The material degree test in gambling law is a legal standard that treats a game as gambling whenever chance plays a meaningful role in the outcome, even if the players’ skill also matters. It sets a lower bar than the more common predominant factor test, which only labels an activity gambling when chance outweighs skill. Under the material degree standard, a game can be dominated by skill and still be classified as a contest of chance if the random elements carry enough weight to shape who wins. New Jersey’s statute puts it plainly: a contest of chance is any game “in which the outcome depends in a material degree upon an element of chance, notwithstanding that skill of the contestants or some other persons may also be a factor therein.”1Justia. New Jersey Code 2C:37-1 – Definitions
The clause doing the work is “notwithstanding that skill…may also be a factor.” It tells courts to stop asking whether skill is present and start asking whether chance is significant enough to matter. Once a game crosses that threshold in a state using this standard, offering it or playing it without authorization becomes illegal gambling under the state’s criminal code.
How It Compares to the Other Chance-and-Skill Tests
States draw the gambling line in one of three ways, and the same game can be legal in one and criminal in another depending on which rule applies.
- The predominant factor test is the majority approach, used by roughly 30 states. A game is gambling only when chance outweighs skill in determining the outcome. If a statistical analysis shows skill accounts for more than half the result, the game is a skill game.
- The material degree test is the middle ground. Chance does not need to be dominant; it only needs to play a meaningful role. A game where skill accounts for 60 percent of the outcome can still be classified as gambling if the remaining 40 percent of randomness materially affects who wins. New Jersey, Missouri, and Alabama use this standard.
- The any chance test is the strictest. If any element of chance affects the outcome at all, the game is a contest of chance. Few states apply it in pure form, but it surfaces in older case law.
The practical gap matters for operators. A daily fantasy sports contest or a poker tournament might pass the predominant factor test comfortably and still fail the material degree test because the random elements, while not dominant, are too significant to ignore.
How Courts Decide Whether Chance Is “Material”
Courts applying the test don’t eyeball a game and guess. They rely on expert testimony and statistical analysis to measure how much randomness shapes outcomes. Forensic analysts examine the probability distributions built into a game’s mechanics and ask whether an average participant can consistently steer the result through skill alone. The focus on the average player is deliberate. The fact that a world-class poker player wins more often than a novice over thousands of hands doesn’t resolve whether chance materially affects any single hand.
The Single-Instance Lens
One of the most contested questions is the unit of analysis: a single round of play, or the game’s long-run profile? Under the material degree test, courts frequently focus on individual instances. A single poker hand involves a random deal that no amount of skill can control. Over a career, the best players rise to the top, but the material degree test often asks whether chance dictated this particular hand, not whether skill wins over a lifetime. This short-term lens is one reason the test captures more games than the predominant factor approach, which tends to evaluate a game’s overall character.
Burden of Proof
In criminal prosecutions, the government carries the burden. Prosecutors must prove beyond a reasonable doubt that chance plays a material role in the outcome. Defendants sometimes argue their activity falls within a statutory exception for bona fide contests of skill, but the prosecution still has to make the initial showing. Expert witnesses on both sides often present conflicting statistical models, and the outcome turns on which model the court finds more persuasive.
Game Design and Equipment
Judges also scrutinize the technical mechanics. Random number generators, shuffled decks, and dice all inject uncontrollable variables. Courts examine whether the rules give a player enough meaningful choices to overcome that inherent randomness. When a game’s design forces losses regardless of player decisions, or when the window for skillful input is so narrow that it barely matters, courts are more likely to find the chance element material. This analysis helps regulators catch games that wrap a veneer of interactivity around what is essentially a lottery.
States That Use the Material Degree Test
Only a minority of states use this standard, but they include some of the country’s most active gambling enforcement environments.
New Jersey is the most prominent. Its statute defines a contest of chance through the material degree language and applies it to both physical casinos and online platforms.1Justia. New Jersey Code 2C:37-1 – Definitions The Division of Gaming Enforcement, operating under the Casino Control Act, oversees compliance for licensed operators.
Missouri uses nearly identical language, defining a contest of chance as any game “in which the outcome depends in a material degree upon an element of chance, notwithstanding that the skill of the contestants may also be a factor therein.”2Missouri Revisor of Statutes. Missouri Code 572.010 – Chapter Definitions The definition gives law enforcement a clear basis for shutting down unlicensed operations that market themselves as skill-based tournaments.
Alabama follows the same pattern. Section 13A-12-20 defines a contest of chance as one where “the outcome depends in a material degree upon an element of chance, notwithstanding that skill of the contestants may also be a factor therein.”3Alabama Legislature. Alabama Code Title 13A-12-20 – Definitions The state has used this standard to target unregulated electronic gaming machines in convenience stores and gas stations.
Because most other states apply the predominant factor test, an operator who is fully legal in one state can face criminal charges for offering the identical game across the border in a material-degree jurisdiction.
Games Most Often Caught by the Standard
Poker
Poker is the game that generates the most heated argument under any skill-versus-chance framework, and the material degree test makes the argument especially hard for poker advocates. Every hand begins with a random deal. A player holding a pair of twos can play flawlessly and still lose to an opponent who draws a flush on the river. Over thousands of hands, skilled players reliably profit, but the material degree test can zoom in on individual hands where the card draw overwhelms any strategic decision. In material-degree jurisdictions, this analysis frequently leads to poker being classified as a contest of chance, which confines it to licensed casino environments.
Daily Fantasy Sports
DFS platforms face particular scrutiny in material-degree states. A user may invest hours studying matchups and injury reports, but a single unexpected benching or in-game injury can upend even the most researched lineup. Courts in these states can point to that unpredictability as a material element of chance regardless of the statistical skill edge top players show over a season. Some states have responded by requiring DFS operators to obtain licenses, with fees that vary widely, from a few hundred dollars in smaller markets to $50,000 or more in states like Indiana and Delaware.4GovInfo. Daily Fantasy Sports: Issues and Perspectives
Electronic Skill Games
The machines found in convenience stores and truck stops that let players press a button to stop a spinning reel or match symbols are a recurring enforcement target. Operators market them as skill games, but courts routinely find that the timing window for meaningful player input is so narrow that outcomes depend on the machine’s internal programming rather than human reflexes. In 2025, courts in both Tennessee and Missouri found that even machines with “pre-reveal” features allowing players to see upcoming results still involved a material element of chance because players had to pay for each additional reveal, reintroducing uncertainty. Possessing these machines without authorization is a misdemeanor in many states. Montana treats possession of an illegal gambling device as a misdemeanor, with penalties escalating for repeat offenses up to a year in jail and a $10,000 fine.5Montana State Legislature. Montana Code 23-5-152 – Possession of Illegal Gambling Device or Conducting Illegal Gambling Enterprise Prohibited – Exceptions
Sweepstakes and Promotional Contests
Sweepstakes promotions avoid gambling classification by eliminating one of the three elements of a lottery: prize, chance, and consideration. A legitimate sweepstakes keeps the prize and the chance but removes consideration by ensuring no purchase or payment is required to enter.6U.S. Postal Inspection Service. A Consumer’s Guide to Sweepstakes and Lotteries If a promotion requires payment to participate, it starts looking like an illegal lottery, and the material degree test makes the chance element especially easy to establish. Businesses running promotions in these jurisdictions need to be meticulous about offering a genuine free entry method with equal odds of winning.
What Happens When a Game Fails the Test
Falling on the gambling side of the line has three layers of consequence.
The first is state criminal exposure. Penalties vary, but they can be serious for operators. In New Jersey, promoting gambling at a significant scale is a third-degree crime carrying a prison term between three and five years, with fines reaching $35,000 per count.7Justia. New Jersey Code 2C:43-6 – Sentence of Imprisonment for Crime Maintaining a gambling resort, physical or online, carries the same classification with fines up to $50,000.8Justia. New Jersey Code 2C:37-2 – Promoting Gambling Players face far lighter exposure, typically a disorderly persons charge or low-level misdemeanor with small fines rather than jail time. States also commonly authorize civil forfeiture of gambling proceeds and equipment.
The second is federal criminal exposure. Under 18 U.S.C. § 1955, running an illegal gambling business is a federal crime, but the statute defines “illegal gambling business” by reference to whether the operation violates the law of the state where it operates. If a game qualifies as illegal gambling under New Jersey’s material degree test, that state-law violation can become the foundation for a federal prosecution when the operation involves five or more people and has run for more than 30 days or grosses more than $2,000 in a single day.9Office of the Law Revision Counsel. 18 U.S. Code 1955 – Prohibition of Illegal Gambling Businesses The Unlawful Internet Gambling Enforcement Act works the same way, pulling in state definitions to decide which online operations and payment processors it reaches.10Office of the Law Revision Counsel. 31 U.S.C. 5362 – Definitions
The third is federal tax. Every wager placed carries a federal excise tax under 26 U.S.C. § 4401. For wagers authorized under state law, the rate is 0.25 percent of the amount wagered. For unauthorized wagers, the rate jumps to 2 percent.11Office of the Law Revision Counsel. 26 U.S.C. 4401 – Imposition of Tax That eightfold gap creates a strong incentive to obtain state licensing. Reporting rules on Form W-2G and 24 percent withholding on larger payouts also attach once a game is classified as gambling.12Internal Revenue Service. Instructions for Forms W-2G and 5754
The material degree test is the trigger for all of this. Whether a game clears it or fails it decides whether an operator is running a licensed business or an illegal one, and whether a player’s winnings sit under ordinary income rules or under the gambling tax regime.