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Stu Ungar was not good at life. Although he earned an estimated $30,000,000 during his lifetime, in November 1998 he was found dead in a $48-a-night motel room in Las Vegas. The only assets to his name at the time of his death were his clothes and the $800 remainder of a $25,000 loan he had received earlier in the month. Much of Ungar’s fortune had been spent on horse betting and cocaine.
But Stu Ungar was good at poker. His poker exploits are legendary. Ungar is one of only two players to have won the main event at the World Series of Poker three times, and he is the only player to have won Amarillo Slim’s Super Bowl of Poker three times. In one particularly memorable hand, Ungar won a pot by deducing that his opponent held nothing more than a 6, and then calling a $32,000 bluff with a 10-high. Hands like this are the reason why many professional poker players consider Ungar to be the most skillful poker player of all time.
That begs an important question: Is it actually possible to be a skillful poker player, or is poker simply a game of luck?
In 2007, a tax court accepted the I.R.S.’s argument that poker is “a wagering activity,” in part because the word “bet” is used to describe so much of the action in a poker match. In other words, the tax court focused on the terminology and historical perception of poker, and did not analyze the actual mix of skill and luck that poker requires.
And this is a typical approach. Last April, the Department of Justice filed indictments and seized the domain names of the three largest online poker sites in the world: Absolute Poker, Full Tilt Poker, and PokerStars. The indictments alleged that the poker sites were violating the Unlawful Internet Gambling Enforcement Act, which makes it illegal for U.S. banks to transfer money to internet gambling sites.
The crux of the indictments was that the poker sites were trying to fool U.S. banks into transferring money to them by disguising poker transactions as purchases of golf balls, jewelry, and other legitimate items. (As an entirely separate matter, one of the sites, Full Tilt Poker, also appears to have operated a Ponzi scheme.) The indictments simply assumed that poker is gambling, and that poker transactions are gambling transactions. The Department of Justice didn’t consider the possibility that poker is a game of skill, and that there was no reason to disguise the poker transactions in the first place.
That may have been a mistake. One month after the indictments, economist Steven D. Levitt, co-author of the bestselling Freakonomics and Super Freakonomics books, published a working paper with Thomas Miles titled “The Role of Skill Versus Luck in Poker: Evidence from the World Series of Poker.” The two men conducted a study at the 2010 World Series of Poker and found that players rated as highly skilled received a 30 percent return on their initial investments. All other players averaged a 15 percent loss on their initial investments. According to the paper, the differences in investment returns between highly skilled and less skilled poker players are “far larger in magnitude than those observed in financial markets.” In another statistical comparison, Levitt and Miles suggested that skill plays almost as large a part in determining poker outcomes as it does in determining the outcome of games between major league baseball teams. So, if the government treats both Wall Street and baseball as enterprises of skill, perhaps it should treat poker the same way.
The legality of poker is ultimately in the hands of legislatures around the country; motivated in part by the prospect of tax receipts, several states and the District of Columbia are considering legislation to explicitly legalize both live and online poker within their borders. And in the meantime, courts will continue to decide how poker should be treated under existing laws. In a rare effort by a court to address the luck-versus-skill question head on, in 2010 a Pennsylvania court concluded that poker is predominantly a game of luck, because even skilled players are subject to defeat “at the turn of the cards.” But the Stu Ungar legend strongly suggests that some players can know exactly which card will be turned, and act accordingly.