Volume 109

The modern chance-based test for gambling is fundamentally flawed. It is descriptively inaccurate, difficult to apply, and easily circumvented. Despite these shortcomings, the test is by-and-large the only test employed for the identification of gambling activity. But this was not always the case. In the first part of the twentieth century, some courts employed a competing test that looked to the underlying psychological phenomenon rather than the mechanical form of the activity. This Note advocates for a re-adoption of that test. The modern test, originally put forth as the definition of a lottery, was never intended to be a test for gambling. Over time, courts warped this definition to the point where many forms of gambling could reasonably be deemed a “lottery,” blurring the distinctions between gambling and lotteries to such a degree that some states’ highest courts have held that the two terms are synonymous.

The competing test—referred to by modern academics as “the Gambling Instinct Test”—has been understudied and mischaracterized by the literature. Admittedly, the decisions applying the test were unstructured in their analysis; however, closer examination of those cases reveals that the test can be distilled into two steps: (1) whether there exists a contingent contract, and (2) whether the prospect of receiving a return of disproportionate value induced the gambling party into conveying her consideration. As so refined, resuscitation of the Gambling Instinct Test would bring the legal doctrine in lockstep with medical conceptions of gambling. Given the explosion of gambling activity in recent years, such a change has never been more necessary.

Introduction

As one of the traditional vices, gambling has long been regulated by governments.¹ 1.See Nat’l Inst. L. Enf’t & Crim. Just., U.S. Dep’t of Just., The Development of the Law of Gambling: 1776–1976, at 4–13 (1977) [hereinafter Development of the Law of Gambling].Show More During the post-medieval period in England, gambling in and of itself was not unlawful, but the law tried to address its collateral consequences, such as the disruption of the public peace and members of the aristocracy gambling away their estates.² 2.Id. at 39–41, 240.Show More In early colonial America, the justification for and degree of regulation varied widely, from the wholesale condemnation of gambling as a form of idleness in Puritan Massachusetts, to more permissive laws in the southern colonies that only dealt with the evils of gambling as they arose.³ 3.See I. Nelson Rose, Gambling and the Law: The Third Wave of Legal Gambling, 17 Vill. Sports & Ent. L.J. 361, 368–74 (2010).Show More Since those early days, gambling has twice gone through cycles of legalization and prohibition.⁴ 4.Murphy v. Nat’l Collegiate Athletic Ass’n, 138 S. Ct. 1461, 1481 (2018). Thirty-six states and the District of Columbia have legalized sports betting since that decision, and a number of other states are currently in the process of legalization. Will Yakowicz, Where Is Sports Betting Legal? A Guide to All 50 States, Forbes (Jan. 9, 2023, 12:48 PM), https://www.forbes.com/sites/willyakowicz/2022/01/07/where-is-sports-betting-legal-americ‌a-2022/ [https://perma.cc/Y67H-4SNL].Show More Given the rapid legalization of sports betting at the state level that has occurred in the years following the Supreme Court’s landmark decision that a federal statute’s prohibition on state authorization of sports betting violated the anti-commandeering principle,⁵ 5.See Rose, supra note 4, at 374–75 (tracing the third wave of legal gambling back to the early 1930s).Show More we appear to be approaching the crest of what one prominent gambling law scholar terms “the third wave of legal gambling.”⁶ 6.Roland J. Santoni, An Introduction to Nebraska Gaming Law, 29 Creighton L. Rev. 1123, 1129 (1996) (citing examples of such cases from a number of states); D.A. Norris, Annotation, What Are Games of Chance, Games of Skill, and Mixed Games of Chance and Skill, 135 A.L.R. 104, 107 (1941) (“In construing statutes or ordinances prohibiting gaming, gambling, or gambling devices wherein nothing is said about chance or a game of chance or skill, many courts have required, inter alia, the element of chance to be involved.”).Show More

Although gambling in the modern-day United States is primarily defined by statute, courts, “concerned that clever operators would find ways to subvert the [statutory] prohibitions,” have frequently held that a game or activity constituted gambling if the three elements of the common law definition—Prize/Chance/Consideration—were present.⁷ 7.See, e.g., N.J. Stat. Ann. § 2C:37-1(b) (West 2023).Show More Many modern state statutes now utilize this definition, often with slight variations.⁸ 8.See 347 U.S. 284, 290 (1954).Show More However, this definition should not apply to all forms of gambling—nor was it originally intended to. The case most often cited in support for this definition, FCC v. American Broadcasting Co., was defining a “lottery, gift enterprise, or similar scheme,” not gambling writ large.⁹ 9.See, e.g., Phalen v. Virginia, 49 U.S. (8 How.) 163, 168 (1850) (“Experience has shown that the common forms of gambling are comparatively innocuous when placed in contrast with the wide-spread pestilence of lotteries.”).Show More Historically, lotteries have been recognized as a distinct form of gambling, not as an interchangeable term.¹⁰ 10.Anthony N. Cabot, Glenn J. Light & Karl F. Rutledge, Alex Rodriguez, a Monkey, and the Game of Scrabble: The Hazard of Using Illogic to Define the Legality of Games of Mixed Skill and Chance, 57 Drake L. Rev. 383, 390–91 (2009) [hereinafter Cabot et al., Mixed Skill and Chance]; Anthony N. Cabot & Louis V. Csoka, The Games People Play: Is It Time for a New Legal Approach to Prize Games?, 4 Nev. L.J. 197, 202 (Winter 2003–2004) [hereinafter Cabot & Csoka, The Games People Play].Show More Accordingly, in using this definition to evaluate all forms of gambling, courts have stretched and twisted the three elements in order to fit their intuitions of whether a gambling-like activity should be prohibited or not.

Chance is the most consistently problematic element from this definitional framework. The prevailing test for the chance element is the Dominant Factor Test: if the winner is determined predominantly by chance, as opposed to skill, then the activity is gambling.¹¹ 11.For instance, Haralabos Voulgaris has made millions as both a professional sports bettor and poker player, and he parlayed his success using statistical models in sports gambling into becoming the Director of Quantitative Research and Development for the Dallas Mavericks. See Marton, Haralabos Voulgaris’s Life: Biggest Profits, Losses, Private Life & Net Worth, So Much Poker (Aug. 20, 2020), https://somuchpoker.com/haralabos-voulgaris-life-biggest-profits-losses-private-life-net-worth/ [https://perma.cc/Z9CU-JKNQ].Show More Although appealing at first glance, the chance/skill dichotomy is a nebulous concept. Various paradigmatic forms of gambling, such as poker and sports wagering, have such a material skill component that highly skilled gamblers have been able to make a substantial living off of their pursuits.¹² 12.See Las Vegas Hacienda, Inc. v. Gibson, 359 P.2d 85, 87 (Nev. 1961).Show More On the other hand, certain “games of skill”—such as common carnival games or hole-in-one contests—can be structured so as to create games where the luck component predominates over the skill component, even for the most skilled participants.¹³ 13.See, e.g., Indoor Recreation Enters. v. Douglas, 235 N.W.2d 398, 400–01 (Neb. 1975) (upholding a ruling that chess and checkers—paradigmatic examples of games of skill—are games of chance).Show More Even outside of these edge cases, the chance element has proved to be sufficiently confusing for courts in the analog context.¹⁴ 14.See Yash Nair, What Does RNG Mean in Gaming?, DOT Esports (July 12, 2022, 11:16 AM), https://dotesports.com/general/news/what-does-rng-mean-in-gaming [https://perma.cc/H2DH-XLU7] (describing how video games use random number generators in which an algorithm decides a number value that determines certain in-game outcomes).Show More Given the importance of random number generation to the outcome of e‑sports contests, the chance element is bound to cause even greater confusion in the coming years.¹⁵ 15.Anthony N. Cabot, Glenn J. Light & Karl F. Rutledge, Economic Value, Equal Dignity and the Future of Sweepstakes, 1 UNLV Gaming L.J. 1, 10–15 (2010) [hereinafter Cabot et al., Future of Sweepstakes] (citing FCC v. Am. Broad. Co., 347 U.S. 284, 296 (1954)).Show More

The other two elements, consideration and prize, have seen difficulties as well. Although consideration is a well‑defined concept in contract law, the Supreme Court in FCC v. American Broadcasting Co. departed from the so-called “contract theory” of consideration in favor of what is now referred to as the Economic Value Test, which many states have subsequently adopted.¹⁶ 16.See Cabot et al., Future of Sweepstakes, supra note 16, at 23–36.Show More There has been continual debate and disagreement over how to evaluate non-monetary consideration and the possibility of free entry under this test.¹⁷ 17.See Mark D. Griffiths, Is the Buying of Loot Boxes in Video Games a Form of Gambling or Gaming?, 22 Gaming L.R. 52, 53 (2018). The loot box mechanism works as follows: “Players use real money to buy virtual in-game items and can redeem such items by buying keys to open the boxes where they receive a chance selection of further virtual items.” Id. at 52.Show More Prize has come under less scrutiny historically, but has recently come to the forefront in the debate over whether video game loot boxes should be considered gambling schemes.¹⁸ 18.U.K. Gambling Commission, Virtual Currencies, eSports and Social Casino Gaming – Position Paper ¶ 3(17)–(18) (2017), https://assets.ctfassets.net/j16ev64qyf6l/4A644HIpG1‌g2ymq11HdPOT/ca6272c45f1b2874d09eabe39515a527/Virtual-currencies-eSports-and-soci‌al-casino-gaming.pdf [https://perma.cc/2HL8-E9FX] (“Where prizes are successfully restricted for use solely within the game, such in-game features would not be licensable gambling, notwithstanding the elements of expenditure and chance.”).Show More The U.K. Gambling Commission declined to designate these loot boxes as a form of gambling because they did not view the in-game items awarded as prizes to have any real-life value outside of the game.¹⁹ 19.The Federalist No. 37, at 180 (James Madison) (George W. Carey & James McClellan eds., 2001).Show More Though the current definition of gambling can be summed up in a pithy phrase, its application in practice misses the forest for the trees.

A critical threshold in any system of regulation is the identification of the regulated activity. The modern application of Prize/Chance/Consideration has often resulted in normative policy judgments being made simultaneously with the classification of the activity—a fundamental misstep. Although we may now find that the outright prohibition of vices like gambling creates more harms than it prevents, we, as James Madison once warned, “ought not to assume an infallibility in rejudging the fallible opinions of others.”²⁰ 20.See Cabot et al., Mixed Skill and Chance, supra note 11, at 393–94.Show More Separating classification from moralization would better allow a regulatory scheme to adjust to changes in information, custom, and societal attitudes.

In lieu of the modern framework, this Note advocates for a modern revitalization of the Gambling Instinct Test, which simply looks to whether the activity in question triggers one’s gambling instinct.²¹ 21.See Jim Leitzel, Regulating Vice, in The Handbook of Deviance 45, 46 (Erich Goode ed., 2015).Show More The Gambling Instinct Test is a superior doctrine because it homes in on the central harm‑causing mechanism of gambling. Like other vices, gambling is “prone to excess” and “particularly likely to compromise rational decision-making,” even amongst non-addicted adults.²² 22.213 N.W. 335, 339 (Wis. 1927).Show More As described in City of Milwaukee v. Johnson:

The machine makes an appeal to the gambling instinct, because the player has constantly before him the chance that the next play will assure him of the right on the next succeeding play to secure from 2 to 20 trade checks. Were it not for this appeal to the gambling instinct, these machines, which attempt to adhere to the letter of the law while violating its spirit, would never have been placed upon the market.²³ 23.See Cabot et al., Future of Sweepstakes, supra note 16, at 4–5.Show More

The Gambling Instinct Test is typically associated with the deontological view of gambling: that gambling is a sin and inconsistent with a moral society.²⁴ 24.See, e.g., Mills-Jennings of Ohio, Inc. v. Dep’t of Liquor Control, 435 N.E.2d 407, 409–10 (Ohio 1982) (detailing Ohio’s shift away from an anti-gambling public policy).Show More This test, peaking in usage in the 1930s, has mostly fallen out of favor since the 1950s, alongside the broad changes to society’s moral judgment of gambling that occurred in that time period.²⁵ 25.See Cabot et al., Mixed Skill and Chance, supra note 11, at 394.Show More The Gambling Instinct Test has also been criticized for being a highly subjective test that “can vary widely in its application to particular games.”footnote_id_27_26 In light of these considerations, it may seem counterintuitive that this test would be a good fit for the modern era, where paternalistic legislation of morality is increasingly disfavored and more objective judicial methodologies are preferred. However, a broad, flexible definition better enables a smart, robust system of regulation than the illogical application of the current doctrine.

The Gambling Instinct Test is justly maligned for its subjectivity. This Note attempts to ameliorate this defect by providing more color to what it means to “appeal to the gambling instinct,” first by delving deep into the cases which applied this test, and then by drawing from empirical research to find evidentiary indicators of when that instinct is being stimulated. But before doing so, some background on the current doctrinal definition is needed.

1.  The earliest English anti-gambling statute was enacted by King Richard II in 1388. R. Randall Bridwell & Frank L. Quinn, From Mad Joy to Misfortune: The Merger of Law and Politics in the World of Gambling, 72 Miss. L.J. 565, 622–23 (2002) (citing 1388, 12 Rich. 2 c. 6 (Eng.)). Records from third-century India indicate that there was a governmental department responsible for the regulation of gambling during the reign of Chandragupta Maurya. Ronald J. Rychlak, Lotteries, Revenues and Social Costs: A Historical Examination of State-Sponsored Gambling, 34 B.C. L. Rev. 11, 16 (1992) (citing Will Durant, Our Oriental Heritage 444 (1954)); Vincent A. Smith, The Oxford History of India 78 & n.2 (1919) (citing Arthasāstra bk. 3, ch. 20). ↑
2.  See Nat’l Inst. L. Enf’t & Crim. Just., U.S. Dep’t of Just., The Development of the Law of Gambling: 1776–1976, at 4–13 (1977) [hereinafter Development of the Law of Gambling]. ↑
3.  Id. at 39–41, 240. ↑
4.  See I. Nelson Rose, Gambling and the Law: The Third Wave of Legal Gambling, 17 Vill. Sports & Ent. L.J. 361, 368–74 (2010). ↑
5.  Murphy v. Nat’l Collegiate Athletic Ass’n, 138 S. Ct. 1461, 1481 (2018). Thirty-six states and the District of Columbia have legalized sports betting since that decision, and a number of other states are currently in the process of legalization. Will Yakowicz, Where Is Sports Betting Legal? A Guide to All 50 States, Forbes (Jan. 9, 2023, 12:48 PM), https://www.forbes.com/sites/willyakowicz/2022/01/07/where-is-sports-betting-legal-americ‌a-2022/ [https://perma.cc/Y67H-4SNL]. ↑
6.  See Rose, supra note 4, at 374–75 (tracing the third wave of legal gambling back to the early 1930s). ↑
7.  Roland J. Santoni, An Introduction to Nebraska Gaming Law, 29 Creighton L. Rev. 1123, 1129 (1996) (citing examples of such cases from a number of states); D.A. Norris, Annotation, What Are Games of Chance, Games of Skill, and Mixed Games of Chance and Skill, 135 A.L.R. 104, 107 (1941) (“In construing statutes or ordinances prohibiting gaming, gambling, or gambling devices wherein nothing is said about chance or a game of chance or skill, many courts have required, inter alia, the element of chance to be involved.”). ↑
8.  See, e.g., N.J. Stat. Ann. § 2C:37-1(b) (West 2023). ↑
9.  See 347 U.S. 284, 290 (1954). ↑
10.  See, e.g., Phalen v. Virginia, 49 U.S. (8 How.) 163, 168 (1850) (“Experience has shown that the common forms of gambling are comparatively innocuous when placed in contrast with the wide-spread pestilence of lotteries.”). ↑
11.  Anthony N. Cabot, Glenn J. Light & Karl F. Rutledge, Alex Rodriguez, a Monkey, and the Game of Scrabble: The Hazard of Using Illogic to Define the Legality of Games of Mixed Skill and Chance, 57 Drake L. Rev. 383, 390–91 (2009) [hereinafter Cabot et al., Mixed Skill and Chance]; Anthony N. Cabot & Louis V. Csoka, The Games People Play: Is It Time for a New Legal Approach to Prize Games?, 4 Nev. L.J. 197, 202 (Winter 2003–2004) [hereinafter Cabot & Csoka, The Games People Play]. ↑
12.  For instance, Haralabos Voulgaris has made millions as both a professional sports bettor and poker player, and he parlayed his success using statistical models in sports gambling into becoming the Director of Quantitative Research and Development for the Dallas Mavericks. See Marton, Haralabos Voulgaris’s Life: Biggest Profits, Losses, Private Life & Net Worth, So Much Poker (Aug. 20, 2020), https://somuchpoker.com/haralabos-voulgaris-life-biggest-profits-losses-private-life-net-worth/ [https://perma.cc/Z9CU-JKNQ]. ↑
13.  See Las Vegas Hacienda, Inc. v. Gibson, 359 P.2d 85, 87 (Nev. 1961). ↑
14.  See, e.g., Indoor Recreation Enters. v. Douglas, 235 N.W.2d 398, 400–01 (Neb. 1975) (upholding a ruling that chess and checkers—paradigmatic examples of games of skill—are games of chance). ↑
15.  See Yash Nair, What Does RNG Mean in Gaming?, DOT Esports (July 12, 2022, 11:16 AM), https://dotesports.com/general/news/what-does-rng-mean-in-gaming [https://perma.cc/H2DH-XLU7] (describing how video games use random number generators in which an algorithm decides a number value that determines certain in-game outcomes). ↑
16.  Anthony N. Cabot, Glenn J. Light & Karl F. Rutledge, Economic Value, Equal Dignity and the Future of Sweepstakes, 1 UNLV Gaming L.J. 1, 10–15 (2010) [hereinafter Cabot et al., Future of Sweepstakes] (citing FCC v. Am. Broad. Co., 347 U.S. 284, 296 (1954)). ↑
17.  See Cabot et al., Future of Sweepstakes, supra note 16, at 23–36. ↑
18.  See Mark D. Griffiths, Is the Buying of Loot Boxes in Video Games a Form of Gambling or Gaming?, 22 Gaming L.R. 52, 53 (2018). The loot box mechanism works as follows: “Players use real money to buy virtual in-game items and can redeem such items by buying keys to open the boxes where they receive a chance selection of further virtual items.” Id. at 52. ↑
19.  U.K. Gambling Commission, Virtual Currencies, eSports and Social Casino Gaming – Position Paper ¶ 3(17)–(18) (2017), https://assets.ctfassets.net/j16ev64qyf6l/4A644HIpG1‌g2ymq11HdPOT/ca6272c45f1b2874d09eabe39515a527/Virtual-currencies-eSports-and-soci‌al-casino-gaming.pdf [https://perma.cc/2HL8-E9FX] (“Where prizes are successfully restricted for use solely within the game, such in-game features would not be licensable gambling, notwithstanding the elements of expenditure and chance.”). ↑
20.  The Federalist No. 37, at 180 (James Madison) (George W. Carey & James McClellan eds., 2001). ↑
21.  See Cabot et al., Mixed Skill and Chance, supra note 11, at 393–94. ↑
22.  See Jim Leitzel, Regulating Vice, in The Handbook of Deviance 45, 46 (Erich Goode ed., 2015). ↑
23.  213 N.W. 335, 339 (Wis. 1927). ↑
24.  See Cabot et al., Future of Sweepstakes, supra note 16, at 4–5. ↑
25.  See, e.g., Mills-Jennings of Ohio, Inc. v. Dep’t of Liquor Control, 435 N.E.2d 407, 409–10 (Ohio 1982) (detailing Ohio’s shift away from an anti-gambling public policy). ↑

26.  See Cabot et al., Mixed Skill and Chance, supra note 11, at 394. ↑