npr.org/sections/itsallpolitics/2015/06/30/418645881/jiggery-pokery-the-justices-have-a-punny-way-with-words" target="_blank">jiggery pokery</a>" with the IGRA in the Court's upcoming Term.<br />
<br />
<div style="text-align: center;">
<b><span style="color: #0b5394;">* * * * *</span></b></div>
<b><span style="color: #0b5394;"><br />
</span></b> <b><span style="color: #0b5394;">[FN 1]</span></b> The Tribe's prosecutorial discretion argument was founded primarily on a pair of related misdemeanor cases pending since 2013 in Ada County, Idaho (<i>State v. Michael Kasper & Jared Levsinger</i>, Case Nos. CR-MD-2013-0009859, CR-MD-2013-0009864) (<i>See</i> <a href="https://turtletalk.files.wordpress.com/2014/10/coeur-dalene-tribe-opening-brief.pdf" target="_blank">Ninth Circuit Brief of State of Idaho</a>, pp. 35-36). The PPA supported the defendants by trotting out their usual "skill game" dog and pony show, complete with expert witnesses. During arguments on the defendants' motion to dismiss, the deputy city attorney serving as prosecutor suggested that poker games between "friends and family" would not be prosecuted. The magistrate found this degree of prosecutorial discretion was in violation of Idaho's constitutional and statutory gaming policy provisions and made the statute void for vagueness <i>as applied</i> to the defendants. This analytical approach is consistent with current American law, where the theory of desuetude has been abandoned by nearly every state (the notable exception being West Virginia), but where excessive prosecutorial discretion can be a factor in finding a statute void for vagueness when applied in specific situations.<br />
<br />
According to the Idaho state court online docket, the <i>Kasper-Levsinger</i> cases are still open, with a hearing having been held on July 21, 2015. The cases are mildly interesting, though of little practical impact beyond the disposition of those individual charges. Still, they will be the subject of a separate blog post in the near future.<br />
<br />Grange95http://www.blogger.com/profile/01857460215043659894noreply@blogger.com3tag:blogger.com,1999:blog-1169281096117913024.post-60309739747466874792015-04-06T23:30:00.000-05:002015-04-07T07:39:26.205-05:00Who Will Give the PPA a Hand?In an interesting and unintentional homage to the "throwback Thursday" (<a href="https://twitter.com/search?f=realtime&q=%23TBT&src=tyah" target="_blank">#TBT</a>) social media meme, the Poker Players Alliance (PPA) last week launched an <a href="https://petitions.whitehouse.gov/petition/protect-internet-freedom-oppose-efforts-congress-force-states-shut-down-state-authorized-poker-gaming-sites" target="_blank">online petition</a> asking the White House to "pledge to veto RAWA [the Restoration of America's Wire Act bill]." As reported by Steve Ruddock at <a href="http://www.onlinepokerreport.com/16340/white-house-rawa-online-poker-petition/" target="_blank">Online Poker Report</a>: "If the petition can collect 100,000 signatures in 30 days it would compel the White House to address Jason Chaffetz's <a href="http://www.onlinepokerreport.com/11725/graham-chaffetz-introduce-anti-online-gambling-bill/">2015 Restoration of America’s Wire Act bill</a> that seeks to ban several forms of online gambling including online poker."<br />
<br />
The PPA petition created a <a href="https://mobile.twitter.com/Grange95/status/584045357149069312" target="_blank">sense of déjà vu</a> because the PPA had previously filed another <a href="https://petitions.whitehouse.gov/petition/protect-consumers-create-jobs-and-generate-revenue-licensing-and-regulating-online-poker" target="_blank">petition</a> to the White House in the fall of 2011, asking the Obama Administration to endorse the legalization and regulation of online poker. When the Administration <a href="https://petitions.whitehouse.gov/response/what-we-have-say-about-online-poker" target="_blank">issued a response</a> in 2012, my <a href="http://craakker.blogspot.com/2012/05/inertia-poker-players-can-believe-in.html?m=1" target="_blank">view was</a>:<br />
<blockquote>
"[T]he statement is pretty much a standard political puff piece, a souped up version of a polite blow-off letter from a legislator to a constituent on an issue the legislator doesn't care about. The statement basically restates the current status of the law—federal law bans sports betting, states can authorize iPoker and other forms of iGaming, and violations of state iGaming laws may also be a violation of federal law. The statement then placates any social conservatives or law and order types by ticking off the usual laundry list of concerns—addictions, minors, fraud, and money laundering. <br />
<br />
....<br />
<br />
In short, I think this statement is utterly inconsequential, and was intended to be so. Of course, the poker world will seize on it to support their collective delusion that iPoker legalization is a major political issue."</blockquote>
To be blunt, the 2011 PPA petition was politically pointless and an utter waste of time. The 2015 PPA petition is equally irrelevant.<br />
<br />
<b><span style="color: #0b5394;">Why the PPA's 2011 Petition Was a Failure</span></b><br />
<br />
Not surprisingly, the PPA views its 2011 petition as a "<a href="http://forumserver.twoplustwo.com/showpost.php?p=46539452&postcount=13256" target="_blank">success</a>". And, some in the poker community take the view that the 2011 petition was a political win for online poker advocates. This view, as <a href="http://www.onlinepokerreport.com/16340/white-house-rawa-online-poker-petition/" target="_blank">summarized by Steve Ruddock</a>, is essentially that the White House response in 2012 signaled a supportive view of legalized online poker / online gaming (emphasis added):<br />
<blockquote>
"President Obama hasn’t made it clear where he stands on gambling (particularly online gaming) issues, but <b>a careful reading of the 2012 response shows the White House strongly leaning towards online gambling regulation being up to the individual states.</b>"</blockquote>
Yet nothing in the 2012 White House response supports this conclusion. The White House response merely restated, in lay terms, the substance of the <a href="http://www.justice.gov/sites/default/files/olc/opinions/2011/09/31/state-lotteries-opinion.pdf" target="_blank">Office of Legal Counsel's (OLC) opinion</a> that the Wire Act applied only to sports gambling, and that state law otherwise generally regulated gambling. In other words, the White House response merely regurgitated the OLC's view as to the <i>current status of the law</i>; it was a statement of <i>legal analysis</i>.<br />
<br />
Notably absent from the 2012 White House response was any statement of what the White House believed the law <i>should be</i> with respect to online gaming. In other words, there was no indication of the White House's <i>policy position</i> with respect to online gaming.<br />
<br />
So if the 2012 White House response does not provide the Obama Administration's official online gaming policy position. where do poker advocates get the curious view that the current Administration is in favor of online gaming? Certainly not from the Administration's <a href="http://www.justice.gov/sites/default/files/olc/opinions/2011/09/31/state-lotteries-opinion.pdf" target="_blank">OLC Wire Act opinion</a>, which carried this title:<br />
<blockquote class="tr_bq">
"WHETHER PROPOSALS BY ILLINOIS AND NEW YORK TO USE THE INTERNET AND OUT-OF-STATE TRANSACTION PROCESSORS TO SELL LOTTERY TICKETS TO IN-STATE ADULTS VIOLATE THE WIRE ACT"</blockquote>
Though it appears to be forgotten in poker circles, the entirety of the OLC Wire Act opinion was directed to the legality of online <i>lottery</i> sales. Also noteworthy is that the two states mentioned in the OLC opinion<span style="background-color: rgba(255, 255, 255, 0);">—New York and Illinois—are Democratic strongholds, with President Obama and several of his key Administration officials hailing from or otherwise strongly connected to Illinois (including notably former Obama Chief of Staff and current Chicago Mayor <a href="http://en.wikipedia.org/wiki/Rahm_Emanuel" target="_blank">Rahm Emanuel</a>). To the extent politics entered the equation, the OLC opinion was a sop to the lottery industry.</span><br />
<br />
So, the idea that the OLC Wire Act opinion is a statement of the Obama Administration's policy position on online poker is unsupported by the language of the OLC opinion, because it<span style="background-color: rgba(255, 255, 255, 0);"> is utterly silent on the poker question.</span> Now the OLC's analysis clearly supports a legal conclusion that online poker does not violate the Wire Act for the same reasons that online lotteries do not violate the Wire Act. Nonetheless, the OLC opinion remains merely a statement of what the law <i>is </i>(analysis), not what the law <i>should be</i> (policy).<br />
<br />
As I noted back in 2012, the Obama Administration "does not give a flying pig about internet poker or gambling." Nothing that has happened in the subsequent three years changes my view. In fact, the lack of any Administration policy statement regarding online gaming at any point in the past six-plus years only grows more ominous when one considers that the federal online gaming debate has shifted against the pro-legalization movement. At the time of the 2011 PPA petition and the 2012 White House response, Congress was considering an online gaming <a href="http://www.politico.com/news/stories/1011/65823.html" target="_blank">legalization bill</a> championed by Representatives Barney Frank and Joe Barton in the House, and later that year considered a <a href="http://www.wsj.com/articles/SB10001424127887323717004578158174125937486" target="_blank">similar bill</a> sponsored by Senators Harry Reid and John Kyl in the Senate. Now, three years later, Representative Frank and Senator Kyl have retired, the House just held a <a href="http://www.onlinepokerreport.com/16225/rawa-hearing-features-no-regulators/" target="_blank">sub-committee hearing</a> on a bill (RAWA) to ban all online gaming (with <a href="http://www.onlinepokerreport.com/16235/lottery-rawa-carveout-possible-says-graham/" target="_blank">notable carveouts</a> for lotteries and horse racing), and Senator Reid has <a href="http://vegasinc.com/business/gaming/2015/apr/03/reid-striving-add-ban-online-gaming-his-political-/" target="_blank">gone on record</a> supporting an online gaming ban. The federal online gaming environment has gone from temperate to downright frigid.<br />
<br />
It would not be fair to blame the PPA's 2011 petition for the disintegration of the federal online gaming legalization effort; RAWA is the <a href="http://www.onlinepokerreport.com/11725/graham-chaffetz-introduce-anti-online-gambling-bill/" target="_blank">noxious by-product</a> of a broader set of toxic political forces. Yet, in evaluating the PPA's 2011 petition against its modest goal of advancing the position of online gaming by obtaining a supportive policy statement from the Obama Administration, the 2011 petition was, charitably speaking, somewhere between "inneffective" and "irrelevant". In any event, given the lack of any policy statement, it is foolish to pretend to know how the Administration views online gaming, and it is foolhardy to speculate that the Administration either supports online gaming legalization or is opposed to RAWA.<br />
<br />
<b><span style="color: #0b5394;">Why the New PPA Petition Is Pointless</span></b><br />
<br />
So, if the Obama Administration's policy views on online gaming are unknown, won't the new PPA petition force the Administration to take sides in the debate once and for all? Hardly.<br />
<br />
Here's the thing. The Administration clearly has no skin in the game either way. Online gaming is simply not a priority for the Administration, either pro or con. So, even if forced to respond to the PPA petition (which appears a dubious longshot), the Administration is almost certain to put out yet another non-responsive response, taking neither side of the debate. In other words, at best we will get a rehash of the Administration's non-committal response to the 2011 PPA petition.<br />
<br />
From the Administration's perspective, there is no political advantage to taking sides in the debate at present. Taking sides now when RAWA or other online gaming legislation appear unlikely to advance simply creates unnecessary enemies, while distracting from the Administration's priority legislative goals. If and when RAWA or other online gaming legislation passes out of one of the Congressional chambers, the Administration will have plenty of time to weigh the most politically advantageous response. The Administration might support a RAWA-style online gaming ban as a reward to Democratic Senate leader Harry Reid, who has done yeoman's work in advancing the Administration's agenda the past six years. Or, the Administration could threaten to veto a RAWA-style online gaming ban as a bargaining chip to extract concessions on issues where the Administration has a stronger interest. The Administration could even agree to sign RAWA into law in exchange for something<span style="background-color: rgba(255, 255, 255, 0);">—say, </span>passage of a bill or approval of a judicial nominee<span style="background-color: rgba(255, 255, 255, 0);">—the Administration truly values, or as part of a compromise package of "must-pass" legislation.</span><br />
<span style="background-color: rgba(255, 255, 255, 0);"><br />
</span> The 2015 PPA petition also is unlikely to gain a supportive reply from the Obama Administration because of a key ideological issue<span style="background-color: rgba(255, 255, 255, 0);">—"states' rights". The PPA petition declares: "Regardless of personal opinions on wagering, the Tenth Amendment directs that states decide such matters, not Congress." The trouble with this language is that it is ideologically charged. In constitutional jurisprudence, "<a href="http://en.m.wikipedia.org/wiki/States%27_rights" target="_blank">state sovereignty</a>" and the <a href="http://en.m.wikipedia.org/wiki/Tenth_Amendment_to_the_United_States_Constitution" target="_blank">Tenth Amendment</a> have historically been invoked by conservatives seeking to invalidate liberal/progressive economic and social policies. From the Great Depression to present, Democrats' major policy initiatives—<i>e.g.</i>, Social Security and other New Deal legislation; the Civil Rights Act; various anti-discrimination laws; wage/hour, and other employee protection legislation; the Affordable Care Act—have been achieved via federal action, generally pursuant to a broad reading of the </span><a href="http://en.m.wikipedia.org/wiki/Commerce_Clause" target="_blank">Commerce Clause</a><span style="background-color: rgba(255, 255, 255, 0);">. Republicans, by contrast, have tended to resist these laws by asserting those issues were reserved to the determination of individual states. Asking a Democratic President—particularly one whose signature policy initiative (the Affordable Care Act) was nearly invalidated on a Tenth Amendment challenge—to endorse a "state's rights" argument limiting the role of Congress in regulating economic activity such as online gaming is like asking a North Carolina fan to root for Duke in the national title game just because they belong to the same conference. It might happen, but don't hold your breath. <b><span style="color: #0b5394;">[FN1].</span></b></span><br />
<br />
The 2011 PPA online poker petition did nothing to clarify the Obama Administration's policy views related to online gaming. There is no reason to expect the 2015 PPA petition to succeed where its 2011 petition failed.<br />
<br />
<b><span style="color: #0b5394;">Why the New PPA Petition Is (Probably) Harmless</span></b><br />
<br />
Now, for the same reasons why the PPA's current petition is destined to fail in its quest to gain support for online gaming from the Obama Administration, the PPA's petition is also unlikely to harm the online gaming cause, either. Essentially, the Administration has an equal incentive to avoid committing to an anti-online gaming position as it does a pro-online gaming position. Again, the most likely<span style="background-color: rgba(255, 255, 255, 0);">—probably inevitable—Administration policy position is a mealy-mouthed non-committal response which allows it to take any position it finds convenient in the unlikely event online gaming legislation (pro or con) ever makes its way out of Congress.</span><br />
<span style="background-color: rgba(255, 255, 255, 0);"><br />
</span> <span style="background-color: rgba(255, 255, 255, 0);">Still, the PPA's petition could backfire in terms of public-relations. Remember, the PPA needs to gin up 100,000 signatures in one month in order to force a response from the Administration. Right now, the petition has just over 3,000 signatures. Yet, in 2011, months after Black Friday destroyed the online poker economy in the United States, when the poker community was presumably most united and most motivated, it took the PPA nearly six months to gather a mere 10,000 signatures for its first petition.</span><br />
<span style="background-color: rgba(255, 255, 255, 0);"><br />
</span> <span style="background-color: rgba(255, 255, 255, 0);">If the PPA falls short of its goal in its current petition campaign, it will walk away with a lot of egg on its face. The PPA likes to brag about its "more than one million members", a membership level it has touted <a href="http://www.pokernews.com/news/2008/04/ppa-tops-million-member-mark.htm" target="_blank">since at least 2008</a> (and during its 2011 White House petition campaign). </span>The potential problem with the current PPA petition is that failure to generate 100,000 signatures in a month undermines the PPA's narrative of broad public support for its position. Worse, failure to garner the requisite signatures would tarnish the PPA's credibility as an advocacy group. If the PPA fails to deliver signatures for what it considers an important initiative, outsiders will be left to wonder about the cause of the failure: Are there substantially fewer active PPA members than advertised? Are PPA members unmotivated? Is there a disconnect between the PPA's leadership and its members?<br />
<br />
<span style="color: #0b5394;"><b>Why Poker Players Should Sign the PPA's Petition</b></span><br />
<br />
There are many political issues which are beyond the influence of individuals or even organized advocacy groups. Many political activities<span style="background-color: rgba(255, 255, 255, 0);">—circulating and signing petitions, attending board meetings, sitting through legislative hearings, contributing to political action committees, volunteering for political campaigns, even the act of voting—are irrational to dispassionate observers who can see that these activities will have no discernible effect on the outcome of the political debate in question. Yet, for some individuals, the mere act of participating in the political process, even if that participation is pointless, provides the salutory effect of making these individuals feel a part of the civic process. For these folks, meaningless action is superior to measured inaction. Raging impotently against the machine is more existential war cry than rational argument.</span><br />
<br />
So it goes for the PPA's latest petition, despite its certain destiny with the trash heap of historical irrelevancy. Signing the PPA petition provides an opportunity for online poker players worked up over RAWA to release some frustration and feel good about themselves, quickly and free from risk, without any long-term commitment. In other words, it's political masturbation.<br />
<br />
If signing the PPA's petition makes you feel good, by all means shoot off a signature.<br />
<br />
<br />
<div style="text-align: center;">
<b><span style="color: #0b5394;">* * * * *</span></b></div>
<br />
<span style="color: #0b5394;"><b>[FN1].</b></span> The appeal to a states' rights argument in the fight against RAWA is a smart decision on a tactical level. Because Republicans tend to favor state regulation over federal regulation (particularly with respect to economic issues), invoking the states' rights rhetoric divides the Republicans into the socially conservative anti-gambling (pro-RAWA) faction and the <a href="https://cei.org/content/federal-gaming-bans-undermine-federalism" target="_blank">anti-federal regulation (anti-RAWA) faction</a> (though many Republican legislators fit comfortably into both camps). Of course, the states' rights rhetoric may become detrimental in the long-term if federal legislation authorizing online gaming once again becomes more politically palatable. But in the short term, a significant division in the Republican ranks over the proper forum for legislating about online gaming is a major stumbling block for the pro-RAWA forces, and online gaming advocates are wise to fan the flames of that division ("the enemy of my enemy is my ally").<br />
<br />Grange95http://www.blogger.com/profile/01857460215043659894noreply@blogger.com6tag:blogger.com,1999:blog-1169281096117913024.post-49730811088485456372015-03-25T22:40:00.000-05:002015-03-25T22:40:21.904-05:00Drawing the Line Between Gambling and Finance: Part V—Hedgers and the Law<b><i>Note: This is the fifth article in a series looking at the legal connections between gambling and finance. The <a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and.html" target="_blank">first article</a> introduced the legal concept of </i>aleatory contracts<i>. Links to other articles in the series can be found at the conclusion of this article.</i></b><br />
<br />
<div style="text-align: center;">
<span style="color: #0b5394;"><b>* * * * *</b></span></div>
<br />
Having looked at some of the more common <a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and.html" target="_blank">aleatory contracts</a>—<a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and_9.html" target="_blank">insurance</a>, <a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and_57.html" target="_blank">reinsurance</a>, and <a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and_11.html" target="_blank">derivatives</a>—and found strong parallels between those legally accepted contracts and various forms of gambling, it is time to return to the original question: <b>Why are contracts like insurance and derivatives legal if they are fundamentally identical to gambling?</b><br />
<br />
The short answer is that the law regarding aleatory contracts has long reflected a struggle to resolve the tension between the economic benefits of risk hedging on the one hand, and the moral and economic dangers of unbridled speculation on the other hand. This legal tension has spanned several centuries and been addressed across many cultures. The American legal system has traditionally taken a conservative approach to aleatory contracts, permitting those which show clear economic utility while being slow to permit or enforce contracts which resembled traditional wagers. But, as the American economy has evolved into a leader in the modern sophisticated global financial markets, the American legal system has likewise evolved to accommodate a broader array aleatory contracts.<br />
<br />
<b><span style="color: #0b5394;">The Historical Utility of Insurance</span></b><br />
<blockquote class="tr_bq">
<b>"This [New York City] has only been made possible by the insurers. They are the ones who really built this city. With no insurance there would be no skyscrapers. No investor would finance a building that one cigarette butt could burn to the ground."</b><br />
<br />
~ <a href="http://www.businessmirror.com.ph/insurers-and-skyscrapers/" target="_blank">Henry Ford</a></blockquote>
Insurance is the oldest form of legal aleatory contract, with some forms of economic risk pooling dating back to at least the ancient Babylonian empire; the <a href="http://humanscience.wikia.com/wiki/History_of_Insurance" target="_blank">Code of Hammurabi</a> recognized a form of insurance protecting merchants' goods transported by ship or caravan against loss by storm or theft.<br />
<br />
With the rise of the British Empire, insurance became an important and increasingly sophisticated part of international commerce as reflected in the founding of the famed <a href="http://www.lloyds.com/lloyds/about-us/history/corporate-history/the-early-days" target="_blank">Lloyd's of London</a> underwriting syndicate. Interestingly, the close relationship between insurance and gambling was never far from the surface. As maritime insurance revenues fell, the Lloyd's underwriters turned to other lines of insurance, some of which—death by gin drinking, say—might raise a modern regulatory eyebrow. And the <a href="http://www.lloyds.com/lloyds/about-us/history/corporate-history/the-early-days" target="_blank">Lloyd's underwriters also turned</a> to other, more traditional forms of aleatory contracts:<br />
<blockquote>
"Lloyd’s coffee house soon became notorious as a gambling den. An extract from the <i>London Chronicle</i> of the time [1768] stated: ‘The amazing progress of illicit gambling at Lloyd’s coffee-house is a powerful and very melancholy proof of the degeneracy of the times.’"</blockquote>
American insurance law, as might be expected, derives heavily from English common law. The American insurance industry was <a href="http://www.investopedia.com/articles/08/history-of-insurance.asp" target="_blank">slow to develop</a> in colonial times, mostly because the high risks of loss in the New World were deemed uninsurable by established British insurers. But, following the Revolutionary War, numerous American insurance companies were founded. Despite some moral opposition from conservative churches, the American insurance industry was doing <a href="http://www.thehistoryof.net/the-history-of-insurance.html" target="_blank">robust business</a> by the early 1800s; ironically, one of the first insurance corporations was organized by the Presbyterian Synod of Philadelphia to protect its ministers and their dependents.<br />
<br />
<b><span style="color: #0b5394;">The Economic Utility of Risk Hedging</span></b><br />
<br />
The legal acceptance of insurance contracts is based on their economic utility; insurance is legal because it is economically important. The economic benefits of <a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and_9.html" target="_blank">insuring against catastrophic loss</a> are readily apparent. But insurance offers other, less obvious, economic benefits. For example, two of the largest expenses most people will routinely encounter are purchases of a house or vehicle. Generally, these purchases are made on credit, via a home mortgage or an auto loan or lease. Without insurance to protect their collateral, banks would be reluctant to offer credit on as favorable of terms. Instead, banks would require larger down payments (to limit the extent of possible losses) and would charge higher interest rates (to compensate for their higher risk of loss). <b>In other words, insurance not only protects against large scale losses to homes and vehicles, but in many cases, insurance makes the purchase itself possible.</b><br />
<br />
Similar principles apply in the commercial context. Without insurance, businesses would be reluctant to make large-scale capital investments in, say, buildings or machinery, if those investments were subject to loss because of fire or storm. To the extent businesses face uninsured risks of any kind—whether from fire, storm, theft, cyber-attack, lawsuit, or other cause—prudent financial planning will result in the maintenance of substantial capital reserves to cover those uninsured risks. Insurance, then, is not just a risk mitigation tool, but a method by which businesses can free up capital for investment into business operations.<br />
<br />
<b><span style="color: #0b5394;">Insurable Interests and Moral Hazards</span></b><br />
<br />
Insurance, then, derives its legal status from its obvious economic utility. The ability of individuals and businesses to hedge against catastrophic risks not only protects those purchasing insurance, but also serves to lubricate the general economic machinery. But the law is careful to limit insurance to a hedging function through a concept known as <i><b><a href="http://en.m.wikipedia.org/wiki/Insurable_interest" target="_blank">insurable interest</a></b></i>.<br />
<br />
The insurable interest doctrine requires a party purchasing insurance to possess some legal interest in the object of the insurance policy. For example, an individual can insure his own life, but cannot insure his unrelated neighbor's life. Similarly, a business can insure its warehouse against fire, but cannot insure the warehouse of a competitor. Although the underlying insurance contracts in each case might look the same, the <i>purpose</i> of the contracts is fundamentally different. When insuring a life or property in which a person or business has a direct legal interest, the purpose of the insurance is <b><i>hedging</i></b> against risk of loss. When insuring life or property in which a person or business has no direct legal interest, the purpose of the insurance shifts to one of pure <b style="font-style: italic;">speculation</b>. As the U.S. Supreme Court stated:<br />
<blockquote>
<b>A contract of insurance upon a life in which the insured has no interest is a pure wager that gives the insured a sinister counter-interest in having the life come to an end.</b> And although that counter-interest always exists, as early was emphasized for England in the famous case of <i>Wainewright</i> (Janus Weathercock), the chance that in some cases it may prove a sufficient motive for crime is greatly enhanced if the whole world of the unscrupulous are free to bet on what life they choose. The very meaning of an insurable interest is an interest in having the life continue, and so one that is opposed to crime. And, what perhaps is more important, the existence of such an interest makes a roughly selected class of persons who, by their general relations with the person whose life is insured, are less likely than criminals at large to attempt to compass his death.<br />
<br />
<i><a href="https://supreme.justia.com/cases/federal/us/222/149/case.html">Grigsby v. Russell</a></i>, 222 U.S. 149, 154-55 (1911) (emphasis added).</blockquote>
In other words, absent an insurable interest, an insurance policy is nothing more than rank gambling, a wager on misfortune befalling a third party. Worse, the lack of an insurable interest creates an acute risk of <i style="font-weight: bold;"><a href="http://en.m.wikipedia.org/wiki/Moral_hazard" target="_blank">moral hazard</a></i>—specifically, the risk that an insured will destroy property or kill a person insured in order to profit from the contract. Regardless of whether a moral hazard actually arises, this type of speculation on the misfortunes of others is generally regarded as morally repugnant. The law, therefore, has long refused to permit speculative insurance contracts, and regards as void any insurance contract in which an insurable interest is lacking.<br />
<br />
<b><span style="color: #0b5394;">Gambling With Insurance</span></b><br />
<br />
Interestingly, the U.S. Supreme Court ultimately ruled in <i><a href="https://supreme.justia.com/cases/federal/us/222/149/case.html" target="_blank">Grigsby</a></i> that life insurance is a form of property that can be assigned (transferred) to another person, <i>even a person lacking an insurable interest in the underlying policy</i>. In other words, the insurable interest requirement is satisfied by the initial purchaser of the policy, who is then free to sell the policy and its benefits to anyone. This ruling eventually led to the explosion of <a href="http://en.wikipedia.org/wiki/Viatical_settlement" target="_blank"><i>viatical settlements</i></a> in the 1980s and 1990s, as individuals with AIDS sought to extract enhanced cash value from their life insurance policies by selling them to speculators who would pay below the policy's death benefit but above the actual cash value of the policy (which might be zero in a <a href="http://en.wikipedia.org/wiki/Term_life_insurance" target="_blank">term life</a> policy, or relatively small compared to the death benefit in a <a href="http://en.wikipedia.org/wiki/Whole_life_insurance" target="_blank">whole life</a> or <a href="http://en.wikipedia.org/wiki/Universal_life_insurance" target="_blank">universal life</a> policy). The speculator would pay the policy premiums, and would profit if the insured died early enough such that the policy death benefit exceeded the purchase price plus additional premiums. Viatical settlements are also common with other acute diseases with limited treatment options and short life expectancies, such as certain types of neurological diseases and cancers.<br />
<br />
Similar to viatical settlements are <i><a href="http://en.wikipedia.org/wiki/Life_settlement" target="_blank">life settlements</a></i>, where an individual may sell to a third-party a life insurance policy the individual no longer needs. As with viatical settlements, the purchaser is speculating that the policy will "pay off" with the insured dying early enough that the death benefit exceeds the purchase price plus subsequent premium payments. Life insurance policies purchased via viatical or life settlements are sometimes bundled and securitized as so-called <i><a href="http://www.investopedia.com/terms/d/death_bond.asp" target="_blank">death bonds</a></i> (essentially turned into an asset-backed security, as discussed in <a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and_11.html" target="_blank">Part IV of this series</a>). Because of the potential for abuse and fraud, most states <a href="http://www.iid.state.ia.us/viatical" target="_blank">tightly regulate</a> viatical and life settlements. <b>Nonetheless, viatical and life settlements are the one area where the law permits insurance to be used for speculation—specifically, "gambling" on the life of a stranger.</b><br />
<br />
<div style="text-align: center;">
<span style="color: #0b5394;"><b>* * * * *</b></span></div>
<b><i><br /></i></b>
<b><i>Next up, discussion of the law's view of speculation.</i></b><br />
<br />
<div style="text-align: center;">
<span style="color: #0b5394;"><b>* * * * *</b></span></div>
<br />
<b><i>Additional articles in this series (links will be added as each section is posted)</i>:</b><br />
<br />
<b><a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and.html" target="_blank"> Part I—Meet the Aleatory Contracts</a></b><br />
<br />
<b><a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and_9.html" target="_blank">Part II—Insurance: Gambling on Catastrophe</a></b><br />
<br />
<b><a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and_57.html" target="_blank">Part III—The Reinsurer, the Bookmaker, the Poker Pro Staker</a></b><br />
<br />
<b><a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and_11.html" target="_blank">Part IV—Derivatives and Daily Fantasy Sports</a></b><br />
<br />
<b>Part V—Hedgers and the Law</b><br />
<br />
<b>Part VI—Speculators and the Law</b><br />
<br />
<b>Part VII—Risk Creation v. Risk Management</b><br />
<br />
<br />Grange95http://www.blogger.com/profile/01857460215043659894noreply@blogger.com1tag:blogger.com,1999:blog-1169281096117913024.post-74653760514482156032015-03-19T21:07:00.002-05:002015-03-20T08:16:57.886-05:00The Usual Brackets: America's Curious Embrace of Sports Gambling<blockquote class="tr_bq">
<b>"The greatest trick the devil ever pulled was convincing the world he did not exist. And like that, poof. He is gone."</b><br />
<br />
~ Roger "Verbal" Kint (Kevin Spacey), in <a href="http://www.imdb.com/title/tt0114814/" style="font-style: italic;" target="_blank">The Usual Suspects</a> (1995)</blockquote>
<br />
Today is the beginning of one of the great American sports holidays<span style="background-color: rgba(255, 255, 255, 0);">—the NCAA men's basketball tournament, a/k/a "March Madness", a/k/a "The Big Dance". Tens of millions of Americans who rarely if ever gamble will enter office pools, filling out brackets to pick the winners of 63 basketball games over the next three weeks, hoping to win a piece of prize pools which can range from enough to feed a family off the fast food value menu to thousands of dollars in some higher stakes contests.</span><br />
<span style="background-color: rgba(255, 255, 255, 0);"><br />
</span> <span style="background-color: rgba(255, 255, 255, 0);">My first time winning a bracket contest was my junior year of high school. I was in a pool with a handful of guys on the basketball team, along with our coach (who was also the principal). The stakes? The winner got a free soda (50 cent value in those days) from each of the losers. Keith Smart and "<a href="https://m.youtube.com/watch?v=2dgkmikdVM8" target="_blank">The Shot</a>" kept me in quality caffeine for a week.</span><br />
<span style="background-color: rgba(255, 255, 255, 0);"><br />
</span> <span style="background-color: rgba(255, 255, 255, 0);">It was also my first big gambling win.</span><br />
<br />
<span style="background-color: rgba(255, 255, 255, 0);">In the ensuing couple of decades, I have participated in and/or organized scores of NCAA basketball pools in numerous formats (all <i>scrupulously</i> conducted within the requirements of Iowa's <a href="https://www.legis.iowa.gov/docs/publications/SD/19460.pdf" target="_blank">social gaming statute</a>, of course). There have been straight brackets, randomly drawn brackets, and brackets with upset bonuses (add the difference in seed to the points for each win). There have been "against the spread" brackets where players draft teams which play through the bracket with the Final Four teams getting the prize money; the catch is that the "winner" which advances is the team that beats the spread. There have been <a href="http://en.m.wikipedia.org/wiki/Calcutta_auction" target="_blank">Calcuttas</a>, where teams are auctioned off to the highest bidder, with a percentage of the overall pool awarded for each win. For years I operated a Sweet Sixteen second-chance "confidence pool" which required participants to rank the remaining teams in the tournament, with weighted points awarded for wins.</span><br />
<span style="background-color: rgba(255, 255, 255, 0);"><br />
</span> <span style="background-color: rgba(255, 255, 255, 0);">One of my favorite pools was one operated by a friend and (now former) law partner. His pool had five games; your standings in the overall pool were determined by your agregated standings from the individual games:</span><br />
<ul>
<li><span style="background-color: rgba(255, 255, 255, 0);"><b>Game 1:</b> Standard straight bracket.</span></li>
<li><span style="background-color: rgba(255, 255, 255, 0);"><b>Game 2:</b> Rank the top ten potential champs. Winner is the person with the eventual champ ranked highest (first tiebreaker was highest ranked runner-up). A "go for broke" strategy would be to eliminate one team from your picks which is a popular championship pick among the rest of the participants (say, Duke, to pull an example from thin air). If that team doesn't win, you likely have a major edge in where you've ranked the actual champion. </span></li>
<li><span style="background-color: rgba(255, 255, 255, 0);"><b>Game 3:</b> Pick all first round games against the spread. Picking all the dogs was usually a winning strategy. </span></li>
<li><span style="background-color: rgba(255, 255, 255, 0);"><b>Game 4:</b> Pick one team from each seed level (<i>i.e</i>., pick one of the four 1-seeds, one of the four 2-seeds, etc. all the way to one of the four 16-seeds). Points are scored for each win, with points doubling each round. </span></li>
<li><span style="background-color: rgba(255, 255, 255, 0);"><b>Game 5:</b> Pick any five teams. For each win, you get points worth the picked team's seed divided by the seed of the team they beat (<i>i.e.</i>, if a 5-seed beats a 12-seed, you get 5/12 = .417 points, while a 12-seed beating a 5-seed would get 12/5 = 2.4 points). So, a 1-seed or 2-seed doesn't score many points until the late rounds, but is likely to go deeper, while a lower seed might score big points early, then fall out of the tourney. A good strategy was to pick seeds 2-6 likely to make deep runs, with maybe one flyer on a 10-12 seed likely to win a couple of games.</span></li>
</ul>
<span style="background-color: rgba(255, 255, 255, 0);">The best part of the pool was that participants and their guests would watch the championship game together in a sports bar. The kicker was that while the top 40% of participants split the prize pool, the bottom 40% had to split the tab for the party. You could always spot the locked-in winners—they were the ones drinking the top shelf booze. And with numerous tiebreakers in play, many participants were rooting for strange outcomes in order to make the money or miss the bar tab: "You need North Carolina to win by more than six in regulation, or you need two overtimes and total points scored under 166."</span><br />
<span style="background-color: rgba(255, 255, 255, 0);"><br />
</span> Regardless of structure, all NCAA pools are gambling, assuming there is an entry fee. Frankly, NCAA pools are nothing more than the bastard love child of sports betting and keno (though Wall Street could probably sell them as "<a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and_11.html" target="_blank">sports derivatives</a>"). Whether these pools are illegal depends on applicable state gambling laws; many states carve out small-stakes social gaming from their criminal gambling and bookmaking statutes. Of course, even where NCAA pools are technically illegal, <a href="http://www.ajc.com/news/news/people-charged-in-alpharetta-ncaa-gambling-raid-id/nkY8h/" target="_blank">law enforcement rarely pursues them</a> unless they are <a href="http://www.huffingtonpost.com/2015/03/18/march-madness-illegal-pools_n_6889520.html" target="_blank">high-stakes</a> or there are complaints of cheating or theft.<br />
<br />
Despite being blatant gambling, NCAA pools occupy something of a moral and legal blind spot in American culture. President Obama can broadcast his <a href="http://espn.go.com/mens-college-basketball/tournament/2015/story/_/id/12505909/president-barack-obama-bracket-picks-kentucky-ncaa-men-basketball-title" target="_blank">bracket picks</a> every year without any criticism that he is promoting gambling. Celebrities like Kevin Jonas and Kati Couric can participate in "<a href="https://tournament.fantasysports.yahoo.com/t1/celebritychallenge" target="_blank">celebrity bracket challenges</a>" without fear of damaging their wholesome public images. Sitting down to help their young children fill out brackets is part and parcel of being an All-American Dad these days; none of these parents would dream of playing casino-style games with their kids. In Congress, fifteen Representatives have <a href="https://www.congress.gov/bill/114th-congress/house-bill/707/cosponsors" target="_blank">signed on as co-sponsors</a> of an expansion of the federal Wire Act which prohibits electronic transmission of sports betting information; if I were a betting man<span style="background-color: rgba(255, 255, 255, 0);">—and I am—I would wager most of those Representatives have staff, friends, and family using one of the mainstream online sites (<a href="http://www.cbssports.com/collegebasketball/ncaa-tournament/brackets/games" target="_blank">CBS Sports</a>, <a href="http://games.espn.go.com/tournament-challenge-bracket/2015/en/bracket?addata=2015_TCMen_BracketURL" target="_blank">ESPN</a>, <a href="https://tournament.fantasysports.yahoo.com/" target="_blank">Yahoo</a>) to manage their brackets. Opponents of online gambling legalization often dramatically tout the dangers in "making every cell phone a casino"; how many of them have a bracket tracking app on their own cell phones or tablets?</span><br />
<br />
Americans' embrace of NCAA pools is directly at odds with their general hostility toward gambling. Recent Iowa polls, for example, show strong majorities opposed to legalization of <a href="http://archive.desmoinesregister.com/article/20140303/NEWS09/140303009/Iowa-Poll-Little-support-Internet-gambling" target="_blank">online gaming</a> (71% opposed) and <a href="http://www.desmoinesregister.com/story/news/politics/iowa-poll/2015/02/23/iowa-poll-legalizing-fantasy-prizes/23917429/" target="_blank">daily fantasy sports contests</a> (63% opposed). So why do NCAA pools get a free pass from America's otherwise judgmental gaze?<br />
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Our collective cognitive dissonance on the status of our brackets undoubtedly arises from the wild popularity of college sports in general and March Madness in particular. Even the most casual of sports fan is drawn to the drama of the tournament, rooting for their favorite team(s) and cheering for David-versus-Goliath upsets. Filling out brackets augments the enjoyment of the experience by giving fans something to root for in every one of the 63 tournament games, and something to talk about with friends and co-workers.<br />
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NCAA pools are just an old-school version of social gaming, the sports equivalent of Farmville or Candy Crush. Sure, they might cost a few bucks, but filling out brackets for a fun contest with friends or coworkers is nothing like calling a bookie or going to a casino. So, with a wink and nod, Americans have collectively convinced themselves NCAA pools are entertainment, not gambling. Fiction though it may be, that's our story and we're sticking to it.<br />
<br />Grange95http://www.blogger.com/profile/01857460215043659894noreply@blogger.com3tag:blogger.com,1999:blog-1169281096117913024.post-60404721984833260782015-03-11T13:55:00.002-05:002015-04-08T13:47:04.444-05:00Drawing the Line Between Gambling and Finance: Part IV—Derivatives and Daily Fantasy Sports<b><i>Note: This is the fourth article in a series looking at the legal connections between gambling and finance. The <a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and.html" target="_blank">first article</a> introduced the legal concept of </i>aleatory contracts<i>. Links to other articles in the series can be found at the conclusion of this article (when available).</i></b><br />
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<b><span style="color: #0b5394;"><br />
</span></b> <b><span style="color: #0b5394;">Overview of Derivatives</span></b><br />
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Moving from the world of insurance into the world of finance, another important set of aleatory contracts are the <i><a href="http://en.m.wikipedia.org/wiki/Derivative_(finance)" target="_blank">derivative contracts</a> </i>("derivatives" in common shorthand). Although derivatives come in a myriad of variations, they all share one important feature<span style="background-color: rgba(255, 255, 255, 0);">—the contract derives its value by reference to an underlying value. As we will see, that underlying reference value can be something as simple as a stock price or interest rate, or something as complicated as a portfolio of mortgages, a stock index, or even the temperature in a particular city.</span><br />
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Some of the more common kinds of derivatives include:<br />
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<b>Forwards and Futures:</b> <a href="http://en.m.wikipedia.org/wiki/Forward_contract" target="_blank">Forward contracts</a> and <a href="http://en.m.wikipedia.org/wiki/Futures_contract" target="_blank">futures contracts</a> are related types of derivatives in which one party agrees to sell a set amount of an asset for a fixed price at a designated point in the future. The most significant difference between forwards and futures is that futures are standardized contracts while forwards are non-standard and can be tailored to the specific needs of the parties; thus, futures are generally “exchange traded” while forwards are sold “over the counter”. A classic example of this type of derivative are commodity futures which are used to trade a wide variety of commodities such as agricultural products (<i>e.g.</i>, grain, pork bellies, coffee, and sugar), metals, and oil. The current price is reported using both the price and the date; “September Corn is at $4.04” means that a contract for standard-grade corn to be delivered in September carries a price of $4.04 per bushel. The plot of the classic comedy movie <i>Trading Places</i> starring Eddie Murphy and Dan Aykroyd revolved around an attempt to corner the market on frozen orange juice futures.<br />
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<b>Options:</b> <a href="http://en.m.wikipedia.org/wiki/Derivative_(finance)#Options" target="_blank">Options contracts</a> give one party (the buyer) the right, but not the obligation, to buy or sell an asset (typically shares of stock) at a set price on or before a specific future date in exchange for an up-front premium paid to the seller. An option to buy is referred to as a “call option”, while an option to sell is referred to as a “put option”. If the buyer exercises his option, the seller is obligated to sell or buy the asset at the agreed price, even if the market price is substantially higher or lower. If the buyer does not exercise his option, the contract expires. In either case, the seller keeps the premium.<br />
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<b>Swaps:</b> <a href="http://en.m.wikipedia.org/wiki/Derivative_(finance)#Swaps" target="_blank">Swaps</a> are contracts in which the parties exchange the cash flows of two financial instruments. Common versions of swaps include interest rate swaps, currency swaps, credit swaps, commodity swaps and equity swaps. Swaps permit parties to gain the benefits of the underlying alternative financial instrument without incurring the potential legal, tax, and other downsides of an actual transfer of ownership. <br />
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For example, one common swap—the <a href="http://en.m.wikipedia.org/wiki/Interest_rate_swap" target="_blank">interest rate swap</a>—permits two parties who each have loans with different interest rates to swap or exchange the interest payments on the loans. For example, assume two companies have issued corporate bonds, one party at a fixed rate, the other party at a floating rate (<i>e.g.</i>, a rate tied to LIBOR or U.S. treasury rates). The party whose bonds have a floating interest rate might want to be able to lock in a fixed rate on the assumption that rates will rise. The counterparty might like to move to a floating interest rate loan, on the assumption rates would fall. By using a swap, the parties gain the benefit of a different interest rate without needing to redeem and reissue their bonds, a process that would be both expensive and difficult. Also, note that individuals holding these companies’ bonds could also enter into an interest rate swap, although their expectations would be the opposite of the expectations of the underlying companies—<i>i.e.</i>, a bondholder with a fixed rate bond would swap with a floating rate bondholder expecting interest rates to rise, not fall.<br />
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<b>Interest Rate Caps, Floors, and Collars: </b> Closely related to interest rate swaps are <a href="http://en.m.wikipedia.org/wiki/Interest_rate_cap_and_floor" target="_blank">interest rate caps, floors, and collars</a>. These derivatives are contracts in which the buyer pays a commission in exchange for a guarantee of payment if interest rates rise or fall below a predetermined point. These derivatives are commonly used as a form of insurance on bonds or other debts which have a floating interest rate. These derivatives are also useful for companies which have a business model highly sensitive to changes in interest rates, even if the interest rate derivative is not purchased to hedge a particular debt instrument.<br />
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<b>Asset Backed Securities and Collateralized Debt Obligations:</b> <span style="background-color: rgba(255, 255, 255, 0);"><a href="http://en.m.wikipedia.org/wiki/Asset-backed_security" target="_blank">Asset backed securities</a> (ABS) and <a href="http://en.m.wikipedia.org/wiki/Collateralized_debt_obligation" target="_blank">collateralized debt obligations</a> (CDO) are derivatives which are created by pooling underlying assets, typically various loan and debt obligations, then paying the loan proceeds (interest and principal) to the contract holders as they become due. ABS/CDO can be created from a wide range of underlying debt obligations, including mortgages, student loans, credit card debt, and auto loans. A CDO differs from a vanilla ABS in that the debt proceeds are divided into slices ("tranches") which prioritize the order of repayment. This process allows the earlier tranches to be given higher credit ratings as they are much less likely to suffer a loss in the event of unexpected default rates in the portfolio of loans underlying the CDO. The 2008 recession was precipitated in large part by a real estate bubble market created in part by the packaging of subprime residential mortgages into <a href="http://en.m.wikipedia.org/wiki/Derivative_(finance)#Mortgage-backed_securities" target="_blank">mortgage-backed securities</a> (MBS) and real estate CDOs which then experienced unexpectedly high default rates (partially due to shoddy or fraudulent mortgage underwriting practices).</span><br />
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<b>Credit Default Swaps: </b>Another derivative, <a href="http://en.m.wikipedia.org/wiki/Derivative_(finance)#Credit_default_swap" target="_blank">credit default swaps</a> (CDS), also played a key role in precipitating the 2008 recession and stock market crash. Although nominally a swap contract, CDS function as insurance against default on a debt obligation (<i>e.g.</i>, bond or ABS). For example, a CDS buyer might hold a large number of corporate bonds issued by one company, or a block of similar ABS (say a portfolio of RMBS), thereby exposing the buyer to risk if the issuing company or the underlying industry sector suffer adverse financial results. For a fee or commission, the CDS seller agrees to pay off the underlying debt instrument in the event of a default or other negative credit event. In 2008, <a href="http://www.investopedia.com/articles/economics/09/american-investment-group-aig-bailout.asp" target="_blank">insurance giant AIG became insolvent</a> as the result of collateral calls on billions of dollars of CDS it issued in connection with RMBS, as those RMBS became financially impaired in the wake of the real estate market bubble collapse. With many institutional investors exposed to financial risk if AIG collapsed, the federal government stepped in with an $85 billion bailout.<br />
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<b><span style="color: #0b5394;">Derivatives: More Than Financial Risk Insurance</span></b><br />
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Because derivatives are aleatory contracts, they necessarily contain an element of risk (or chance, if you prefer). Thus, like insurance and reinsurance, derivatives are an excellent tool for financial risk and volatility management. In a sense, derivatives can be understood as a form of financial insurance. Investors can hedge the risk of a falling stock market through options. Futures allow producers of raw materials to hedge against falling market prices, while manufacturers can hedge the risk of rising raw material costs. Many businesses and investors can be adversely affected by fluctuations in interest rates; derivatives can offer protection against these fluctuations tailored to the purchaser's specific need. As with insurance, there is always a premium, commission, or fee associated with the derivative contract, but the purchaser deems that cost acceptable in exchange for reduction in financial risk and volatility.<br />
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Derivatives, however, go beyond acting as financial insurance in two respects. First, derivatives such as CDO and ABS also provide the benefit of transforming a relatively illiquid asset<span style="background-color: rgba(255, 255, 255, 0);">—</span><i>e.g.</i>, a bundle of mortgages or credit card accounts<span style="background-color: rgba(255, 255, 255, 0);">—</span>into a security which can offer a less risky stream of income payments than the individual underlying loans. In essence, the process of securitization spreads the risk of any one individual loan defaulting across the full pool of loans aggregated for the CDO or ABS. So, CDO and ABS offer banks and other debt writers a way to market their debt-based assets, while investors have a method of participating in the debt market via less risky and more liquid securities.<br />
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Derivatives also go beyond the financial insurance function by creating ways to monetize non-financial risks. A classic example are so-called <i><a href="http://en.m.wikipedia.org/wiki/Weather_derivative" target="_blank">weather derivatives</a></i>, which base payment on how much temperatures or precipitation levels fall above or below certain points over a set period of time. So, a business adversely affected by unusually hot or cold weather, or by unusually high or low precipitation levels, can purchase protection against this type of risk, and receive a monetary payoff if extreme weather conditions occur. And, unlike insurance, the weather derivative pays off without any need for the purchaser to quantify any weather-related losses.<br />
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Taking matters yet another step, reinsurers have entered the weather derivative market with <i><a href="http://www.institutdesactuaires.com/docs/2013091181358_SwissReInsurancelinkedsecurities.pdf" target="_blank">insurance-linked securities</a></i> (ILS), which essentially are derivatives based off an underlying reinsurance pool. For example, a reinsurer with a large block of property insurance policies on the books in an area at high risk for hurricanes, tornadoes, or earthquakes might issue <i>catastrophe bonds </i>(or "cat bonds") in which outside investors pay a premium in exchange for a payment of money if a defined catastrophic weather event does not occur, or based on the value of an index of natural catastrophe events.<br />
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<b><span style="color: #0b5394;">Fantasy Sports League Or Sports Derivative Investment Fund?</span></b><br />
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Which brings us to fantasy sports. Fantasy sports started out as an effort by hardcore baseball fans to essentially play general manager and put together a better team than their opponents<span style="background-color: rgba(255, 255, 255, 0);">—</span>usually friends or work colleagues<span style="background-color: rgba(255, 255, 255, 0);">—in </span>a friendly league. Because these fantasy teams obviously do not exist in real life, they cannot play actual games. Instead, the players on each fantasy team roster are awarded points tied to the performance of the players in real life games.<br />
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Over the past two decades, participation in fantasy sports has exploded. Much of this growth is tied to the rise of online sites which take care of much of the tedious record keeping and scoring functions, leaving players free to focus on evaluating players to draft or trade. More recently, fantasy sports have experienced <a href="http://www.legalsportsreport.com/category/financial/" target="_blank">another boom</a> with the advent of <a href="http://www.legalsportsreport.com/" target="_blank">daily fantasy sports</a> (DFS) sites in which contests run not for a full season, but for only a day.<br />
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Although DFS is <a href="http://www.legalsportsreport.com/daily-fantasy-sports-blocked-allowed-states/" target="_blank">legal in most states</a><span style="background-color: rgba(255, 255, 255, 0);">—</span>and legislative efforts are underway to clarify the legality of DFS in the other <a href="http://www.legalsportsreport.com/502/fantasy-sports-freedom-new-website-pushes-for-real-money-dfs-in-all-states/" target="_blank">handful of states</a><span style="background-color: rgba(255, 255, 255, 0);">—</span>there has been a growing debate as to whether DFS has gone too far and approaches being a form of gambling. Although whether DFS is "gambling" requires something of a value judgment, there is little question DFS is an aleatory contract, and more specifically, a type of derivative<span style="background-color: rgba(255, 255, 255, 0);">—</span>a <i><b>sports derivative</b></i>, if you will.<br />
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DFS contests clearly involve an element of risk or chance<span style="background-color: rgba(255, 255, 255, 0);">—</span>specifically, the uncertain nature of any player's performance on a given day. There is a fee associated with the contests. The financial results of DFS contests derive from the performance of all of the players drafted in their underlying real life games, much like derivatives can be tied to the performance of outside stock or commodity prices, securities indexes, interest rates, or even weather events. And, much like weather derivatives, DFS contests act as sports derivatives by awarding financial payoffs based on a non-financial performance.<br />
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The DFS industry assiduously eschews any connection to gambling, instead <a href="http://www.wtsp.com/story/sports/2015/01/19/dailyfantasysports/21983089/" target="_blank">marketing DFS as a "skill game"</a>. Top DFS players tout their analytical chops in winning hundreds of thousands of dollars a year, enough to even lure some to <a href="http://www.theatlantic.com/entertainment/archive/2014/09/how-daily-fantasy-sports-will-create-an-american-gambling-boom/380382/" target="_blank">quit their Wall Street trading jobs</a> for a regular DFS grind. Yet, there is a fairly strong <a href="http://www.desmoinesregister.com/story/news/politics/iowa-poll/2015/02/23/iowa-poll-legalizing-fantasy-prizes/23917429/" target="_blank">public sentiment</a> that DFS at least borders on being gambling. In New Jersey's ongoing legal battle to legalize traditional sports gambling, the <a href="http://reason.com/blog/2015/01/16/court-briefing-blasts-sports-leagues-hyp" target="_blank">state has asserted</a> that DFS is akin to sports betting. And as prominent sports bettor Haralobos Voulgaris <a href="https://mobile.twitter.com/haralabob/status/532657538685104128" target="_blank">tweeted</a>, "<span style="background-color: rgba(255, 255, 255, 0);">Newsflash to the NBA—DFS is actually gambling."</span><br />
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The question then becomes: Why is the legal system<span style="background-color: rgba(255, 255, 255, 0);">—and for that matter, the general public—</span>comfortable that stock options, commodity futures, and even weather derivatives are not gambling, but concerned that a DFS contest<span style="background-color: rgba(255, 255, 255, 0);">—a <i>de facto</i> </span>sports derivative<span style="background-color: rgba(255, 255, 255, 0);">—</span>might be gambling? As we will see, the answer to that question is complicated.<br />
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<b><i>Additional articles in this series (links will be added as each section is posted)</i>:</b><br />
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<b><a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and.html" target="_blank"> Part I—Meet the Aleatory Contracts</a></b><br />
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<b><a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and_9.html" target="_blank">Part II—Insurance: Gambling on Catastrophe</a></b><br />
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<b><a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and_57.html" target="_blank">Part III—The Reinsurer, the Bookmaker, the Poker Pro Staker</a></b><br />
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<b><a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and_25.html" target="_blank">Part V—Hedgers and the Law</a></b><br />
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<b>Part VI—Speculators and the Law</b><br />
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<b>Part VII—Risk Creation v. Risk Management</b><br />
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<b><br /></b>Grange95http://www.blogger.com/profile/01857460215043659894noreply@blogger.com2tag:blogger.com,1999:blog-1169281096117913024.post-15579913343564106712015-03-09T23:02:00.000-05:002015-03-25T22:41:48.263-05:00Drawing the Line Between Gambling and Finance: Part III—The Reinsurer, the Bookmaker, the Poker Pro Staker<b><i>Note: This is the third article in a series looking at the legal connections between gambling and finance. The <a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and.html" target="_blank">first article</a> introduced the legal concept of </i>aleatory contracts<i>. Links to other articles in the series can be found at the conclusion of this article (when available).</i></b><br />
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<b><span style="color: #0b5394;">Purpose of Reinsurance</span></b><br />
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In the last article in this series, we looked at <a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and_9.html" target="_blank">insurance contracts</a> and how they function. Although insurance companies are in the business of assessing and accepting risks, there are situations where insurers look to limit their risk exposure. The primary tool for insurance risk management is through <b><a href="http://en.wikipedia.org/wiki/Reinsurance" target="_blank">reinsurance</a></b>. Reinsurance treaties (as such contracts are traditionally denominated) are complex and high-dollar business arrangements by which insurance companies achieve certain financial goals—risk reduction, volatility reduction, and capital management. <br />
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With respect to <b>risk reduction</b>, an insurance company might review its block of business and note that it is vulnerable to a particular risk. For example, a property insurer might note that it has a high volume of insured properties in areas at risk for hurricanes or tornadoes. Or perhaps an insurer notes it has insured multiple office buildings in a single block or fire station district, making it vulnerable to heavy losses in a large-scale fire. In many cases, an insurer might want to write policies with large benefits (<i>e.g.</i>, a $5 million life insurance policy or a $2 million dollar homeowners policy), but be uncomfortable being at risk for the full policy amount, particularly where the insurer writes a decent volume of such policies. And sometimes an insurer will write a special endorsement or surplus lines policy to accommodate an insured's special risk needs, but the insurer will be uncertain it has properly underwritten the risk. In each of these situations, an insurer would seek out reinsurance in order to reduce its risk profile by laying off some portion of the excess risk.<br />
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Reinsurance assists insurance companies with <b>volatility reduction</b> by smoothing over differences in year-to-year loss experience. Reinsurance treaties tend to involve long-term, multi-year relationships between insurer and reinsurer. In a given decade, an insurer might have three years with massive underwriting losses which are offset by the other seven years of moderate to significant underwriting gains. Yet the years with large losses might interfere with the insurer’s long-term business plans. By sharing the risk with a reinsurance partner, the insurer is able to achieve smoother, more predictable cash flows, enabling it to maintain a longer term business perspective (<i>e.g</i>., holding premium levels steady rather than raising premiums—and losing market share—in an attempt to immediately recoup losses).<br />
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Finally, reinsurance is a key tool for <b>capital management</b> by insurance companies. Insurance companies are subject to <a href="http://www.naic.org/cipr_newsletter_archive/vol2_oversight.htm" target="_blank">strict regulations</a> meant to ensure they will be able to meet their obligations to policyholders. The cornerstone of these solvency regulations is <i><a href="http://www.naic.org/cipr_topics/topic_statutory_accounting_principles.htm" target="_blank">statutory accounting</a></i>, which places greater emphasis on the balance sheet and liquidity than do the generally accepted accounting principles (<a href="http://www.fasb.org/home" target="_blank">GAAP</a>) commonly used in most other industries. An insurance company can only write more new policies if it has sufficient <i><a href="http://quizlet.com/14009869/ch-16-surplusan-insurance-companys-capital-flash-cards/" target="_blank">surplus</a> </i>(positive working capital) to support the policy. Yet, under statutory accounting, when a new insurance policy is written, the full amount of the <a href="http://www.finweb.com/insurance/how-are-insurance-company-reserve-amounts-determined.html#axzz3TwkturPi" target="_blank">actuarial reserves</a> and policy acquisition costs (<i>e.g.</i>, commissions, expenses, and other overhead) must be immediately posted to the balance sheet as liabilities, rather than amortized over time. So, writing new business quickly erodes surplus, leading to <i><a href="http://en.wikipedia.org/wiki/New_business_strain" target="_blank">surplus strain</a></i>. In such a situation, an insurance company can find new capital, stop writing new business, or find surplus relief by laying off part of the policies (and their attendant reserves) on its books through reinsurance.<br />
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<b><span style="color: #0b5394;">Reinsurance Structures</span></b><br />
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Reinsurance can be structured in a number of ways, but the basic forms are <i>facultative</i> and <i>obligatory</i> (a/k/a <i>treaty</i>) reinsurance (<i>see </i>SwissRe's "<a href="http://media.swissre.com/documents/The_essential_guide_to_reinsurance_updated_2013.pdf" target="_blank">Essential Guide to Reinsurance</a>", pp. 22-24). Facultative reinsurance is where a large individual risk or policy is ceded to the reinsurer; <i>e.g.</i>, a multimillion dollar property policy on a commercial building or a multimillion dollar life insurance policy on a company’s CEO. Obligatory reinsurance, by contrast, allows a block (portfolio) of similar risks or policies to be ceded as a unit; <i>e.g</i>., a block of all automobile liability policies written by a company during 2014.<br />
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Risk allocation under a reinsurance treaty can also be structured in several ways (<i>see </i>SwissRe's "<a href="http://media.swissre.com/documents/The_essential_guide_to_reinsurance_updated_2013.pdf" target="_blank">Essential Guide to Reinsurance</a>", pp. 25-30). In <i>quota share</i> reinsurance, the insurer and reinsurer(s) each receive a proportional amount of the premiums and pay proportional amounts of losses, with the primary insurer being paid a commission by the reinsurer for the costs of selling and administering the policies. For example, a primary insurer might keep 25% of the premium (plus its administrative commission) and cede the remaining 75% to one or more reinsurers (it is common for multiple reinsurers to take from 5% to 50% stakes in the ceded risk). When losses become payable, the insurer pays the claims and then is reimbursed by each reinsurer for their share of the losses.<br />
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Other kinds of reinsurance risk allocation methods operate by permitting the primary insurer to retain the first full layer of risk and associated premiums (the<i> retention</i>) with all risk and premiums/losses above that amount allocated in various fashions to one or more reinsurers (again, the primary insurer is paid a commission by the reinsurer for the costs of selling and administering the policies). Such arrangements include <i>surplus share</i>, <i>excess of loss</i>, and <i>stop loss</i> agreements which are tied to particular blocks of policies, as well as <i>catastrophe </i>and <i>aggregate </i>agreements which are tied to losses caused by a single large-exposure event (<i>e.g</i>., a hurricane, thunderstorm cell, or large fire) or by a series of large-exposure events (<i>e.g</i>., multiple hurricanes or storms), respectively. For example, a reinsurance treaty might provide that the primary insurer will retain the first $500,000 of risk per policy, and reinsurers will assume and share responsibility for losses above $500,000 per policy. Or, a primary insurer with high storm loss exposure could enter into a combined “catastrophe aggregate” reinsurance treaty in which the primary insurer would retain the risk for losses of $10 million per storm and $100 million per year, with reinsurers sharing losses above those retentions.<br />
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<b><span style="color: #0b5394;">Reinsurance v. Bookmaking</span></b><br />
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Despite its complexity, reinsurance shares some traits in common with simpler and more common gambling world concepts. Consider, for example, a typical local or retail sports book operator. The bookmaker’s business model is essentially a specialized form of insurance—attempt to take roughly even bets on each side of a given game or wager, pay the winners with the wagers of the losers, and keep his commission (“vig”). <br />
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However, the bookmaker faces two financial risks. First, betting may fall unusually heavily on one side of a wager; if that side wins, the bookmaker will need to pay the winners out of his own pocket. Second, a bookmaker might face an unexpectedly large individual wager or a high volume of wagers (perhaps on the NCAA tournament or the Super Bowl). Here, the bookmaker faces a financial risk if there is a notable default rate by losing bettors. The solution? In both cases, the bookmaker retains the amount of wagers he is comfortable with keeping in light of his risk appetite and working capital. The bookmaker then passes along (“lays off”) those wagers he is not willing to risk—along with the accompanying risks and profits—to a larger bookmaker, online sports book, or even a legitimate sports book. In other words, the bookmaker is limiting his risk exposure through use of what are essentially stop loss, catastrophe, and aggregate reinsurance principles.<br />
<br />
<b><span style="color: #0b5394;">Reinsurance v. Poker Staking</span></b><br />
<br />
Reinsurance also bears strong resemblance to the practice of <a href="http://bonuscodepoker.com/online-poker-stakes-guide" target="_blank">poker staking</a>. In general, poker staking is an arrangement where a poker player receives some percentage of the buy-in to an individual or series of tournaments or cash game sessions in exchange for a roughly commensurate share of any profits. The staking agreement can have one or more backers, and each backer may have a different share in the agreement. Typically, the player will retain a piece of the action, and will be paid a premium (“markup”) in compensation for the investment opportunity and the player’s efforts in actually playing in the tournaments or cash game sessions. Essentially, poker staking is analogous to a specialized version of quota share reinsurance—facultative if only for certain high-stakes tournaments or cash games, obligatory if for a set series of tournaments or period of time, with markup playing the role of the commission paid by the reinsurer to the insurer for administrative costs.<br />
<br />
Poker players seek staking arrangements for the same three reasons insurers seek out reinsurance—bankroll (capital) management, risk reduction, and volatility reduction. Bankroll management is essentially a working capital issue. A poker player might have a positive expected value advantage in, say, the World Series of Poker or a cash game session with some wealthy whales in Bobby’s Room at Bellagio. But the player might not have enough money to buy in to the tournaments or cash games without putting too large a percentage of their liquid working capital at risk. Staking gives the player the ability to take advantage of these potentially profitable games while maintaining prudent bankroll reserves. Similarly, even if a player can comfortably afford to buy in to the tournaments or cash games, poker results can show high volatility, creating a financial risk for even the best player. A staking arrangement, particularly for a single high cost tournament (<i>e.g</i>., the WSOP Main Event or a high roller event) or an expensive series of tournaments (<i>e.g.</i>, the full WSOP tournament slate), can both reduce financial risk and smooth out the inherent volatility of poker results. This reduction in risk and volatility, of course, comes at the price of reduced profits from successful tournaments and cash game sessions subject to the staking arrangement.<br />
<br />
Even more interesting is the alignment in interests between reinsurers and those who stake poker players. Reinsurers are seeking out high rates of return from specialized investments; so are poker stakers. Reinsurers want to be able to participate in an insurance market without the hassle and expense of getting licensed and dealing with regulators, not to mention designing, selling, and administering a block of insurance policies. Likewise, poker stakers want to participate in the opportunity to make money in poker tournaments or cash games, but without the hassle of actually playing. Reinsurers tend to bring highly sophisticated risk analysis to bear in evaluating potential deals; though this skill is not necessary for successful poker staking, the best poker stakers demonstrate a keen evaluation of poker playing skill when choosing players to stake.<br />
<br />
<div style="text-align: center;">
<span style="color: #0b5394;"><b>* * * * *</b></span></div>
<br />
<b><i>Additional articles in this series (links will be added as each section is posted)</i>:</b><br />
<br />
<b><a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and.html" target="_blank">Part I—Meet the Aleatory Contracts</a></b><br />
<br />
<b><a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and_9.html" target="_blank">Part II—Insurance: Gambling on Catastrophe</a></b><br />
<br />
<b><a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and_11.html" target="_blank">Part IV—Derivatives and Daily Fantasy Sports</a></b><br />
<br />
<b><a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and_25.html" target="_blank">Part V—Hedgers and the Law</a></b><br />
<br />
<b>Part VI—Speculators and the Law</b><br />
<br />
<b>Part VII—Risk Creation v. Risk Management</b><br />
<div>
<b><br /></b></div>
Grange95http://www.blogger.com/profile/01857460215043659894noreply@blogger.com3tag:blogger.com,1999:blog-1169281096117913024.post-90429977575782137132015-03-09T07:18:00.003-05:002015-03-25T22:42:05.870-05:00Drawing the Line Between Gambling and Finance: Part II—Insurance: Gambling on Catastrophe<b><i>Note: This is the second article in a series looking at the legal connections between gambling and finance. The <a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and.html" target="_blank">first article</a> introduced the legal concept of </i>aleatory contracts<i>. Links to subsequent articles can be found at the conclusion of this article (when available).</i></b><br />
<br />
<div style="text-align: center;">
<span style="color: #0b5394;"><b>* * * * *</b></span></div>
<b><span style="color: #0b5394;">Types of Insurance</span></b><br />
<br />
Insurance is probably the most familiar and ubiquitous of the aleatory contracts. People face a variety of significant financial risks, such as house fires, car accidents, injuries and illnesses, or even the loss of income from the death of a family member. People can protect against these large, even catastrophic, financial losses by purchasing <a href="http://en.wikipedia.org/wiki/Property_insurance" target="_blank">property insurance</a>, <a href="http://en.wikipedia.org/wiki/Casualty_insurance" target="_blank">casualty insurance</a>, <a href="http://en.wikipedia.org/wiki/Health_insurance" target="_blank">health</a> and <a href="http://en.wikipedia.org/wiki/Disability_insurance" target="_blank">disability insurance</a>, and <a href="http://en.wikipedia.org/wiki/Life_insurance" target="_blank">life insurance</a>, respectively. <br />
<br />
<b>Just about any risk can be insured, for a price.</b> Most individuals rarely need anything more than “off the shelf” <a href="http://www.investopedia.com/terms/p/personal-insurance-lines.asp" target="_blank">personal lines</a> of insurance (<i>e.g.</i>, homeowners’/renters’ insurance and auto insurance), along with health and life insurance. Businesses tend to carry “off the shelf” <a href="http://www.iii.org/fact-statistic/commercial-lines" target="_blank">commercial lines</a> of insurance, usually including at least a basic group of insurance coverages for commercial property, automobile, general liability, and workers’ compensation. Businesses also will take out additional insurance tailored to their particular business needs. Common commercial insurance coverages include aircraft, product liability, fidelity and surety, professional liability (a/k/a malpractice insurance), directors and officers, and <a href="http://en.wikipedia.org/wiki/Inland_marine_insurance" target="_blank">inland marine</a> policies (which ironically usually have nothing to do with either the ocean or soldiers). <br />
<br />
Individuals or businesses having special risks not covered by a standard policy can obtain insurance by use of an <a href="http://businessinsure.about.com/od/glossaryofinsuranceterms/g/endorsement.htm" target="_blank">endorsement</a> or <a href="http://www.investopedia.com/terms/r/rider.asp" target="_blank">rider</a> which expands coverage under a standard policy; this generally requires special <a href="http://en.wikipedia.org/wiki/Underwriting" target="_blank">underwriting</a> review, additional premium, and special conditions or limitations on coverage. Particularly large or unusual risks often need to be insured via a special policy specifically written for the risk, often referred to as <a href="http://www.napslo.org/wcm/About/What_is_Surplus_Lines/wcm/About/What_is_Surplus_Lines.aspx?hkey=edaa38ab-2c87-4861-a8ad-aa9b615c620e" target="_blank">surplus lines</a> insurance. <a href="http://www.lloyds.com/" target="_blank">Lloyd’s of London</a> is famous for this <a href="http://en.wikipedia.org/wiki/Lloyd%27s_of_London#Types_of_policies" target="_blank">type of specialty underwriting</a>, often insuring <a href="http://www.lloyds.com/lloyds/about-us/history/innovation-and-unusual-risks/going-out-on-a-limb" target="_blank">singers’ voices or athletes’ bodies</a>, as well as movie productions and <a href="http://www.lloyds.com/lloyds/about-us/history/innovation-and-unusual-risks/a-thing-of-beauty" target="_blank">rare art and jewelry</a>. Insurers will write policies for events as silly as a <a href="http://en.wikipedia.org/wiki/Prize_indemnity_insurance" target="_blank">hole-in-one at golf</a>, or as difficult to predict as <a href="http://en.wikipedia.org/wiki/Weather_insurance" target="_blank">weather</a>. For those individuals who are at risk (mostly teens in bad movies), there is even insurance available in the event the insured is <a href="http://en.wikipedia.org/wiki/Alien_abduction_insurance" target="_blank">abducted by aliens</a> or <a href="http://www.lloyds.com/lloyds/about-us/history/innovation-and-unusual-risks/wild-and-woolly" target="_blank">turned into a vampire or werewolf</a>.<br />
<br />
<b><span style="color: #0b5394;">Insurance as Wagering</span></b><br />
<br />
An insurance contract essentially operates like a wager. The person purchasing insurance is betting a small amount of money (the “premium”) that a particular event will occur (<i>e.g</i>., his house burns down), in which case the insurance company will pay him the policy “benefit” (here, the value of his house. Given the asymmetrical financial arrangement—small premium, large potential benefit—how does the insurance company make money?<br />
<br />
Insurance companies rely on two concepts to set the correct premium for a given insurance policy—<a href="http://en.wikipedia.org/wiki/Underwriting" target="_blank">underwriting</a> and <a href="http://finance.zacks.com/risk-pooling-insurance-1890.html" target="_blank">risk pooling</a>. Underwriting looks at a variety of factors—<i>e.g</i>., geography, age, gender, type of business—which have been found to statistically correlate with the particular risk being insured, charging a greater premium for insuring more risky insureds. For example, a college-aged single male with multiple moving violations on his driving record is more risky to insure than a middle-aged married woman. Conversely, a middle-aged female smoker with diabetes would pay a higher life insurance premium than a healthy college-aged male. And some geographical regions will have a greater or lesser overall risk of car accidents or mortality. <br />
<br />
In some respects, underwriting is analogous to a sports book operator setting a wagering line on a <a href="http://en.wikipedia.org/wiki/Proposition_bet" target="_blank">proposition ("prop") bet</a>. Unlike traditional sports wagers on the winner of a game, the point spread, or point totals (over/under bets), prop bets are one-off wagers on individual occurrences in a game. For the recent Super Bowl, <a href="http://www.sbnation.com/nfl/2015/2/1/7935245/2015-super-bowl-prop-bets-mvp-national-anthem-coin-toss" target="_blank">gamblers could bet</a> on props such as the length of the national anthem, which player would score first, and which player would be named MVP. The research the sports books put into setting those odds at a level which would attract action while still giving the house a profit is essentially the process of underwriting.<br />
<br />
<b><span style="color: #0b5394;">Insurance Company as Casino</span></b><br />
<br />
Still, even with underwriting, it is impossible to predict whether any particular individual risk will occur. In other words, while we know young men are more likely to be in car accidents and older smokers are more likely to die, we can’t predict which specific individuals will be in a car accident or die. Even if an insurer properly underwrites a particular risk, random chance may strike and require the insurer to pay off the policy benefit at a large loss. <br />
<br />
Insurance companies avoid this risk by implementing risk pooling. Risk pooling harnesses the <a href="http://en.wikipedia.org/wiki/Law_of_large_numbers" target="_blank">law of large numbers</a>, which essentially states that over a large number of trials, a probabilistic outcome will approach its expected value. By writing thousands of similar insurance policies, an insurer can spread the risk of losses over the entire block of policies, and hope to experience losses commensurate with its underwriting assumptions.<br />
<br />
In risk pooling, insurance companies operate in a fashion analogous to both <a href="http://en.wikipedia.org/wiki/Parimutuel_betting" target="_blank">pari-mutuel wagering</a> books and standard casinos. In pari-mutuel betting, all wagers are pooled together and the house commission (a/k/a “vig”) is taken out. The remaining pooled funds are paid to winning bettors in a proportional manner. Insurance companies similarly pool premiums and pay off “winners” (those who have insurance claims due to an insured loss) with premiums from "losers" (ironically, those who did not suffer a insured loss). The insurance company keeps the remaining funds—known as “<a href="http://www.wikinvest.com/stock/The_Travelers_Companies_%28TRV%29/Underwriting_Gain_Loss_Net_Earned_Premiums_Fee_Income" target="_blank">underwriting gain</a>”—to cover expenses and for profit. <b><span style="color: #0b5394;">[FN1]</span></b><br />
<br />
The pari-mutuel wagering analogy breaks down to a degree, however, because a pari-mutuel book will never take a loss paying off winning wagers. An insurance company, by contrast, can have instances in which, for a particular policy year or for a particular block of policies, the paid claims exceed the premiums charged. This type of “underwriting loss” situation is actually rather common in the property insurance field, where one or several large-scale events—hurricanes on the Southern or Eastern coasts, tornadoes in the Midwest, fires or mudslides in California—cause both widespread and high-dollar losses. Insurance companies deal with short-term underwriting losses in several ways: viewing underwriting gain/loss over time (<i>i.e</i>., a block of policies may be unprofitable in individual years yet profitable over ten or twenty years), raising renewal and new issue premiums to recoup losses, and entering into reinsurance arrangements (discussed in Part III of this series).<br />
<br />
Given the potential for underwriting loss over the short-term, the use of risk pooling in insurance has a stronger analogue in casino operations. On any given individual wager, the casino knows it has only a small statistical edge. The casino can’t predict which individual wagers will win or lose, or which individual gamblers will walk out with a profit or a loss. Further, casinos can experience short-term losses when a large single bet pays off (<i>e.g.</i>, a slot jackpot), or when the casino experiences significant negative variance on wagers by high rollers (Vegas casino gaming revenues are <a href="http://www.dailymail.co.uk/news/article-2092283/Baccarat-overtakes-Blackjack-biggest-lure-American-casinos-100-000-wagered-hand.html" target="_blank">notorious</a> for significant swings from the performance of its <a href="http://www.reviewjournal.com/business/baccarat-helps-drive-nevada-gaming-revenue-11-billion-2013" target="_blank">high-stakes baccarat tables</a>). But the casino does know that the more wagers it takes, the closer its profits will reflect its weighted average expectation for the built-in house advantage.<br />
<br />
Like a casino, an insurance company is indifferent to whether any particular policyholder “wins” or “loses”. In fact, no insurer can predict which of its insureds will “win”—<i>i.e</i>., suffer a loss and be entitled to benefits in excess of the premium paid. The insurer operates by assuming that it has properly underwritten and priced the block of policies such that in the aggregate the total premiums charged will, over time, exceed the total benefits paid. The larger the risk pool, the closer the insurance company’s experience for the block of policies will track with its actuarial projections.<br />
<br />
<div style="text-align: center;">
<span style="color: #0b5394;"><b>* * * * *</b></span></div>
<br />
<span style="color: #0b5394;"><b>[FN1]</b></span> An insurer also makes money on its investment portfolio. The funds ("<a href="http://en.wikipedia.org/wiki/Actuarial_reserves" target="_blank">reserves</a>") held by the company to back its in-force insurance policies and expected claims are invested, predominately in high-grade bonds, along with some other types of permitted securities and assets (state insurance regulators <a href="http://www.naic.org/cipr_newsletter_archive/vol2_oversight.htm" target="_blank">monitor these investments</a> closely for both risk and liquidity). The return on the investment portfolio is included in the setting of premium and expense charges for policies, keeping premiums and expense charges lower than would otherwise occur in a strict risk pooling arrangement. Income from the investment portfolio, rather than underwriting gain, has become the primary driver of profits in modern insurance.<br />
<br />
<div style="text-align: center;">
<span style="color: #0b5394;"><b>* * * * *</b></span></div>
<br />
<br />
<b><i>Additional articles in this series (links will be added as each section is posted)</i>:</b><br />
<br />
<b><a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and.html" target="_blank"> Part I—Meet the Aleatory Contracts</a></b><br />
<br />
<b><a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and_57.html" target="_blank">Part III—The Reinsurer, the Bookmaker, the Poker Pro Staker</a></b><br />
<br />
<b><a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and_57.html" target="_blank">Part IV—Derivatives and Daily Fantasy Sports</a></b><br />
<br />
<b><a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and_25.html" target="_blank">Part V—Hedgers and the Law</a></b><br />
<br />
<b>Part VI—Speculators and the Law</b><br />
<br />
<b>Part VII—Risk Creation v. Risk Management</b><br />
<div>
<b><br /></b></div>
Grange95http://www.blogger.com/profile/01857460215043659894noreply@blogger.com3tag:blogger.com,1999:blog-1169281096117913024.post-45951807986500052752015-03-08T23:16:00.001-05:002015-03-25T22:42:34.979-05:00Drawing the Line Between Gambling and Finance: Part I—Meet the Aleatory Contracts<blockquote>
Randolph Duke: <b>"Now, some of our clients are speculating that the price of gold will rise in the future. And we have other clients who are speculating that the price of gold will fall. They place their orders with us, and we buy or sell their gold for them."</b><br />
<br />
Mortimer Duke: <b>"Tell him the good part."</b><br />
<br />
Randolph Duke: <b>"The good part, William, is that, no matter whether our clients make money or lose money, Duke & Duke get the commissions."</b><br />
<br />
Mortimer Duke: <b>"Well? What do you think, Valentine?"</b><br />
<br />
Billy Ray: <b>"Sounds to me like you guys are a couple of bookies."</b><br />
<br />
Randolph Duke: <b>"I told you he'd understand."</b><br />
<br />
~ "<i><a href="http://www.imdb.com/title/tt0086465/?ref_=ttcz_cz_tt">Trading Places</a></i>"</blockquote>
<br />
Whenever talk turns to the legalization of <a href="http://www.onlinepokerreport.com/us/" target="_blank">online gambling</a> or real-money <a href="http://www.odfreport.com/category/legal/" target="_blank">daily fantasy sports leagues</a>—issues confronting several state legislatures this year—one fairly common argument raised is that if we allow people to sit around in their underwear at home and day-trade stocks on <a href="https://us.etrade.com/home" target="_blank">E*Trade</a>, we should let people <a href="https://twitter.com/OPReport/status/571383888347398144" target="_blank">sit around in their underwear at home</a> and play fantasy sports or online poker. After all, isn’t the stock market just a big, legal casino?<br />
<br />
Norman Chad, long time color commentator for ESPN’s broadcasts of the World Series of Poker, made this argument in a recent <a href="http://www.washingtonpost.com/sports/couch-slouch-fantasy-sports-are-as-much-gambling-as-sports-betting/2015/01/11/2b11f364-99b9-11e4-a7ee-526210d665b4_story.html" target="_blank"><i>Washington Post</i> column</a> regarding real-money fantasy sports websites:<br />
<blockquote class="tr_bq">
FANTASY SPORTS IS GAMBLING.<br />
<br />
Now, I have nothing against gambling; I’m quite pro-gambling. I just hate it when people pretend something is not gambling. Poker players and sports bettors are labeled gamblers and often scorned by non-gamblers. Yet Wall Street – essentially the biggest casino in the nation, plus it’s kind of rigged – is not labeled gambling.<br />
<br />
(People always worry about point-shaving in sports, when a player might throw a game to benefit bettors. How about insider trading? Heck, comparing point-shaving to insider trading is like comparing a rain shower to a monsoon. Hardly any game is ever fixed; by contrast, nefarious stock machinations occur on a daily basis.)<br />
<br />
So, yes, stock trading is gambling and, yes, fantasy sports is gambling.</blockquote>
It’s not just daily fantasy sports. The argument regularly pops up whenever legalization of traditional <a href="http://www.sportsonearth.com/article/62954908/why-sports-gambling-should-be-legal-in-the-nfl-nhl-nba-and-mlb" target="_blank">sports betting</a> or <a href="http://www.sportsonearth.com/article/53205856/in-las-vegas-at-world-series-of-poker-the-pros-dont-view-poker-as-gambling" target="_blank">online poker</a> is the topic <i>du jour</i>. And it’s hardly shocking that many professional daily fantasy sports and online poker players got their start in the world of finance.<br />
<br />
So why are the trillions traded on Wall Street legal, while the billions bet online on sports, fantasy sports, or poker remain illicit? The answer is more complicated than might be imagined.<br />
<br />
<span style="color: #0b5394;"><b>Aleatory Contracts</b></span><br />
<br />
Gambling wagers closely resemble contracts such as insurance policies and financial securities because these transactions all fall within the same family of legal contracts—the <i>aleatory contracts</i>. The legal term “aleatory” derives from the Latin words <i>aleator</i> which means gambler, and <i>alea</i>, a dice game. “Aleatory”is <a href="http://www.merriam-webster.com/dictionary/aleatory" target="_blank">defined</a> as:<br />
<blockquote class="tr_bq">
1: depending on an uncertain event or contingency as to both profit and loss<br />
<br />
2: relating to luck and especially to bad luck</blockquote>
An <a href="http://definitions.uslegal.com/a/aleatory-contract/" target="_blank">aleatory contract</a>, then, is “<b>a contract whose execution or performance is contingent upon the occurrence of a particular event or contingency or an uncertain (random) event beyond the control of either party.</b>” Any traditional gambling wager is clearly an aleatory contract—whether betting on a football game, a roll of the dice, or a hand of poker or blackjack, the outcome of the wager depends on the occurrence of a contingent or uncertain future event.<br />
<br />
But the law also recognizes other types of aleatory contracts. For example, insurance is a classic aleatory contract in which a premium is paid in exchange for a promise of monetary benefits in the event of an uncertain (random) future loss (<i>e.g</i>., a house burns down). Similarly, many options, futures, and other financial derivatives are also aleatory contracts in which performance is tied to future conditions in the relevant financial market. <br />
<br />
The underlying structure of each of the different classes of aleatory contracts is identical, though the terminology specific to each class of contracts may differ. But whether it is a gambling “wager” or an insurance “premium”, all of the aleatory contracts are based on the identical legal foundation: <b>Party A pays $XX to Party B as consideration for Party B’s promise to pay $YY to Party A if a particular future contingent event occurs</b>. So, from a purely analytical standpoint, there is no legal distinction between Party A paying Party B $5,000 in exchange for Party B’s promise to pay $100,000 to Party A twelve months in the future if: <br />
<ol>
<li>Party A's house burns down or he dies (insurance); </li>
<li>the price of corn rises or falls (futures); </li>
<li>the price of Apple stock rises or falls (options);</li>
<li>interest rates rise or fall (swaps); or</li>
<li>the New York Jets win the Super Bowl (gambling).</li>
</ol>
Yet, of these examples, the first four contracts are generally legal (and regulated to varying degrees) throughout the United States, while the last contract is currently legal only in Nevada (and then only in a licensed sports book). If all of these contracts are functionally equivalent, why are some aleatory contracts legal and others illegal? <br />
<br />
To answer that question, we first need to look at how the legal, non-gambling aleatory contracts function. In many cases, these contractual functions closely parallel certain aspects of gambling, both legal and illegal. Once the functions of the legal aleatory contracts have been examined, we can then look at how and why the law draws a distinction between gambling and other aleatory contracts.<br />
<br />
<br />
<b><i> Coming up (links will be added as each section is posted)</i>:</b><br />
<br />
<b><a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and_9.html" target="_blank"> Part II—Insurance: Gambling on Catastrophe</a></b><br />
<br />
<b><a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and_57.html" target="_blank">Part III—The Reinsurer, the Bookmaker, the Poker Pro Staker</a></b><br />
<br />
<b><a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and_11.html" target="_blank">Part IV—Derivatives and Daily Fantasy Sports</a></b><br />
<br />
<b><a href="http://craakker.blogspot.com/2015/03/drawing-line-between-gambling-and_25.html" target="_blank">Part V—Hedgers and the Law</a></b><br />
<br />
<b>Part VI—Speculators and the Law</b><br />
<br />
<b>Part VII—Risk Creation v. Risk Management</b><br />
<div>
<br /></div>
Grange95http://www.blogger.com/profile/01857460215043659894noreply@blogger.com9tag:blogger.com,1999:blog-1169281096117913024.post-80927164016947195272015-02-22T15:27:00.001-06:002015-02-22T15:27:32.330-06:00Making Poker Fun Again<blockquote>
<b>"We have to find a way to make people realize [poker] has to be a social game. You have to allow certain things. In other words, if I ran this room [TI], which I don’t, it’d be, “phones off the table.” And I do it too when I’m playing. This is ridiculous. Because nobody talks anymore. And that’s why they don’t have fun."</b><br />
<br />
~ <a href="http://www.treasureisland.com/casino/games">TI poker</a> dealer <a href="https://twitter.com/Dmuzio">Dominick Muzio</a>, interviewed for <a href="http://robvegaspoker.blogspot.com/2015/02/dominick-muzio-and-state-of-poker-today.html">Rob's Vegas & Poker Blog</a></blockquote>
<br />
I caught the Vegas poker bug just over a decade ago, and since then have averaged five or six trips to Poker Mecca each year. I've seen a lot of poker rooms open (Venetian, Aria) and close (Paris, Hilton, Imperial Palace/Linq, Tropicana). Although the Vegas poker scene is still vibrant, there is no question the bloom is off the rose—fewer rooms, fewer games, more local grinders, fewer drunken tourists.<br />
<br />
The decline, or perhaps the maturation, of the Vegas poker scene undoubtedly has had a number of contributing factors. Black Friday and the evaporation of online poker has meant fewer new players being introduced to the game. The recession certainly didn't help the poker industry. And younger people are <a href="http://www.nytimes.com/2013/08/01/us/as-las-vegas-recovers-new-cause-for-concern.html?pagewanted=all&_r=0" target="_blank">flocking to Vegas</a>, not to gamble, but to party all day, <a href="http://www.nightclub.com/awards/top-100/news/nightclub-bar-releases-2014-top-100-list-7963" target="_blank">club all night</a>.<br />
<br />
Nobody can do anything to unwind Black Friday or create another poker boom. But based on my recent visits to Vegas, between poker players and poker rooms, it feels like the poker industry is shooting itself in the foot. Longtime Vegas poker dealer <a href="https://twitter.com/Dmuzio" target="_blank">Dominick Muzio</a> addresses this issue and hits on several key problems in a <a href="http://robvegaspoker.blogspot.com/2015/02/dominick-muzio-and-state-of-poker-today.html" target="_blank">recent interview</a>. I agree with many of his points, but want to add in a couple of additional thoughts.<br />
<br />
In recent years, many poker rooms are catering to players by adding cell phone charger outlets, offering free WiFi, and generally eliminating most restrictions against use of cell phones and tablets at the poker table. These changes are generally a good thing. Players can make plans, keep up with friends and family, or take care of routine work emails between hands. Heck, I've even negotiated a couple of multi-million dollar settlements while playing at Aria.<br />
<br />
But, like all good things, some poker players have found a way to abuse this accommodation of electronic devices. During my last trip to Vegas in late December, I played at several tables in three different rooms (Aria, Ceasars Palace, and Planet Hollywood) where one or more players were watching movies or TV shows on their phones or tablets. In three different games I played in, there was at least one player (each an obvious local grinder) who would have a tablet out with large, noise-canceling headphones. Each of these players was completely oblivious to the action, and had to be nudged by the dealer every time the action was on them preflop. Even when they played a hand, the headphones never came off, often slowing the game further when they missed verbal declarations of bet sizes or other action. These players could hardly have been less engaged in the game. And from looking around the rooms, these players are surprisingly common and apparently tolerated by poker dealers and management.<br />
<br />
Poker rooms also continue to ruin the poker environment with poorly conceived promotions. The biggest, busiest, most successful rooms (<i>e.g.</i>, Aria, Venetian, Bellagio) seem not to need promotions beyond generous hourly comps and a reasonable rake. But some of the smaller rooms still take a jackpot drop to fund promotions. And, as long the promotion is a high hand jackpot or something similar, these promotions really are fairly innocuous, and may even achieve their purpose of making Joe Tourist excited about the game.<br />
<br />
The problem is that some rooms are still using promotion dollars to chase "regulars" who far too often are more interested in the promotion than in the game itself. During my December visit, I decided to check out the recently renovated and relocated poker room at Caesars Palace. Now, the room has greatly improved in two respects. First, the rake has been dropped from $5+$1 to $4+$1, comparable to many of the mid-sized rooms on the Strip. Second, the new location adjacent to the sports book and in the middle of the casino floor offers better visibility for casual, "walk-by" players.<br />
<br />
Unfortunately, Caesars was running a promotion in December which involved several weekly drawings and a monthly main drawing. Eligibility was based on playing a minimum number of hours for each week and for the month, and also required the player to be present at the time of the drawing. Essentially, the promotion was targeted at local players who were much more likely to qualify for and be present for the drawings than were tourists. The result was a predictable mess. Every table I played at had at least four or five players who were constantly checking to see if they had enough hours to qualify for the drawings. These players rarely played a hand preflop, and postflop there was little action unless two players hit the flop hard. The room was chock-full of nits who were reading magazines, drinking comped drinks, and checking their phones; basically doing anything except playing poker. Thrill a minute, I tell you.<br />
<br />
It seems like many poker room managers and serious poker players don't grasp the concept that live poker—at least low-stakes poker—is really about <i>entertainment</i>. I'm not saying every game needs to involve <a href="http://craakker.blogspot.com/2010/03/imop-memories-beatdown-at-bally.html" target="_blank">drunken Brits tackling players</a> or a <a href="http://craakker.blogspot.com/2010/03/imop-memories-sherminator.html" target="_blank">Sherminator look-alike</a>. But when Joe Tourist sits down with a few hundred dollars in his pocket, he would like to win money, but mostly he wants to enjoy himself for a few hours—have a few beers, share a few laughs, get a few stories to take back home. A table filled with local nits grinding hours, folding every hand, watching a movie, paying no attention to the game, and interacting mostly in grunts is pretty much the opposite of what casual players want to see. Sure, Joe Tourist may stick around and lose a buy-in to the game. But a casual player who is not enjoying himself won't pull out a second buy-in, or come back the next day. Treating low-stakes poker like a boring day job—even if is exactly that—is a terrible business decision.Grange95http://www.blogger.com/profile/01857460215043659894noreply@blogger.com15tag:blogger.com,1999:blog-1169281096117913024.post-15011680205970379602015-02-18T11:56:00.001-06:002015-06-28T13:45:50.596-05:00Setting the Line for Sports Betting Revenue<b><span style="color: #0b5394;">EXECUTIVE SUMMARY</span></b><br />
<br />
Recently, the sports betting legalization movement has gotten some welcome traction, with legislatures in several states taking a fresh look at the issue, and the commissioners of the professional sports leagues showing signs of increasing comfort with the legalization concept. In much of the media coverage of the issue, sports betting advocates use a financial pitch touting the massive revenue streams that could be realized from regulating the currently illicit sports betting market. Most of these financial projections seemed rather large, often claiming hundreds of billions of dollars in wagers would generate hundreds of millions in tax revenues. With the recent New Jersey online gaming boondoggle—where actual online gaming revenues have fallen woefully short of the projections touted by legalization supporters—I set out to research a short post analyzing the assumptions behind the sports legalization effort. As will come as no surprise to my dozen or so regular readers, my research resulted in a much longer piece.<br />
<br />
In <b>Part A—Introduction</b>, I review a few examples of the common revenue projections touted by sports betting advocates. In <b>Part B—Guesstimating the Illegal Sports Betting Market, </b>I look at the common projections of the scope of the current illegal sports betting market and discover the most widely cited estimates are essentially bogus. In <b>Part C—Conflating Amounts Wagered with Gaming Revenues and Tax Revenues</b>, I analyze the common mathematical errors riddling many sports betting revenue projections, errors which generally result in a significant overestimate of potential revenue streams.<br />
<br />
In <b>Part D—Estimating the Potential Size of the Legal Sports Betting Market</b>, I take a stab at generating my own back-of-the-envelope, wild-ass guess at the potential size of a legalized sports betting economy, and provide a couple of handy-dandy interactive spreadsheets so readers can generate and bedazzle their own revenue estimates. One interesting conclusion is that data from Nevada, currently the nation's only mature and saturated sports betting market, suggests that <b>estimates for sports betting revenues in New Jersey and nationally may be wildly overstated </b>(spoiler alert): "Applying the Nevada ratio to these historical revenue numbers would suggest New Jersey might reasonably expect somewhere between $59.8 million and $107.2 million in annual sports book revenues, which translates into $4.8 million to $8.6 million in additional annual tax revenues (applying the current 8% gaming tax rate)." Finally, in <b>Part E</b><b>—</b><b>Market Issues: Expansion, Conversion, and Competition</b>, I explore a few factors which further complicate any attempt to estimate the potential revenue streams from legalization of sports betting.<br />
<br />
I enjoy placing the occasional recreational sports wager, usually in Vegas, sometimes with a friend, and occasionally through more traditional back channels. I am firmly in the Legalize-Regulate-Tax camp. But if sports betting legalization is going to be sold as a revenue generator, we owe it to the public to use solid data where available, and to appropriately flag and hedge estimates and assumptions which lack rigorous underlying research. Let's sell sports betting legalization on its merits, not like a bunch of carnival hucksters.<br />
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<div style="text-align: center;">
<b><span style="color: #0b5394;">* * * * *</span></b></div>
<br />
<b><span style="color: #0b5394;">A. Introduction</span></b><br />
<br />
As the movement to legalize sports betting on a national basis gains momentum, an increasing number of public figures are finding ways to voice their support. NBA commissioner Adam Silver has led the charge, penning a <i>New York Times</i> <a href="http://www.nytimes.com/2014/11/14/opinion/nba-commissioner-adam-silver-legalize-sports-betting.html?_r=2" target="_blank">op-ed piece</a> and sitting for a prominent <i>ESPN: The Magazine</i> <a href="http://espn.go.com/chalk/story/_/id/12262502/gambling-issue-adam-silver-wants-sports-gambling-legalized-other-leagues-join-him" target="_blank">interview </a>to advocate for a "realistic" debate about legalizing and regulating sports betting. The new MLB commissioner, Rob Manfred, similarly seems <a href="http://espn.go.com/chalk/story/_/id/12286521/mlb-commissioner-rob-manfred-says-legalized-sports-betting-needs-fresh-consideration" target="_blank">open to a discussion</a> of legalized sports betting.<br />
<br />
One of the primary arguments used by sports betting advocates is that legalization will lead to a gusher of tax revenues for cash-strapped state governments. In that vein, Florida sports talk show host and writer <a href="https://twitter.com/davidmoulton993" target="_blank">David Moulton</a> penned an <a href="http://www.news-press.com/story/sports/2015/02/05/time-come-legalize-gambling-america/22931305/" target="_blank">article in the <i>News-Press</i></a> asserting that legalization of sports betting would raise, "conservatively", $750 million in annual state tax revenues for Florida. In New Jersey, state officials have touted annual tax revenue projections ranging from <a href="http://www.nj.com/news/index.ssf/2009/03/sen_raymond_lesniak_challenges.html" target="_blank">$100 million</a> to <a href="http://www.usnews.com/debate-club/should-sports-betting-be-legal/if-you-outlaw-sports-betting-only-outlaws-will-have-profits" target="_blank">$120 million</a>, and up to <a href="http://www.njbiz.com/apps/pbcs.dll/article?AID=/20111024/NJBIZ01/111029944/0/NJBIZ01/&template=printart" target="_blank">$166 million</a>. Certainly these are eye-popping figures which might persuade skeptical voters to take a flyer on sports betting.<br />
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The problem with the tax revenue argument for gaming is that it is easy to promise revenues, but hard to deliver. New Jersey Governor Chris Christie famously <a href="http://www.nj.com/politics/index.ssf/2014/02/christie_made_bad_bet_on_online_gambling_revenue.html" target="_blank">promised new tax revenues</a> of $200 million in the first year of legalized online gaming. As has been <a href="http://www.usatoday.com/story/news/nation/2014/06/24/stateline-online-gambling-revenues-fall-short/11306661/" target="_blank">well-documented</a>, actual revenues fell more than <a href="http://www.onlinepokerreport.com/6388/new-jersey-online-gambling-market-projections/" target="_blank">$150 million short</a> of projections. Even worse, gaming industry analysts have revised their <a href="http://www.onlinepokerreport.com/14913/igaming-projections-suggest-challenging-2015/" target="_blank">best-case long-term revenue projections</a> to fall significantly below the projections used by online gaming advocates to support their case for legalization.<br />
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The New Jersey online gaming revenue debacle is a cautionary tale as the sports betting legalization debate heats up. Yet sports betting advocates repeatedly cite financial figures which are confusing at best and misleading at worst. How can we present the public with more accurate revenue estimates?<br />
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<br />
<b><span style="color: #0b5394;">B. </span></b><b><span style="color: #0b5394;">Guesstimating the Illegal Sports Betting </span></b><b><span style="color: #0b5394;">Market</span></b><br />
<br />
Sports betting advocates fail to distinguish between estimates of illegal wagering activity and the potential casino revenue and tax revenue streams which might be realized if that illegal wagering were instead captured via a regulated sports betting regime. There are actually two separate errors in play here: a) accurately estimating the size of the illicit sports betting market, and b) determining how much of the illicit market could be converted to the regulated market. For the moment, let's focus on estimating the size of the current illegal sports betting market.<br />
<br />
Sports betting advocates often tout figures such as the American Gaming Association's estimate that Americans <a href="http://www.americangaming.org/industry-resources/research/fact-sheets/sports-wagering" target="_blank">illegally wagered $3.8 billion</a> on this year's Super Bowl (a figure widely adopted by the <a href="http://www.nj.com/politics/index.ssf/2015/01/lobiondo_and_pallone_introduce_legislation_to_brin.html" target="_blank">general media</a>). Or, there's the <a href="http://www.forbes.com/sites/davidlariviere/2014/09/19/legalization-of-sports-betting-would-be-huge-revenue-producer-for-leagues-expert-says/" target="_blank">common assertion</a> that Americans <a href="http://www.nytimes.com/2014/11/14/opinion/nba-commissioner-adam-silver-legalize-sports-betting.html" target="_blank">illegally wager</a> up to <a href="http://www.nydailynews.com/sports/basketball/nba-commish-silver-pens-op-ed-favor-sports-betting-article-1.2010565" target="_blank">$400 billion per year on sports</a>. The problem with these estimates is that the figures are presented without any supporting data or underlying assumptions. As my high school math teacher might say, the groups touting these estimates never "show us their work".<br />
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Let's take a look at that $400 billion estimate for the amount Americans supposedly wager illegally each year on sports. That figure seems to be a rounding up of an estimate of an annual illegal sports betting market of $80 billion to $380 billion as reported in the <a href="http://govinfo.library.unt.edu/ngisc/reports/2.pdf" target="_blank">1999 final report</a> of the National Gambling Impact Study Commission (NGISC), generated at the request of Congress. Sure, the data might be a little dated, and the figures are less robust than claimed, but it's still a pretty solid number, right?<br />
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Actually, wrong. The <a href="http://govinfo.library.unt.edu/ngisc/reports/2.pdf" target="_blank">NGISC report</a> is pretty easy to find, and sure enough, right there on Page 2-14, the report states: "Estimates of the scope of illegal sports betting in the United States range anywhere from $80 billion to $380 billion annually, making sports betting the most widespread and popular form of gambling in America." The problem arises when you look at the footnotes for that assertion. The NGISC report cites as support for this estimate a <i>Las Vegas Review-Journal</i> newspaper article on a proposed college sports betting ban. Try looking for that article, and the trail grows cold. However, <a href="http://www.slate.com/authors.jordan_weissmann.html" target="_blank">Jordan Weissmann</a> at <i><a href="http://www.slate.com/articles/business/moneybox/2014/11/adam_silver_says_there_s_400_billion_per_year_of_illegal_sports_betting.html" target="_blank">Slate</a> </i>was enterprising enough to run that footnote to ground. <a href="http://www.slate.com/articles/business/moneybox/2014/11/adam_silver_says_there_s_400_billion_per_year_of_illegal_sports_betting.html" target="_blank">Weissmann discovered</a> that the <i>Las Vegas Review-Journal</i> article in question relied upon estimates given by various individuals to the NGISC during its hearings, with the $380 million figure apparently "pull[ed] out of thin air" by one of the commissioners. Thus was born a supposedly reliable statistic repeatedly cited as authoritative in support of a wide range of important policy decisions. In reality, the $380 billion statistic is, <i>at best</i>, a <a href="http://en.wikipedia.org/wiki/Scientific_Wild-Ass_Guess" target="_blank">scientific wild-ass guess</a> ("SWAG").<br />
<br />
<br />
<b><span style="color: #0b5394;">C. Conflating Amounts Wagered with Gaming Revenues and Tax Revenues</span></b><br />
<br />
Another common tactic used by sports betting advocates is to throw out a figure for the amount being wagered on sports betting without clarifying that the amount cited is not the same as the actual revenue being generated for the casino industry, nor is it the amount of tax revenue realized from the casino revenues. Although the gross amount wagered (referred to as the "handle") is usually a huge, attention-grabbing figure, the reality is that the amount retained by the sports book as operating revenue (the "hold") is only a small fraction of the handle. Yet it is the hold that matters most when making policy decisions regarding sports betting.<br />
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The <a href="http://www.news-press.com/story/sports/2015/02/05/time-come-legalize-gambling-america/22931305/" target="_blank">David Moulton <i>News-Press</i> op-ed</a> noted earlier makes a particularly egregious hash of this issue. Moulton asserts that the state of Florida will retain 10% of the handle as tax revenues. Moulton's claim is based on the 10% commission (a/k/a "vigorish" or "vig") traditionally imposed by bookmakers on sports wagers. Moulton makes two egregious, fundamental errors here.<br />
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First, Moulton fails to recognize what any casual sports bettor knows—<b>sports books refund the commission on all winning wagers and only keep the commission on losing wagers</b>. Sports books want to operate much like a stockbroker and match buyers and sellers (winners and losers), taking a commission along the way for a small but steady piece of the action. Lines on games are set and adjusted to keep the action on both sides as even as possible, minimizing risk to the sports book of being overly exposed to heavy action. Traditional straight bets like point spread and totals (over/under) bets do usually require the bettor to lay 11/10 odds (<i>i.e.</i>, bet $11 to win $10, or $110 to win $100), giving the sports book a <a href="http://wizardofvegas.com/guides/sports-betting//" target="_blank">house edge of roughly 4.76%</a> on the wager (not the 10% edge claimed by Moulton). Other common bets like moneyline wagers will have a similar house edge around 5%, while more <a href="http://wizardofodds.com/games/sports-betting/" target="_blank">exotic wagers</a> like parlays, teasers, futures, and props may have a house edge exceeding 30% (which is why sports books drool when a sucker approaches the counter with a parlay wager).<br />
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To get a feel for a reasonable expected hold for traditional sports books, it's easiest to simply see how Nevada sports books have historically performed. Taking the Nevada statewide sports book revenue statistics for the past five years, individual sports bets averaged a hold of 4.9%, parlays averaged a hold of 31.2%, and sports books overall averaged a hold of 5.4%.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgZyD-gCQ0xjw54L4zN8Hm6PuONexfZrbAppHe3lL04XJJfIXgW8XYFn9c2z5PhNK3sNSl00NhKgG32O5NDuADbm694nsg0HI-lOx4O01KH9bnwrRTxjQZObNH7tLXS_frVbWCFs-rkuXFx/s1600/Nevada+Sports+Wagering+Chart.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="220" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgZyD-gCQ0xjw54L4zN8Hm6PuONexfZrbAppHe3lL04XJJfIXgW8XYFn9c2z5PhNK3sNSl00NhKgG32O5NDuADbm694nsg0HI-lOx4O01KH9bnwrRTxjQZObNH7tLXS_frVbWCFs-rkuXFx/s1600/Nevada+Sports+Wagering+Chart.png" width="400" /></a></div>
<div style="text-align: center;">
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</i></b></div>
<div style="text-align: center;">
<b><i>Nevada sports book revenues 2010-2014 (all dollars in thousands (add 000)).</i></b></div>
<div style="text-align: center;">
<b><i>Data source: Nevada Gaming Control Board "<a href="http://gaming.nv.gov/index.aspx?page=149" target="_blank">Gaming Revenue Reports</a>"</i></b></div>
<div style="text-align: center;">
<b><i>Full spreadsheet with individual year data available via <a href="https://docs.google.com/spreadsheets/d/1f9dD6q1p7cbb44S1zfCX20HsTSpoWMBc287zvtTIHH0/pubhtml?gid=1035370064&single=true" target="_blank">web</a> and <a href="https://docs.google.com/spreadsheets/d/1f9dD6q1p7cbb44S1zfCX20HsTSpoWMBc287zvtTIHH0/edit?usp=sharing" target="_blank">Google Docs</a>.</i></b><br />
<b><i><br /></i></b>
<b><i>UPDATE (28 June 2015): Via <a href="https://twitter.com/BillyPolcha" target="_blank">Billy Polcha</a>, Nevada <a href="http://gaming.unlv.edu/reports/NV_sportsbetting.pdf" target="_blank">gaming revenue data</a></i></b><br />
<b><i><a href="http://gaming.unlv.edu/reports/NV_sportsbetting.pdf" target="_blank">for 1984-2014</a> have been compiled in a user-friendly format </i></b><br />
<b><i>by the UNLV Center for Gaming Research. </i></b></div>
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If one dives into the year-by-year data, the individual sports bets will fluctuate from the expected 4.76% hold depending on sport and how well favorites perform. It is well-known that most sports bettors (so-called "<a href="http://www.covers.com/articles/articles.aspx?theArt=397606" target="_blank">squares</a>") are less sophisticated and will tend to bet on favorites and overs, so sports books often hedge their lines in those directions, padding their edge slightly on those bets. Parlay bets have a house edge of 25%-35%, but the handle on those bets is small relative to individual bets (because of the higher payouts, parlay bettors generally bet smaller amounts). Still, parlay bets consistently add 50 to 60 basis points (0.5% to 0.6%) to the overall house hold each year.<br />
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Based on Nevada's actual data, it appears a reasonable assumption that the typical sports betting hold is around 5.5% of the handle. So, just like that, nearly half of Moulton's projected tax revenues evaporate.<br />
<br />
But Moulton has made another egregious error—conflating the casino hold (gross gaming revenues) with tax revenues. Assuming the State of Florida is offering sports betting through casinos and racetracks (as is the case in Nevada and is being proposed in New Jersey), the hold from sports wagers represents the gross revenue stream for the casinos and racetracks. The sports books need to pay overhead and expenses, and make a reasonable profit from the hold in order to operate. Actual tax revenues would only be a percentage of the hold.<br />
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So, the actual tax revenues depend on what gaming tax rate is applied to the hold, a rate which is likely to <a href="http://www.americangaming.org/sites/default/files/uploads/docs/aga_sos2013_fnl.pdf" target="_blank">vary widely by state</a>. In Nevada, the top marginal tax rate for gross gaming revenues is currently 6.75% (with additional local, county, and state assessments which may add up to an additional 1% to the effective tax rate). In New Jersey, the top marginal tax rate for gross gaming revenues is currently 8.0% (with an additional 1.25% community investment assessment). In Florida, the the top marginal tax rate for slot machine revenues is currently 35% (the state has a compact with the Seminole tribe permitting the tribe exclusive rights to offer certain table games in exchange for a flat annual payment).<br />
<br />
It is not clear, however, that Florida would apply its high slot revenue tax rate (35%) to sports book revenues as sports books are more expensive to operate. As one <a href="http://www.spectrumgaming.com/dl/SpectrumNationalTaxAssociation.pdf" target="_blank">casino industry study</a> noted, there is a direct correlation between lower gaming taxes and higher employment rates in the casino industry. Further, the study notes that many states have adopted lower tax rates for table game revenues in recognition that table games have higher overhead and expenses than do slot machines. The study suggests (<a href="http://www.spectrumgaming.com/dl/SpectrumNationalTaxAssociation.pdf" target="_blank">p. 29</a>) that 40% of gross revenues is the maximum tax rate for table games to operate profitably. One would suspect that sports books have even greater expenses relative to revenues than table games and cannot operate profitably at such a high tax rate.<br />
<br />
So let's do the math. Moulton used an assumption—frankly, a decidedly unscientific wild-ass guesstimate—of $7.5 billion in sports betting handle, and projected tax revenues for the state of Florida of $750 million (10% of the handle). In reality, even if Florida were to have $7.5 billion in handle, the resulting gross revenues would be roughly $412.5 million (assuming a 5.5% hold), with maximum tax revenues of $144.4 million (applying the current 35% tax rate). <b>In other words, even using Moulton's gross gaming handle assumption, and even applying the current 35% tax rate, the actual projected tax revenues for Florida are less than 20% of what Moulton promised. </b><br />
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It's hard to tell if Moulton is merely cosmically awful at math, too lazy to do basic research about sports betting, or intentionally fudging the numbers with some sleight of hand to create a more palatable illusion of the benefits of sports betting legalization. Whatever the case, Moulton's revenue projections are likely wildly overstated. Still, even $415 million or so in annual gross gaming revenues can create a lot of jobs and economic development. And another $145 million or so in annual tax revenues is nothing to sneeze at, even if it is a rounding error in relation to <a href="http://www.tampabay.com/news/politics/stateroundup/florida-gov-rick-scott-expected-to-sign-state-budget-today/2182511" target="_blank">Florida's $77 billion state budget</a>.<br />
<br />
Although not as laughably wrong as Moulton, other sports betting advocates often make similar errors in calculating gaming revenue and tax revenue projections off of gross wagering data. For example, one news story from New Jersey <a href="http://www.njbiz.com/apps/pbcs.dll/article?AID=/20111024/NJBIZ01/111029944/0/NJBIZ01/&template=printart" target="_blank">reported</a> that one study projected "sports betting would be a $6.7 billion industry in New Jersey, bringing in $166.2 million in tax revenue." But the numbers don't add up. Assuming $6.7 billion refers to the gross amount wagered (the handle), casino gross revenues would be roughly $368.5 million (assuming 5.5% hold). For the $166.2 million tax revenue projection to hold up, a tax rate of 45% would have to be applied to the gross revenues, rather than New Jersey's current 8% tax rate (which would result in only $29.5 million in tax revenue). Clearly something doesn't add up here.<br />
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Or, for another example of overreach by sports betting advocates, New Jersey state senator Ray Lesniak, a <a href="http://craakker.blogspot.com/2014/09/flotsam-and-jetsam-in-wake-of-new.html" target="_blank">vocal advocate</a> for sports betting legalization, has <a href="http://www.nj.com/news/index.ssf/2009/03/sen_raymond_lesniak_challenges.html" target="_blank">reportedly claimed</a> that sports betting could bring in more than $100 million per year in tax revenue for the state. But simple reverse-calculation shows that $100 million in tax revenue necessarily implies gross casino revenues (hold) of $1.25 billion (assuming 8% tax rate), and gross amounts wagered (handle) of $22.7 billion (or roughly six times Nevada's 2014 sports betting handle) (assuming 5.5% hold). If the $166.2 million tax revenue handle estimate noted above is reverse-calculated, the predicate numbers are $2.1 billion in gross casino revenues (hold) and gross amounts wagered (handle) of $37.8 billion (roughly ten times Nevada's 2014 sports betting handle). These figures may be defensible, but considering New Jersey only has <a href="http://en.wikipedia.org/wiki/List_of_U.S._states_and_territories_by_population" target="_blank">roughly three times the population</a> of Nevada, it is clear these tax revenue projections are incredibly optimistic.<br />
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As noted earlier, sports betting financial projections are going to carry a large degree of uncertainty. But if legislators and ultimately voters are to weigh the costs and benefits of sports betting legalization, it would be helpful if the financial projections weren't riddled with obvious and avoidable errors.<br />
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<br />
<b><span style="color: #0b5394;">D. Estimating the Potential Size of the Legal Sports Betting Market</span></b><br />
<br />
In the absence of quality market research (based on scientifically and statistically sound sampling and modeling techniques), is there any way to derive a useful, or at least better informed, estimate of the potential size of the American sports betting market?<br />
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Moulton attempts to buttress his estimates of the Florida sports betting market by reference to the amount of sports bets handled by a local bookie. In fairness to Moulton, other sports betting advocates occasionally <a href="http://www.onlinebetting.com/nj-case-study/" target="_blank">make the same argument</a>. But the problem with this approach is that there is no way to scale one bookie's business into meaningful statistics for a state or the entire country. The density of bookies in a given community, the number of customers per bookie, the average amount bet by each customer, and other important details will inevitably either vary so widely or be so opaque to verification as to render it impossible to draw any meaningful conclusions beyond the individual bookie's business. As the old saying goes, the plural of "anecdote" is not "data".<br />
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<span style="color: #0b5394;"><b>1. Extrapolating from known data (Nevada)</b></span><br />
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One potential approach to estimating sports betting revenues would be to extrapolate from known data. Unfortunately, with Nevada as the sole data point, extrapolation is likely subject to a high degree of variance. For starters, Nevada is the sole location in the United States offering a full slate of sports betting, and is a mature industry established for several decades. Tourists are a major part of the gaming economy, and are probably much more likely to be inclined to wager on sports than average Americans. Nevada also draws heavily from the wealthy population of neighboring California, skewing direct demographic comparisons to other states. Further, Nevada's major population centers are heavily saturated with casinos, not to mention statewide <a href="http://nvsportsbooks.com/" target="_blank">mobile sports betting</a>, making it more likely legal sports betting has displaced a high percentage of illegal sports betting options (<i>e.g.</i>, offshore internet sites and traditional bookies). <b>At best, Nevada can be viewed as a best-case upper boundary on sports gaming revenues in other states (<i>i.e.</i>, if a state like New Jersey has roughly three times the population of Nevada, it is unlikely New Jersey will exceed three times the gross sports betting revenues of Nevada, at least in the short-term).</b><br />
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Nevada had gross sports wagers (handle) of $3.9 billion in 2014, and in view of trends over the past five years, can reasonably be projected to exceed $4.0 billion in 2015. Extrapolating to New Jersey, to meet the projections of $100 million in annual tax revenues, if the state had gross sports wagers of $12 billion (three times Nevada, proportionate to population), the state would need to double its gaming tax rate to 16%. Conversely, the state could hold its tax rate at 8% and double the sports wager volume to $24 billion (six times Nevada). The assumption New Jersey will generate six times the gross sports betting handle of Nevada seems somewhat far-fetched, even if New Jersey is the only legal East Coast sports betting venue. <b><span style="color: #0b5394;">[FN1].</span></b><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgqNkPFNrI_ByFgwd7FOd3C-vWxgj3VjqRAYYCL69pKrXfCkmWoxPEn-nOXQpJ_8aqfXaWkmLIHs5JPmNKjCa3eZaKEZ9-NA57RF_ygYq50TdrrvHHrSOeCKw5Ep_ZM7bNgsc1uW6RvqX7S/s1600/Florida+Tax+Chart.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="245" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgqNkPFNrI_ByFgwd7FOd3C-vWxgj3VjqRAYYCL69pKrXfCkmWoxPEn-nOXQpJ_8aqfXaWkmLIHs5JPmNKjCa3eZaKEZ9-NA57RF_ygYq50TdrrvHHrSOeCKw5Ep_ZM7bNgsc1uW6RvqX7S/s1600/Florida+Tax+Chart.png" width="400" /></a></div>
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<b><i>Gaming revenue and tax revenue table (all dollars in thousands (add 000)).</i></b></div>
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<b><i>Interactive spreadsheet available via <a href="https://docs.google.com/spreadsheets/d/1f9dD6q1p7cbb44S1zfCX20HsTSpoWMBc287zvtTIHH0/edit?usp=sharing" target="_blank">Google Docs</a>; </i></b><b><i>download spreadsheet</i></b><br />
<b><i>(second tab) into </i></b><b><i>Excel or your own Google sheet to use interactive feature.</i></b></div>
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One other way to potentially extrapolate meaningful data from Nevada is to look at the <b>ratio of sports betting revenue to overall casino revenue</b>. It's no surprise to anyone familiar with the casino industry that slot machines and table games are the primary gaming revenue drivers. Looking back at the<a href="http://gaming.nv.gov/modules/showdocument.aspx?documentid=9691" target="_blank"> 2014 year-end data for Nevada</a>, the state's casinos had total slot revenues of $6.7 billion, and total table game revenues of $4.2 billion. Sports book revenues, however, were "merely" $227 <i>million</i>. Running the math, sports book revenues represented roughly 2.02% of total gaming revenues (slot, table game, and sports book revenues combined). And again, Nevada is a mature, highly saturated gaming market.<br />
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The Nevada sports betting ratio provides us a second useful upper boundary for checking the validity of sports betting revenue estimates. For example, <a href="http://gaming.unlv.edu/abstract/ac_main.html" target="_blank">New Jersey gaming revenues</a> were $2.9 billion in 2013, down from a peak of $5.2 billion in 2006. <b>Applying the Nevada ratio to these historical revenue numbers would suggest New Jersey might reasonably expect somewhere between $59.8 million and $107.2 million in annual sports book revenues, which translates into $4.8 million to $8.6 million in additional annual tax revenues (applying the current 8% gaming tax rate). </b><br />
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On a national basis, the calculation is more complicated because many states have gaming markets which are substantially less mature and less saturated than Nevada and New Jersey. The <a href="http://www.americangaming.org/industry-resources/research/fact-sheets/gaming-revenue-10-year-trends" target="_blank">AGA reports</a> national gaming revenues of $37.34 billion in 2012, nearly equaling the historical revenue high point of $37.52 billion in 2007. Let's assume total gaming revenues increase by roughly 20% by the end of 2015, for total national gaming revenues of roughly $45 billion. <b>Applying the Nevada ratio would suggest we might reasonably expect roughly $930 million in annual national sports book revenues, which translates into annual tax revenues of roughly $139 million (at a 15% tax rate) to $325 million (at a 35% tax rate).</b><br />
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Despite its small population, Nevada accounts for <a href="http://www.americangaming.org/sites/default/files/aga_sos2013_rev042014.pdf" target="_blank">more than one-quarter</a> of national gaming revenues ($10.70 billion of the $37.34 billion in national gaming revenues in 2012). No state has ever outperformed Nevada in gaming revenues in absolute terms, let alone on a population proportional basis. <b>If sports betting advocates want to float sports betting revenue estimates for their state which are greater than Nevada's historical sports betting revenues, it's a fair question to those advocates why they think their state will outperform Nevada in sports betting revenues when they have never done so with respect to other casino gaming revenues.</b><br />
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<span style="color: #0b5394;"><b>2. Extrapolating from demographic data</b></span><br />
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Acknowledging the limitations of extrapolating from Nevada to other states, is there any way to estimate national figures for sports betting revenues based on something other than a just a wild-ass guess pulled from thin air? One way economists or actuaries might approach the problem would be to estimate gambling habits by demographic group and extrapolate against known populations. Of course, no such rigorous study has been conducted to date. So we are left to attempt what might be best described as a <i>slightly </i>scientific wild-ass guess analysis.<br />
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First off, it's important to note that sports betting is an overwhelmingly male-oriented endeavor (one sports book operator in Delaware <a href="http://www.pressofatlanticcity.com/news/breaking/delaware-casinos-having-some-success-with-sports-betting-a-revenue/article_d62334f0-6803-11e2-ac1e-0019bb2963f4.html" target="_blank">estimates men are over 90%</a> of his clientele). Next, it's safe to say that there is a significant segment of the male population who either do not gamble at all, or do not gamble on sports. So, let's work with an assumption that roughly 1-in-8 (12.5%) men gamble on sports, along with a small percentage of women. Next, let's assume most men who gamble on sports wager around $5,000 per year on sports (essentially $100-$200 per week during football season, and $1,000 or so during the NCAA basketball tournament), with a smaller group of men being more regular, hardcore sports gamblers who wager greater amounts. We will also reduce the average bet size for the youngest population, commensurate with their lower average earnings. These assumptions (using 2013 Census data) result in gaming revenues and tax revenues as set forth in the following table:<br />
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<b><i>Interactive spreadsheet available via <a href="https://docs.google.com/spreadsheets/d/1qK8gtXev4c8Pn1Xt7It7bPni-eiQPooRoA7pbDcWI-M/edit?usp=sharing" target="_blank">Google Docs</a>; </i></b><b><i>download spreadsheet</i></b></div>
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<b><i>into </i></b><b><i>Excel or your own Google sheet to use interactive feature.</i></b></div>
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Essentially, the use of the above set of assumptions results in total national sports wagers (handle) of $215 billion, with gross casino revenues (hold) of $11.8 billion, and tax revenues of $1.7 billion to $3.5 million (assuming a tax rate of 15% to 30% of gross gaming revenues). Note that these assumptions result in an estimate that there are roughly 16 million potential sports bettors nationally, each wagering (not losing—just placing total bets) roughly $13,500 per year on average (the Totals row contains the weighted average for wagers placed given the initial assumptions used). If the estimates of total sports bettors or average wager seem high or low, one must question the validity of the underlying assumptions. Frankly, considering this estimate is an order of magnitude (roughly 12 times) larger than the national projections based on the Nevada ratio, this estimate most likely overstates the potential gaming revenues to a significant degree. Certainly the oft-cited $380 billion illegal sports betting market statistic looks increasingly dubious even under this more optimistic analysis.<br />
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Of course, the above set of assumptions were conjured out of the ether, with only the flimsiest of tethers to reality. If one downloads and plays with the spreadsheet, it quickly becomes obvious that the bottom line handle, hold, and tax figures are highly sensitive to the initial assumptions used. But without more rigorous data from scientifically validated surveys, these kinds of guesstimates are about as good as we can get, which means every estimate of gaming revenues and tax revenues from sports betting legalization has to be accompanied by large asterisk noting a significant margin of error.<br />
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<b><span style="color: #0b5394;">E. Market Issues: Expansion, Conversion, and Competition</span></b><br />
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As if the difficulty of estimating the potential sports betting market size weren't already difficult enough, there are a number of issues which further complicate the process.<br />
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First, there is the issue of <b>market expansion</b>. There is likely a decent group of potential sports bettors who are currently not betting because they lack a connection to an illegal gambling option or choose not to use such a gambling option. Legalization of sports gambling would give these individuals an outlet to pursue sports gambling, expanding the sports betting market.<br />
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Next, there is the issue of <b>market conversion</b>. There is unquestionably a thriving illicit sports gambling market being utilized by sports gamblers in those states without a legal sports gambling option (essentially everywhere except Nevada, for sports gamblers who either live in or can easily travel to Nevada). The interesting question is how much of the illicit market will migrate to the legal market once sports betting is legalized in additional states. Although the legal market would superficially seem to offer significant advantages for sports gamblers, that assumption is not without major caveats.<br />
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Sports gamblers in recent years have become accustomed to immediate, around-the-clock, online access to sports betting. Some of this action is via direct wagering on offshore internet sports gambling sites, while much of the illicit action is mediated by local bookies who use offshore sites as a method for booking wagers. For example, a sports bettor might approach a bookie about betting on games. The bookie sets up an offshore account with a small deposit. The bookie makes the account available to the bettor, and they agree to a proportional betting scheme; <i>e.g.</i>, $1 bet on the site equals $10 bet in real life. The bettor then makes small wagers online, which translate into larger real life bets with the bookie. Periodically, the bettor and bookie meet up to "square up" the account in real dollars.<br />
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Additionally, highly aggressive tax rates on sports book revenues are likely to be passed through to consumers in the form of higher commissions or surcharges. Further, legalized sports books will be forced to do tax reporting on larger bets and payouts. Sophisticated and higher volume sports bettors might well find that legalized sports betting is impossible to beat once higher taxes and commissions are taken into account, and will instead make the rational economic decision to continue utilizing illicit gaming channels.<br />
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Given the realities of modern, online sports betting, there is a significant question as to how much illicit sports betting will migrate to legal options post-legalization. In a highly saturated gaming market like Nevada where both the brick-and-mortar casinos and mobile sports book options make sports betting convenient and ubiquitous, the conversion rate from illicit to legal sports betting will be a fairly high percentage. But in states where legal sports books are limited geographically and there is no online or mobile betting option, the conversion rate might be significantly lower. Certainly there is no basis to assume that all or even most currently illicit sports betting will necessarily move to legal options post-legalization.<br />
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Finally, there is the issue of <b>market competition</b>. Spurred in part by a UIGEA carveout, online fantasy sports competitions have boomed in the past decade. The relatively <a href="http://www.theatlantic.com/entertainment/archive/2014/09/how-daily-fantasy-sports-will-create-an-american-gambling-boom/380382/" target="_blank">recent innovation of "daily fantasy sports"</a> (DFS) contests on sites such as <a href="https://www.fanduel.com/" target="_blank">FanDuel</a> and <a href="https://www.draftkings.com/" target="_blank">DraftKings</a> has driven explosive financial growth in the fantasy sports market, with <a href="https://twitter.com/akrejcik" target="_blank">industry experts</a> projecting revenues <a href="http://www.odfreport.com/170/revenue-projections-for-daily-fantasy-sports-sites/" target="_blank">exceeding $2.5 billion</a> by 2020. As <a href="https://twitter.com/OPReport" target="_blank">Chris Grove</a> of <a href="https://twitter.com/@ODFReport" target="_blank">Online Daily Fantasy Report</a> notes, the <a href="http://www.odfreport.com/170/revenue-projections-for-daily-fantasy-sports-sites/" target="_blank">potential impact of DFS-style gaming</a> on traditional casino gaming could be significant:<br />
<blockquote>
Social [gaming] and DFS don’t have to make a dollar to cost casinos a dollar of revenue.<br />
<br />
Instead, they can (in theory) offer consumers an experience similar to gambling but at a lower cost. So the increasing popularity of DFS, for example, could have an outsized negative impact on casino revenues, one that isn’t properly communicated by the pure revenue number of the DFS industry.</blockquote>
It doesn't take a rocket scientist to project that DFS-style gaming is potentially a bigger threat to traditional sports betting than it is to, say, slots or blackjack. Currently, DFS holds two significant advantages over traditional brick and mortar sports betting—DFS is legal and DFS is mobile. People who are interested in sports betting (particularly younger people) may find that DFS satisfies their sports betting needs, and may well find the DFS experience superior to traditional sports betting.<br />
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Of course, it would be absurd to think DFS will single-handedly destroy traditional sports betting in the short-term. The markets for DFS and traditional sports betting may not overlap to a significant degree. DFS might actually expand the traditional sports betting market by creating new sports bettors. Brick and mortar casinos could also offer DFS wagering, as is currently permitted in <a href="http://www.nytimes.com/2013/03/19/sports/atlantic-city-casinos-to-offer-fantasy-sports-betting.html?_r=0" target="_blank">New Jersey casinos</a>. But fifty years ago, who would have anticipated the decline of the horse and dog racing industries, once the centerpiece of legalized gambling in most states, now mostly kept afloat via subsidies from other casino revenue streams? It would be folly not to at least consider the possible effects of DFS on traditional sports betting revenues.<br />
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The issue of market competition also applies in state-by-state analyses of the sports betting market. As an example, the New Jersey casino market has been <a href="http://www.njspotlight.com/stories/14/12/01/explainer-drop-in-casino-tax-revenue-reflects-industry-s-decline-in-nj/" target="_blank">decimated in recent years</a> by expanded gaming competition in nearby markets. Even if New Jersey were to legalize sports betting, there is no guarantee neighboring states would not escalate the gaming wars and likewise legalize sports betting, siphoning off a huge chunk of New Jersey's anticipated sports betting revenues. Consequently, any state-specific sports betting revenue projections must be accompanied by significant caveats and qualifications regarding anticipated competition from nearby markets.<br />
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<b><span style="color: #0b5394;">F. Conclusion</span></b><br />
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So, after all of this jibber-jabber, how much casino and tax revenue can we reasonably expect to be generated by widespread legalization and taxation of sports betting?<br />
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<b>Your guess is as good as mine.*</b><br />
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* But I'm betting the under.<br />
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<b><span style="color: #0b5394;">[FN1]</span></b> Applied to Florida which has seven times the population of Nevada (and its own healthy tourism industry), the upper boundary for sports betting gross wagers (handle) is $28 billion, with gross gaming revenues (hold) of $1.54 billion, and annual tax revenues of $539 million (assuming a 35% tax rate). In other words, still well short of David Moulton's estimated $750 million in annual tax revenues.<br />
<br />Grange95http://www.blogger.com/profile/01857460215043659894noreply@blogger.com50tag:blogger.com,1999:blog-1169281096117913024.post-35977669649172856922015-01-20T00:50:00.000-06:002015-01-20T15:55:36.332-06:00Poker's Deus Ex Machina (Part II)—How a Computer Proved Poker Is a Game of Chance<i><b>AUTHOR'S NOTE:</b> This post is the second of two related posts. Part I is <a href="http://craakker.blogspot.com/2015/01/pokers-deus-ex-machina-part-i-how.html" target="_blank">HERE</a>.</i><br />
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<b><span style="color: #0b5394;">* * * * *</span></b></div>
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As discussed in my <a href="http://craakker.blogspot.com/2015/01/pokers-deus-ex-machina-part-i-how.html" target="_blank">last post</a>, the recent news that a team of researchers has "<a href="http://webdocs.cs.ualberta.ca/~johanson/publications/poker/2015-science-hulhe/2015-science-hulhe.pdf" target="_blank">essentially weakly solved</a>" heads-up limit hold' em poker (HULHE) should be considered significant support for the <a href="http://craakker.blogspot.com/2010/04/tilting-at-poker-windmills.html" target="_blank">legal argument</a> that poker is a "skill game"—<i>i.e.</i>, a game where skill, rather than chance, is the "dominant factor" in the game. In fact, the Cepheus computer program's ability to play a non-exploitable, <a href="http://ca.pokernews.com/strategy/game-theory-optimal-and-maximum-exploitive-no-limit-hold-em-5092.htm" target="_blank">game theory optimal</a> (GTO) strategy does advance the skill game argument by showing that the skill-chance analysis cannot be confined to a single hand, demonstrating the importance of making long-term strategic decisions (<i>e.g.</i>, <a href="http://www.cardplayer.com/poker-news/13858-dusty-schmidt-achieving-balance-in-your-poker-game" target="_blank">balancing ranges</a>). Further, Cepheus proves that, at least for the HULHE variation of poker, a player can use a GTO strategy that is indifferent to the role of chance over the long-term (<i>i.e.</i>, the strategy will not lose to a non-GTO strategy over a statistically significant number of hands).<br />
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So, has Cepheus resolved the skill game legal argument in favor of poker as a game of skill? Unfortunately, the opposite may well be the case. As one of Cepheus' researchers explained, an <a href="http://poker-blog.srv.ualberta.ca/2015/01/08/humans-robots-and-the-consequences.html" target="_blank">important implication</a> of a GTO strategy is that it is designed to be impervious not only to the effects of chance, but also to any counter-strategy (emphasis added):<br />
<blockquote class="tr_bq">
"Since poker is a symmetrical game, the end strategy which Cepheus plays is an unbeatable one. While chips can, of course, be won from Cepheus in the short term, there is no decision which can be made against it which will be a winner in the long term. <b>If a perfect opponent, either human or computerized, were to play a semi-infinite number of hands against Cepheus the best possible result would be for them to break even.</b> Any imperfect opponent, which unfortunately includes all human players, would make mistakes along the way and lose. That being said, what Cepheus cannot do is maximize its winnings against weak opponents, a skill [at] which humans excel. Cepheus is simply an invincible, immovable bunker, a Maginot Line that actually works."</blockquote>
<i><b>Thus,</b></i> <b><i>if two players face each other and both play a GTO strategy, then neither player will be able to exploit the other player, neither player will have a strategic advantage, and the result of the game will be left entirely to chance</i></b>. In other words, the fact HULHE has a GTO strategy necessarily implies that the game can be played in such a way that the sole determining factor in the outcome is the effect of chance (<i>i.e.</i>, which player gets luckier). <br />
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Now the possibility of a GTO v. GTO showdown may appear only theoretical. But let's consider the opposite situation, where two HULHE novices are matched up. Assuming neither player has any knowledge of proper strategy, again the results of the match are determined solely by chance. Now, let's take the next leap—two equally experienced, talented players who try to exploit the other player's flaws. In order to exploit those flaws, each player will necessarily make <a href="http://ca.pokernews.com/strategy/game-theory-optimal-and-maximum-exploitive-no-limit-hold-em-5092.htm" target="_blank">flawed strategic decisions</a> (<i>i.e.</i>, deviate from GTO strategy). However, over time, the constant back-and-forth of play should result in a series of game adjustments by both players which leaves each of them playing a close approximation of GTO strategy, such that neither player has a significant strategic edge. Again, the long-term results of such an even-skill match would be governed mostly (predominantly) by chance.<br />
<br />
This implication for GTO strategy—that skilled players will eventually reach a close approximation of a GTO equilibrium strategy—is real and not theoretical. As was noted by Cepheus' researchers (emphasis added):<br />
<blockquote class="tr_bq">
"So what does the availability of Cepheus’ data mean to limit hold’em play, particularly in the online environment where there are no effective checks against referencing Cepheus while play is ongoing? Not a great, deal unfortunately. While Cepheus would have undoubtedly had a detrimental and traumatic effect on a competitive online environment there is effectively no environment left to traumatize. Due to the rake, which is the share of the pot which the house claims as its fee, poker is a negative sum game. <b>As the fundamental of heads up limit hold’em became better understood and the skill gap between competitors narrowed, many players found themselves in a position where they were able to beat their opponents but not both their opponents and the rake. More and more often, competition between players began to result in both players losing and the situation was exasperated [<i>sic</i>—exacerbated] by the decline of the online poker industry, which shifted a large portion of competitive play to lower stakes where the rake represents a larger percentage of a player’s potential winnings. Poker players, being rational people, did the only sane thing they could do, which was decline to play anyone who appeared to be of even remotely similar skill.</b> At of the time of writing this article on a Saturday evening there are, on Pokerstars, the current market leader, thirty-five heads-up limit hold’em tables above the one dollar level where players are waiting for an opponent and one table at which two players are actually competing. Cepheus will undoubtedly prove a valuable sparring partner and research tool for casino players and enthusiasts looking to sharpen their skills, but the heyday of heads-up cash play has, unfortunately, already passed."</blockquote>
This concern about <i>relative skill</i> between players is common within the poker community. Online poker players have long engaged in the process of "<a href="http://www.durrrrchallenge.com/tom-dwan-applauds-pokerstars-bum-hunting-rule/" target="_blank">bum hunting</a>"—looking for games with known weak players to <a href="http://www.cardplayer.com/poker-blogs/69-katie-dozier/entries/560760-confessions-of-a-bumhunter" target="_blank">exploit</a>. As poker professional <a href="http://thepokercapitalist.com/poker-ethics-table-selecting-bum-hunting/" target="_blank">Paul Ratchford explains</a>:<br />
<blockquote class="tr_bq">
"Poker is a zero sum game minus a cut that the house takes. So in an environment where all players are good and everybody plays game theory optimal poker EVERYBODY loses. The house takes money out of pots at an enormous rate especially at lower games. In fact, versus a bunch of skilled regulars (with zero recreational dollars in play) it may be impossible at a 6-max or full ring table for even some of the best in the world to win…. The bottom line is that if you are a professional poker player you need to be bum hunting / table selecting."</blockquote>
But the bum hunting problem is not limited to online play. Going back even to the early WSOP days, elite brick and mortar poker players like Doyle Brunson and Amarillo Slim would seek out games with easy marks like <a href="http://www.pokerlistings.com/poker-s-greatest-all-time-whales-riddle-chagra-and-karas" target="_blank">Archie Karas and Jimmy Chagra</a>. More recently, high stakes professional poker players have pursued games with "whales" like Cirque du Soleil founder <a href="http://www.pokerlistings.com/poker-s-greatest-all-time-whales-guy-laliberte" target="_blank">Guy Laliberté</a>, baseball superstar <a href="http://www.pokerlistings.com/poker-s-greatest-all-time-whales-barkley-jordan-and-a-rod" target="_blank">Alex Rodriguez</a>, and Texas banker <a href="http://www.pokerlistings.com/poker-s-greatest-all-time-whales-andy-beal" target="_blank">Andy Beal</a> (<a href="http://www.dmagazine.com/publications/d-magazine/2004/december/risk-the-biggest-game-ever" target="_blank">immortalized</a> in the classic book, <i><a href="http://www.amazon.com/gp/product/B001ACU1Z6?btkr=1" target="_blank">The Professor, the Banker, and the Suicide King: Inside the Richest Poker Game of All Time</a></i>). Similarly, professional poker players Phil Ivey, Andrew Robl, Dan "Jugleman" Cates, and Tom Dwan have recently <a href="http://www.reviewjournal.com/news/las-vegas/ivey-s-bail-bid-fails-free-betting-suspects" target="_blank">posted bail money</a> or <a href="http://www.pokernews.com/news/2014/08/ivey-cates-post-2-million-in-bail-to-secure-release-of-richa-18916.htm" target="_blank">provided support</a> to Paul and Darren Phua, individuals who reportedly control access to Macau's famed, whale-laden <a href="http://www.pokernews.com/news/2014/03/tom-hall-reveals-intimate-details-of-macau-poker-17725.htm" target="_blank">high stakes poker games</a>. Back in Vegas, a number of poker pros <a href="http://pokerati.com/2012/07/nosebleed-heaven/#more-36392" target="_blank">jealously protect</a> their whales from poaching by other pros:<br />
<blockquote>
"This game started about a week before the $1 million One Drop tournament and ran daily. Though a security guard kept gawkers and potential short-buys at bay, recognizable faces included One Drop Founder Guy Laliberte, Rick Salomon (the movie producer most famous for his Paris Hilton tape), and self-described model / actor / astronaut / asshole” Dan Bilzerian (@DanBilzerian). When this game runs, even the pros who play the regular 300-600 mix at Aria move elsewhere. 'Crazy' Mike Thorpe, who organizes many high-stakes mix games in town, says the regular 300-600 players at Aria, which include David 'Viffer' Peat and Ivey Room host Jean-Robert Bellande, have to move to Bellagio because Bobby Baldwin himself (Bobby’s Room namesake) would rather host his nosebleed no-limit game in The Ivey Room without pros."</blockquote>
Ironically, <a href="http://www.bluff.com/magazine/jean-robert-bellande-is-broke-living-1090/" target="_blank">Bellande</a> has himself been criticized by other poker players, including WSOP Main Event champion <a href="https://twitter.com/GregMerson/status/352279393856520192" target="_blank">Greg Merson</a>, for setting up high stakes poker games filled with whales, then <a href="http://forumserver.twoplustwo.com/29/news-views-gossip/greg-merson-pissed-over-something-aria-1348421/" target="_blank">excluding other poker pros</a> from those games. Of course, this pattern of skilled "sharks" seeking out less talented "fish" to exploit <a href="http://www.theatlantic.com/magazine/archive/2014/05/where-the-card-sharks-feed/359807/" target="_blank">isn't limited to high stakes play</a>.<br />
<br />
The irony of "bum hunting" or targeting "whales" and "fish" is that these weaker players generally play a highly flawed poker style that diverges markedly from GTO strategy. Although a GTO strategy would profit off these weak players over time, a non-GTO style will actually exploit weak players faster and for greater profit. So, in essence, poker's best players generally profit off of weaker players by utilizing a non-GTO strategy. Poker professional Paul Ratchford <a href="http://ca.pokernews.com/strategy/game-theory-optimal-and-maximum-exploitive-no-limit-hold-em-5092.htm" target="_blank">explains this irony</a> (albeit in the context of no-limit hold 'em):<br />
<blockquote class="tr_bq">
Maximum exploitive NLHE occurs when a player chooses the most exploitive line to maximize his/her expected value. Most players do not play balanced ranges and, therefore, we should seek to maximize our edge by playing appropriately unbalanced in response. In a Rock, Paper, Scissors example, where we know that our opponent will throw rock 100% of the time, we would simply use paper 100% of the time. Even if we knew that our opponent threw rock 40% of the time, 30% paper, and 30% scissors, the maximum exploitive play would still be paper 100%. In NLHE, if you play heads up versus an opponent who folds 100% of the time to three-bets, your response would be to reraise 100%. It is important to note that if you are playing against a GTO opponent, the maximum exploitive strategy will be GTO. The appropriate response to a perfectly balanced Rock, Paper, and Scissors range is to be perfectly balanced yourself.</blockquote>
Or, as Cepheus' own researchers <a href="http://poker-blog.srv.ualberta.ca/2015/01/08/humans-robots-and-the-consequences.html" target="_blank">admit</a>, "what Cepheus cannot do is maximize its winnings against weak opponents, a skill [at] which humans excel." <b><i>In other words, maximizing profits in poker requires deviation from Cepheus-style GTO poker strategy.</i></b><br />
<br />
The analytical takeaways from the discussion above can be distilled into these <b><i>Poker Postulates</i></b>:<br />
<ul>
<li>A poker player's relative skill advantage over his opponent matters more than his absolute skill level—<i>i.e.</i>, "In the land of the blind, the one-eyed man is king."</li>
<li>As the difference in skill between poker players increases, the effect of chance on game results decreases, but is never eliminated altogether.</li>
<li>In poker games between players of substantially similar skill, results will be determined predominately by chance.</li>
<li>In poker games between players of substantially dissimilar skill, results will be determined predominately by skill, even though over a short period of time chance may permit a lesser-skilled player to prevail.</li>
<li>Skill in poker is more readily demonstrated by utilizing a non-GTO strategy to exploit weaker players than in utilizing a non-exploitable GTO strategy, at least insofar as success is measured by profits.</li>
</ul>
To be blunt, then, poker skill ultimately is not measured by how well a player selects starting hands, calculates pot and implied odds, or balances ranges. Likewise, poker skill is not measured by degree of similarity to or deviation from a GTO strategy. Rather, poker skill predominately turns on <i>game selection</i>; that is, being able to get into a game with weaker opponents whose flawed strategies can be exploited via a non-GTO strategy.<br />
<br />
Returning, then, to the skill game legal argument, the clear implication of the Cepheus GTO strategy research is that poker advocates are left defending the awkward proposition that poker "skill" has little to do with game-related strategy and mostly means "preying on weak players" (or bum hunting, or fleecing fish—pick your own metaphor). Presented in this context, poker players begin to look less like mathematical savants and more like casino operators luring patrons to a -EV table game. In fact, for many poker players, their odds of winning money would actually be enhanced dramatically if they gave up poker for a seat at a house-run table game.<br />
<br />
Is it any wonder <a href="http://craakker.blogspot.com/2010/04/tilting-at-poker-windmills.html" target="_blank">the law treats</a> poker the same as <a href="http://wizardofodds.com/games/mississippi-stud/" target="_blank">Mississippi Stud</a> or <a href="http://wizardofodds.com/games/let-it-ride/" target="_blank">Let It Ride</a>?<br />
<br />
<blockquote>
<i><b>“The creatures outside looked from pig to man, and from man to pig, and from pig to man again; but already it was impossible to say which was which.” </b></i><br />
<b><br />
</b> <b>~~ George Orwell, <i>Animal Farm</i></b></blockquote>
Grange95http://www.blogger.com/profile/01857460215043659894noreply@blogger.com13tag:blogger.com,1999:blog-1169281096117913024.post-22496585484751240152015-01-19T23:55:00.000-06:002015-01-22T23:17:52.727-06:00Poker's Deus Ex Machina (Part I)—How a Computer Proved Poker Is a Game of SkillOne of my favorite TV shows is the CBS drama, <a href="http://www.cbs.com/shows/person_of_interest/" target="_blank"><i>Person of Interest</i></a>. The <a href="http://en.wikipedia.org/wiki/Person_of_Interest_(TV_series)" target="_blank">show's plot</a> is driven by the concept that a fully functional artificial intelligence (AI) computer program has actually been created. The AI system—known as "The Machine"—was originally created as an omnipresent surveillance tool to detect terrorist plots for the government. The Machine's creator feared those in power would abuse its abilities and went underground, programming The Machine with an ethical code and using it to predict and prevent criminal acts.<br />
<br />
In <a href="http://www.cbs.com/shows/person_of_interest/video/U5ndBn9RsRNmlhxVmVpkjMNbfEGRaXJ4/person-of-interest-if-then-else/" target="_blank">last week's episode</a>—the aptly titled "If-Then-Else"—the show's protagonists were caught in a conundrum, needing both to hack into a computer system to prevent a stock market crash while also escaping a trap meant to capture or kill them. The show flashed back to when The Machine was first created and its creator was teaching it to play chess. The Machine would calculate thousands of possible moves ahead, and when a chosen line of attack ultimately failed, would alter its strategy for future games, thereby learning how to play the game better. The rest of the show involved watching The Machine run through multiple alternative game plans for the team of heroes, with many of them ending in the team's demise. The Machine ultimately found a solution which gave the team a slim but real chance of survival. Of course, the show ended in a shocking cliffhanger—the apparent death of one of my favorite characters—which initially angered me, but ... well, as they say, "<a href="http://www.tvguide.com/news/person-of-interest-sarah-shahi-jonathan-nolan-1091505.aspx" target="_blank">Spoiler Alert</a>".<br />
<br />
Just a few days after watching that <i>Person of Interest</i> episode, news broke via <a href="http://www.sciencemag.org/content/347/6218/122" target="_blank"><i>Science</i> magazine</a> that a team of scientists in Canada had "<a href="http://en.wikipedia.org/wiki/Solved_game#Overview" target="_blank">essentially weakly solved</a>" heads-up limit hold 'em poker (HULHE). The <a href="http://webdocs.cs.ualberta.ca/~johanson/publications/poker/2015-science-hulhe/2015-science-hulhe.pdf" target="_blank">methodology</a> used to develop the <b>Cepheus</b> poker program is uncannily similar to that used with <i>Person of Interest's </i>fictitious Machine. Essentially, Cepheus played billions of billions of hands of poker against an identical program, beginning with random trial and error as to the proper strategy—bet, raise, call, or fold—at each decision point. Once the hand concluded, Cepheus would assign a "regret factor" to each decision based on the hindsight knowledge of the actual hand results. As tens of thousands of similar hands and situations accumulated, Cepheus would adjust its strategy to lessen or avoid decisions with higher regret factors, instead pursuing the balance of decisions which, overall, caused the least regret. For example, Cepheus might initially only check or call on most flops with a pocket pair higher than any card on the board, but would over time learn that betting or raising a high percentage of the time is a better (<i>i.e</i>., more profitable) strategy. Eventually, the program reached a point where further adjustments created <i>more</i> regret, meaning that the program had developed a non-exploitable, <a href="http://ca.pokernews.com/strategy/game-theory-optimal-and-maximum-exploitive-no-limit-hold-em-5092.htm" target="_blank">Game Theory Optimal</a> (GTO) strategy.<br />
<br />
The announcement that HULHE has been solved has been widely covered by both the tech/science media and the general media, generally in a positive light (<i>see</i>, <i>e.g.</i>, <a href="http://fivethirtyeight.com/features/computers-are-learning-how-to-treat-cancer-and-diabetes-by-playing-poker-and-atari/" target="_blank">FiveThirtyEight</a>, <a href="http://www.bloomberg.com/news/2015-01-08/texas-hold-em-mastered-in-months-by-computer-with-no-wrong-moves.html" target="_blank">Bloomberg</a>, <a href="http://news.yahoo.com/self-taught-computer-program-finds-super-poker-strategy-192346149.html" target="_blank">Yahoo News</a>, <i><a href="http://www.washingtonpost.com/news/speaking-of-science/wp/2015/01/08/meet-cepheus-the-virtually-unbeatable-poker-playing-computer/" target="_blank">The Washington Post</a></i>, <a href="http://www.theverge.com/2015/1/8/7516219/Texas-Hold-Em-poker-solved-computer-program-cepheus" target="_blank">The Verge</a>, <a href="http://gizmodo.com/can-you-beat-this-virtually-unbeatable-poker-algorithm-1678366320/+kevindraper" target="_blank">Gizmodo</a>, <i><a href="http://www.nature.com/news/game-theorists-crack-poker-1.16683" target="_blank">Nature</a></i>, and <a href="http://spectrum.ieee.org/tech-talk/computing/software/computers-conquer-texas-holdem-poker-for-first-time" target="_blank">Spectrum</a>). One article, however, took a more skeptical view. <a href="https://twitter.com/ChrisKPHall" target="_blank">Chris Hall</a>, writing for <i><a href="http://www.theguardian.com/sport/2015/jan/08/online-poker-bot-cepheus-flaw" target="_blank">The Guardian</a></i>, claimed to have played Cepheus and found it to be flawed:<br />
<blockquote>
"At first, I was roundly stuffed by the computer’s non-stop aggression. Any bluffs I made failed miserably. To counteract this, I became more aggressive preflop and stopped bluffing almost entirely. Cepheus’s game did not adapt to my play and it made what I would consider several questionable plays. The program was reluctant to ever give up any sort of hand in a large pot making it easier to get lots of value from moderately weak hands."</blockquote>
Hall's claim is utterly at odds with the claim that Cepheus has solved HULHE, and reflects a lack of understanding of what GTO strategy means in game theory. If Cepheus in fact is playing a GTO strategy, then <i>by definition</i> Hall cannot play a style which attacks a flaw in Cepheus' strategy <i>because GTO strategy has no flaws to exploit</i>. As Cepheus' creators <a href="http://poker-blog.srv.ualberta.ca/2015/01/08/humans-robots-and-the-consequences.html" target="_blank">explain</a> (emphasis added):<br />
<blockquote>
"Since poker is a symmetrical game, the end strategy which Cepheus plays is an unbeatable one. <b>While chips can, of course, be won from Cepheus in the short term, there is no decision which can be made against it which will be a winner in the long term. </b>If a perfect opponent, either human or computerized, were to play a semi-infinite number of hands against Cepheus the best possible result would be for them to break even. Any imperfect opponent, which unfortunately includes all human players, would make mistakes along the way and lose."</blockquote>
Rather than exposing a supposed flaw in Cepheus, Hall's short-term positive results were purely a matter of short-term variance—that is, Hall got lucky. Now, this is not to say that Hall's change in tactics had no effect; either:<br />
<ol>
<li>Hall originally was playing sub-optimal poker and correctly adjusted toward GTO strategy, improving his results (which were augmented by short-term variance); or,</li>
<li>Hall incorrectly adjusted away from GTO strategy to exploit a perceived (but illusory) flaw, won over the short-term because of variance, but would in fact lose over the long-term utilizing that strategy.</li>
</ol>
To be fair, Hall acknowledged that the 400 hands he played—essentially one or two decent cash game sessions—were an insufficient sample size to evaluate Cepheus. Still, Hall doubled-down on his irrational doubting of Cepheus:<br />
<blockquote>
Perhaps the best way to show off Cepheus would be to issue a challenge over a fixed amount of hands to a world-class professional player like Daniel Negreanu or Phil Ivey. This could create poker’s own version of Deep Blue v Garry Kasparov and would certainly be interesting for poker junkies like myself. <b>I’d probably still take man over machine, though.</b></blockquote>
Assuming a statistically significant number of hands were played, Hall picking a human to defeat a computer playing GTO strategy? <a href="http://www.urbandictionary.com/define.php?term=GTFO" target="_blank">GTFO</a>!<br />
<br />
Hall's article did indirectly point out one crucial distinction between the Cepheus GTO strategy and the strategies employed by skilled human poker players: Human players will often <a href="http://ca.pokernews.com/strategy/game-theory-optimal-and-maximum-exploitive-no-limit-hold-em-5092.htm" target="_blank">deviate from GTO strategy</a> in specific situations against specific opponents in order to maximize their profits through exploitation of weak players' worst errors, even though that particular <a href="http://www.cardplayer.com/poker-news/13858-dusty-schmidt-achieving-balance-in-your-poker-game" target="_blank">non-GTO strategy would lose money</a> over the long run against most opponents. As Cepheus' creators <a href="http://poker-blog.srv.ualberta.ca/2015/01/08/humans-robots-and-the-consequences.html" target="_blank">readily admit</a> (link added):<br />
<blockquote>
"[W]hat Cepheus cannot do is maximize its winnings against weak opponents, a skill at which humans excel. Cepheus is simply an invincible, immovable bunker, a <a href="http://en.wikipedia.org/wiki/Maginot_Line" target="_blank">Maginot Line</a> that actually works."</blockquote>
Although Cepheus is an impressive achievement in its own right, my thoughts immediately turned toward how Cepheus would play in the legal world. <b>Does the development of a computer program capable of GTO poker play decisively prove that poker is a game of skill rather than a game of chance?</b><br />
<br />
Ah, yes, our old friend, the "skill game argument", which you might recall from such classic crAAKKer posts as: "<a href="http://craakker.blogspot.com/2010/04/tilting-at-poker-windmills.html" target="_blank">Tilting at Poker Windmills</a>", "<a href="http://craakker.blogspot.com/2010/06/why-poker-litigation-fails.html" target="_blank">Why Poker Litigation Fails</a>", and "<a href="http://craakker.blogspot.com/2014/02/garnishing-turd-part-iv-dicristina-ends.html" target="_blank">Garnishing a Turd (Part IV): <i>DiCristina </i>Ends, Not With a Bang, But a Whimper</a>". The foundation for the skill game argument is that, for purposes of gaming law in some states, "gambling" is determined by an evaluation of whether skill or chance is the "<a href="http://www.gambling-law-us.com/State-Law-Summary/" target="_blank">dominant factor</a>" in determining the outcome of the game in question. The skill game argument seeks to prove that poker is a game in which skill predominates over chance, and therefore is not illegal under applicable state gaming laws. Unfortunately, every appellate court to have considered the skill game argument to date has rejected the argument or found it irrelevant (see Section E and FN3 of <a href="http://craakker.blogspot.com/2013/08/dicristina-midnight-strikes-for-pokers.html" target="_blank">my discussion of the <i>DiCristina</i> appellate decision</a> for the full summary of this litigation futility).<br />
<br />
The skill game argument reached its apex in the <i>DiCristina</i> litigation, where a federal district court judge found poker to be a game of skill for purposes of the federal Illegal Gambling Business Act. As discussed in <a href="http://craakker.blogspot.com/2012/08/united-states-v-dicristina-win-for.html" target="_blank">my analysis</a> of the <i>DiCristina</i> <a href="https://www.scribd.com/doc/103482098/U-S-vs-DiCristina-Opinion-08-21-2012#download" target="_blank">district court decision</a>, the court's analysis of the skill game issue was driven in large part by Dr. Randall Heeb's sophisticated statistical analysis of millions of online poker hand histories. Dr. Heeb was able to demonstrate that winning players displayed a skill edge greater than expected variance within a few thousand hands of play, and also that winning players won more money than losing players even when playing the same starting hands.<br />
<br />
Cepheus advances the skill game argument by demonstrating that there is a <i>theoretical</i> strategy for playing HULHE which is <i>optimal</i>, in the sense of being non-exploitable over a sufficiently large number of hands. In fact, Cepheus' creators note that there may be multiple GTO strategies for HULHE: "different Nash equilibria may play differently". (<a href="http://webdocs.cs.ualberta.ca/~johanson/publications/poker/2015-science-hulhe/2015-science-hulhe.pdf" target="_blank">p. 9</a>).<br />
<br />
Cepheus makes two significant contributions to the skill game argument. First, Cepheus demonstrates that individual poker decisions must be evaluated in the aggregate, over time. To this point, many of the examples of poker skill used to support the skill game argument have focused on individual or <i>tactical</i> poker plays—for example, how pot odds, stack size, or starting hand strength can be used to determine correct game decisions. Cepheus shows that the game is substantially more complex than any one play or hand, and that a <i>strategic</i> approach to game decisions is both necessary and possible. Although successful poker players recognize the importance of long-term strategic game theory concepts such as <a href="http://www.cardplayer.com/poker-news/13858-dusty-schmidt-achieving-balance-in-your-poker-game" target="_blank">range-balancing</a>, Cepheus is a rigorous mathematical and logical proof of the importance of poker players thinking beyond the immediate play or hand. In other words, Cepheus is a refutation of the superficial <a href="http://craakker.blogspot.com/2010/04/tilting-at-poker-windmills.html" target="_blank">legal argument</a> that poker is a game of chance because, regardless of skill, players are still "subject to defeat at the turn of a card" in a particular hand.<br />
<br />
Cepheus also makes another, more significant contribution to the skill game argument. Some of the legal arguments made in favor of poker as a skill game overreach, trying to establish that nearly nothing in the game is beyond the control of the player; these arguments fall flat against the easily observable elements of chance in play. Cepheus, however, takes the element of chance head on and renders it irrelevant. Cepheus does not deny the presence of a significant element of chance in the game. Cepheus simply is indifferent—impervious even—to the effects of chance over the long-term. Regardless of what cards may fall by chance, Cepheus will over the long-term win against opponents playing a non-GTO strategy. For purposes of the legal skill game argument, Cepheus serves as the embodiment of the triumph of skill over chance.<br />
<br />
So, does Cepheus mean that the legal skill game argument is over? Hardly. Cepheus is a proof of HULHE only. One of the Cepheus researchers, Neil Burch, is participating in a couple of threads in the Two Plus Two poker forums where he describes some of the limits of the Cepheus results. First, Burch <a href="http://forumserver.twoplustwo.com/showpost.php?p=45796261&postcount=263" target="_blank">does not think</a> heads up no-limit poker is solvable using current methods and technology because of the exponentially greater number of decision points in play. Second, Burch <a href="http://forumserver.twoplustwo.com/showpost.php?p=45810870&postcount=49" target="_blank">points out</a> that moving from a heads up to even a three-person game adds significant layers of complexity to the analysis, including the interesting possibility that two players could collude to exploit a third player, even if that third player was playing an equilibrium strategy. Consequently, Cepheus is better viewed as a "proof of concept" of the degree of skill involved in poker, not a proof that every version or permutation of poker has a GTO strategy impervious to the effects of chance.<br />
<br />
Unfortunately, what Cepheus giveth, Cepheus also taketh away. Like a demon from a bad horror flick, Chance does not want to stay dead and buried. Stay tuned, true believers, for our <a href="http://craakker.blogspot.com/2015/01/pokers-deus-ex-machina-part-ii-how.html" target="_blank">next episode</a> when Cepheus resurrects Chance to haunt the skill game argument once again.<br />
<br />
<div style="text-align: center;">
<b><span style="color: #0b5394;">* * * * *</span></b></div>
<br />
<i><b>AUTHOR'S NOTE:</b> This post is the first of two related posts. Part II is <a href="http://craakker.blogspot.com/2015/01/pokers-deus-ex-machina-part-ii-how.html" target="_blank">HERE</a>.</i>Grange95http://www.blogger.com/profile/01857460215043659894noreply@blogger.com14tag:blogger.com,1999:blog-1169281096117913024.post-9092503280038545082014-12-29T06:18:00.001-06:002014-12-29T06:22:19.603-06:00Pocketed Pocket Cards at MirageLast night, I was playing some poker at Mirage when our table was confronted with the following novel and somewhat bizarre poker rules question that took the concept of "pocket cards" way too literally. How would you rule?<br />
<br />
A new player had just joined the game. On his second hand, he went all-in, lost, and was felted. The player stood up to pull more money from his front pants pocket as the dealer pushed the pot, moved the button, and began dealing the next hand. The player pulled out a wad of bills and peeled off three one-hundred dollar bills for his rebuy. The player also happened to be the big blind. After finishing the deal, the dealer took two of the one-hundred dollar bills from the player and converted them into chips. As the dealer was doing so, the under the gun player called the $2 big blind, and the next player raised to $10.<br />
<br />
Suddenly, the player who was rebuying said loudly and with some heat, "Why didn't you deal me in?" The dealer assured the player he had been dealt in. The player, however, pointed to the table and said, "Where are my cards?" The dealer halted the action, and after a few moments of confusion, the source of the problem became clear:<br />
<br />
<i>The player, when putting away his wad of money, had also picked up his cards and put them in his front pants pocket with his cash.</i><br />
<br />
As the player pulled his cards out of his pocket, debate broke out amongst the other players as to what should be done. Several players felt the hand should be declared a misdeal because of the concern as to game integrity. Other players felt the hand should continue because "significant action" had occurred, albeit while the dealer was focused on breaking the bills and dealing with the confusion over missing cards rather than on the hand action. The dealer promptly (and correctly) called for the floor.<br />
<br />
If you were the floor, how would you have ruled and why?<br />
<br />
<div style="text-align: center;">
<b><span style="color: #990000;">* * * * *</span></b></div>
<br />
SPOILER ALERT (Ruling below):<br />
<br />
The floor ruled that the hand of the player who removed his cards from the table was dead. However, the rest of the hand was played out in the normal course. Then, the floor had a new set-up (new cards) brought to the table.<br />
<br />
At the time, I was mildly supportive of the idea of declaring a misdeal of the entire hand, based on a concern for the integrity of the game. However, on reflection, I think the floor handled the situation correctly. The cards in play on the table and in the dealer's deck remained untainted by the cards taken off the table once that hand was declared dead. Regardless of the significant action rule, there was no real reason to re-deal the entire hand so long as the hand taken off the table was dead. Also, bringing in a new set-up was wise simply to be certain nothing inappropriate was happening. Declaring a misdeal of the entire hand would permit potential angle-shooting mischief between partners at the table who could kill an opponent's good hand merely by taking their cards off the table and putting them in their pocket or dropping them on the floor, etc.<br />
<br />
So, altogether I think the Mirage floor handled this wacky issue quite well. And I expect never to see that situation occur again. Never ever.<br />
<br />Grange95http://www.blogger.com/profile/01857460215043659894noreply@blogger.com10