Illegal gambling is generally defined as an activity where a person provides consideration for the opportunity to win a prize in a game of chance. Consideration typically takes the form of currency, but it can be anything of value (hence the idiom, losing your shirt). If there is no consideration, or the game is deemed a game of skill instead of a game of chance, then the game will be legal in most jurisdictions. Traditional games of chance are lotteries, where you buy a ticket to match randomly drawn numbers to win money, and craps, where the prize is dependent on the roll of the dice. However, the bright line rules of games of chance become blurry when skill is involved. Depending on the state, games of skill fall outside of the scope of state gambling laws (in recent years our firm has written extensively on the issues involved in the fantasy sports games of skill debate). This raises the following question:
How do states determine whether the game is one of skill, one of chance or both?
State Tests for Games of Skill
Most states have adopted the dominant factor test, also known as the predominance test, to analyze whether a game is one of skill or chance. Under the dominant factor test, one must imagine a scale that has pure chance on one side and pure skill on the other. The analysis is relatively simple when comparing, for instance, dice games to chess, but it is the grey area in between that is difficult. For example, state jurisdictions have remained split on whether poker is a game of skill or chance. Poker has obvious elements of skill: the ability to read people and strategically bet demonstrates a certain level of skill. On the other hand, a game of poker is initiated by the shuffling and dealing of cards, which involves a randomness element that is consistent with games of chance. When operating in that grey area, therefore, it is important to be aware of how state courts have evaluated similar games in their respective jurisdictions.
Other states follow the material element test, which recognizes that a given game may be one primarily of skill, but that chance has more than a mere incidental effect on the outcome of the game. The material element test may blur the lines of legality even further. In New York State, for example, the legislature amended the Penal Code to define gambling as “any contest, game, gaming scheme or gaming device in which the outcome depends in a material degree upon any element of chance, notwithstanding that skill of the contestants may also be a factor therein.” Despite the “material degree” language of the statute, New York State courts have continued to quote and rely on the “dominating element” test established in People ex rel. Ellison v. Lavin in 1904.
Finally, a few states adhere to the “any chance” test, which dictates that if chance influences the outcome of a game in any way, it will be deemed illegal gambling.
The Modernization of Games of Skill
Technology increasingly moves at a faster pace than our state legislatures (as was evident when daily fantasy sports arrived on the scene). Even in the last decade, as digital gaming has grown exponentially, developers have found ways to capitalize on this emerging craze. Determining skill was easier to define in the past when skills were physically manifested in games such as pool and darts. In today’s day and age, can that same skill set be transferred to games that are played primarily on computers and mobile phones? The answer is not always easy to arrive at. As such, it is recommended that developers consult with experienced gaming attorneys before coming to a conclusion on their own.