Contracts And Poker: Staking Agreements

Since the topic of this column is Contracts and Poker, I would be remiss if I did not address the staking conflict between C Biscuit and World Series of Poker main event final tablist Nick Marchington.

Nevertheless, I am reluctant to do so because the outcome of a case is a function of the law and the facts, and neither the law nor the facts in this case are clear. We get our information about the facts from the parties and (I’ll choose my words carefully here) the parties have an incentive to present the facts in a way that are favorable to themselves.

An account of the case was given by my fellow Card Player columnist Gavin Griffin, whose story was headlined, “Poker Staking Group Attempting to Steal from WSOP main event final tablist.” It was a pretty clear foreshadowing of the story to be told.

According to Griffin, after the parties made a staking agreement for two events including the main event, Marchington “refunded their stake a couple of days before the main event began.… Now the group is suing him … even though he cancelled their action before the event started and they accepted the refund.”

If that was all there was to it, C Biscuit’s behavior would be outrageous. In fact, so outrageous that a lawsuit would be frivolous, and lawyers rarely bring frivolous lawsuits. So one would think there has to be more to it.

Before we look at what those additional facts might be, let’s review some basics of contract law.

Contracts are not enforceable if they are illegal. Apparently poker staking agreements are common, but are they legal? Contract law is state law and every state’s law is different. As with many contract disputes, the answer may depend on which state’s law applies. If gambling is illegal in the state, then investing in the activity may also be illegal. For example, states without lotteries have frequently refused to enforce contracts between individuals who agreed to invest in an out-of-state lottery.

In Sigel v. McEvoy, Tom McEvoy argued that he did not have an agreement with a backer for his main event performance, but if he did, the backer was trying to collect a gambling debt, which is illegal (except for debts to casinos) in Nevada. However, the Nevada Supreme Court held that buying a piece of a player’s performance in a poker tournament is an investment that can be legally enforced in Nevada. If Nevada law applies to the C Biscuit claim, presumably the same rule would apply.

Contracts are easy to make. In general, oral contracts are perfectly good, as are contracts created by electronic exchanges. So if one party says in effect, “I’ll buy 10 percent of you in the main event for a 1.2 markup,” and the other says in effect, “It’s a deal,” a contract is immediately formed. Other terms can be filled in by the parties, or where they don’t fill them in, by contract default rules and by past practices of the parties or custom and usage. A lot of the discussion of the Marchington deal centers around whether a party can unilaterally (i.e. without the consent of the other party) cancel the contract. In contract law, that makes no sense. If the parties are not creating an obligation to act as they promised, but essentially saying, “either I will or I won’t,” then they have not made a contract. Such understandings would be merely dependent on the good will of the parties to perform. Whether this was a binding contract or not is something the court will have to decide based on what the parties said, what they may have previously done, and what is normally done in this business.

If a real contract and not a mere moral obligation results from a staking agreement, then one party can’t unilaterally cancel it. One party can of course refuse to perform, but that would be breach of contract. And guess what the remedy for breach is? It is to give the nonbreaching party the amount of money that puts them in the position they would have been in if the contract had been performed. So if there was a contract and Marchington breached it, then C Biscuit would in fact be entitled to the 10 percent of the winnings that they claim.

However, in Griffin’s telling, Marchington has a counter to that – C Biscuit agreed to the cancelation and accepted Marchington’s offer of a refund. In contract law, that is a perfectly permissible way to put an end to a contract. Just as the parties agreed to make the agreement, they are free by their mutual consent to unmake it. As mentioned earlier, if that was all there was to it, C Biscuit would have little going for them.

But apparently that is not all there was to it. According to the court documents, on June 28, Marchington told C Biscuit that he was not planning to play in the main event and canceled their agreement. C Biscuit then agreed to the return of their funds. But on July 3, the backers claim Marchington informed them he was playing in the main event after all, and had a deal for a higher markup, so he was canceling his agreement with them.

From this set of facts, it appears that C Biscuit understood that Marchington was refunding their money because he was not playing in the main event. If that was the condition on which they agreed to take their money back, you can see why they might think the agreement was still on if he did play in the main event. So if the mutual agreement was to cancel only if he did not play, the remaining issue to be resolved is whether a party can unilaterally cancel such an agreement if he did play.

Many commentators, including Griffin, say that Marchington was morally wrong to unilaterally back out, but that he had a right to do it. Quark, the Ferengi on Star Trek: Deep Space 9, said in his Rules of Acquisition – “A deal is a deal … until a better one comes along.” That may make sense on Ferenginar, but it is no way to run a business, and the commercial world would collapse if you couldn’t rely on commitments.. These are deals between serious people with serious money at stake, not polite social commitments that you can ignore with impunity.

Along with the facts of what happened, a court will have to decide whether it is the custom in the poker world not to be committed under staking agreements. Except it probably won’t go that far. Litigation is a zero-sum game, with only the lawyers sure to come out ahead. Just like at the end of a poker tournament, a settlement is likely. ♠

Scott J. Burnham is Professor Emeritus at Gonzaga University School of Law in Spokane, Washington. He can be reached at [email protected].