Skill games seek to avoid gambling regulation by eliminating or minimizing the element of chance. They form an increasingly large portion of the online gaming market. For example, fantasy sports operators argue that their contests are not illegal sports wagering because they are skill based.
The state law legal tests for “chance” can be grouped into three categories:
(1) More than 30 states (including California, Georgia, Illinois, Michigan, North Carolina, Ohio and Pennsylvania) ask whether skill “predominates” over chance, that is, whether skill provides more than 50% of the reason for the game outcome.
(2) Some states (including New York) look to whether chance is a “material element:” chance may be less than 50% of the reason for the outcome, but if chance is still a significant factor then gambling laws are applicable. How to determine what is a “material degree” is uncertain and therefore games which rely on minimizing chance are subject to challenge under this test.
(3) The remaining few states (including Texas) will regard “any chance” being involved or the notion that the game appeals to gambling instincts sufficient to trigger gambling prohibitions.
Classifying all 50 states into these three groups is not an exact science. The state materials can be conflicting, various commentators disagree on the classifications, and in some cases, the only indication of a state’s view may be found in an administrative opinion rather than in the statue itself or even a court decision.[i]
In addition, most states have laws that discreetly exempt defined skill contests or amusement devices from gambling laws. And some states will prohibit all skill contests if the participant provides any consideration or there are purchase requirements to participate, for example, Colorado, Maryland, Nebraska, North Dakota and Vermont.
In most cases, the role of chance should be a question of fact (or math). The relevant questions include:
- Do skilled persons have a decisive advantage? (Does the format of the games allow that advantage?)
- Is skill the determining factor in the outcome of the game, rather than just an incremental aid?
- Does every stage of the game require skill, and if not what is the significance of the chance elements?
- Does chance play a role in the awarding of prizes of different values?
- Is the skill something that only a few people can possess or is it something that others can acquire?
- Are there objective and specified criteria (or unbiased and competent judges applying specified criteria) for determining a winner?
- Are ties possible with equal prizes?
Generally, courts will follow common sense and regard as skill based contests, golf, essay contests, spelling bees, baking contests, knowledge, puzzle or trivia contests etc… even if there are entry fees. Legal contests also usually have clear judging or scoring criteria and/or qualified judges. But just because a contest is based on skill this does not protect observers from breaking the law if they wager on the outcome.
In California, while chance is judged from the perspective of the participant, it is determined by the nature of the game rather than the abilities of a particular person. “It is the character of the game rather than a particular player’s skill or lack of it that determines whether the game is one of chance or skill. The test is not whether the game contains an element of chance or an element of skill but which of them is the dominating factor in determining the result of the game.”[ii]
Whether skill or chance predominates is a question of fact.[iii] The court will look to each element of the game. For example, poker may be a game of skill, but a bad beat jackpot where a prize is awarded for a really exceptional poker hand being beaten by another exceptional hand depends on chance.[iv] A bingo game where the players also had to toss a ring over a peg was ruled a game of chance because of the bingo ball draw. [v]
In addition, a court must determine whether the significance of chance is evaluated for each trial or over time. For example, poker is chance dependent on any hand, but skill predominates over repeated trials or hands. Nonetheless, applying the predominance test, the North Carolina Supreme Court surprisingly held that poker was predominately a game of chance because “a skilled player may give himself a statistical advantage but is always subject to defeat at the turn of a card, an instrumentality beyond his control.”[vi]
Now
no one I know drives all the way to a card room or casino, waits for a seat,
and then sits down to play just one hand of poker. Decisions like this seem more generally to
embrace a public or state disposition toward contests and gambling, rather than
clear logic. Where state laws seemed
designed to largely prohibit gambling or embrace moralistic judgments, the
importance of the role chance is likely to be emphasized.
[i] For various lists, compare, Humphrey, Chuck, http://www.gambling-law-us.com/State-Law-Summary/, Cabot, Anthony N.; Light, Glenn J.; and Rutledge, Karl F., (2008-2009) Rodriguez, A Monkey, and the Game of Scrablle: The Hazard of using Illogic to Define the Legality of Games of Mixed Skill and Chance, 57 Drake L. Rev. 383, n. 64, and Lord, Rywanda H. and Miller, Laura C., Playing the Game by the Rules: A Practical Guide to Sweepstakes and Contest Promotions, 29 Franchise Law Jrnl. 1 (2009). See also, https://skillz.zendesk.com/hc/en-us/articles/200620348-The-Legality-of-Skill-Gaming; http://wiki.secondlife.com/wiki/Linden_Lab_Official:Second_Life_Skill_Gaming_Approved_Participants#Prohibited_States_.26_Countries.
[ii] In re Allen, (1962) 59 Cal.2d 5, 6.
[iii] People v. Settles, (1938) 29 Cal.App.2d 781, 787-788. See also, People v. Carpenter, (1956) 141 Cal.App.2d 884, 888; People v. Hecht, (1931) 119 Cal.App. (Supp.) 778, 787.
[iv] Bell Gardens v. Department of Justice, (Cal. Ct. App. 1995) 36 Cal.App.4th 717, at 747.
[v] People v. Shira, (1976) 62 Cal.App.3d 442, 462.
[vi] Joker Club, LLC v. Hardin, (N.C. App. 2007) 643 S.E.2d 626. Courts have split on whether poker is a game of skill or chance. Judge Weinstein found poker was a game of skill in a lengthy and well reasoned opinion. United States v. Dicristina, (E.D.N.Y.2012) 886 F.Supp.2d 164, rev’d on other grounds, 726 F.3d 92 (2nd Cir.2013) (the application of the federal Illegal Gambling Business Act does not depend on whether poker is a game of chance or skill). Most states have found that skill predominates in picking race winners (even though arguably in any one given race, chance may play a part). Fla. AG Op. 76-131 (June 16, 1976).
