Texas’s Poker Clubs Are in Trouble

written by I. Nelson Rose
2022

A little-known fact, known by few:  Texas has poker clubs.  These are by no means just a couple of tables in the back of a bar.  The Lodge Card Club in Round Rock outside of Austin has more than 60 tables.  

The games — mostly Texas Hold ’em, naturally — are played for cash.  PokerAtlas in Houston is advertising a no-limit game, with $10 & $25 blinds, $2,000 minimum buy-in.  The Lodge runs tournaments with a guaranteed $500,000 in prizes.  

Johnny Chan and other pros have gotten in on the action, as owners, as well as players.  Since the social clubs are not licensed, no one knows exactly how many there are: estimates run from about 30 to more than 100.

The first one apparently started in 2015.  But their winning streak may be coming to an end.  The Texas Card House in Dallas, for example, just found out its certificate of occupancy was being revoked.

The case generated great headlines:  “Texas Card House CEO Taken Aback by Dallas City Threat;” and “Government Crackdown? Texas Card House in Dallas Loses Permit, Owners Baffled.”

Perhaps someone should have reminded everyone involved that Texas has a lot of anti-gambling laws.  They include the crimes of “Gambling,” “Gambling Promotion,” and “Keeping a Gambling Place.” 

The clubs charge for memberships.  The Texas Card House in Austin, for example, has monthly memberships of $30, and daily memberships for $10.  The Beaumont club offered lifetime memberships at $1,500 (not a good bet).  

Players also have to pay to rent their seats during games, generally around an additional $10-$15 per hour just to play.

I don’t know the name of the lawyer who dreamed up the idea of playing poker as a private social club.  But I would love to see his or her Legal Opinion.  

(Neither the government nor owners have asked for my help.)

I think the poker clubs have some severe legal problems.  Arguing that poker, especially poker tournaments, are games of skill that won’t work in Texas.  “Gambling” is defined as playing or betting for money, “at any game played with cards.”

A person commits the crime of “Gambling Promotion,” “if he intentionally or knowingly operates or participates in the earnings of a gambling place.”  And “Keeping a Gambling Place” is a separate crime. 

The clubs believe they are legal because they don’t rake the pots and are not open to the public.  

“It is a defense if the operator can prove all of the following:

(1) the gambling occurred in a private place;

(2) no person received any economic benefit other than personal winnings; and

(3) except for the advantage of skill or luck, the risks of losing and the chances of winning were the same for all participants.”

“Private place” is defined as “a place to which the public does not have access, and excludes, among other places, streets, highways, restaurants, taverns, nightclubs, schools, hospitals, and the common areas of apartment houses, hotels, motels, office buildings, transportation facilities, and shops.”

The fight over whether a club is a “private place” will probably depend upon whether all but club members are excluded.  I would have strongly advised against “daily memberships.”  The best practice would be to have locked doors and issue each member a key.  And you want to make sure there are qualifications to become members.

The bigger problem may be the “no economic benefit” requirement.  Eliminating the rake does prevent the game from being a “percentage game.”  But it does not prevent the club owners from receiving an economic benefit from the gambling, especially when they charge seat rentals only to players.  SA Card House of San Antonio even eliminated that distinction by taking a cut of tournament entry fees.

Government officials in other states have argued that poker in bars gives a benefit to the bar owner through increased business, even when there is no charge to play.  Here the operators receive club dues and directly benefit from the games.  

This is, in fact, how all commercial casinos in California used to operate until the 1990s.  Large clocks on the walls with red lights showed when house employees would collect the fees every half hour.  (The introduction of raking eliminated the seat rentals, because the house could take more money:  Losing players did not care how much the house took out of each pot, and most winning players didn’t notice or care about the three to five percent rake, because they had won the pot)

The danger for Texas’ poker clubs is not the hit-or-miss enforcement by local governments and law enforcement.  Poker-related crimes are merely misdemeanors.  But there have been stories that the FBI is becoming interested in.  

The Illegal Gambling Business Act (“IGBA”) turns state misdemeanors into federal felonies if five or more people do more than $2,000 in business a day in violation of state gambling laws.  And the IGBA can trigger other laws designed to go after organized crime, like money laundering and RICO (Racketeer Influenced Corrupt Organization).  Potential penalties are loss of personal assets and decades in prison.

And at some point, Texas lawmakers who have not been benefiting from the clubs’ political donations are going to wonder why this form of gambling is unregulated, and, more importantly, untaxed.

The rural areas will want the clubs outlawed; legislators from cities will mostly vote for regulation and taxation.

If there are only 30 clubs, the industry will be shut down.  But if there really are more than 100, the Texas poker scene will soon be second only to California.

 

© Copyright 2022, all rights reserved worldwide.  Gambling and the Law® is a registered trademark of Professor I. Nelson Rose, www.GamblingAndTheLaw.com.

I. Nelson Rose

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