[NOTE: This article was written before a change in California law that now permits the so-called ‘no flop, no drop’ rule. See material in [RED] in text of article below. Therefore, the conclusion that playing online is technically illegal in California is no longer correct.]
Professor I. Nelson Rose  wrote a short article entitled “Is It A Crime to Play Online?” His article is intended to look at this question only from the standpoint of the player, not from the standpoint of the operator of an online gambling website . He says: “All states make it a crime to conduct some forms of unauthorized gambling. But about half the states also make it a crime to make a bet under some circumstances, even though nobody is ever charged any more.” (Emphasis supplied.)
The author says: “California, for example, makes it a crime to play 11 named games, including ’21’ and any ‘banking or percentage game.’ The California Penal Code also makes it a misdemeanor to make sports bets. But other wagers are not forbidden. It is not a crime to buy a lottery ticket, even in an illegal numbers games.” Thus, his view is “So, at least in California, it seems it is not a crime to play poker online for money.” (Emphasis supplied.)
I think the better, more legally supportable, conclusion is: playing poker for money in California at the popular online poker websites is illegal, but in today’s tolerant atmosphere the risk of being charged with a criminal misdemeanor is far less than the chance of getting a speeding ticket, and the actual penalty to befall anyone who is charged will be not much more serious than the speeding ticket. Here is my analysis and reasoning to support that conclusion.
California Penal Code Sec. 330. provides: “Every person who plays… any banking or percentage game played with cards… for money, checks, credit, or other representative of value, and every person who plays or bets at or against any of those prohibited games, is guilty of a misdemeanor…” (Emphasis supplied.)
The conclusion Professor Rose reaches is correct for the situation where the player bets in an online poker game that is NOT also a percentage game. This is because playing poker for money in California is legal so long as the particular game being played does not run afoul of the other provisions of the law. Social home games are an example. As long as no one makes money, other than as a mere player, it is OK to play in a real money home poker game. In addition, playing in duly licensed California cardrooms does not run afoul of the prohibition because those cardrooms charge players in a manner that is not considered to be a percentage rake.
However, the conclusion is incorrect where the player bets in an online poker game if that game is a “percentage game.” All of the major online websites that offer real-money betting on poker games charge a fee of some kind for the opportunity to play. Usually the fee takes the form of the website operator being entitled to a rake that is a percentage of the money in a given pot, limited to a maximum amount. In tournament play there is an entry fee that may be viewed as a percentage of the buy-in amount each player pays, the sum of which buy-ins make up the prize pool to be split among the winners, since the amount increases as the buy-in amount increases. I am not aware of any online real-money poker games that do not have a rake or entry fee for most real-money poker games and tournaments.
I believe the existence of the rake or entry fee makes the poker game a percentage game, all of which are banned as a class by Section 330. In Sullivan v. Fox, 189 Cal.App.3d 673, 235 Cal.Rptr. 5 (Cal.App. 1 Dist., 1987) the interpretation of what constitutes a percentage game under California law was first stated. Three different methods of calculating the amounts to be paid to the house by players were considered: (1) a portion of each participants winnings, (2) a fixed portion of the amount of each bet, or (3) the time that each participant plays. The court held that if either of the first two methods is used, then the game will be a percentage game. Only the third method was determined to be a permissible form the house could use and still avoid having the game be declared a percentage game. I believe the rake in real-money online poker games and tournaments falls into either or both of the first two categories mentioned in Sullivan.
In response to several court decisions in California in 1998 and 1999, California Penal Code Section 337j was adopted. It provides:
“No fee may be calculated as a fraction or percentage of wagers made or winnings earned. Fees charged for all wagers shall be determined prior to the start of play of any hand or round. The actual collection of the fee may occur before or after the start of play. Ample notice shall be provided to the patrons of gambling establishments relating to the assessment of fees. Flat fees on each wager may be assessed at different collection rates, but no more than three collection rates may be established per table.”
The first version of this law was passed in 1998. In 2001 the statute was amended to its present text, which allows fees to be collected “before or after the start of play.” The statute has always required that fees for wagers must “be determined prior to the start of play.” Collection fees cannot be based on a percentage or fraction of the pot. So a fee calculated as $1 on the first $20 in the pot, another $1 on the next $10 in the pot and a third $1 if the pot is more than $30 would not appear to be allowed for two reasons: first, it would constitute a percentage of the pot and second the amount of the actual collection fee to be charged would not have been determined prior to the start of play. An informal telephone discussion with a member of the California Department of Justice Gaming Division on December 15, 2004, confirmed that view as well as the fact that the Division has not issued regulations interpreting how to calculate collection fees.
[Note: Sec. 337j has been amended to change the conclusions originally reached in this article. The following language has been added to the law: “However, the gambling establishment may waive collection of the fee or portion of the fee in any hand or round of play after the hand or round has begun pursuant to the published rules of the game and the notice provided to the public.” Thus, the ‘no flop, no drop’ rules discussed below is now permitted in California cardrooms.]
The initial problem with the online cardrooms is that they follow the Las Vegas Style “no flop, no drop” rule. That is, if everyone folds to the big blind (or the dealer button in stud) then no rake is taken in Las Vegas, or in the online cardrooms. This alone would violate the quoted statute, which requires that if a flat fee is involved, the amount must be known in advance, the charge being taken either before or after the hand is completed. Under the Las Vegas style of rake, which the online cardrooms follow, after the flop the rake is calculated as 10% of the pot, up a maximum stated amount, usually $3 or $4 per hand. This, too, violates the statute and technically makes the playing of online poker illegal under Penal Code Section 330 for those who are in California when they play.
Under the statute it is conceivable that different amounts of flat fees could be charged on different wagering rounds, but not on different amounts in the pot. In poker, as it is played in the bricks and mortar casinos in California, I am not aware of any that rake pots other than on the basis of $x per hand, regardless of the amount in the pot.
The cited provision of Section 337j was adopted in response to several California court decisions in 1998 and 1999 that construed what was meant by a percentage game. The provision of the statute that was adopted approved a fee collection scheme that the court in Sutter’s Place, Inc. v. Kennedy, 84 Cal.Rptr.2d 84, 71 Cal.App.4th 674 (Cal. App. 2 Dist., 1999) described as follows:
“There are two types of tables in the ‘California Games’ area. One type of table is what we will call the ‘low minimum’ table. At a ‘low minimum’ table, the minimum bet that can be placed in each square on the table is $10 and the maximum bet per square is $100. The other type of table is what we will call the ‘high minimum’ table. The ‘high minimum’ tables are located in what plaintiff calls the ‘Gold Room.’ The ‘high minimum’ tables have a $101 minimum bet and a $200 maximum bet per betting square.
“Plaintiff’s card room collects revenue by charging the participants in ‘California Games’ a ‘collection fee’ for utilization of each betting square. At the ‘low minimum” tables,’ the collection fee is $1 per betting square, while at the ‘high minimum’ tables the collection fee is $2 per betting square. The player-banker pays a collection fee of $2 or $3 at a ‘low minimum’ table and a collection fee of $5 at a ‘high minimum’ table.
Note that the collection, or rake, does not go up based on the amount bet, but on the fact that a bet of some amount is being made. Any variation in charges during the play of a hand must be made on the basis of the fact of a wager being made, not the amount of the wager. So, an escalation in the rake based on how much is in the pot would appear to be prohibited. Thus, if you are in California and are playing and betting money on poker games at one of the popular online websites, you are likely violating the law.
Professor Rose also said: “…about half the states also make it a crime to make a bet under some circumstances, even though nobody is ever charged any more.” If that observation is accurate, and given my analysis above, I think the proper question should focus on the legal consequences and risk to the player of getting involved in “illegal” online betting. The principal inquiry being the likelihood of any law enforcement authority doing anything about the player’s engaging in that activity.
Professor Rose says that “nobody is ever charged anymore.” Criminal charges against mere players are few and far between, especially because most such charges would be very low-level misdemeanors, sometimes only resulting in fines. However, since Professor Rose wrote the article there have been a few state criminal charges brought involving online betting under state laws making the bet a misdemeanor. The charges are only misdemeanors, but those charges can have adverse effects that go beyond the mere criminal charges.
In Florida a college quarterback, Adrian McPherson was tried on a misdemeanor charge brought against him for making sports bets through an offshore online bookie. The jury hung on the question of his guilt and he subsequently entered into a guilty plea agreement with the prosecutor on that and other pending matters. In North Dakota Jeffrey Trauman pleaded guilty to a misdemeanor charging him with making illegal online sports bets. Professor Rose has subsequently written a column about the Truaman matter appearing in Card Player Magazine (Vol 16, Mo. 21, Oct. 10, 2003.)
Thus, in my view, the better, more legally supportable, conclusion is: playing poker for money in California at the popular online poker websites is illegal, but in today’s tolerant atmosphere the risk of being charged with a criminal misdemeanor is far less than the chance of getting a speeding ticket, and the actual penalty to befall anyone who is charged will be not much more serious than the speeding ticket. Professor Rose concludes his Card Player article saying: “Does this mean regular players are in danger of being arrested? Half the states do have ancient laws on the book making it illegal to make a bet. But, probably 20 million Americans make technically forbidden wagers each year. With odds like that, you are more likely to be elected governor of California than charged with illegal gambling.”
 A wealth of information can be found on his Gambling and the Law website, which says that “Professor I. Nelson Rose is recognized as one of the world’s leading authorities on gambling law. He is an internationally known scholar, with more than 500 published works, and public speaker, often the keynote speaker on gambling issues. A 1979 graduate of Harvard Law School, he is a tenured full Professor at Whittier Law School in Costa Mesa, California, where he teaches one of the first law school classes on gaming law.”
 The question of the legality of offering a real-money poker game over the Internet to players in California is a still undecided question under California law. Trying to figure out how a court may rule is a different and quite complicated matter. It involves determining where the game is being offered and played as well as the ability to assert legal jurisdiction over the owner-operator of the website offering the game.
Under Section 337j of the California Penal Code it is a misdemeanor to “deal, operate, carry on, conduct, maintain, or expose for play in [California] any controlled game” unless all required federal, state and local licenses have been obtained. Many local jurisdictions in California require licenses to be obtained in order to operate a cardroom in that jurisdiction. No online real-money poker website has a license from any California gaming authority.
A “‘controlled game’ means any game of chance, including any gambling device, played for currency, check, credit, or any other thing of value that is not prohibited and made unlawful by statute or local ordinance…. [But] does not include any of the following: (A) The game of bingo conducted pursuant to Section 326.5. (B) Parimutuel racing on horse races regulated by the California Horse Racing Board. (C) Any lottery game conducted by the California State Lottery. [or] (D) Games played with cards in private homes or residences, in which no person makes money for operating the game, except as a player.”
Poker games that are not “percentage games,” and assuming further that they are “games of chance,” are lawful under Section 330, so the offering of such games is subject to the requirement of Section 337j. Of course, if the online poker game is a percentage game, then the offering of it would be unlawful directly under Section 330.