One of the popular, and longstanding Chanukah customs—it is recorded among Ashkenazi Jewry at least from the 18th Century—is playing with the dreidel. Several reasons are given for this custom.
According to one source, the custom of playing dreidel relates back to the time of the Chanukah miracle. Seeking to circumvent the Greek decree against studying Torah, children and their teachers would have a dreidel handy to play with in case the Greeks found them studying Torah. They could then claim that they were not studying but only playing dreidel. In commemoration of this element of the Chanukah miracle, the dreidel game was adopted as custom (Rabbi A. Hirschovitz, Minhagei Yeshurun (1890), no. 19, sec. 4).
A similar idea is mentioned by the Rebbe of Tzanz in his Shefa Chaim (Vol. 2, no. 283), where he writes that the custom means to critique the covert way in which our ancestors performed mitzvos. Rather than hiding behind the dreidel, our fathers ought to have proudly declared their commitment to Torah, even in the face of danger. Our playing dreidel today, according to this line of thought, means to declare this commitment to Torah and mitzvos in all circumstances.
Others mention additional ideas behind the dreidel game. The Bnei Yissachar writes that the dreidel, spun from its top, alludes to the nature of the Chanukah miracle, which came from above, directly from Hashem (unlike the Purim miracle, which was brought about by the actions of Esther, Mordechi and the Jewish people). Shut Avnei Nezer (see Piskei Teshuvos, Vol. 6, p. 463) suggests that the custom evolved from the family atmosphere of Chanukah, to ensure that children would not fall asleep.
Moreover, many rabbinic leaders, particularly Hassidic leaders, played with the dreidel themselves, saying that it incorporates kabblistic secrets (See Rabbi Yitzchak Tessler, “The Dreidel on Chanukah,” Or Yisroel 14  pp. 58-59). The Chasam Sofer, too, used to play with a silver dreidel (Eleph Kesav, Vol. 1, no. 396), and would invite guests to participate in the custom (Edus le-Yisrael, Vol. 17, p. 1).
Following the non-Jewish equivalent (the teetotum, dating back to 16th century England), the dreidel game is traditionally played as a form of gambling. Indeed, Rav Yisrael of Ruzhin is cited as encouraging his followers to play dreidel on the last day of Chanukah, “for what one gains on Zos Chanukah is not easily lost” (cited in Ner Yisrael 5747, p. 18).
This raises halachic issues. Does the gambling involved in the dreidel game raise a halachic problem? What should be done to ensure that no such issues arise? Can the dreidel game, gambling and all, be played on Shabbos? These issues, among others, are discussed below.
Gambling the Year Round
The Mishnah (Sanhedrin 24a) lists a number of individuals whose testimony is not accepted in Beis Din. One of these is a person who is Mesachek Bekubya: somebody who gambles. The Gemara notes two opinions for why his testimony is invalid.
Rami Bar Chama explains that gambling in this manner is an asmachta. When a person gambles, he does so under the assumption (the asmachta, reliance) that his gamble will pay off; if he thought he was not going to win, he would not play the game. The chance of losing, though quite realistic, is not assumed by him. This implies that if he does end up losing, he parts with his money against his will. Consequently, money acquired through such activity is considered taken illegally (since the winner forces the gambler to pay against his will), invalidating the winner as an acceptable witness.
Rav Sheshes, however, argues that the problem is not asmachta, and that a one-time act of gambling is not prohibited. Anybody who gambles understands that he might lose, and since he willingly takes the chance, there is no act of theft. The problem is rather that a professional gambler is does not contribute to society in general; he does not take part in “yishuvo shel olam” (settling the world). His detachment from normative society invalidates his testimony in Beis Din.
One difference between the two opinions is whether it is permitted to engage in a casual game of dreidel. According to the logic that the winner commits an act of theft, playing dreidel for money seems to be forbidden even on a one-time basis. If, however, the prohibition is reserved for somebody who habitually gambles rather than participate in normative society, then playing dreidel will be permitted.
Halachah on Dreidel Gambling
The Rosh rules leniently like Rav Sheshes: only one whose gambling replaces participation in normative society is disqualified from giving testimony. The Rambam, however, seems to rule stringently, in accordance with Rami bar Chama.
Describing activities the rabbis prohibited on account of gezel, the Rambam includes dice playing (kubya), writing (Gezeila Ve’aveida 6:10): “What is meant by dice players? People who play with pieces of wood, pebbles, bones or the like and establish a condition that whoever will better a colleague in this sport is entitled to take a certain amount of money from him. This is theft according to Rabbinic decree. Even though the person himself consents to the other person’s taking his money, since he is taking it for nothing, as part of a frivolous sport, it is considered theft.” The Rambam continues: “This and all forms of gambling are forbidden and considered to be theft by Rabbinic decree.”
The Rambam elsewhere says that only a professional gambler is disqualified from giving testimony: “Similarly, dice-players are disqualified if this is their only occupation” (Edus 10:4). The Bach (Choshen Mishpat 34) and others explain that according to the Rambam, any form of gambling is rabbinically forbidden. However, because it is not full-fledged theft, only somebody who gambles for a living is disqualified from giving testimony.
Based on the wording of the Shulchan Aruch (34, 16), the Sema (16) and Tumim (15) likewise explain that according to the Rambam all gambling involves a rabbinic prohibition, which is considered avak gezel (theft-derived). However, one is only disqualified as a witness when he relies on the ill-gotten gains for his main income—which is certainly true of somebody who has no other occupation.
The Shulchan Aruch (Choshen Mishpat 34:17; 207:13) is stringent, citing the ruling of the Rambam, while the Rema rules according to the lenient approach of the Rosh. This means that for Ashkenazim, who follow the rulings of the Rema, there is no halachic problem in buying a lottery ticket, or playing the dreidel, while for Sephardim it seems that these activities will involve a halachic prohibition.
Indeed, based on the Shulchan Aruch, Rav Ovadia Yosef (Yabia Omer 7:6) has ruled that it is forbidden to buy lottery tickets (referring to lotteries administered by the Israeli government): “The halachic conclusion is that Sephardim … are prohibited to purchase lottery tickets.” The same will apparently apply to playing dreidel for money.
Yet, many dispute this ruling, even for Sephardim, citing precedents for lotteries in halacha (see, for instance, Shut Chavas Ya’ir no. 61 and Shut Peri Ha’etz Vol. 2, no. 15, both of whom discuss lotteries without mention the prohibition of gambling involved). It is possible that although gambling is forbidden, a lottery is permitted, because in the case of a lottery people are more cognizant that may end with a loss, since the money has already been spent on the ticket. Furthermore, since the person already spent his money, and is not going to lose any more (though he might gain), buying a lottery ticket is more similar to a risky investment (in the ticket) than to gambling.
For playing the dreidel, it is therefore possible that if the money is pooled together first (the money has been “spent”), and only later distributed for playing with, all will agree that the practice is permitted (see Rema 207:13).
Is there a way to ensure that dreidel gambling will be halachically permitted according to all authorities? Two permitted forms of gambling have been suggested.
Rav Moshe Sternbuch (Shut Teshuvos Ve-Hanhagos 4:311, based on Rema 207:19) writes that since the primary concern in gambling is that the loser does not willingly give over his losses, when benefiting a charitable cause this is not a concern. For the sake of benefiting charity (and fulfilling a mitzvah), we assume the loser gives up his money wholeheartedly.
A second method of ensuring the dreidel game will not be halachically questionable is to play with small amounts, as a casual Chanuka game with friends and family, rather than as a gambling pursuit. Since it is in the spirit of the day, and since only small amounts are involved, everyone surely relinquishes their rights to money they lose (see Nittei Gavriel, Laws of Chanukah).
In spite of this, the sefer “Customs of Maharitz Ha-Levi” (Chanukah) cites Rav Yosef Tzvi Ha-Levi Dunner that the custom among Ashkenaz communities is to play specifically with nuts and almonds (and so on), and not with money, so as to avoid teaching children bad monetary habits. He comments that even if it is permitted to gamble in this way, it remains better to avoid the practice.
Games on Shabbos
Coming to playing dreidel on Shabbos, the first question we need to ask concerns playing games on Shabbos is general: is this permitted?
The Gemara (Eruvin 103) records a prohibition against playing on Shabbos with nuts and apples, which were used in Talmudic times for games like marbles. Initially, the Gemara suggests that this is forbidden because of the noise produced when the nuts strike each other. Ultimately, however, the Gemara concludes that playing these games is forbidden because of the concern that a person will smooth the earth in order to enable the nuts or apples to roll better, which constitutes a Shabbos violation.
The Shulchan Aruch (Orach Chaim 338:5) codifies this prohibition and mentions the reason that a person might smooth the earth—a concern that applies only to games played on the ground. It will not apply to games played on tables and the like (Rema, loc. cit.). The Mishnah Berurah (308:158) applies the same prohibition to outdoor games where the ball rolls on the ground (such as soccer).
In fact, we find in the Yerushalmi (cited by the Beis Yosef 308) that one of the reasons offered for the destruction of Tul Shimon (at the time of the Second Destruction) is that they used to play ball, which commentators interpret as playing on Shabbos (see Eichah Rabba, Eichah 2:2). According to the Roke’ach (55), the problem in this is that people spent their time playing games rather than in Torah study and other pursuits worthy of the holy Shabbos.
Based on this idea, some authorities write that it is forbidden altogether to play games on Shabbos, including even games such as chess, checkers and other board games (see Birkei Yosef, Orach Chaim 338:1). Yet, most authorities reject this stringency, and permit games on Shabbos, provided they don’t involve money-related transactions or rolling something on the ground (Rema 338:5; Maamar Mordechai; see Mishnah Berurah 21, citing also Mahara Sasson, who is stringent).
Dreidel on Shabbos
Concerning playing dreidel for no gain on Shabbos, several authorities write that it is permitted to do so (even outdoors), for there is no concern for smoothing out holes (see Or Yisrael on Chanukah, Chap. 1 note 85, citing Rav Nosson Kopschitz and Rav Elyashiv). Chut Shani (p. 304) adds that there is no concern for muktzeh, even though the dreidel is played in a money context during the week.
As noted, the Rema permits playing games on Shabbos, but limits his permission to games that are not played for the purpose of financial gain.
If at the end of the game the entire pot is returned to the general pot for the benefit of all, this will certainly prove that there is no real gainful purpose involved. This lenient ruling is attributed to Rav Shlomo Zalman Auerbach (Shulchan Shlomo, 338:5). However, Shemiras Shabbos Kehilchasa (16:32) prohibits the practice.
Warm wishes for a joyous Chanukah to all!