Originally Posted by Socialpokertx
The following in red is a rebuttal to this article.
SIGH/Poker Lab Radio Twitter Debate Exposes Weak Pro-Poker Club Legal Arguments
April 27, 2018
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SIGH Staff
Stop Illegal Gambling Houston (@stopcrimehtx on Twitter) was successful in engaging in a Twitter "debate" with Derrick Cavaco (@pokerlabradio) and Kenny Webster (@producerken), the hosts of KBME 790 AM's weekly Post Oak Poker Club infomercial called Poker Lab Radio. (The sponsor of this show, Post Oak Poker Club, is one of the illegal gambling dens we have highlighted on our Illegal Club List.)
We put "debate" in quotes because, as we feared in our explanation of why we declined to appear on their show, Cavaco and Webster have a very limited understanding of the legal framework around gambling and membership poker clubs in Texas. We have described this framework previously in our Legal Guide.
To hide this lack of understanding, Cavaco and Webster amusingly engaged in a great deal of bluster and spin about a stock photo on our website they did not like (see the last photo on our Join The Fight page), us referencing an ABC 13 story that noted local poker player Don Leonetti was murdered in a club that claims to be legal just like their sponsor Post Oak Poker Club, and us refusing to expose the personal information of our membership to their harassment and the criminal elements associated with poker here in Houston.
Despite all of this, we were able to tease out of them the basics of what they believe make membership poker clubs legal in Texas. These beliefs are shocking in their lack of understanding of Texas gambling laws, but go a long way to provide insight into the mindset of people continuing to open and operate these membership poker clubs. A summary of these beliefs are below:
1. Membership poker club proponents believe the key element needed for legality is for the house not to take a rake off the gambling table.
This is obviously incorrect. "Rake" and "off the table" are not legal terms or concepts discussed in Texas gambling laws. These laws discuss much broader concepts such as "economic benefit" and "earnings from a gambling place"
While membership poker clubs use "rake" to mean only a percentage of the pot taken out of each hand for the "house" or gambling establishment, rake can mean many things to many people.
The term “economic benefit” as written means a fee from or a percentage of the value at risk. The model of the poker clubs in Texas do not make an “economic benefit” directly from the value at risk, but rather revenue is gained through several sources, including from equipment rentals that are paid on a time basis. This is not the same as a “time collection” rake as defined on Wikipedia (which btw is not designed to be a legal dictionary) because these rental fees do not come directly out of the value at risk. In a conventional casino model the “time collection” is taken directly from the players value at risk and is not charged separately as the equipment rental. Although this may seem like an innocuous difference, when we are discussing the legality of the clubs in Texas, this adjustment to the revenue model is what makes the these clubs legal.
The Wikipedia definition of rake includes seven different mechanisms for taking rake, including "time collection" where money is collected every day, hour, or half-hour. This time collection form of rake is exactly how membership poker clubs make most of their money. Thus, for these membership poker clubs to claim they are "rake free" is their marketing is dishonest.
The very focus on rake coming "off the table" is an artificial creation of membership poker clubs, and not one based on Texas gambling laws.
The term “off the table” is simply another way of saying the value at risk. The laws are not much more general in what they prohibit as you argue. Your attempt to broaden the definition of “economic benefit” to include food and beverage, membership fees, rental fees and more is erroneous and a weak attempt to try and destroy the validity of the membership poker club business model. Using GA335 which you seem to be familiar with as a reference. The opinion given by then Attorney General Greg Abbott is in regards to the legality of poker tournaments that occur in public places such as bars. It was ultimately decided that this activity is legal and does not in turn make the host business a gambling place as defined in 47.03 The reason given is that since the players are not putting up a thing of value in order to play for a prize it is considered legal gambling. Further because the gambling is considered to be legal, the other revenue streams of the bar are permitted and not considered an “economic benefit”. The bars are allowed to use these legal games as a marketing mechanism to get players in the door and then they are allowed to sell food and drink for a profit to these legally gambling patrons. Likewise the membership model poker clubs are using legal poker as a way of getting members in the door in order to provide them with other amenities for a profit. The reason players at these clubs are allowed to put up a thing of value as opposed to players referenced in GA335 is because the club is private and not open to the public.
These laws are much more general in what they prohibit with respect to the house making money from poker.
These laws are not general, but rather specific as is evidenced in GA335. When interpreting law one should look to the literal meaning of the law, not general. If the meaning of “economic benefit” were more general than simply a fee or percentage of the value at risk than the language creating the social gambling defense would not be necessary. It is logical to assume that since there is a social gambling defense one can conclude that the intent of the law is to prevent house banked gambling enterprises that operate on a “house advantage” that is clearly an economic benefit, or in the case of poker a “rake”. The reason the “rake” is used in poker and not in house banked gambling such as casino Blackjack has to do with the economics of the games themselves. Since poker is fundamentally a social game there is no “economic advantage” provided to anyone other than the players directly and therefore the elimination of the “rake” eliminates any economic advantages not allowed by law. To interpret the phrase “economic benefit” in a broad and general sense as you argue would defeat the purpose of the social gambling defenses altogether and would mean all forms of gambling in Texas including in private homes, bars as referenced in GA335 and country clubs would be outlawed as well.
In sections 47.02 and 47.04, the law prohibits any person receiving an "economic benefit" from gambling. No specificity related to "rake" or "off the table" is made in the law.
Section 47.03 is even more general in its prohibitions and does not contain the affirmative defenses in the sections above. Here, a violation occurs if a person "operates or participates the earnings of a gambling place." A gambling place is then defined in Section 47.01 as "any real estate, building, room, tent, vehicle, boat, or other property whatsoever, one of the uses of which is the making or settling of bets." Bets are also defined in 47.01 as "an agreement to win or lose something of value solely or partially by chance." In Texas Attorney General Opinion GA-0335, the Attorney General concluded poker involves bets as defined by the law, and places where poker is played are gambling places.
This is not what GA335 states. GA 335 summary actually states the following conclusion which is misrepresented by your statement.
A holder of an on-premises alcoholic beverage permit may not, without violating both section 47.04(a) of the Penal Code and Rule 35.31 of the Alcoholic Beverage Commission, host a poker tournament in which participants risk money or any other thing of value for the opportunity to win a prize. A holder of an on-premises alcoholic beverage permit may, without violating either section 47.04(a) of the Penal Code or Rule 35.31 of the Alcoholic Beverage Commission, host a poker tournament in which participants do not risk money or any other thing of value for the opportunity to win a prize.
Thus, if membership poker clubs earn any money at all from any source, they violate the law. "Rake" and "off the table" are thus too artificially specific to encompass what the law prohibits.
The second part of this summary is what is relevant to us today. As you see it clearly makes a case for certain forms of poker that are legal for a for-profit business to promote within the law, as long as certain criteria are met within the way the game and the business are setup. It would be logical to draw your alternative conclusion if your misguided interpretation of GA335 was correct, but your interpretation as presented is wrong based on the language AG Abbott used in his summary.
2. Membership poker club proponents argue that the membership fees, access fees, seat charges, and other fees they charge are not income from gambling and thus are not illegal.
This is incorrect. Laws in Texas are read and interpreted by courts on a plain language basis, meaning taking the words at their face value. This is contradictory to the point you made in claim one where you stated the term “economic benefit” has a general meaning. We describe in #1 above how all these various fees are considered "economic benefit" and "earnings of a gambling place."
Whenever there is any confusion about the plain language of statutes, courts can look to legislative intent for guidance. The legislative guidance for gambling laws in Texas doesn't provide membership poker clubs with any help, though, as they note Texas gambling laws are "designed to exclude any form of exploitative or commercialized gambling...therefore, if one party gets a special cut from each pot or charges for the privilege of using the facilities, none of the participants can rely on the defense"(emphasis added).
The key phrase you have not defined is “commercialized gambling”. The gambling that occurs in these private membership clubs is considered social gambling and is explicitly protected under the language of the defenses and affirmative defenses found in Chapter 47. Social gambling occurs in private clubs all over Texas everyday including some of the states most exclusive country clubs. Country clubs charge fees for the use of their facilities. Many of these clubs allow members to gamble while on site at their facilities. These clubs are not in violation of the law as it is reasonable to assume that the legislature clearly recognized the difference between exploitative or commercial gambling enterprises and social gambling as permitted under chapter 47. Trying to blur the line between the two as you are is not going to change the intent of the legislature to allow certain forms of legal gambling to be available to all citizens of the state.
Charges like membership fees, seat rental fees, and club access fees charge for the privilege of using club facilities. The club themselves are clearly commercialized gambling enterprises. On a legislative intent basis as well as a plain language one, membership poker clubs are illegal in Texas.
In his tweet above, Cavaco specifically brings up the example of a pool hall as a place where "legal" gambling can occur. This is also incorrect. As described in Texas Attorney General Opinion GA-0335, places like pool halls and bars open to the public are considered "public places." Gambling in these public places, even between two parties unaffiliated with the house, is against the law, and the owners/operators of these establishments can be prosecuted if they knowingly allow gambling to occur in their establishments.
You are correct that this is a weak argument as gambling in public where you put up a thing of value as described is clearly a violation of Chapter 47. This can be reasonably assumed both by the plain language and intent of the law and by AG Abbotts interpretation. Although, there is a fundamental difference between a place that is open to the public like a pool hall and a private club like the ones referenced in this article. Because these clubs are private places and not public, their members are allowed to put up a thing of value while gambling in a social setting. Since you do not dispute the fact that these clubs are in fact private, I will save a more detailed explanation of why such a dispute would be incorrect. In short, I would point to the precedence set by bars in dry areas such as the Heights that have used the private club membership model for decades to be able to serve their patrons alcohol that is otherwise prohibited by law.
3. Membership poker club proponents believe the lack of law enforcement action in the Houston area so far indicates that membership poker clubs have tacit approval from authorities to operate.
Operators of these clubs do not make such careless assumptions. In fact, it is through years of collaboration with elected representatives, public officials and others from all over the state that the model for these clubs have been crafted. The first legislative efforts for these clubs was filed in 2013 (83R HB42 and HB2098) and the path to getting these clubs open has been ongoing since. The private membership poker clubs were first introduced to the City of Houston and HPD in May of 2013 and have been created in a manner that addresses many of the legal concerns various concerned parties may have in regards to their conduct. We cannot speak to the legality of the procedures of the clubs in North Texas, but we are aware that the path these clubs must follow in order to adhere to state and local law is narrow and clearly defined. Further, there has not been a lack of movement by the city as some of these clubs are duly licensed by the City of Houston under Houston City Ordinance Chapter 5 Article VI via an inter local agreement with Harris County per Texas Local Code Chapter 234 Subchapter E. The long term intent of these clubs is to eventually operate under a statewide occupational licensing structure through TDLR as originally proposed in 83R HB2098 in order to regulate their operations and expand their market reach.
Most membership poker club operators are not hiring criminal defense attorneys and carefully researching the law before opening their establishments. Instead, they are looking to the experiences of existing membership poker clubs across the state. Having not yet seen any enforcement action against these clubs in the Houston area, new clubs believe if they carefully copy the business models of the existing clubs, new clubs can open their own establishments safely and make a quick buck. This is why so many membership poker clubs use the exact same business model.
It is not appropriate to classify all clubs together. As you recognize some clubs are quite clumsy and ill-informed on what they are doing. Further there are some bad actors that are using the model of these clubs as a guise for illegal activity. It is for this reason that a statewide licensing structure would be so advantageous. As it stands currently state and local governments will have to exhaust numerous resources in the pursuit of recognizing and shutting down illegal clubs. This problem will be compounded as shutting down one club merely starts a game of whack a mole as more clubs pop up. This concern was recognized by then Senator Patrick in 2013 when he passed SB433. This bill gave certain county governments the right to license and regulate game rooms. Harris County has given proxy to the City of Houston via an inter local agreement to administer these licenses within city limits. The licensing structure created by 83R SB433 is the basis for the current licensing structure available to these clubs. To our knowledge Post Oak Poker Club is the only licensed club currently licensed for poker activity under this license in the City of Houston. A licensing structure would preserve the states resources as the conduct of these clubs would simply become a matter of whether a facility is licensed or not.
While local media continues to provide evidence that membership poker clubs are under active criminal investigation in Houston, we must concede there have been no enforcement action against these clubs in Houston thus far, (beyond Mint Poker receiving a cease and desist letter from the City of Webster.) This is why we urge our readers to Join the Fight to contact local law enforcement and elected officials and demand they enforce our laws immediately.
Unlike in Houston, Dallas-area law enforcement has been very effective in getting membership poker clubs closed down. However, as Cavaco's tweet below indicates, Houston-area club proponents will remain unimpressed until action is taken here in the Houston-area:
4. Membership poker club proponents believe it doesn't matter if they currently violate the law. They'll just tweak their business models later if they face issues.
Many membership poker club owners believe law enforcement will send them a cease and desist letter instead of raiding them unannounced, providing them with an opportunity to tweak their business models as needed to remain in business instead of going to jail.
Many club owners have worked very hard to maintain open lines of communication with any concerned individuals, groups and government agencies. It is through this open dialogue that concerns over these clubs can be addressed. The clubs must remain flexible in their operating procedures in order to ensure that any illegal conduct that may be discovered is corrected. It is vital that these clubs remain a place for Texans to legally gamble socially and that they are not perverted into something more sinister or taken over by larger gaming interest in the state and turned into commercial gambling enterprises. For this reason club owners are very diligent in their pursuit of to bring poker to Texas. As is evidenced by your tone here, you harbor many of the misconceived and ill informed perceptions of poker and poker players that many others have. This battle against false perceptions like yours is the biggest hurdle to the success of these businesses as are the false legal conflicts your are working to create.
This belief ignores the fundamental nature of these businesses as commercialized gambling enterprises and that the law prohibits commercialized gambling as a concept. Thus, no business model tweaks will change this fact and make these businesses legal.
Rather than working through the Texas Legislature These clubs have been and are currently pursuing active measures through the legislature to change the laws on the books, these clubs have materially expanded gambling activity in Texas on their own without the citizens or their representatives getting a say. This is wrong.
These clubs have become the new eight-liners as an illegal scourge to our community, and without enforcement action, they will continue to spread far and wide. Join the Fight against them!
