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There have always been gray areas of the law. There always will be. An increasingly common phenomenon in the U.S., however, occurs when businesses try to exploit these gray areas for profit.
Law professors Elizabeth Pollman and Jordan Barry coined the term “regulatory entrepreneurship” in 2017 for companies that knowingly operate with massive legal risk and make it a priority to change laws in their favor. Both federal and state legislatures can be slow to keep up, meaning several regulatory entrepreneurs have exploited these legal gray areas to massive success. Think Uber, Tesla, Airbnb and DraftKings.
One such gray area is social gambling. Many people have poker nights. Playing poker with friends is perfectly legal in most cases. States usually exclude private or social bets from their prohibition on running organized gambling. What isn’t legal (at least in the majority of cases) is starting up your own casino in your home and having the “house” take a percentage of the pot as a fee. But some regulatory entrepreneurs believe they can use the social exclusion to gambling to operate a business centered on poker games.
The line between social, private betting and organized gambling operations can be blurry. This was the idea behind two regulatory entrepreneurs in Texas, who began to run “poker clubs” that charged an entry fee to use the building. Importantly, the house did not take a rake – meaning a percentage of the pot – which would have violated the law. Instead, these companies believed they met the exception for private gambling by only charging an entry fee. It’s just a place to hang out, and if a poker game starts up on one of the tables that happen to be there, that’s the players’ business, right?
For several years, it worked. These companies operated openly in Texas while at least a few sought to clarify their legality through lobbying efforts. These efforts failed. Two were recently raided, although there were unique circumstances involved, according to an article in the New Yorker. Despite the raid, though, poker clubs still exist in Texas.
Regulatory entrepreneurs knowingly operate with such massive risk because the rewards are commensurate. Further, companies bank on building up massive support, whether it’s by providing a new way to gamble or a cheaper way to get home after a night out.
Will poker be the next target of regulatory entrepreneurs? Whether it’s poker or some other legal gray area, it is a good bet that regulatory entrepreneurs will continue to pop up, and in some cases flourish, in the years to come.