May 16, 2010

Poker's Terrible, Horrible, No Good, Very Bad Year (Part 1 of 2)

There was news from five fronts in the poker litigation war this week—New York, Massachusetts, Pennsylvania, Colorado, and Washington.  You can hear some interesting debate on some of these developments on this week's Poker Beat podcast.  But between criminal prosecutions for online poker payment processors, a possible grand jury investigation of Full Tilt Poker, setbacks in attempts to have poker declared a legal game of skill, and the looming implementation of UIGEA regulations, it's pretty clear that 2010 is shaping up to be a terrible, horrible, no good, very bad year for poker in the legal arena.

Let's take a look at the first four states (Washington is a little more complicated and will be the subject of a lengthier and more analytical subsequent post).

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New York & Masschusetts—In New York, the federal government entered a forfeiture order in the Douglas Rennick payment processing prosecution.  The government will get about $17 million from the forfeiture, as well as Rennick's cooperation.  But the interesting part of the plea deal was this nugget:

The crime the Canadian payment processor pled to (one count) was a Wire Act violation. Generally we poker people have thought of the Wire Act as being more about sports betting. But in Rennick’s case, court documents made it clear — specifically in an sworn affidavit from an FBI agent — that this money came from Full Tilt and/or PokerStars.

—Dan Michalski, (May 15, 2010)

Now, just because someone pled guilty to a federal Wire Act violation for processing money transfers to online poker sites doesn't mean that the Wire Act is applicable against online poker sites; a guilty plea is not a binding interpretation of a criminal law, and the application or validity of the law can be challenged by others who may be indicted for Wire Act violations.  At this point, the highest federal court  to consider the issue (the Fifth Circuit Court of Appeals) has ruled that the Wire Act is limited to sports betting.  But it appears the federal government has yet to concede the point, and other circuits may adopt a different interpretation of the Wire Act, particularly when the case arises from the prosecution of criminal activity, rather than an attempt by losing gamblers to recoup their losses (the basis for the Fifth Circuit decision).

Meanwhile, over in Massachusetts, a different federal prosecutor orchestrated the arrest of Todd Lyons for allegedly operating an offshore sports book.  The two interesting points for poker players are that part of the indictment alleged UIGEA violations and the arrestee is an American citizen.  Given the recent Tzvetkoff and Schuett prosecutions for money transfers to online poker and gambling sites, the rumblings about a Full Tilt Poker grand jury investigation are starting to feel a lot more ominous.  Dan Michalski thinks this arrest may be part of some coordinated government saber rattling in advance of the June 1, 2010 UIGEA regulation implementation date.  It's certainly starting to feel that way. 

Could "Team Full Tilt" be wearing non-WSOP bracelets come June?  I wouldn't want to be setting that line ...

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Pennsylvania—You may recall that a Pennsylvania appellate court recently declared poker to be a game of chance subject to state gambling laws.  This week, the defendants filed a petition requesting further review by the Pennsylvania supreme court.  I'm not an expert on Pennsylvania appellate procedure, but this appears to be a fairly standard type of petition for further review, meaning that Pennsylvania supreme court has the discretion whether to accept the appeal or allow the current ruling to stand.  Even if the Pennsylvania supreme court accepts the appeal, the mere acceptance of the appeal is no guarantee of a favorable ruling for the poker players.

Reading the petition itself, there's really nothing new in terms of the basic arguments, although the petition does highlight two rhetorical points which haven't been discussed much in the prior judicial decisions on this issue.  The first point is that the question, "Who are the best five poker players in the world?" can generate a reasoned debate, while the question, "Who are the best five roulette players in the world?" is nonsensical.  This strikes me as a rather compelling point, though it elides the underlying issue of the presence of chance as an element of the game.  The world's five best poker players may be the best over the course of time, but in any one hand, one session, or one tournament, all their skill can't prevent them from losing to a bad player.

This brings up the second point highlighted in the petition, a point I have also seen and heard emphasized recently in the poker media—a significant number of hands (generally cited as around 75%) are won without going to showdown.  The poker community seems to feel this fact is compelling evidence of the role of skill in the game, but in my view, the argument is overblown.  Hands end before showdown because players feel they don't have the best hand.  This doesn't require any bluffing or skill.  A player limps in with 98 suited or JJ, the flop comes down AKQ rainbow, someone bets, and the player folds.  Or, the flop comes down 998 and the player check-raises, and his opponent folds.  In both hands, there was little or no skill involved in the outcome; the outcome largely depended on chance, the luck of connecting with the flop.  That's not to say that no skill is involved in these routine hands, but the point remains that many hands fail to reach showdown primarily because only one hand connects with the flop, which is a matter of chance.

I do have a significant criticism of the petition for further review—it makes unnecessary misrepresentations to buttress its rhetoric:

[T]he question presented here has not only evenly divided the four Pennsylvania judges who have addressed it in the context of this case, but it has also divided state courts across this Nation.

This statement misrepresents two points.  First, the four Pennsylvania judges who have ruled on this case are the trial court judge and the three judges on the Superior Court panel who decided the initial appeal.  The trial court judge is the only judge to rule that poker is a game of skill.  The dissenting judge in the appeal expressly stated he would have dismissed the charges for reasons different than the trial court; specifically, he would not have ruled that poker is a game of skill, but rather that the state had failed to present sufficient evidence to establish that poker is a game of chance.  The dissenting judge felt that the trial court judge had erred in relying on treatises and other outside evidence in taking the step of affirmatively declaring that poker was a game of skill.  It is unknown how the dissenting judge would have ruled on the question of whether poker is a game of skill or a game of chance had the state presented evidence beyond the testimony of the investigating police officer.  But it's improper and intellectually dishonest for the petitioners to assert that the dissenting judge had agreed with the trial court judge that poker was a game of skill.

The second misrepresentation is that the question of whether poker is a game of skill or chance has "divided state courts".  At present, there is no state where an appellate court has ruled that poker is a game of skill exempt from state gambling laws and regulations.  In fact, the petition can only cite to one South Carolina decision (Chimento v. Town of Mount Pleasant), which is merely a trial court ruling currently on appeal to the state's supreme court which has no precedential value either in South Carolina or any other state.  It's bad enough that the petition doesn't even bother to disclose the appeal status of the South Carolina decision.  But suggesting that there is a split among the states on this issue when there is none is again an improper and intellectually dishonest tactic. 

Rhetorical tricks like these are generally the hallmark of a weak case, and risk a judicial backlash when pointed out by the opposition.  If the petitioners and their supporters in the Poker Players Alliance (PPA) believe in their argument, they should not need to resort to such sophistry.  In any event, the recent legalization of poker as a casino game probably is the last nail in the coffin for the present appeal.  As I discussed previously, the legalization of poker as a casino game in Pennsylvania only strengthens the conclusion that the game was illegal gambling prior to the legislature's action, an argument that was relied upon in the Superior Court's appellate decision.  It seems unlikely the state's supreme court would both grant an appeal and also rule that poker is completely legal outside the state-regulated casino system.  At this point, winning the "poker is a game of skill" argument in Pennsylvania is probably a longer shot than hitting a perfect-perfect straight flush to beat flopped quads.

Before moving along, I do want to reiterate that I personally believe that poker is a game of skill—I wouldn't play it or enjoy playing it otherwise.  I also think there is great value in making the case for poker as a game of skill in persuading legislators and the public that poker deserves to be treated differently than other forms of gambling.  But, I think expecting courts to carve out such an exception via judicial fiat is a strategy not only doomed to failure, but also likely damaging to the poker legalization cause by creating explicit case law finding poker to be a game of chance.

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Colorado—The Colorado Supreme Court has rejected an appeal from a district court ruling finding that poker was a form of gambling under state law.  So, this leaves only Pennsylvania and South Carolina with outstanding challenges to poker's inclusion in state gambling laws, and both of those challenges seem to have the odds stacked against success.

(As an interesting aside, while doing some research on the Colorado appeal, I came across an article from December 2009, discussing the sentencing of a man who pled guilty to operating the "Gin Rummy Club" in Denver.  Turns out, the club was also the front for an illegal poker, sports bookmaking, and loansharking operation with purported ties to organized crime.  Just another wonderful talking point for the anti-poker crowd.)

In any event, the Poker Players Alliance posted a letter to the editor on its website in response to the news.  So, what was the PPA's brilliant public position? 

Recently the International Mind Sport Association, the international group that determines rules and procedures for the play of games like Chess, Bridge etc. on the international stage, adopted Poker as a game of skill, not unlike those I just mentioned. ...

... Colorado will have to come into the 21st century when considering games of skill and allowing people to play such games without undue interference from the State. Just as the State should not involve itself in a game of golf, where one player wagers against another player on the outcome, the state should not involve itself in other such games where chance plays a part, but is not the predominant determiner of the outcome. Poker has been shown to be such a game. Sooner or later, the State of Colorado will have to realize that fact.

—Gary Reed, Poker Players Alliance

That's right.  The Colorado Supreme Court refuses to hear the PPA's legal argument and the PPA's response is essentially, "Well, we're a 'Mind Sport', so take that, you ignorant cavemen!"  I'm not sure that insulting a state is a wise public relations strategy for a group trying to legalize anything.  But falling back on the Mind Sport certification as your comeback to the court's slapdown?  Seriously?  That's so weak sauce it's actually laughable.

I can't help but wonder—Is the PPA being run by Brick Tamland?

Wes Mantooth (Vince Vaughn):  "Hey, nice clothes gentlemen. I didn't know the Salvation Army was having a sale."

Brick Tamland (Steve Carell):  "Where'd you get your clothes?  At the ... toilet store?"

Anchorman: The Legend of Ron Burgundy (2004) 

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Part 2 of this post will cover the upcoming oral arguments in the Washington Supreme Court related to the PPA's challenge to the state's internet gambling ban based on the U.S. Constitution's Commerce Clause.  This argument does not rely on the "skill vs. chance" analysis, so it presents some novel issues worthy of more extended discussion.  In Part 2, we'll take a look at the Washington Court of Appeals decision denying the PPA's arguments, as well as the parties' supplemental supreme court briefs.  Stay tuned, true believers!

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