The Home of Texas Holdem Seeks to Outlaw Freerolls
Let me start by saying I am not making this up. I couldn't make up anything so bizarre if I tried. It takes the twisted imagination of a career bureaucrat to come up with this one: The Texas District and County Attorney's Association is actually urging the Attorney General of Texas to issue an opinion stating that freeroll tournaments - of the type currently held by many bars and pubs in Texas - violate the state's gambling laws.
The tournaments, typically held in stages with no buy-in, no entry fee, and no cash involved, award prizes to the winning participants. Sometimes these prizes are nominal (a T-shirt, for example, emblazoned with "I Won the Texas Hold Em Challenge at Stinky Bob's Hole-In-The-Wall, And All I Got Was This Lousy T-Shirt." Sometimes, the prizes are actually worth playing for. Many Texas bars award the first place winner of a monthly series of tournaments a cash prize of several hundred dollars, or a buy-in to a small event at the WSOP or other major.
Enter John Smith, elected District Attorney for Ector County, Texas, the County seat of which is Odessa. Mr. Smith, it appears, is the good guy in this scenario - apparently the only good guy. Mr. Smith was approached by a bar owner in his jurisdiction, who asked him whether it would be legal to hold an event in which participants pay an entry fee of $25 to $50, and play a poker tournament. At the end of the event, the entire prize pool would be paid out to the participants; no rake and no juice for the house.
After some research, Mr. Smith allowed as how he wasn't sure if this would be legal or not, so he sought guidance. You see, in Texas, if there is no court ruling on a particular set of facts, the Texas Attorney General can issue an advisory opinion about the legality or illegality of any hypothetical scenario. That opinion has the force of law, unless and until it is overruled by the Courts. Anyone can request the Attorney General to issue an opinion on any set of facts, and the AG can either issue the opinion or decline to do so, at his whim. However, there are certain government officials who can force the AG to issue an opinion just by asking. An elected District Attorney is one of those officials.
Now, while I don't pretend to be able to read Mr. Smith's mind, you can kind of tell a couple of things by the way he worded the request for an opinion and explained the scenario. First, you can tell that his research has him leaning in a certain direction on this question. Second, you can tell that he plays poker.
As the Tournament progresses, the players that accumulate the most chips will by skill force out the less skilled players and at the end of the evening the winners at each table will accumulate and play a final table at which a certain number of prize places will be paid by the establishment to those persons winning the Tournament.
. . .
On its face a poker tournament is probably considered gambling under the Penal Code Sec. 47.02(a)(3) because it is playing a game with cards, dice, balls or other gambling devices. However, Sec. 47.02(a)(3) requires a person to play and BET [underlining and caps in Mr. Smith's original request] for money or other thing of value. We then have to go back to the definitions contained in Sec. 47.01(1)(b)1. Certainly an argument can be made that the payoff at the end of the evening is the payment of a prize, award, or compensation to the actual contestants who win a contest for the determination of skill.
Assuming that the bar owner or alcoholic beverage premises permitee takes no cut of the prize money pool generated and assuming that no other money changes hands, would a tournament of this type violate the gambling statutes under Chapter 47 of the Texas Penal Code? Although under the traditional notions of gambling at first blush it would seem to appear that a poker tournament such as this would be gambling, this tournament could certainly be argued to be nothing more than other tournaments that are routinely typically held in all other such events such as a golf tournament and all other forms of sporting tournaments where teams enter, pay an entry fee and then are paid cash prizes for winning the tournament.
Attorney General Opinion Request RQ-0305-GA.
As we say in Texas: Heyllll, yeah! That's my kinda D.A.. Let's put him up in the '08 presidential run. But Mr. Smith is apparently also not unaware of the political climate in Texas, and of the possibility that the A.G. would tell him and his bar owner constituent to go urinate up a rope. So he hedged his bet (so to speak) and asked a back-up question.
In addition, a question has arisen about retailers, bars and restaurants who hold Texas Hold Em Poker tournaments. In these tournaments, consumers do not pay to play and do not risk any of their own money at any time during the tournament. Chips are assigned point values and those players with the most chips at the end of the tournament are provided prizes, anywhere from t-shirts to gift certificates. In progressive tournaments, winners are awarded a chance to play at the next level tournament with an opportunity to win even greater prizes such as vacations to Las Vegas, Nevada, and entry into World Poker Tour events ($10,000 value). Since participants are not betting or risking their money or anything of value during the game and nothing is lost by participants, do these tournaments constitute gambling under Texas Penal Code Ann. Sec. 47.02?
Attorney General Opinion Request RQ-0305-GA.
Before responding to a request for opinion, the Attorney General's office allows briefing, both from the person requesting the opinion, and from any other parties the A.G. believes might be interested in the outcome. In this case, the A.G.'s office received briefs from John Smith, the Texas Alcoholic Beverages Commission, the Texas District and County Attorneys' Association, Bobby Bowling (a private citizen supporting legalized tournaments), and Charles Humphrey, an attorney who hosts a website related to gambling and the law.
The A.G.'s office considered Mr. Smith's original request as a brief, and, as outlined above, his position seems to favor both the paid tournaments and the freerolls. The Alcoholic Beverages Commission brief was fairly neutral, stating that if a licensee violated the gambling laws, his license could be revoked, but taking no position on whether the proposed behavior would be a violation of the gambling laws.
Bobby Bowling's brief uses a historical framework dating back to 1912 to argue that freerolls and paid tournaments are both legal within the intent of the legislature and the interpretation of the Texas Courts. Perhaps his best argument, drawing on Mr. Smith's original request, is that: "While golfers may win valuable prizes for consideration in tournaments without violating gambling laws, those same golfers would commit gambling if they played each other for some arbitrary thing of value. It is the way a game is played, not the game, which determines if gambling transpires."
The two most interesting briefs are those submitted by Mr. Humphrey and by the Texas District and County Attorneys' Association.
Humphrey's position was that the first scenario, where participants pay an entry fee, is certainly gambling. For support of this position, he referred to the common law elements of gambling: prize, chance, and consideration. ("Consideration," in the legal sense, is the payment of money or something else of value.) What Humphrey's brief fails to mention is that Texas does not rely on common law definitions - which are basically definitions handed down from our forefathers in merry old England, in the days before statutory codification. In the tradition of the common law, the Courts essentially dictated the law according to fairness and tradition, and weren't required to rely on statutory definitions handed down by the legislature. In modern jurisprudence, however, the legislature writes the law, and the courts simply apply it, or interpret it where there is uncertainty. In this case, any uncertainty has to be resolved not by resort to the common law, but to the definitions set out by the Texas Legislature in the Penal Code.
The Penal Code defines a bet as: "An agreement to win or lose something of value solely or partially by chance. A bet does not include. . . an offer of a prize, award, or compensation to the actual contestants in a bona fide contest for the determination of skill. . . ." Smith's argument is that the person paying an entry fee does not "agree to win or lose" that entry fee. The fee is already lost. It's gone when you pay it, just as the entry fee for a golf tournament is gone when you pay it. At the end of the tournament, the person with the most skill wins a prize - sometimes cash, sometimes not - just as in a golf tournament. And, just as in a golf tournament, there is some luck and some skill involved. In golf, the wind may work against you, but for your opponent. In poker, the river may work against you, but for your opponent. But in the end, it is mostly skill that determines who will prevail. In the words of Mikey McD. in the movie Rounders, "the same five guys make it to the final table of the World Series of Poker every year. Are they just the luckiest five guys in Vegas?"
So why did I classify Mr. Humphrey as one of the villains in this situation? After all, he just appears to have a legitimate difference of opinion with Mr. Smith (and me) as to whether a poker tournament with an entry fee constitutes gambling under Texas law. To answer this, I refer to what all of our mothers told us when we were wee tykes: if you don't have anything nice to say, don't say anything at all. Humphrey doesn't even have a dog in this fight. He doesn't live in Texas, isn't licensed to practice in Texas, and isn't a prosecutor. I understand and respect a lawyer who cannot, in good conscience, argue for a position he does not believe in. But if he could not, in good conscience, take the position that a paid poker tournament is not gambling, why did he have to say anything at all? By submitting the brief he did, he lends credence to the position taken by the Texas District and County Attorneys' Association, who can now argue that a disinterested gambling law "expert" sides with them.
Which brings us to the brief filed by the Texas District and County Attorneys' Association. It was not, strictly speaking, a brief, but was instead a photocopy of an article written last year by the TDCAA's briefing attorney, Markus Kypreos, for The Texas Prosecutor magazine, a publication of the TDCAA. In a telephone interview, Mr. Kypreos told me that the article represented the official position of the TDCAA on this matter. Kypreos, himself a poker player, told me that he would like to see card rooms legalized in Texas. Nevertheless, his article takes the position that any tournament that awards a prize is a violation of the Texas gambling statutes, whether or not the participants pay any fee to enter. His argument is that, even though the players have not paid anything for their chips, those chips still have value, because once one player has accumulated all the chips, those chips are worth a trip to Vegas, a T-shirt, or whatever. Therefore, when you risk some of those chips in a pot, you are agreeing to win or lose something of value solely or partially by chance.
This argument seems to make sense, until you realize that it is not the chips themselves that have value, but the act of getting those chips in front of you. The chips are simply a way of keeping score. Let's take a hypothetical situation, where the contest has come down to two players. One player has 10,000 chips, and the other has 100 chips. A bystander in the crowd approaches the player with the big stack and offers him $9,000.00 for his chips. That player sells him the chips, and leaves the bar. The bystander now sits down to finish the game. It would of course violate the rules of the tournament for the bystander to play those chips. Since the original player has left the bar, his hands will continue to be dealt and folded until he is blinded out of the tournament.
Similarly, a player who accumulates half the chips during the course of the tournament cannot simply quit the game and cash them out for half the prize. Each individual chip has no value. It is only the act of accumulating all the chips into one stack that has value. Since you cannot risk or "bet" that act, you are not risking a thing of value by placing chips in the pot.
Similarly, in the Super Bowl, each football that winds up in the end zone is worth 6 points. At the end of the contest, each member of the team with the most points on the board receives a cash prize and a Super Bowl ring. But that does not mean that either the footballs themselves or the lights on the scoreboard have value. Instead, it is the act of putting the football into the end zone that has value. (Obviously, footballs, scoreboards, and poker chips all have their own inherent value as objects. But the winning team in the Super Bowl doesn't get to keep the light bulbs from the scoreboard, any more than the winner of a poker tournament keeps the chips.) Because the value is in the skill employed in the contest, the Super Bowl does not constitute gambling under Texas law, even though a prize is awarded and luck is involved in the outcome. In the same way, despite the creativity of the TDCAA's thinking, a freeroll poker tournament cannot be considered gambling.
If the TDCAA's position were correct, then even free tournaments in that purest of skill games, chess, would be considered gambling under Texas law if there were a prize offered, because the rules of the United States Chess Federation require a coin toss to determine who will receive the advantage of playing White in certain rounds of the tournament (thus the outcome is "solely or partly by chance,") and each of the chess pieces risked would have "value," according to the TDCAA's definition.
It should be noted that Humphrey did redeem himself to some extent regarding this question. His brief took the position that, if there is no entry fee paid, the tournament does not constitute gambling under Texas law.
San Antonio Prosecutor Has Already Announced Intention to Prosecute Freerollers
The Texas Attorney General is not, strictly speaking, a prosecutorial office. While the A.G. is nominally the chief law enforcement officer of Texas, the office does not actually supervise local District Attorneys' offices, nor make any decisions as to who will or will not be prosecuted. So, one might ask, does it really matter whether the A.G. thinks that freerolls constitute gambling, if no prosecutor is going to take such a case?
Enter Susan Reed, elected District Attorney for Bexar County, Texas, the County that includes San Antonio, the eighth largest city in the United States. Formerly a District Court Judge, and before that an Assistant DA, Reed won the office of Bexar County DA based on her reputation for being a tough prosecutor. Reed's office has been making national headlines in recent weeks after announcing that even freeroll tournaments that offer "big prizes" are promoting gambling in violation of Texas law. While Reed did not specifically threaten to arrest and prosecute players in such events, she did reportedly warn players to "stay away" from freeroll poker tournaments that offer "large prizes," "unless they want to meet a vice officer," according to WOAI AM News. A call to Reed's office seeking comment was not returned.
Texas is not the only State seeking to prosecute freerolls. Minnesota has actually raided at least one freeroll tournament and seized the chips, prompting State Senator Dave Klies to sponsor a bill in the Minnesota Senate explicitly legalizing Texas Hold Em tournaments. California's justice department has ruled that even freeroll tournaments require a gaming license. And Illinois's Liquor Control Commission has issued $500.00 citations to bars for even planning to hold freeroll poker tournaments, even though they never took place.
The War on Poker grows bloodier, and dark forces are at work in the land. We all must be vigilant in contacting our state and federal legislators and letting them know that we want poker to be legalized in our jurisdictions.
John Fahle is an attorney licensed to practice law in Texas and various federal United States Courts. His general advice given in this column is neither intended as the practice of law in other jurisdictions, nor as a solicitation of clients in any particular case. The views expressed by Mr. Fahle in this column are intended as general information, and are general answers to specific questions. Such statements are intended only to make the reader aware of possible issues that could be involved in any given legal situation. Laws vary from jurisdiction to jurisdiction, and the application of any law is heavily dependent on the facts of a specific case. Therefore, you should not rely on the statements made in this column as legal advice in your own situation, but should instead seek out qualified legal counsel licensed in your jurisdiction, who can address the specific facts of your situation, and apply the specific laws of your jurisdiction. If you need a referral to a competent lawyer in your jurisdiction, you may contact John Fahle at email@example.com, or by telephone at 210.212.7272.
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