Gambling Game – What Is, Criteria
It is not an easy task to define a gambling game precisely, especially with regard to various legislative or regulatory measures – is a certain game subject to regulations or not? We give a general definition of the gambling game and supporting criteria, particularly true odds vs payouts, degree of chance vs skills and amount of stakes.
General Definition of a Gambling Game
A gambling game is such a game where its result is determined by chance, or we could say “strictly by chance”. It is already a subject of controversy as at many games, considered to be gambling ones, skills play bigger or smaller part. Another arguable point is this: even if the result of a game is decided by chance, it can be a fair deal (see the example below).
We have introduced the three most common criteria that define a gambling game. Despite of that we consider true odds vs payouts to be the main criterion. The other ones can be a matter of political competition and manipulating (degree of chance) or subjective (what is a high stake?).
Figure 1: Gambling game chips (source: Craiyon)
True Odds vs Payouts
The true or real odds are those that correspond to the probability of a certain event (hitting a single number in Roulette, rolling a certain total by two dice, hitting all numbers drawn in a lottery etc.), while payouts offered by house (casino or other betting company) are lower in overwhelming majority of cases. The difference creates a long-term advantage, edge or margin of the house in a given game or concrete bet.
The house almost always has some advantage over a bettor. After all, casinos could not exist without that. The (dis)advantageousness can be calculated precisely based on the expected value. And it holds true that player’s loss is casino’s gain and vice versa.
In our view gambling is when a player voluntarily accepts that probability is against him, while he believes that his luck will help overcome this disadvantage and win. Of course it can be the case (in some games the house edge is not that high), but the longer the play takes place, the more the results will approach the long-term average, which is negative from the player’s point of view. How much it depends on a specific game and/or its wager.
Example
It is different e.g. if you play a simple dice game with your friend in a way that 1-2-3 wins for you and you get a $1 from your friend and 4-5-6 wins for you friend and you give him a $1. Of course we assume absolute fairness and that a die is perfectly symmetrical (each of the six numbers can occur with the same probability at any time). The odds of winning and losing for both of you are 0.5:0.5 and the payouts are equal $1:$1 too. Are you gambling?
The answer could be threefold: yes, something in between, no – based on the following arguments, by which you can make your own conclusion. “Yes”, if you take it as a game, whose result is based strictly on chance. “Something in between” as it matters how long (or how many rolls) you are going to play. “No” because it is a so called fair bet, that is the expected value (EV) for both players is null (EV = 0). Both players can win and lose $1 with the probability 0.5, thus the EV = $1 x 0.5 + (-$1) x 0.5 = 0.
If you play just a couple of rolls it may happen that one of you is lucky and the other one unlucky, one gains, the other loses. However the more rolls you play the more you will approach to the result EV = 0. It is a long-term average, which your play will tend to – none of you wins or loses. It is impossible to be lucky or unlucky all the time. If math and statistics secure a fair bet in the long run, can you talk about gambling?
Now imagine that you offer the same game to your friend, but with the difference that you pay him only 90 cents while he still has to pay you $1. You might say why would he do it, but it is the same situation as coming to a casino. Here you can take it e.g. as a challenge that he will beat you anyway.
The expected value from your side is: $1 x 0.5 + (-$0.9) x 0.5 = $0.5 - $0.45 = $0.05, and automatically for your friend it is $-0.05 (one’s loss is another’s gain and vice versa). In the long run you are going to win (your friend is going to lose) 5 cents of each $1 wagered.
If you played e.g. a million rolls, your expected (average) result would be 1,000,000 rolls × $0.05 = $50.000. Your friend would lose this figure (in average). Gambling industry is based on this principle: in this case you are a casino and your friend is a player coming to the casino. He hopes for luck even though the probability and/or the payouts are against him. Now it is correct to talk about your friend’s gambling and the casino’s business (as the statistics secures it a long-term edge or margin).
Chance vs Skills
The degree of chance is another criterion used to define a gambling game. With regard to the previous chapter it is possible to consider it redundant or useless – in case the payouts are lower than those determined by odds (probability). On one hand it is nice that you can influence the result by skills, but in this case it would only mean how big the long-term loss would be.
On the other side there are games, where skills play a big part, such as e.g. Blackjack where you can even get an edge over a casino (player’s EV is positive, while casino’s EV is negative). This is possible when using the best technique and so called cards counting. It is, however, a very demanding technique from all sides and the one that casinos frown at. After all the American actor Ben Affleck was asked to leave a casino after being revealed counting cards.
If all players in casinos played Blackjack only in the best way possible, all casinos would go bankrupt – thanks to the negative EV they would lose in average a small amount out of each dollar wagered.
Another good example is Backgammon, the dice game where skills matter and the chapter of its own is Poker. Fox example in the Czech Republic it was put amongst “lotteries and similar betting games” by the Lottery Act as of 2012. The aim of the policymakers was to regulate playing of Poker, which was vastly done with foreign betting companies that do not pay taxes in the Czech Republic (unfortunately due to the nature of the Act they cannot pay the taxes even though they wanted to).
Addition of Poker, whose popularity not only in the Czech Republic grew rapidly, amongst lotteries by the Lottery Act, was to great disappointment of all Poker players. As supposedly Poker’s result is based on chance. We have dealt with this in the article Is poker a game of skill or luck? In the light of the previous chapter, is it possible to consider Poker as a gambling game if a player after 1,000,000 hands has a return of 6%. Isn’t more likely his business model with the positive expected return? It is not coincidence that good player win and bad players lose!
Amount of Stakes
The amount of stakes is a completely subjective criterion. What is or is not “too much money” is highly individual, even though we can admit that for an “average” guy it makes a difference to buy a lottery ticket for a couple of buck or to play dice for $1 million, car or house.
Those who bet a lottery are not considered gamblers, although their expected return is minus 50% in the long run! The bettors might not mind this as they can win a big jackpot, even though the probability is minimal. On the other hand no one said that a lottery player cannot be dependent and gamble a large portion of his income. For example the house edge in Roulette is 2.7% only (for a majority of its bets), but the wheel spins faster and the bets are likely to be higher than in case of lotteries.
What about Legislation
It is interesting to follow e.g. the Czech legislation again as it does not know the term “gambling game”. The Act No. 202/1990 Coll., on Lotteries and Other Similar Games, defines a “gambling game” for the needs of regulation (source: Czech Ministry of Finance, online (PDF), [2014-02-10]) as follows: “Lottery or other similar game is such game that is participated by a natural person voluntarily, who pays for a stake, whose return is not guaranteed. Win or loss is determined by chance or unknown circumstance or event set in advance in an operator’s game plan…”.
It is followed by about 9 examples of what is especially considered to be a lottery or other similar game (that means that the circle of regulated games can be larger), for instance number lotteries, Roulette, slots, sportsbook etc.
The two wordings straight away arouse a lot of questions: (1)” …the return of the stake is not guaranteed” and (2) “win or loss is determined by chance…”
If we go back to our example dice game between two friends, do they gamble according to the law? From a mathematical or statistical point of view their return is 100% (expected value equals zero, nobody gains nor loses).
And what about buying of stocks or gold as an investment for example? Is the return guaranteed for a buyer (or a player?), when the market price can go down?
And what the poker player with the 106% return, i.e. his long-term rate of profitability as measured by ROI (Return of Investment) is 6%? The fact that he belongs among good, better or the best players is not a work of chance (see e.g. Poker variance). After all that is why small Poker clubs and Poker associations argue with the Czech Ministry of Finance that Poker does not belong under the regulation (unfortunately due to the Lottery Act Poker can be played at licensed casinos only, but there are capital intensive requirements).
We could go on and on. For these reasons we consider lower payout than true odds as a main criterion for a definition of a gambling game (or gambling with money). Let us add that it is not unfair towards the players, but it is a necessary condition for existence of places where they can play.