Gambling, is legally defined in most states (see footnotes) as playing in, or wagering,betting,staking,pooling money on contests which may involve some skill, but is based mostly on chance, and includes lotteries as well.

Why are penny auction bids not considered wagers, bets, stakes, or pools? The penny auction bids spent, and their value, are not being wagered, bet, staked, or pooled cumulatively for the purposes of winning the sum total therein. These are merely the price for playing the game. Legally, bids are defined as a participation fee. These are allowed, by law, as other games of "American Tradition" such as horse shoe tournaments, basketball games, or hole-in-one events all have prizes and entrance/participation fees, and were ruled not to be gambling by varying courts.

Traditional auctions have these entrance fees as well. The only difference is there is no cost-per-play, or bid-fees associated in the bidding process.

Here are a few analogies that show penny auctions, as a pay-per-play system, against other contests that involve costs-per-play. The first is strictly hypothetical, but still works:

• Chess, if each move costs $0.75 cents. The winner would win an item at a discounted rate, but not collect the "chess moves" or the value of the sum total of moves that went into winning the game. Each chess move is not a wager, bet, stake or pooling of anything. It's a part of the game. The amount of moves made are not being put into a pool for the winner.
• Motor sports are very expensive, and most teams will only use new components which could be looked at as a pay-per-play contest. The engine, transmission, tires, and other major components are usually completely replaced after each event. The cost of these items may or may not be going to the sponsor or host of the event, but it is an irrelevance. The prize doesn't increase or decrease with the number of, nor the amount of parts replaced, or "moves" involved in winning a motor sport contest. No one would try to shut down motor sports because you have to "wager," "bet," "stake," or "pool," thousands of dollars of items to play to win a prize. It's simply the cost of participation, which is accepted due to the tools required to compete in the contest.
• Hole-in-one, horse shoe, or basketball events which participation requires an entrance fee. These have prizes which is money, or something of significant monetary value. The money spent to participate is not a wager, bet, stake or pool.

These are not wagers, or bets, nor would anyone look at them that way. These are contests of skill as are penny auctions.
How does this contrast with games that are gambling, or contests of chance?

• Lotteries involve no skill, as the winner is chosen via random acts, usually by selecting numbers.
• Slot machines involve a form of randomization, and chance.
• Roulette is a game of chance, which one cannot apply skill.
• Wagering, or betting on the outcome of any contest does involve skill -- but what makes it gambling is the wagering, betting, staking and pooling of money on the outcome of an event.
• "Sport betting" involves skill and is a correct example of "wagering," "betting," "staking," and "pooling." What makes sport betting gambling, is that you are wagering/betting/staking and pooling money which will be awarded to the winners who accurately predicted the outcome of the event.
• Office "pools" on what day of the week a colleague will be fired after losing the company money is a form of gambling because they are pooling money where the winner(s) will be awarded the money in the pool.

Is gambling and skill mutually exclusive? Not at all, as specified above.

Why penny auctions are NOT gambling:

• By definition, a lottery or gambling event must result in the winner being awarded a prize. This is not the case with penny auctions, as winners of penny auctions must pay for the item being auctioned, not unlike any other traditional auction.
• The per-bid fees are no different than other entrance fees in traditional auctions, or other American Traditions which courts have ruled are not gambling.
• Penny auctions employ no strategies to ensure the odds are in the "house's" favor. All strategies are employed solely by the participants of the auctions, where users with more skill and experience have a historical and demonstrable advantage over new players.
• Penny auction bids are not wagers to begin with, but this case is made even more strong when penny auction sites employ a "buy it now" system. This nullifies any argument that penny auction bids are "bets" or "wagers," as such items become worthless upon losing.
• Penny auctions do not have a "random" or "element" of chance that is beyond the player's control. If a new bidder comes in and places a bid, the current players can out bid them.
• Chance, luck, or random events are not what end a penny auction, nor cause someone to win.
• Penny auction players who are more experienced and more skilled win much more frequently. You may practice rolling dice, picking lottery numbers, or playing slot machines for your whole life, and not develop any predictive utility from your time spent doing so.
• By definition, a lottery or gambling event must result in the winner being awarded a prize. This is not the case with penny auctions, as winners of penny auctions must pay for the item being auctioned, not unlike any other traditional auction.

One state, Illinois, excludes the following from being "gambling:"
{xtypo_quote}Legal Research Home > Illinois Laws > Criminal Code > Illinois Compiled Statutes 720 ILCS 5 Criminal Code of 1961. Section 28-1
(720 ILCS 5/28-1) (from Ch. 38, par. 28-1)
Sec. 28-1. Gambling.

--(b) Participants in any of the following activities shall not be convicted of gambling therefor:

(2) Offers of prizes, award or compensation to the actual contestants in any bona fide contest for the determination of skill, speed, strength or endurance or to the owners of animals or vehicles entered in such contest.{/xtypo_quote}

Other states have direct, and clearly written exceptions to gambling which are very similar.

Gambling Terms

What are these definitions? We'll use Merriam-Webster.com.com:
Definition of WAGER

Definition of BET

Definition of STAKE

Definition of POOL

Gambling Legal Definitions, By State:

{xtypo_quote}Legal Research Home > Illinois Laws > Criminal Code > Illinois Compiled Statutes 720 ILCS 5 Criminal Code of 1961. Section 28-1
(720 ILCS 5/28-1) (from Ch. 38, par. 28-1)
Sec. 28-1. Gambling.
(a) A person commits gambling when he:

(1) Plays a game of chance or skill for money or
other thing of value, unless excepted in subsection (b) of this Section; or

(2) Makes a wager upon the result of any game,
contest, or any political nomination, appointment or election

--(b) Participants in any of the following activities shall not be convicted of gambling therefor:

(2) Offers of prizes, award or compensation to theactual contestants in any bona fide contest for the determination of skill, speed, strength or endurance or to the owners of animals or vehicles entered in such contest.{/xtypo_quote}

{xtypo_quote}Legal Research Home > Georgia Laws > Crimes and Offenses > Georgia Code - Crimes and Offenses - Title 16, Section 16-12-21

(a) A person commits the offense of gambling when he:
(1) Makes a bet upon the partial or final result of any game or contest or upon the performance of any participant in such game or contest;
(2) Makes a bet upon the result of any political nomination, appointment, or election or upon the degree of success of any nominee, appointee, or candidate; or
(3) Plays and bets for money or other thing of value at any game played with cards, dice, or balls{/xtypo_quote}

{xtypo_quote}Legal Research Home > Massachusetts Laws > Crimes Against Public Peace > General Laws of Massachusetts - Chapter 271 Crimes Against Public Policy. - Section 1 Gaming or betting; forfeiture; limitations

Section 5A. Whoever manufactures, transports, sells, offers for sale, stores, displays, repairs, reconditions, possesses or uses any gambling device or parts for use therein shall be punished by a fine of not more than five thousand dollars; provided, however, that fifty percent of the said fine shall be remitted to the city or town in which the violation occurred. The remaining fifty percent shall be remitted to the general fund of the commonwealth. As used in this section, the term “gambling device” means any so called “slot machine” or any other machine or mechanical device an essential part of which is a drum or reel with insignia thereon, and which, when operated, may deal, as a result of the application of an element of chance, any money or property; or by the operation of which a person may become entitled to receive, as the result of the application of an element of chance, any money or property; or any sub-assembly or essential part intended to be used in connection with any such machine or mechanical device. Any gambling device or parts for use therein manufactured, transported, sold, offered for sale, stored, displayed, repaired, reconditioned, possessed or used in violation of this section shall be seized and be forfeited to the commonwealth and disposed of in the manner provided under the provisions of chapter two hundred and seventy-six. In respect to their constitutionality, the provisions of this section are hereby declared to be separable.{/xtypo_quote}

{xtypo_quote}Legal Research Home > New Jersey Laws > The New Jersey Code of Criminal Justice > New Jersey Statutes - Title 2C The New Jersey Code of Criminal Justice - 2C:37-1 Definitions

2C:37-1. DefinitionsThe following definitions apply to this chapter and to chapter 64:

a. "Contest of chance" means any contest, game, pool, gaming scheme or gaming device 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.

b. "Gambling" means staking or risking something of value upon the outcome of a contest of chance or a future contingent event not under the actor's control or influence, upon an agreement or understanding that he will receive something of value in the event of a certain outcome.{/xtypo_quote}

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