A report such as this depends upon the assistance of a number of other people both inside and outside of the California State Library. Special thanks goes to Trina Dangberg King and Pam O’Quin and the entire Information Services Section of the California State Library. Among those outside who helped, I would like to thank William Eadington, University of Nevada, Reno; I. Nelson Rose, Whittier College; staff of the Attorney General’s office, particularly Tom Gede, Brenda Jahns, and Don Pressly; Chuck Smithers and Patty Urone of the California State Lottery Commission; Roy Wood of the California Horse Racing Board; and others who requested anonymity. Any errors and omissions are, of course, my responsibility.
Gambling in the United States
History of Gambling in the United States II-1
Gambling in California
Regulation of Gambling
Why Do People Gamble?
Why Do People Gamble Too Much?
Economic Impacts of Gambling
Politics and Gambling
Gambling and Crime
Outlook and Options
I. Gambling in the United States
«Gambling is inevitable. No matter what is said or done by advocates or opponents of gambling in all its various forms, it is an activity that is practiced, or tacitly endorsed, by a substantial majority of Americans.»
— Commission on the Review of National Policy toward Gambling, 1976, p.1.
In 1973, the Commission on the Review of National Policy toward Gambling was created to study gambling in the United States. The Commission began its report with the above statement and it is appropriate for this report. While the statement is merely the opinion of the Commission and cannot be easily proven, it is easy to understand how they formed their opinion. If you read the history section of this report, you will see that the popularity of legal gambling has waxed and waned, but has never disappeared. Illegal gambling, although we are ignorant about the full extent of it, has shown remarkable endurance. One industry observer noted, «There is a public demand to gamble, but there is no public demand for legalized gambling.»1 The acceptance of gambling today can be seen by the substantial numbers of players of the various state lotteries and similar illegal games.
This report will use the terms gambling and gaming interchangeably. Within the gambling industry, the term gambling has fallen into disfavor and is being replaced by gaming.
Legal Gaming Has Expanded Greatly Throughout the Country. Legal gambling activities include state lotteries; parimutuel betting on horses, greyhounds, and jai-alai; sports book-making; card games; keno; bingo; slot machines; progressive slot machines; video poker machines; video keno machines; video blackjack machines; and video roulette machines. Not all of these are legal in all places. These activities have grown tremendously, especially when considering that virtually all have been only recently legal in most states. This growth of gambling has been remarkable: in 30 years gambling has transformed itself from sinful to well accepted.2 But the spread has been inconsistent, with each state selecting the type of gaming that it supports or at least condones. Some states have casinos, but no lotteries. Other states have lotteries, but no casinos. Some have both.
Illegal gambling still exists and, by many accounts, flourishes.3 Not surprisingly, there is not a lot of data about illegal gambling. The most popular forms of illegal games are «numbers,» which is essentially a lottery, and betting with bookies, typically sports betting. Sports betting, in particular, is thought to amount to a large sum. Some analysts think it is the largest category of gambling after casino games.4
Views on Gambling Vary. Gambling is regarded by some as a vice, a sinful activity which corrupts society. Others view gambling simply as a harmless form of entertainment. These contrasting views help shape the regulation of gambling. The regulation of gambling is unusual as society regulates gambling like no other business.5 Overall, society has taken a cautious view of gambling. Only limited types of games are legal. Gambling is heavily regulated because of concerns about criminal involvement. Because of the large amount of cash involved, gambling is an attractive target for criminals.
Others look at gambling in economic terms. Legalized casino gambling, whether in Las Vegas, Atlantic City, or on Indian land, rose out of the desire for economic stimulus, although other factors also played a role. Lotteries are regarded by state governments as a revenue-generating tool.
Why has gambling grown? There are a variety of possible explanations.6 One explanation for the spread is that states need the revenue and are hooked on gaming funds. Another related view is that government has said it is acceptable, hence people are more willing to participate. Some observers attribute the domino effect. The domino effect of gambling occurs when one state legalizes gaming, other states legalize gambling so they do not lose money to their neighbors. The spread of lotteries can be seen as an example of the domino effect. The current wave of legal lotteries started in New Hampshire, spread to other North-Eastern states, and then across the nation. Right now, the states that do not have lotteries are clustered primarily in the South. Similarly, riverboat casinos were first legalized in Iowa, then Illinois, followed closely by Missouri, Indiana, Louisiana, and Mississippi.
Regardless of viewpoint, there is little doubt that gambling is a very popular activity in the United States. By 1994, every state except Utah and Hawaii had some form of legal commercial gambling. Casino gambling, including Indian gaming, is legal in 27 states and most of the casinos have been built in the last 5 years.7
The Gaming Sector is a Large Entertainment Industry. In 1995, gambling in the United States grossed over $40 billion in revenues. Although this total does not include illegal gaming, it is still quite large compared to some other entertainment industries. The same year, the estimated receipts for amusement parks were $7 billion, including admission fees, sales of food and beverages, and other sales. The estimated receipts for movie theaters were $5.5 billion.8 Gambling is clearly a major form of entertainment.
Another way to look at gambling’s relative popularity is through the public’s participation. In 1993, the last full year before the baseball strike, 70 million fans went to the ballpark, while 92 million visited casinos.
The preceding comparisons were made using gross revenues, but the amount of money people spend gambling is usually measured by one of two methods.
«Handle.» A popular form of measurement is the handle, which is the total amount of money that a player spends purchasing lottery tickets, parimutuel bets, or playing casino table games or slot machines. Since the total amount includes winnings, it is a much larger number than what players actually lose.
«Gross Revenues.» The amount of money that bettors lose gambling is called gross revenue, or also known as consumer gambling losses. Gross revenues are the actual net income retained by the operator after the payment of prizes, but before deducting the other costs of operating the gambling establishment.
The handle is popularly used for measurement, but it can be misleading. Because it is the amount wagered before payment of prizes, the handle tends to inflate the economic importance of gambling. Gross revenues are a better measurement when comparing gaming to the rest of the economy.
An example may help illustrate the difference. A player spends a dollar playing video poker and wins $4. The $4 is fed back into the machine until she loses the $4 plus her original dollar. In this example, the handle would be $5. But the gross revenue and the amount the player lost out of pocket is only $1.
There Are Four Major Types of Legal Gambling. According to one well-known researcher, these include charitable gaming, parimutuel betting, casino gaming, and lotteries.9 There is some potential confusion that may arise from these definitions. The definition of casinos include what most of us would expect, i.e. the Las Vegas-style casinos that are found in Nevada, Atlantic City, and a few other locales. In California, cardrooms advertise themselves as casinos, but they don’t offer the games that one expects from casinos, namely banked games, especially slot machines. The cardrooms found in California are an anomaly and don’t fit into the major categories. They are discussed later in Chapter V on «Gambling in California.» The following chart shows the relative size of the different types of gambling.
Charitable gambling is run for the benefit of nonprofit organizations, although the nonprofit may not necessarily be the operator of the games. Some examples of charitable gambling are PTA Monte Carlo nights and church raffles. The most popular form of charitable gambling is bingo. Charitable bingo is legal in all but five states. In California, bingo is the only charitable game that is legal.
Despite the nonprofit nature of charitable gaming, it has come under criticism. One reason is that it is the area of gambling that is the least regulated. As the tables and graphs show, it accounts for a significant amount of money even if the total is dwarfed by that of casinos. According to some industry observers, there are serious problems of fraud, theft, cheating, and accounting irregularities.10 In California, charitable games have been victimized by robbers because of the large amount of cash generated by bingo.
Parimutuel wagering refers to the type of gambling where the total prize pool is based upon the amount of money wagered. The more money gambled, the bigger the prize. Horse racing is the best known and widespread parimutuel betting event. Horse racing is the only form of partimutuel wagering legal in California.
Dog racing and jai-alai are less popular parimutuel betting events. Dog racing operates in 17 states, while jai-alai is legal in just three: Connecticut, Florida, and Rhode Island. Dog racing is, as suggested by the name, a race among greyhounds who chase after a mechanical rabbit. Jai-alai is a game played by two or four persons and its action is similar to handball.
Parimutuel wagering has not been able to compete well with the myriad of new forms and types of gambling. Observers attribute its decline to the complicated nature of the sports, especially for the new gambler.11 The industry is changing, however, some racetracks are adding casino games. Situating casino games with the track exposes other gamblers to horses and thereby parimutuel wagering. In turn, this may lead to increased parimutuel participation.
Lotteries have a long tradition in this country. They were used to raise money in support of the first North American colonies. Lotteries continued to be used by the original thirteen colonies to raise necessary revenue for the development and the successful independent operation of the new settlements. Though early lotteries were successful in raising money, the scandals from crooked operations strengthened the hand of antigambling forces, eventually leading to prohibition of lotteries in many states. From 1894 to 1964 no legal government-sponsored lotteries operated in the United States. The long and colorful history of lotteries in the United States is described in more detail in the history section of this report.
Legal Lotteries Experienced a Rebirth in the 1960s. The first legal lottery in the twentieth century was the New Hampshire Sweepstakes which began on March 12, 1964. Other North-Eastern states quickly followed. In 1981, Arizona became the first state west of the Mississippi to authorize a lottery. Currently 37 states and the District of Columbia operate lotteries.
Casino gaming is the largest part of the commercial gambling market. Casino gaming continues to grow in popularity, fueled by the creation of new casino destinations and the expansion of existing casino locales.
A casino is usually characterized by the offering of banked games. Banked games are where the house is banking the game and basically acting as a participant. That is, it has a stake in who wins. In contrast in a non-banked game, like the lottery, the operator does not care who wins. As noted earlier, cardrooms such as those in California are not included. They are often called casinos, but they do not offer banked games.
Currently, ten states have legalized some form of commercial, non-tribal casino gambling with banked games. These are what the typical observer would call Las Vegas style casinos.
The following chart lists the states and the year each made casino gambling legal. Note the rapid growth since 1989. State
Form of Casino Gaming
Year of Legalization
Unlimited Stakes, Riverboat
This chart does not include Indian gaming, which is discussed later.
For almost 50 years casino gaming was only legal in Nevada. There, legal state-regulated gaming was dominated by organized crime. In the late 1950s, the state first permitted publicly-held companies to own and operate gaming facilities, which eventually led to the entrance of companies such as Hilton and Ramada into the industry, improving the industry’s reputation. It was at this time that intense gaming activity spread from downtown Las Vegas to the Strip and began to grow in Reno and Lake Tahoe. Since then, gaming in Nevada, and especially Las Vegas, has become a multibillion-dollar industry that attracts millions of people each year.
Nevada enjoyed a long period with little legal competition. New Jersey’s statewide referendum legalized gambling in 1976. The first Atlantic City casino opened in 1978. Since then, eight other states have legalized casino type gambling.
The first state that authorized one of the new wave of legalized casinos was in South Dakota. In 1989, South Dakota legalized limited-stakes casino gambling in the historic mining town of Deadwood. In 1990, Colorado followed when voters in that state approved limited-stakes casino gambling in three former mining towns: Cripple Creek, Black Hawk, and Central City.
In 1989, Iowa and Illinois legalized riverboat casino gaming and, in April 1991, Iowa launched the first gaming vessel in recent U.S. history. Riverboat casinos are now legal in six states: Illinois, Indiana, Iowa, Louisiana, Mississippi, and Missouri. Currently there are about 65 boats operating in these states. The type of gaming allowed on riverboat casinos varies by jurisdiction. Generally, the states allow the playing of traditional casino games such as blackjack, roulette, and slots.
Riverboats Present a Good Example of the Domino Theory of Making Gambling Legal. Illinois’ statute was more liberal than Iowa’s, leading to a riverboat regulation war. Gaming revenues began to decline in Iowa in 1993 when the riverboats moved out of Iowa to locations with more favorable regulations. Iowa had established a $5 maximum wager and a $200 per customer loss limit. Illinois did not have a wager or loss limit and the riverboat casino centers in Illinois were closer to population centers. In 1994, in an effort to reverse the industry’s decline, the voters in Iowa voted to eliminate wager and loss limits.
The advent of riverboat gaming also led to increased Indian gaming, when Indian tribes were allowed to operate the same kinds of gambling allowed within a state. A Nebraska tribe even attempted to buy property in Iowa to open a casino.
Riverboat Gaming Has Captured 20% of the Casino Market Share. Mississippi now has more gambling square footage than Atlantic City. The International Gaming and Wagering Business magazine reported casino revenue figures for 1995 as shown in the chart below.12
There are two major categories of riverboat casinos, excursion and dockside. Excursion riverboats cruise along some waterway, while dockside casinos are tethered to the shore during operations. Dockside casinos are usually just a land-based casino on pilings or a floating, but not navigable, platform.
The excursion requirement was important in the beginning because it provided a subtle transition into legal gambling, giving the public an impression that the gambling could be isolated and controlled. The gambling takes place in a restricted location, namely on a boat traveling on the waterways and the amount of activity is limited by the length of the excursion. If the excursion is three hours, then the amount of gambling is limited to the three hours on the river, plus another half hour or so while the boat is tied up for loading and unloading. Many analysts believe that the perception that riverboat gambling would be physically contained made legal gambling an easier sell to the voters.
Some states are eliminating the law concerning the cruising requirement. Dockside casinos are more popular because some customers do not like to be cooped up for a set period of time, and some do not like having to leave when the ship is moored. Eliminating the cruising requirement also reduces the possibility of accidents on the waterways. Mississippi has no cruise requirements on their riverboat casinos. Other states allow for some flexibility for bad weather and choppy waters. According to a representative of Hilton Hotels Corp., which operates a riverboat casino in New Orleans, «admission revenues rise 40% and gambling revenues increase as much as 20%» when the ship is kept at the dock.13 The riverboat casino industry is trying to convince other states to eliminate the cruising requirement. In this way, riverboat gambling has become an indirect path to land-based gaming.
In 1992, Louisiana became the third state to legalize land-based casino gambling. Voters narrowly approved legislation to establish a riverfront facility in New Orleans. The legislation permits a single facility in downtown New Orleans and a temporary facility to be operational while the permanent facility is under construction. On November 21, 1995, the partnership that owns the casino venture filed for Chapter 11 bankruptcy. The temporary casino was closed and the construction of the new facility was halted while the organization under went restructuring. Harrah’s is the lead partner in this effort. New Orleans is the first casino in a major city other than Nevada. Concerns about the industry’s survival were allayed when casino gaming was ratified by a large margin of voters in a referendum in November 1996.
Las Vegas Expands to Meet the Challenge From Competing States. With competition from new gaming locales and other parts of the entertainment industry, the owners of major casino properties in Las Vegas have not stood still. While other markets rely on their local population, the Las Vegas market is almost entirely reliant upon the tourist business that the casinos generate.
Many of the major developers are turning Las Vegas into a family-oriented destination resort, complete with grand spectacles and theme parks. In late 1993, Circus Circus’ pyramidal Luxor opened, featuring an Egyptian theme and amusement park. Shortly thereafter, the Mirage’s Treasure Island opened with a pirate theme and a regularly scheduled sea battle outside the facility. The new MGM Grand has a Wizard of Oz theme park. Las Vegas visitation in 1994 was very strong, up approximately 24% from 1993. Almost 30 million visitors came in 1994, approaching the level of Atlantic City.
As the following chart shows, the big operators in casino amusement are large publicly-owned companies. If the merger between Hilton and Bally’s goes through, it will create the largest company in the country, surpassing Harrah’s.
Indian tribes have used their position as sovereign entities to develop a number of gaming establishments. Indian casinos operate in 22 states: Arizona, California, Colorado, Connecticut, Idaho, Iowa, Kansas, Louisiana, Michigan, Minnesota, Mississippi, Montana, Nebraska, Nevada, New York, North Carolina, North Dakota, Oklahoma, Oregon, South Dakota, Washington, and Wisconsin. This number is expected to grow.
The opportunity for economic development through gambling has piqued the interest of many Indian tribes. The U.S. Bureau of Indian Affairs reported that there are 545 federally-recognized Indian tribes in 35 states. Gambling on Indian-owned land has grown in popularity and there are approximately 150 to 175 casinos and bingo halls currently in operation.14
Gambling has represented an opportunity for tribal self-reliance and a chance to reverse some of the poverty that has affected many of the tribes. Indian tribes started offering games similar to those being offered by charities, such as bingo. In order to gain a competitive advantage, some tribes began offering high-stakes bingo, an option that was not available to the charities because of state laws. The growth of Indian gaming led to many court battles, including some important ones in California. This issue is covered in more detail in the section on Indian Gaming.
Illegal gaming is popular, though its popularity and prevalence are difficult to measure. An estimated $32 billion was wagered illegally in 1986, resulting in gross revenues of approximately $5.6 billion.15 Another estimate places the illegal gaming handle at about $48 billion with gross revenues of $2.4 billion.16 The most significant forms of illegal gambling in the United States are numbers, betting with bookmakers or bookies, and sports pools or sports cards. The «numbers» game is similar to the lottery game. Bettors select numbers and hope theirs match the winning numbers that have been randomly selected.
Betting with bookies usually involves placing bets on the outcome of a certain event, such as a sporting event. Sports cards and pools are also bets involving sporting events. Most sports bets are between friends or acquaintances. A smaller amount is made with bookies and the bets are usually under $100.
All Types of Gambling Have Shown Growth. Although there are numerous types of gaming, a common theme is that they are all growing. The following charts show the growth in the different categories of legal gambling.
Gambling is Usually Regulated by a Commission Form of State Agency. Currently in the United States, 48 of the 50 states have legalized some form of gambling. Utah and Hawaii are the exceptions. Regulation of gambling activities across the nation is usually done by commissions.
Forty-three states have parimutuel wagering (horse racing, dog racing, jai alai). Of these 43 states, the great majority have racing commissions whose sole purpose is to regulate parimutuel gaming.
The exceptions are Connecticut, Florida, Iowa, Nevada, New York, South Dakota, and Wisconsin. These states have parimutuel commissions which regulate other forms of legalized gaming in that state, or have their parimutuel activities regulated by another commission. For example, parimutuel wagering in Nevada is regulated by the Nevada State Gaming Control Board, which oversees all gaming in that state. The Florida Division of Parimutuel Wagering also oversees charitable gaming.
Thirty-seven states and the District of Columbia have state lotteries. Of these states, the great majority have lottery commissions solely dedicated to regulating the lottery. The commissions also operate the lottery.
The exceptions are Idaho, Massachusetts, Michigan, and Texas. The lottery commissions in these states also oversee charitable gaming.
There are non-casino card rooms in five states: Maryland, Montana, Oregon, Washington, and California. California’s industry is by far the largest. There is statewide regulation in Montana and Washington and local regulation in Oregon, Maryland, and California.
All of the ten states which have state-legalized casino gambling have gaming commissions which regulate casino gaming activities.
There are a large number of gaming commissions/boards across the U.S. which regulate legal gaming activities besides casino gaming. (Excluding lottery or parimutuel wagering, which as noted is almost always regulated by a commission.)
Louisiana had two separate commissions which regulate casino gambling in that state. One commission regulates riverboat casino and the other regulates land-based casino gambling. That was recently changed to one unified commission.
The Nevada Gaming Control Board serves as the administrative arm of that state’s gaming commission.
There are three states that have a gaming division as part of another state agency. In Montana and New Jersey, these divisions are part of the Department of Justice/ Attorney General’s Office. The Colorado Division of Gaming is part of the Department of Revenue. In Colorado and New Jersey these divisions serve the administrative functions of the gaming commission. Montana does not have a gaming commission.
1996 Election Results Suggest Gaming Will Continue to Expand. Prior to the elections, there was concern within the industry that a backlash was beginning to build. As the history section of this report discusses, such a backlash has occurred in the past. There was some evidence that a backlash was starting. Factors slowing growth include:17
Referenda to legalize gaming versus legislative action alone.
Organized and growing opposition that employs effective lobbying and grass roots tactics.
More conservative political climate.
Lack of an industry success model and a fractured industry.
In a reverse for the industry, a federal study commission on gambling has been created despite the opposition of the gaming industry and gambling had failed to gain approval in new states. During 1994, the industry suffered some losses in important elections in Florida and Missouri.
However, the 1996 elections changed that view.18 The industry recorded the following major victories:
Voters in Michigan voted to allow casinos in Detroit and those in Arizona voted to allow more Indian casinos. This was the first time in American history that the citizens voted to legalize high stakes casinos in the face of active opposition.
Voters in Louisiana opted to keep both land-based and riverboat casinos. In this parish by parish election, some regions opted to ban video lottery terminals while the majority parishes voted to allow them.
Various minor local elections ended in victory for gambling interests.
Some observers have drawn different conclusions from the election as there were also losses for gambling interests.19 Nevertheless, there has never been such victories for gaming interests in state-wide contested elections. The vote was even more dramatic when one considered the criminal convictions resulting from Louisiana’s gambling scandals. (Discussed in more detail in the Politics and Gambling section of the report.)
The Internet may be the source for the largest growth in gambling. The World Wide Web has three hundred gambling-related sites, some of which have set up operations offshore. The Attorney General of Minnesota has filed a suit against a service that plans to offer sports bookmaking.
Return to the Return to the Table of Contents
II. History of Gambling in the United States
Examining the history of gambling in North America suggests important conclusions that are useful today in considering policies related to gambling.
The United States has had a long history of allowing some forms of legal gambling and a degree of tolerance of illegal gambling.
Societal tolerance and acceptance of legal gambling can change rapidly. Scandals and political control by gaming interests have led to backlashes which result in regulation and/or prohibition.
Societal standards and laws related to gambling have tended to change back and forth from prohibition to regulation. These changes in law have led one noted observer, Professor I. Nelson Rose, to describe three waves of gambling regulation during the history of the colonies and the United States.1 The first wave began during the colonial period and lasted until the mid-1800s. The second wave commenced at the close of the Civil War and lasted until the early 20th century. The last wave started during the Great Depression and is still going strong. Because of the length and size of this last wave, another observer has characterized it as an explosion, not a wave.2
The First Wave: 1600’s to mid 1800’s
The early colonies had very different attitudes towards gambling. Historians have classified the early settlers into two groups, the English who brought along the English traditions and beliefs, and the Puritans. Although the Puritans came from England, they came to the new world to create a better society and discard the values of their mother country. To them, the new world represented an opportunity for establishing a society grounded on Puritan values and beliefs.
Entire colonies were established along the guidelines and beliefs of one group or another. In particular, different attitudes towards gambling were enforced. In New England and Pennsylvania, Puritan attitudes toward gaming and play were adopted. The Puritan-led Massachusetts Bay Colony outlawed not only the possession of cards, dice, and gaming tables (even in private homes), but also dancing and singing. This stance was relaxed slightly the following year so as to allow gaming as long as it was for innocent and moderate recreation and not as a trade or calling. This hostility towards the professional gambler is a common theme that will be seen again as we look at the history of U.S. gambling.
In other colonies, English attitudes towards gambling and recreation prevailed. These settlers brought with them the view that gambling was a harmless diversion. In these colonies, gambling was a popular and accepted activity. Legal gambling tended to be those types that were considered proper gentlemen’s diversions. For example, it took a long time for cock-fighting to become legal because it was not considered a suitable game for gentlemen.
One prominent researcher speculates that the appeal of gambling was probably heightened by the frontier spirit. The desire to explore new worlds is similar to gambling. Both rely heavily on high expectations, risk taking, opportunism, and movement.3
Despite the acceptance, gambling began to be blamed for the problems of the colonies. To investors and others in England, the prevalence of gambling suggested an atmosphere of idleness and vice. Financiers began to suspect that it was the root cause of the inability of the colonies to sustain themselves.4 The colonies had been relying on England to supply provisions and to replace dying settlers.
Lotteries Used to Bail Out the Early Colonies. Although the financial backers of the colonies viewed gambling as a source of the colonies’ problems, they began to see it as the solution as well. The Virginia Company of London, the financier of Jamestown in Virginia, was permitted by the Crown to hold lotteries to raise money for the company’s colonial venture. The lotteries were relatively sophisticated and included instant winners. Eventually, the crown banned the lotteries because of complaints that they were robbing England of money.5 The company dissolved shortly thereafter.
This episode was not the last use of lotteries to benefit the colonies. All 13 original colonies established lotteries, usually more than one, to raise revenue. Playing the lottery became a civic responsibility.6 Proceeds helped establish some of the nation’s earliest and most prestigious universities — Harvard, Yale, Columbia, Dartmouth, Princeton, and William and Mary. Lottery funds were also used to build churches and libraries. Ben Franklin, John Hancock, and George Washington were all prominent sponsors of specific lotteries for public works projects.
Lotteries became an issue in the drive for independence of the colonies. The colonies protested the crown’s rules for holding lotteries. In 1769, the crown tried to prevent lotteries from occurring without its permission. Once the war of independence started, the Continental Congress voted a $10 million lottery to finance the war. The lottery had to be abandoned, however, because it was too large and the tickets could not be sold.
The Popularity of Lotteries Continued in the Early 19th Century. Notable among the later lotteries was a private lottery passed by Congress in 1823 for the beautification of Washington D.C. Unfortunately, the organizers absconded with the proceeds and the winner was never paid.
Lotteries were not the only form of gambling during this era. Wagering on horse racing was a popular form of gambling. Not surprisingly, it was not quite as organized nor as elaborate as modern horse racing. Rather, the gambling was limited to a few friendly bets between owners of horses and their partisans. The first racetrack in North America was built on Long Island in 1665.
Casino gaming started slowly. Taverns and roadhouses would allow dice and card games. The relatively sparse population was a barrier to establishing gaming houses. But as the population increased, by the early 1800s lavish casinos were established in the young republic.
The United States and Gambling Move West. As previously mentioned, gambling and the frontier lifestyle shared similar foundations — a spirit of adventure, opportunity, and risk taking. During the early 1800s gambling in the lower Mississippi Valley became a legitimate and organized enterprise. The Mississippi River and connected waterways were major avenues of trade for farmers and merchants and the river boats carried passengers who had lots of cash. The south tended to have a more open attitude towards gaming, reflecting the Spanish, French, and early Virginian traditions.7 New Orleans became the capital for gambling.
Gambling establishments were started in the river towns and were popular haunts for both travelers and professional gamblers. These gamblers preyed upon these cash-laden travelers who were, «Seduced by the bright prospects of their business deals as well as by the transience of the river frontier…»8 These professional gamblers, also known as sharps or sharpers, generally were dishonest and often turned to confidence games and cheating to make money.
During the 1830’s, the actions of the professional gamblers came under growing scrutiny and southern settlers turned against the professional gambler. The professional gamblers were blamed for limiting economic growth, interfering with business, endangering the streets, committing numerous crimes, and debasing the morality of the society. Vigilantism was one method by which the anti-professional gambler sentiment manifested itself. Groups of citizens organized to push the gamblers out of the South.
In 1835, a vigilante group lynched five cardsharps in Mississippi. Professional gamblers moved from the town into the riverboats. Lynching proved to be a successful policy option for reducing the presence of professional gamblers. In contrast to the river boat casinos of today, the old-time river boats were not floating casinos. Gambling occurred informally among the passengers. The period between 1840 and 1860 represented the glory days of the flashy riverboat gambler. The professional gamblers also moved to California, a history we cover in the next section.
The First Wave of Legal Gambling Draws to an End. During the early 1800’s, gambling came under increasing attack. There was always a group opposing gambling on moral grounds. This opposition was largely based on religious beliefs.9 The flames of opposition were fanned, however, by the prevalence of scandals and the belief that the poor were being targeted, especially by lotteries. This opposition drew strength from the larger climate of social reform. Issues such as temperance, women’s rights, educational reform, prison reform, and abolition of slavery were on the minds of many. Although there was strong sentiment to avoid interference with market forces, there was a countervailing view that people should behave in a virtuous way and that meant no gambling.10
The attack against gambling was focused particularly on lotteries because it represented a form of wagering that was offensive to both the moral sensibilities of reformers, and the Jacksonian resentment toward privilege.11 The exclusive charters granted to lottery operations were examples of this form of privilege. Ironically, President Jackson was an inveterate gambler12 and had such a history of problems that he must be viewed as a likely addictive or compulsive gambler. His gambling was well-known but tended to be seen as the behavior of a gentleman, hence he was reserved the disapprobation held for commercial gamblers.
Lottery Scandals Led to Gambling Prohibition. As noted earlier, lottery for the beautification of the nation’s capital ended in scandal with the operators absconding with the proceeds. This incident illustrated the problems with the lotteries of that time as many were crooked. Increasing evidence of fraud and dishonesty in the operations of lotteries added to the opposition.13 An additional argument was that they corrupted the free press and made them captive to their huge demand for advertising.14
The antilottery forces fought against lotteries and prevailed. In 1833 Pennsylvania, New York, and Massachusetts put an end to state authorized lotteries. By 1840, most states had banned lotteries. By 1860, only Delaware, Missouri, and Kentucky still allowed state-authorized lotteries. Nevertheless, the tickets of these few states were shipped around the country by mail or smugglers. The prohibition also led to the creation of illegal lotteries.
The demise of the riverboat gambler had more to do with circumstance than direct action by the people. Emergence of railroads and the outbreak of the Civil War were the precipitating factors. Travel by steamboats declined as railroads started to supplant steamboats as the favored method of transportation. Trains were more reliable and were faster than the riverboats. The Civil War interrupted virtually all river travel and abruptly diminished gambling in that area.
The end of the first wave did not result in an end to all legal gambling. The prohibition was selective in terms of type of gambling and location. The frontier areas, California included, saw a great deal of gambling after the end of the first wave. Because of the wholesale fraud, lotteries were targeted for prohibition, but gambling in posh clubs were still legal in New York. Horse racing survived the end of the first wave relatively unscathed. As such it is more difficult to draw a clear distinction between the end of the first wave and the beginning of the second. As we shall see later, the demarcation between second and third waves are much clearer.
It was also during this time that the Grimaldis sold a concession for gaming in an attempt to keep their principality, Monaco, from going bankrupt. Monte Carlo was opened in 1858 by gambling operators who had been forced to leave Hamburg, Germany after popular opinion turned against gambling. The public disfavor in Germany occurred because of the charge that legalized gaming was turning the city into a nest of paupers.
Second Wave: Mid-1800’s to Early 1900’s
The expansion of the western frontier spurred the second wave. As the country moved westward, the frontier spirit continued to spread. Mining booms increased the rush to the Far West. Miners lured by the promises of easy and abundant riches, personified the frontier spirit better than the explorers before them. Mining was a gamble, and risk-taking was valued for it represented an opportunity for great wealth. These were restless and ambitious people who had high expectations.15 Probably nowhere was this more apparent than in California.
Gold Rush Set Off a Gambling Boom in California. The gold rush brought a huge increase in the amount and types of gambling to California. San Francisco replaced New Orleans as the center for gambling in the United States. The market for gambling space was so strong that a mere canvas tent, 15 by 25 feet, cost $40,000 annually, payable in advance with gold dust.
The apex of California gambling was from 1849 to 1855. Gambling became widespread throughout the state whether it was in Mexican towns like Monterey, mountain towns like Mariposa, or growing cities such as Sacramento. During this period, gambling tended to be integrated. Patrons included women, blacks, and Chinese. By 1850, both the state and cities were licensing gambling establishments to raise money.
As settlers spread beyond California, so did gambling. In general, gambling and the west were intimately linked. Gambling was especially widespread in the mining camps that multiplied as the miners spread across the west searching for new strikes.
Public Opinion Quickly Turns Against Gambling. Laws against gamblers and gambling began to be enacted in California. As with the rest of the United States, the desire for respectability and a recognition of the social ills tied to gaming led to limits on gambling. The Legislature made most types of gambling illegal. However, the Legislature’s initial aim was more to target the professional gambler than gaming in general. Gamblers were affiliated with municipal corruption and were blamed for the depression that was occurring at the time.16 Lynching of professional gamblers occurred in San Francisco in 1856, in part a result of the fight for political control of the city. The gamblers were strong backers of one political faction.
Initially, the state laws were weak and had little real effect on gambling. The statutes outlawed specific games, making the laws difficult to enforce as new and unnamed variants were used and only light penalties were provided. However, the laws were gradually strengthened. In 1860, all banking games were banned. (Banking games are those where the player bets against the house.) Initially, the laws tended to focus on those who ran the games, not the players. In 1885, this was changed so that it was illegal to play. Finally in 1891, the statutes made the penalty for playing equal to the penalty for running the game.
The Prohibition Did Not Eliminate Gambling But Drove it Underground. Even in California, where most gambling was illegal, the first slot machine was invented and premiered in San Francisco in 1895.17 It was not specifically outlawed until 1911.
Nevada bounced between legalizing and banning gaming. Gambling was legal in Nevada between 1869 and 1910. As a result, gaming activity moved from California to places such as Virginia City, Nevada. Although legally protected, during this time gambling never reached the size in Nevada that it did in San Francisco.
Another effect of the antigambling laws was to stratify gaming activity more. One result was the prevalence of Chinese gaming houses that catered only to Chinese. There were also large Chinese-run lotteries that appealed to non-Chinese. Enforcement of the gaming laws became a method of discrimination. During times of strong anti-Chinese sentiment the gaming laws were enforced more vigorously against Chinese establishments.18 One operator in San Francisco who alleged discrimination took a case to the U.S. Supreme Court, but lost because he could not show that people who were not Chinese violated the law, but were not prosecuted.
Los Angeles also had gaming activity, but it was overshadowed by San Francisco. Like the city itself, gaming in Los Angeles had more of a Hispanic flavor and occurred on a smaller scale. The city eventually banned gambling which led to a number of illegal clubs and the spread to permissive suburbs.
Lotteries Began a Comeback. Following a long national tradition, the South turned to lotteries to generate revenue to rebuild the war-ravaged region. The Louisiana lottery was the most notable because of its unseemly end. In 1868, the Louisiana Lottery Company was authorized and granted a 25-year charter. A carpetbagger criminal syndicate from New York bribed the Legislature into passing the lottery law and establishing the syndicate as the sole lottery provider.19 The Louisiana Lottery was an interstate venture with over 90% of the company’s revenue coming from outside Louisiana. This lottery was a prolific money maker. Attempts to repeal the 25-year charter were defeated with assistance of bribes to legislators.
Scandals and antigaming sentiment led to additional state and federal legislation against lotteries. In particular, religious leaders led the move against them.20 By 1878, Louisiana was the last of the legal lotteries in the country. The Louisiana Lottery survived until Congress enacted a prohibition against moving lottery tickets across state lines by any method. This act led to the abolition of the Louisiana Lottery in 1895. When the lottery was disbanded, it was discovered that promoters had made huge sums of ill-gotten gains. The Legislature was riven with accusations of bribery. By the end of the century, thirty-five states, including California, had in their constitutions prohibitions against lotteries and no state permitted the operation of lotteries.
Lotteries Were Not the Only Source of Gambling Scandal. Horse racing was plagued by fraud. The odds and payouts were often faked. The parties taking the bets, known as the bookmakers, often owned horses and were able to influence the race. «Ringers,» horses that were fraudulent substitutes and were either much quicker or slower than the expected entry, were often raced.
The second wave of legal gambling, was relatively short-lived. Scandals and the rise of Victorian morality led to the end of legal gambling. By 1910, virtually all forms of gambling were prohibited in the U.S. The only legal betting that occurred was in three states which allowed horse racing, but even that number shrank in the ensuing years.21 The feelings against gambling ran so strong that Arizona and New Mexico were forced to outlaw casinos to gain statehood.22 However, the prohibition did not stop gambling. There were many types of illegal gambling houses. Some operated openly for many years. They, of course, had to pay protection money to the law enforcement authorities.
Third Wave (Early 1930’s to Present)
The great depression led to a much greater legalization of gambling. The antigambling mood changed as tremendous financial distress gripped the country, especially after the stock market crash of 1929. Legalized gambling was looked upon as a way to stimulate the economy. Massachusetts decriminalized bingo in 1931 in an attempt to help churches and charitable organizations raise money. Bingo was legal in 11 states by the 1950s, usually only for charity purposes.
Horse racing and parimutuel wagering began to make a comeback. In 1933, Michigan, New Hampshire, Ohio, and California legalized parimutuel betting. The California Legislature adopted a statute in 1933 referred to as the Horse Racing Act. The statutes took effect upon adoption by the voters of an amendment to the Constitution in June of 1933. During the 1930’s, 21 states brought back racetracks. New laws and automated systems made horse racing much more honest than during the 1800s.
Coincident with resurgence of legal gambling was a crackdown on illegal gambling, in part because illegal gambling had become so prevalent. A backlash developed and reform candidates were swept into office in New York where Fiorella La Guardia replaced Jimmy Walker and in Chicago where Anton Cermak pushed out «Big» Bill Thompson. Theater-goers were treated to newsreels of Mayor La Guardia taking a sledge hammer to slot machines and pushing them off the barge into the city’s ocean dump. District Attorney Thomas Dewey ran an aggressive campaign against mobsters who were involved in gambling.
Crackdown on Organized Crime Sent Mobsters to California. The crackdown in the east had implications for California. Because of the pressure from law enforcement agencies, New York mobsters, including the infamous Benjamin «Bugsy» Siegel, moved to the West Coast. His role was to expand gaming and bookmaking operations for organized crime. Eventually, publicity was directed on him during an investigation of mob ties with the film unions, forcing him to move to Las Vegas.
At the same time, scrutiny also resulted in the closing of the floating casinos. The most famous was the Rex, a floating casino operated by organized crime that was anchored just outside the three-mile limit of state jurisdiction. Gamblers were taken out to Rex in excursion boats. The Rex and some gaming ships that operated out of San Francisco Bay were eventually closed down by law enforcement authorities.
Nevada Legalized Most Forms of Gambling in the State in 1931. The Nevada Legislature was motivated to build on the tourism boom that was expected in the wake of the completion of Boulder, now Hoover, Dam. Nevada had a flourishing, albeit illegal, gambling industry prior to the legalization. The move for making gambling legal also grew out of concerns that the flourishing illegal gambling was corrupting law enforcement and prohibition was unenforceable.23 Gaming in Nevada struggled from its inception until after World War II, when the prosperity of post-war America started a boom in the fledgling industry.
The Nevada gaming industry was helped by events in California. As stated, the gambling ships that used to leave from California ports were shut down. Municipal reform in Los Angeles kicked out many of the thriving illegal gambling businesses. These establishments were run by organized crime who moved to Nevada where their skills were desperately needed to launch the new legal gambling industry.
Organized Crime Syndicates Were Early Supporters of Gaming and Invested Heavily. Many casinos in Nevada were financed by mobsters. Most notable perhaps was Las Vegas’ Flamingo which was opened in 1947 by Bugsy Siegel. Even though he had an extensive and violent criminal record, Bugsy Siegel was able to get a gaming license. Most notable of his criminal exploits was his role in arranging the murder of New York mobster «Dutch» Schultz by the infamous «Murder Inc.» Today, even the hint of any such activity would be sufficient to deny a license.
Part of the reason for Mr. Siegel’s success was due to his connection to the underworld. Wartime shortages did not slow down his plans because of his ties to the black market and his political connections.24 The lavish casino he built opened with such stars as Jimmy Durante, Xavier Cougat, and George Raft. The Flamingo helped establish Las Vegas, rather than Reno, as the destination for high rollers. Reportedly Mr. Siegel used too much of the mob’s money on what was initially a unprofitable operation. Within the year, Mr. Siegel was gunned down at a Beverly Hills mansion.
Senate Investigated Mob Influence in Casinos. During the 1950s, the Senate Committee to Investigate Organized Crime in Interstate Commerce held a number of hearings on criminal influence in the casino industry. The committee was chaired by Senator Estes Kefauver, and the committee is also known by his name. The committee found widespread evidence of skimming, which sheltered gambling profits from taxes. The prevalence of crime left gaming once again on the verge of a national prohibition.25 The result of the committee’s findings was a crackdown on criminal influence and a cleansing of the casino industry. Eventually, the mob sold their casino interests to lawful individuals and publicly-traded companies.
The link between organized crime and gambling was a factor in four state elections on legal gaming.26 In 1950, voters in California, Montana, Arizona, and Massachusetts voted against legal casino gaming. The California proposition would have established a state board to run all gaming operations with the proceeds going for old-age benefits. It lost by a wide margin.
Lotteries Begin Their Resurgence. From 1894 to 1964, there were no legal government-sponsored lotteries operating in the United States. This ban led to a paradox: lotteries were widely played, but always illegal. One of the most well known was the Irish sweepstakes which began in 1930 for the purpose of raising money for hospitals in Ireland. Although it was not legal to sell tickets in the U.S. or to ship them here, they were smuggled into the country. Participation was high with about 13 percent of the country having ever bought a ticket.27
Another prominent form of lottery was the illegal «numbers» game. Despite the illegality, numbers was quite popular. One author claimed that the amount being wagered on numbers was $5 billion in 1960.28 Another estimate shows that the numbers game was grossing $20 million annually in Chicago alone during the early 1970s and the total handle was $1.1 billion.29
Growing opposition to tax increases was a leading factor in establishing state-run lotteries in the 20th century. In 1964 New Hampshire was the first state to sponsor a lottery, followed by New York in 1967. New Jersey launched the first financially successful modern lottery in 1971. The New Jersey lottery was successful because it stressed frequent action at low cost, and it returned a higher percentage of lottery revenues as prizes. There were also various attempts to legalize a national lottery, but they failed to be passed by Congress.
In 1978, New Jersey became the second state to legalize casino gambling in an attempt to revitalize the rundown resort area of Atlantic City. The legalization was restricted only to Atlantic City. In the late 1800’s to the early 1900’s, Atlantic City was a popular resort town, boosted by the new rail service which linked the Northeast. Day trips to the Jersey shore were now possible and affordable. But its popularity dwindled when air travel became easily accessible. Upscale tourists chose beach resorts in Florida, the Bahamas, and the Caribbean over Atlantic City. Visitors to Atlantic City in the 1960’s and 1970’s were generally elderly and/or poor. Casino gaming was expected to be a way for Atlantic City to become a popular tourist destination once again.
What Could End Gambling’s Third Wave? The first and second waves ended in part because of a resurgence of public concern about morality and scandals in gaming. People can live with adverse odds but not cheating.30 What kind of events could lead to scandals today? If lotteries were plagued by fraud that would probably have an impact on people’s perceptions. Another route is through problems and scandal in sports gambling. Pete Rose is a symbol of what gambling can do to a person. What happens if a sports hero is more interested in winning a bet than a game? Could such a scandal impact legalized gaming?
«Hope Springs Eternal in the Human Heart,» Alexander Pope.
Lotteries Have Been Prominent Throughout History.1 Ancient India, China, Greece, and Japan all had lotteries. The emperor Nero had lotteries for prizes at parties. The Great Wall of China was financed, in part, by a lottery. The Bible is replete with references to drawing lots. Lot casting was a favored means of communication between man and god.
As early as 1420, lotteries were used in Europe for public works. High-value commodities such as land and art were often sold through lotteries. The first publicly run European lottery was in Florence in 1530. The money was raised for public works. The first public English lottery was in 1566 and was also for public works projects. In 1753 the British Museum was funded with lottery proceeds. In addition, England had private lotteries, but they became such a scandal that parliament outlawed them in 1699.
As noted in the history section, lotteries have a long and mixed history in the new world. In modern times, lotteries started their comeback with the legalization of the New Hampshire lottery in 1964. This lottery was a low-stakes low-excitement lottery, because drawings were held twice a year and the winnings were not large. The lottery was modeled after the Irish sweepstakes. The winning numbers were tied to the winner of a horse race. However, it was not a skill-based game, as the numbers were randomly selected.
Researchers usually point to New Jersey as the first modern successful lottery. The New Jersey lottery was more successful because of the more frequent drawings and larger purses. The New Jersey lottery was administered by a commission appointed by the Governor, a model that most states use.
Lotteries Enjoy Widespread Legalization. Lotteries are legal now in 37 states and the District of Columbia. Lotteries have spread rapidly across the country, in a way that is consistent with the domino theory of gaming regulation discussed in the introductory section. Simply put, a given state is more likely to have a lottery, if the neighboring state has a lottery. The first states with lotteries were all in the northeast. Then lotteries spread across the country. The only region in the United States where they are generally not legal is in Alaska, and Hawaii, and the southern states.
Lotteries, along with their close derivative bingo, are the most popular kinds of gambling. The popularity of lottery games is not limited to state-run lotteries. Indian tribes run lotteries and illegal lotteries still exist.
Lotteries are also legal around the world. The 1995 worldwide sales for legal lotteries were $95 billion.2 The United States leads with sales of approximately $28.7 billion. Germany is a distant second at $9.2 billion in sales. In all these places, lotteries are basically the same game with only minor differences that reflect the particular national culture.
Looking at some specific industry statistics, we can see that lotteries are well-established in this country and within California, although for the size of the state, California does not have a particularly large lottery. Although the chart shows California as one of the biggest lottery’s state, the table at the bottom shows Californians spent less on the lottery than many other states.
Per Capita Lottery Sales – 1995
Source: La Fleur’s 1996 World Gambling Abstract.
Despite Success, Opposition Exists. The resurgence of lotteries has not been universally welcomed.3 An argument used in opposing lotteries is that they symbolize the boredom and materialism of modern life. Another argument against lotteries is that legal gambling leads to illegal gambling. Lottery critics see legalized state-sponsored gambling destroying ethical values by promoting the ethics of easy money over hard work. Critics point to the ads of employees being disrespectful to their bosses after winning the lottery.4
Another argument that is marshaled against lotteries is that they prey on the poor, the ignorant, and compulsive gamblers. The poor may be induced to spend money on lottery rather than basic necessities leaving local and state government picking up the tab through varied service programs. State lotteries are also a monopoly and some question exists whether that is proper. Another argument is that if the purpose is to make money for schools or some other worthy purpose, why shouldn’t the state earn money through opening other businesses such as restaurants or brothels?5
In sharp contrast, supporters call lotteries a painless tax, even a high-minded tax. Money is raised for good causes through people having fun. Lotteries are to be celebrated because they restore consumer sovereignty, allowing people to spend money on what they choose. The argument goes on to state that gambling is prevalent whether it is legal or illegal, so why not allow people to do it legally. To prevent people from gambling is a form of paternalism and is elitist. There is no harm save for the compulsive gambler or in the crooked game, which all state lotteries go to great pains to avoid.
Two stories by modern American writers indicate the ambivalent feelings aroused by the lottery.
«Once you could send your innocent babes, hope of the future, off to the candy store to buy some chewing wax, a Baby Ruth, the new Batman comic book and a kazoo, and be secure in the knowledge that good Mrs. Chesley behind the counter would bust their little knuckles if they tried to buy a copy of The Racing Form. Not anymore. Now good Mrs. Chesley has turned her shop into a gambling hell where she greets the traffic with a leer that says, «Hello sucker» and has to keep kicking the kids out of her way so the lottery players can get their bets down.»6
But there is another view. A supporter noted:
«Editorial and other criticism of legal gambling smacks of nannying ordinary working and retired folks: we the affluent, who would not dream of playing numbers whether legal or illegal, long shots on the races or for jackpots at slot machines, don’t want you, the unwashed, to enjoy your simple pleasures.»7
There are objections to lotteries that go beyond the arguments just presented. Some critics are concerned that state-sponsored lotteries are not just supplying a good, but trying to foster a taste for it.8 In legalizing a lottery, the state is yielding to consumer preference and the argument that a little gambling does not hurt anybody. But the question remains, does the business-like behavior where sales of lottery tickets are actively encouraged through state sponsorship and huge amounts of advertising reflect the public interest?
Why have lotteries grown? There are several trends that receive credit for expanding lottery business.9
Tickets have become cheaper, especially when adjusted for inflation.
Number of retail outlets has increased.
Size of grand prizes has grown.
More consumer participation is allowed in the betting: for example consumers can choose their own numbers.
Frequency of drawings has increased, in part because there are more types of games.
The payout rate has increased, although compared to colonial times it has decreased.
State Lotteries Have Two Important Attributes. One of these is a significant marketing and advertising campaign and the other is that the lottery is a monopoly run by state government and not by a private firm.
Lotteries are run by state government for two major reasons. One is to reduce fraud and the other is to raise money for a worthy cause. Some states deposit the proceeds into the general fund while others earmark the money for special purposes. Some interesting purposes include a gamblers aid fund in Iowa and the University of Illinois Athletic Association in Illinois. The state statutes generally call for the lottery commission to maximize profits, although some restrictions may be adopted. Because of the statutory direction to maximize profits, lotteries are run like businesses and are more like a private sector entity than a state agency. An unusual case was Missouri, where the law prohibited advertising that would induce a person to participate. Since the effect of this prohibition was to eliminate all of the advertising normally done by a state lottery, the law has since been changed.
Critics Argue That Much of the Advertising is Misleading. For example, lotteries, including California, routinely advertise multimillion dollar prizes. The real value of these prizes is actually about one-half as large because they are paid out over many years. Critics charge that this is misleading advertising and the present value of the prizes should be noted in the advertisements. New York Governor Pataki has directed the lottery to advertise in a more honest way. Gone are the pictures of the new millionaire beside his pool. Now a woman from Yonkers is shown spending her $10,000 ($6,400 after taxes) on a variety of home appliances.
Modern Lotteries Have Been Essentially Free of Scandals. Early lotteries were plagued by corruption and scandals. To protect the integrity of the games, lotteries have adopted many safeguards to protect against corruption and fraud. The lottery industry has experienced very few scandals in the more than 30 years of state-administered lotteries in North America.10 The integrity of the l