© Copyright 2010 by Prof. I. Nelson Rose, Encino, California. All rights reserved worldwide. Gambling and the Law® is a registered trademark of Prof. I. Nelson Rose, www.GamblingAndTheLaw.com.
In my 1986 book, Gambling and the Law, I described the proliferation of gambling as a third wave. Twice before in American history, legal gambling has spread across the nation, only to crash down in scandal and complete prohibition. In the 21st century, the description of the spread of legal gaming as a “wave” appears too conservative, unless the wave is a tsunami.
Every year Americans buy about $10 billion in tickets at the nation’s approximately 36,000 movie screens. By comparison, lotteries operating in 43 states sell more than $60.6 billion in lottery tickets. And the comparison is appropriate. A potential customer can decide to spend about $8 for a little entertainment by buying a movie ticket, or can buy eight $1 lottery tickets. But, where American spent a record $10.49 billion on 1.46 billion movie tickets in 2009, they spent approximately six times as much, buying 40 times as many lottery tickets.
Add to this total all of the “action” in casinos and on slot machines; parimutuel bets on horses, dogs, and jai-alai; legal wagers on sports; bets made in licensed card rooms; and expenditures before prize payments in charity gaming and Indian bingo, and the total amount wagered legally in the United States is undoubtedly well over a trillion dollars.
However, the amount wagered, called the “handle,” is inflated, because it includes all bets: If a player bets $25 and wins and then bets $25 and loses, a total of $50 has been wagered, even though no money has changed hands. A more accurate number for making comparisons with other industries is the gross revenue or “win,” i.e. the amount players lose. Since this is money left behind by customers after the gambling transaction, it corresponds nicely with gross revenue or sales from other retail businesses. Looking just at revenue, Americans spent more money on gambling, $92.3 billion, than they did on all live events, concerts, plays, all movie theaters, all spectator sports, and all forms of recorded music — combined.
It is not just the money, but rather the general availability of gambling venues that is the real story. At least 12 states have commercially owned riverboat, dockside or landbased casinos and another five have card clubs. Tribal Class II gaming, primarily bingo played on machines as well as on paper, and poker and other non-banking card games, and Class III casinos, are open and operating in 29 states. Racinos, usually indistinguishable from traditional casinos, are in 12 states. There is legal gambling in the territories and possession of the United States, including major casinos in Puerto Rico and the Commonwealth of the Northern Mariana Islands. Every state except Utah and Hawaii had some form of commercial gambling; and Hawaii allows social games for money.
Imagine telling someone from 1909, when there was virtually universal prohibition on legal gambling in this country, or even a visitor from the America of President Dwight D. Eisenhower, that there is a state in the United States that has the following forms of legal gaming:
A state lottery
Video poker machines in nearly every bar
Racetracks and parimutuel betting on horse racing and dog racing
Internet betting within the state and across state lines on racing
and the State itself takes bets on sports events
and that that state is not Nevada, but Oregon.
Legal gambling has become such an accepted part of American life that it is often not even noticed, even when its impact is extraordinary. The May 20, 1996 issue of Forbes magazine featured a cover story on “Getting rich outside corporate America.” The editors did not feel it newsworthy to point out that two of the four individuals pictured on the cover made their money from gambling: A professional poker player and the chairman of a tribe with a casino.
The most dramatic reversal of the law’s traditional antipathy toward gambling may have been as early as 1986, when the U.S. Supreme Court ruled that a full-time gambler could declare himself to be in the trade or business of gambling for tax purposes.
The proliferation of legal gambling is shaped by such factors as historical legal baggage, feelings of morality and tradition, demographics, social and psychological factors, and pure irrationality. Gambling spreads in a haphazard manner, with long-term recurring patterns played out against a background of local politics and unpredictable technology.
For players, except for compulsive gamblers, this proliferation looks like an unmixed blessing. With only a little effort, bettors can find any type of game or bet they want. And since these wagers are legal, and usually heavily regulated, they know that the game is honest. They will be paid if they win and will not be robbed on the way to the car, and they will not be arrested for simply making a bet.
But, we really do not know where players are getting the money to wager on the new forms of gambling. A small, but significant, portion is money that would have otherwise been spent on long-established operations, like racetracks. Most people appear to not treat gambling money as merely part of their entertainment budget. The amounts spent on movies and beer are about the same as they were before the current gambling boom. So where is the money coming from? A large state lottery, for example, sells more than $4 billion in tickets each year, and keeps half. Two billion dollars is spent on such useful items as teachers’ salaries; but, it had to come from somewhere. Perhaps part of the answer is that with locally owned and operated gaming creating local jobs, and especially if winners are also locals, the two billion dollars never left the state.
For legal gambling operations, the explosive spread of gaming jurisdictions is definitely a mixed blessing. New games introduce new players to gambling, but competition for the gambling dollar is fierce. The more available betting opportunities are, the more people will wager; however, players can only lose their gambling dollar once.
What does the spread of gambling mean for the future? It is important to remember that the prior two gambling waves ended with nationwide prohibitions on virtually all forms of gaming. Is the current boom headed toward the same bust?
Cycles of Legalization
Like a prophecy fulfilled, it looks like we are doomed to repeat our history, having failed to learn the lessons of the past. Twice before in American history, players could make legal bets in almost every state, but these waves of legal gambling came crashing down in scandal and ruin.
Americans are not sure of what role law should have in society. Should the law be used only against acts that everyone agrees should be illegal, like murder? Or, should law be used as a tool to enforce morality, like Prohibition? We have the most trouble with the morally suspect industries — alcohol, drugs, abortion and gambling. Although the Prohibition Era is the best example, there have always been limits and prohibitions in American law that large numbers of the population violated on a fairly regular basis, often without even knowing they have broken the law.
The anti-gambling prohibitions epitomize the traditional approach taken by American laws. These laws are not only designed to protect people from themselves. They are part of a greater moral framework, designed by policy-makers as a reflection of an imagined ideal society. Surveys and election results have shown that voters want most of the anti-gambling laws to stay on the books, even if they do not want those laws actively enforced (unless they are used against a noisy neighbor).
Perhaps our cycles of complete prohibition to complete permissiveness and back again can be explained by the tendency of Americans to go to the limits, and beyond. Congress passed the Indian Gaming Regulatory Act with the image of tribal bingo halls in mind. Entrepreneurs took the poorly written law and used it to create some of the largest casinos in the world. Legislators in Missouri and Mississippi thought they were legalizing picturesque riverboats. Operators brought in 40,000-square-foot barges and built dockside casinos and boats-in-a-moat that are indistinguishable from non-floating casinos.
Sometimes it is unfortunate that our memories are so short. We believe that what we see about us has always existed and will continue unchanged indefinitely. Of course, there are natural restrictions. Even the best memory cannot stretch beyond a human lifetime. Historical writings allow us to reach backwards in time, but we lose the emotional feel of what went before.
Gambling has had a recurring, consistent pattern throughout the country’s history. When gambling is illegal, there is pressure for legalization, first of one game and then, gradually, of all forms. Although it may be illegal, many people are gambling, at either social games or underground commercial lotteries, race books or casinos. The laws are difficult to enforce and the general population does not want arrests made anyway, if it means taking police resources away from more serious crimes. The result is widespread evasion of the law, leading to disrespect and corruption. The response by the public is a demand for reform, for something to be done to prevent involvement by officials in these areas of moral ambiguity. The perceived solution is often a demand for legalization — if it is not a crime, there would be no reason to bribe law enforcement or public officials.
Sometimes the breakthrough comes from the legalization of a seemingly benign form, such as charity bingo. Once one form of gambling has been legalized, the anti-gambling arguments based on morality begin to fade away. Legalization of gambling seems to correspond with a general trend toward permissiveness in society. The Victorian morality that says nothing is permitted is replaced by the belief that everything is permitted, so long as you do not hurt another person. And gambling is the least harmful of the victimless crimes.
People see hypocrisy in the remaining prohibitions. Even the legalization of a game by a neighboring state can start the decline of the moral barriers against gambling. It is difficult for a state lawmaker to argue that a lottery would be immoral when his constituents are going across the state line by the millions to buy tickets.
Once one form of gambling is legal, proponents can easily make the argument turn on a cost/benefit analysis of legalizing various other games. And once all of the states in a region have the same game, the first to legalize a new form of gambling has an advantage and can siphon off the disposable income of its neighbors. A domino effect is created.
Meanwhile, the police and prosecutors are finding it increasingly difficult to enforce those anti-gambling laws that are still on the books, and venality is growing. Even the police begin to see hypocrisy in trying to prohibit a wager when an almost identical game is being actively promoted by the state. And jurors won’t convict.
Most of the states are presently at this point in the cycle. The wave of legalized gambling is still rising throughout the nation, although some forms, like state lotteries, have already captured virtually every state. In the past, the wave continued to grow until many forms of gambling became legal, widespread and commercialized. In the past, everyone seemed to be playing and the amounts of money involved were staggering. Those few prohibitions that still existed were virtually ignored by the police, and venality and corruption became widespread and open.
Historically, the next stage has been a devastating deluge of public scandals. Legal gambling is very big business with very few paper records; of the at least $1 trillion that is bet each year, most is in the form of untraceable cash. It is not difficult to understand the temptation to try and go beyond what is allowed, both by inventing new, faster forms of gambling or even rigging the outcome of a legal game.
But cheating can be fatal to the industry. In the past, the combination of highly publicized scandals and a reawakened morality closed down the games. Constitutional amendments were passed, with the intent of outlawing gambling forever. Of course, constitutions can be re-amended. Prohibition only leads, inevitably, to the next stage where demand once again builds for the legalization of some forms of gambling.
History and Historical Baggage From the First Wave
America’s first wave of legal gambling began even before there was a country: The earliest settlements were funded, in part, by lotteries in England. The first race track was set up in New York in 1666. Gaming was usually outlawed by statute; the Massachusetts Bay Colony banned the possession of cards, dice, or gaming tables, even in private homes. But the colonies were awash in lotteries, licensed by both states and the newly formed federal government. In part this is because during the colonial period and even after the American Revolution, America lacked a fiscal infrastructure: There simply were too few banks and other large financial institutions to provide capital for building roads, or even loans for mortgages. Running a lottery (today we would call it a raffle) might be the only way for an individual to sell a house. It appears to have been easier to buy a lottery ticket during George Washington’s time than the present.
Technological and social developments radically changed the nation’s attitude toward gambling between the colonial period and the Civil War. The invention of the steamboat led to the establishment of riverboat commerce. The Golden Age of the almost always crooked riverboat gamblers ended with Civil War blockades and the invention of the railroad.
Lotteries were everywhere, including in older, large cities. Private individuals ran early American lotteries with no government oversight. A fee was paid to the state for a license, but no one except the operators looked at the books. Licensed by the state, but without any regulation or governmental controls, the lotteries were hit by widespread scandals, the worst being that drawings were often not held at all. Operators would stall for months and years, claiming they had not sold enough tickets, and then disappear. A gambler will put up with terrible odds, or even a rigged game, if it is the only game in town. But no one tolerates the lottery con game where there is no winner at all.
In addition, the 1820s and 1830s saw the birth of a reform movement. The movement became centered on Andrew Jackson’s call for a clean sweep and to “throw the rascals out.” Although Jackson himself was a noted gambler, his movement to bring in the common man, and to eliminate corruption, lent support to growing anti-lottery feelings.
The mix of the two — lottery scandals and a newfound morality — led to the near-complete prohibition of lotteries. The feelings of emotional revulsion were so strong that reformers attempted to lock out lotteries for what they thought was forever, by writing bans into their state constitutions. As new states were born, their constitutions also contained flat prohibitions on lotteries. Settlers in frontier states like Nevada, Texas and California brought these strong anti-lottery feelings with them. Delegates to the constitutional conventions creating these new states had personal knowledge of lottery scandals back East.
There is usually no mention in the state constitutions of the era of other forms of gambling. Casino games might not have been legal – I have been unable to find a single statute permitting riverboat gambling – but the public felt betting at games of chance, where players had to go to a place to participate, was a relatively easy problem that could be handled by the legislature. The lottery, on the other hand, was viewed as particularly insidious. By 1862 Missouri and Kentucky were the only states that had not banned lotteries altogether.
The most important pieces of legal debris from the fall of the first wave of legal gambling are the state constitutional bans on lotteries. So much time has passed that sometimes the meaning of the term “lottery” has been lost or warped to include other forms of gambling, creating enormous problems for proponents of bingo, parimutuel wagering and casinos.
Amending a state constitution is difficult, requiring a vote of the people. A century after the anti-lottery provisions were written, long after the memory of the scandals that led to their creation had died away, proponents of state lotteries were able to win constitutional elections in more than three dozen states.
Proponents of casinos have not fared as well. Voters have almost always rejected amending their state constitutions to bring in high-stake casinos. However, many state legislatures have been able to legalize casinos, where no vote was required. These include some of the leading casino states, including Nevada, Mississippi, and now Pennsylvania, where the constitutional ban on “lotteries” has been interpreted as being limited to true lotteries, enabling state legislatures to legalize casinos, without a statewide vote.
The crash of the first wave also led to the enactment of the first federal anti-lottery statutes. The federal laws were weak, because, at this time, in the 1840s, 1850s and 1860s, it was widely believed that the federal government did not have much power.
History and Historical Baggage From the Second Wave
The second wave began with the Civil War and the continuing expansion of the western frontier.
The South turned to state-licensed lotteries as a painless way to raise revenue. Legal gambling is often seen as a painless, or voluntary, tax. Many southern states reopened state-licensed lotteries. State constitutional prohibitions were ignored or rewritten by the governments imposed by the victorious North during the Reconstruction era to allow state statutes to allow lotteries, primarily for good purposes, such as the founding of the University of Mississippi.
Throughout the Wild West, gambling was everywhere. When a frontier developed, it was common to see casino games being played openly, although whether these games were technically legal was not considered a major issue at the time. Licensed casinos dominated the heart of Gold Rush San Francisco. Frequently, gaming houses were explicitly made legal so that government could raise revenue through licensing, and to avoid the problem epitomized by Prohibition, having criminal statutes on the books that no one obeyed. Often the games were illegal but ignored by law enforcement, because it was difficult to outlaw this typical frontier diversion.
In the 19th century, neither laymen nor lawmakers understood the mathematics of probabilities. The debates over prohibiting not only banking games, where the house takes on all players, but percentage games, where the house participates as a player but has a percentage advantage, show that there was a general perception that having a built-in edge was considered the same as cheating. Poker and other round games, where players play against each other with no one participant having a continuous advantage, were normally allowed to continue and are still legal in California today.
The establishment of permanent cities brought the desire for law and order, and Westerners wanted to be viewed as respectable in the eyes of the established East Coast. With civilization often came statutory prohibitions on casinos.
Betting on horse races was not viewed as a problem, when bettors had to be physically present at the track. The invention of the telegraph, telephone, and totalizer machines in the late 19th century made it possible for the average working man to bet on races taking place in another part of the country. The establishment of these “pool rooms” led to the passage of anti-bookie statutes prohibiting the transmission of gambling information.
The 19th century ended with a second round of lottery scandals. The Louisiana Lottery was the greatest, both in the size of its operation and in the magnitude of the scandal. The operators of the Serpent, as it was called were accused, correctly, of buying the Louisiana State Legislature. Tickets for the Serpent were sold throughout the nation. Technological advances had allowed the Louisiana Lottery to operate without being in close geographic proximity to its customers.
Some states, like New York, reacted to the opening of Louisiana Lottery stores in their major cities by enacting statutes making it a crime to sell a lottery ticket within their borders, even if the lottery is legal where the drawing is held. These statutes are still on the books today, although they are of questionable constitutionality, since they interfere with interstate commerce. The new laws had little effect. The states were no more able to stop the selling of Louisiana Lottery tickets in the 1880s and 1890s than they were in the 1950s and 1960s with the Irish Sweepstakes, or on the Internet today. It became clear that the states could not control this state licensed lottery, either because they did not wish to do so, or because of limits on their power to regulate legal activities originating in other states.
Since the states were helpless, President Benjamin Harrison asked Congress to pass legislation to close down the Serpent. Congress responded by using the various constitutional provisions and federal powers it thought it had at the time. Congress first used its power to regulate the U.S. mails, which, at the time, was the federal government’s most powerful weapon. In 1890, Congress passed a law barring lottery material from the mail. At that time 45% of the entire New Orleans post office business concerned the Lottery. The law, still on the books, prohibits the use of the mails for lottery tickets, for checks for the purchase of tickets, and even for “any newspaper, circular, pamphlet, or publication of any kind containing any advertisement of any lottery, gift enterprise, or scheme of any kind offering prizes dependent in whole or in part upon lot or chance. . .” In 1893 the United States Supreme Court upheld its use against a foreign legal lottery. The prohibitions have been expanded as technology developed, now including radio and television.
The rise of Victorian morality, scandals, and the desire for respectability brought the second wave crashing down in the West. The territories of New Mexico and Arizona were told that to gain statehood they would have to close their casinos. In 1909, even the Nevada Legislature outlawed casinos. By 1910 only Maryland, Kentucky and New York were left, and in that year New York closed its racetracks. The United States was once again virtually free of legalized gambling.
The most important legal debris of the crash of the second wave were the federal anti-lottery laws passed in response to the Louisiana Lottery scandal. The federal anti-lottery laws were so successful that all lotteries were destroyed and no legal lottery existed in the United States for almost 70 years. These laws also helped create the modern United States, because the U.S. Supreme Court declared that the federal government could regulate legal businesses, so long as interstate commerce was involved.
Before that time, the prevailing thought in the law was that “interstate commerce” was limited to literally commerce that was inter-state, for example, shipping on rivers between states. The idea that Congress could regulate legal commerce that happened to cross a state line was a radical idea. Congress passed a bill aimed at outlawing legal state lotteries in 1895. It was now a federal crime to carry or send a lottery ticket, or lottery information, or a list of lottery prizes in interstate or foreign commerce. The Supreme Court, in The Lottery Case, upheld this great expansion of the federal government’s power in 1903.
The Third Wave: The Depression to the Present
The Depression gave birth to the third wave of legal gambling. Nevada re-legalized casino gambling in 1931. Twenty-one states opened racetracks with parimutuel betting in the 1930s, with additional states allowing parimutuel betting in every decade since. Charities offered Bingo, at first illegally, until many of the states changed their laws in the 1940s and 1950s to permit charitable and social gambling. And then New Hampshire re-discovered the state lottery in 1964.
For the last 80 years, the fight has been over everything from horse and dog racing, bingo and lotteries to poker, Internet gaming and casinos. But the big money prize is legalizing gaming machines. Part of the problem comes from sloppy legal work done decades ago. Operators of roulette wheels and conventional slot machines were sometimes convicted of running illegal “lotteries.” In some jurisdictions the states’ highest courts ruled the word “lottery” was synonymous with gambling.
Today, state attorneys general find themselves making exactly the opposite argument. Federally recognized Indian tribes are allowed to operate any form of gambling permitted by state law. A federal judge in Wisconsin ruled that “lottery” means any game of prize, chance and consideration. The state operates a lottery; therefore, the state had to negotiate to allow tribes to have any games of prize, chance and consideration, including blackjack and video poker machines.
The states themselves have joined in this game. In Kansas, the state technically owns the non-tribal casinos, with operators chosen by the State Lottery. In 2007, the West Virginia Legislature authorized licensed video lottery terminal (“VLTs”) operators to also operate “lottery table games,” expressly including blackjack, craps and roulette.
What Happens When Prohibition Is Repealed?
It is widely believed in this Third Wave of Legal Gambling that anyone, including governments, can get rich quick. All one needs to do to grab a piece of the action is to own, operate, or tax some form of legal gambling. An endless flow of instant, unlimited wealth will follow. This delusion is a typical symptom of a classic speculative bubble.
All bubbles grow out of unrealistic expectations, like the one preceding the Great Crash of 1929, Dutch Tulipmania and the recent Internet stock and subprime mortgage bubbles. Fortunes really can be made during such wild speculation. The word millionaire came into use for the first time during France’s Mississippi Company bubble of 1716-1720.
Unlike tulip bulbs, commodities or stock index futures, legal gambling can, in fact, generate revenue. However, it will not be on the scale imagined nor can it expand endlessly in the face of direct competition. As much as they might wish, not every town can become the next Las Vegas. There is a big difference between being the only legal casino on the East Coast and owning a riverboat in Iowa when there is a competing riverboat in Illinois with unlimited stakes a 10 minute drive away.
Suppose Prohibition of alcohol had just been repealed. The hypothetical owner of the first and only liquor store in a state would make a fantastic return on investment. But soon, if there were no government controls, there would be liquor stores throughout the state, as there are few barriers to entry. Excess profits would disappear and returns on investment would descend to normal levels, after a large number went bankrupt and that over-supply disappeared.
Government makes the situation worse. The fantasy that there is an infinite demand for gambling seems to hit politicians harder than entrepreneurs. Sin taxes are always the easiest to raise. Casinos, like liquor stores and tobacco retailers, are easy targets. Government’s thinking is that people should not be gambling anyway and they will continue to make wagers, no matter how much the cost. So, even though a quarter of the gaming establishments in a jurisdiction might go bankrupt, the state continues to consider raising taxes on gaming.
Resorts International opened the first legal casino on the East Coast on May 26, 1978, spending $45.2 million to refurbish the old Chalfonte-Haddon hotel in Atlantic City. Its first year gross revenue of $224.6 million made it the most profitable casino in the world. The state of New Jersey, for merely allowing the casino to open, collected $18 million in taxes that first year. Twelve more casinos quickly followed. The Trump Taj Mahal, the thirteenth Atlantic City casino to open, cost over $1.1 billion, in 1990 dollars. The Taj opened in April 1990; it declared bankruptcy in July 1991. Of the thirteen casinos that had opened in Atlantic City, eight had been involved in formal bankruptcy proceedings.
The explosion of legal gambling has finally settled the question of whether availability creates demand. The metropolitan area of Biloxi-Gulfport-Pascagoula, near the Mississippi casinos, with a population of 112,993, ranks eighth in the nation as the most important feeder market for casino gaming, far above such massive cities as Houston and Seattle, which did not even make the top 10.
Although availability creates demand, that demand is not endless. Even a casino in New Orleans will fail, if Louisiana and Mississippi are already saturated with competing forms of gambling.
In January 1993, the small Mashantucket Pequot tribe, which had opened what it called the Foxwoods High Stakes Bingo & Casino in Connecticut in February 1992, began operating the only legal slot machines between Atlantic City and Canada. The initial 260 machines produced slightly more than $2 million that first month. By July 1993 Foxwoods had 1,471 operating machines, earning $26.2 million for the month, for a daily average win of $575 per machine per day. The slot machines at Foxwoods were earning twice as much per device as the slot machines in Atlantic City, and four times the $140 per day won by $1 slot machines on the Las Vegas strip. By October 1993 the numbers had doubled again: The tribe now had 3,137 slot machines generating $1.625 million per day.
Foxwoods demonstrates the power of a monopoly, now an oligopoly, as well as the dangers. Foxwoods reported that $660 million was wagered (the “slot handle”) at its 4,585 slot machines during November 1996, resulting in a “slot win” of $38 million for the month. Although the number of machines is comparable, the Trump Plaza’s slots attracted less than half the amount wagered at Foxwoods: The slot handle was $272 million, producing a slot win of $22 million. By 1997 no one disputed that Foxwoods was the most profitable casino in the world. The tribe is only required to report the amounts wagered on slot machines and bingo, but the numbers support the conclusion that Foxwoods was the first casino in history to win over $1 billion from its patrons. The state of Connecticut failed to include any restrictions in its compact with the tribe, so Foxwoods keeps growing and growing, swallowing up nearby forested land for parking lots, hotels, and more casino games. As of 2010, Foxwood’s has three hotels with 1,916 rooms, 344,000 square feet of casino gaming space including 7,200 gaming machines and 380 table and poker games. This is twice as large as the largest casino in Las Vegas.
Political and economic pressure to break Foxwoods’ monopoly in the Northeast U.S. market made competition inevitable. Even before the Mohegan Sun opened the second casino in Connecticut, another tribe, the Oneidas, opened Turning Stone, an Indian casino then without slot machines, in 1993 in the middle of New York state. Casino ships with slots started operating out of ports in Connecticut. Tribes in Rhode Island, Massachusetts, and Maine fought in court and sought political allies in their battles to open casinos. And legislation for slot machines, VLTs, and more casinos on riverboats and on land were introduced in state legislatures in New York, New Hampshire, Massachusetts, Pennsylvania, Connecticut and every other jurisdiction north of Atlantic City.
The Mashantucket Pequot Tribal Nation expected its casino gaming to grow forever. Equally strange, so did its banks and other sophisticated lenders. Today, Foxwoods is in default on billions of dollars in loans.
Elections Show A Tidal Change In Attitudes Toward Legal Gambling
Until the November 1996 elections, all high-stakes casino-style gambling in America, with the exception of Atlantic City, had been created without the approval of the electorate of a state. High-stake casinos were authorized by state legislatures acting on their own — even Nevada voters were never asked whether they wanted casinos – and Indian tribes. Prior to 1996, high-stakes casinos had won only one statewide election, in 1976 in New Jersey. And that was not really a contest. The opposition were so over-confident, having defeated casinos at the polls by 60% only two years earlier, that they literally ran no campaign against the Atlantic City proposal: Committees opposing casinos took in only $23,230 and did not even spend it all! Proponents spent $1,330,615.
So, it was possible to say that no state had ever voted to amend its state constitution to allow high-stake casinos in the face of active opposition.
There had been a few successful elections at the local level, with cities and counties approving high-stakes casinos. But statewide, the only way to win a casino election had been to promise the voters that gaming would be low stakes and isolated onto a mountaintop or sanitized by surrounding it with water. Colorado and South Dakota voters approved $5 maximum blackjack and slots and Missouri voters accepted riverboats with $500 loss limits. But, even these casino electoral victories all occurred in the prior decade.
Every attempt to raise the stakes had also been soundly rejected by voters. In South Dakota, for example, to justify building a massive casino-resort, Dan and Kevin Costner attempted to have bet limits raised from $5 to $100 and to allow more slot machines per casino. Low-stakes casinos were already operating in Deadwood and on Indian land, while the state was operating thousands of Video Lottery Terminals. The Costner’s spent at least 10 times as much as their opponents. Yet, in September 1993 only 42% of South Dakota’s voters voted in favor of bringing in high-stakes casinos.
Part of the reason for such electoral defeats in the past can be seen in Americans’ attitudes toward legal gambling. It is still the overwhelming rule that most people simply do not take gambling seriously, unless they are asked to approve it in their own backyards. Then, if it is viewed as one of the “safe kinds,” bingo or a state lottery, or banished to a mountain top or riverboat, it is somehow also viewed as all right. But if the general population is asked to vote for casino gambling or slot machines where their children might be tempted to play them, then they will say no.
But, November 1996 marked a turning point, and the greatest victory in American history for legal gambling, particularly for casino gaming. Unprecedented breakthroughs occurred in virtually every area of the country. For the first time in American history, the citizens of a state (actually two – Michigan and Arizona) voted, in the face of active opposition, to bring in new, high-stakes casinos. Also for the first time in American history, local citizens throughout a state (Louisiana) voted unanimously, in the face of active opposition, to retain high-stakes casinos.
News articles written immediately after the election called the results mixed, contrasting these wins against an even greater number of losses, including casino initiatives losing in Arkansas, Colorado, Guam and Ohio. What is not recognized is that 20 years earlier casino gambling would have lost every election. The votes to keep casinos, and especially to bring in new ones, indicate there has been a tidal change in the way Americans feel about legal gambling. Voters, for the first time ever, have accepted local gaming as a normal part of their lives. Voters have in the past approved state lotteries. They often vote in favor of horse racing. But, in dozens of attempts over the last 200 years, never before had the citizens of a state voted, in the face of active opposition, to bring in new, high-stakes casinos.
Despite their claims, organized anti-gambling activists have almost never been a significant factor. In 1990, professors William N. Thompson, University of Nevada Las Vegas, and John Dombrink, University of California Irvine, published their study, The Last Resort: Success and Failure in Campaigns for Casinos. Examining virtually every election up to the date of publication, Thompson and Dombrink found that statewide casino campaigns never succeeded, as long as a single powerful political actor was opposed. They called this the veto factor.
Until November 1996 the veto factor had held true for all statewide votes for high-stakes casinos. Thus, the campaigns to bring casinos to Ohio and Arkansas in 1996 had as little chance of succeeding as the Florida campaigns had in 1994 or 1978.
But something new and unprecedented occurred in Michigan and Arizona in 1996. There, all political voices seemed to be unified in opposition to casinos. The governors of both states actively campaigned against the initiatives. Yet, statewide voters approved allowing new casinos, without limiting the size of wagers or restricting the gaming onto riverboats or mountaintops.
Also, for the first time in American history, local citizens throughout a state voted unanimously, in the face of active opposition, to retain their high-stakes casinos. Six parishes in Louisiana have riverboat casinos and Orleans Parish has a land-based casino. All seven voted, by enormous margins of up to 71% to 29%, to keep their casinos: Statewide, voters approved riverboat casinos by 58% to 42%.
In November 1996 commercial gambling also won scattered victories in every region of the country, even in the most conservative states. Twenty-three additional parishes in Louisiana approved the option of establishing new riverboat casinos. Jefferson County, West Virginia approved up to 1,000 VLTs at the Charles Town racetrack. Michigan rejected a ban on bingo for political fund-raisers. And, Marion County, Indiana, voted in favor of building a harness racetrack outside Indianapolis.
Why are voters accepting legal gambling as a regular part of their lives? One answer is the power of incremental change: The unthinkable becomes commonplace if taken in small doses. In November, 1996, when Michigan voters approved casinos for Detroit, the state already had 11 high-stakes Indian casinos. Two of the most profitable casinos in the world were already open in Windsor, Ontario, across the river from Detroit. Arizona’s Governor Symington had already signed compacts with 16 tribes; in 1996, voters told him to let the five tribes that had been left out also have casinos. West Virginia already allowed VLTs at four other racetracks. Indiana already had other racetracks.
It can be argued that the unprecedented casino victories in Michigan and Arizona were the result of special factors. But every election has special factors. And every state either already has casino-style gaming or is near another state with tribal, land-based or riverboat casinos.
Were there unique factors in Michigan and Arizona? Perhaps — both states already had tribal casinos within their borders and privately operated casinos next door. Ohio, Arkansas, and Florida, on the other hand, had no tribal casinos.
But, the tidal change in the public’s attitude toward legal gambling was confirmed two years later. Proponents of legalized gaming won virtually every race in the November 1998 elections. Proposition 5 in California received the most attention. Proponents of Indian casinos had enormous financial and political resources. But the size of the landslide, 63-37 percent, shows California voters simply do not fear casinos or slot machines, any more. In Missouri, voters approved “riverboat” (actually “boats in moats”) casinos for the third time. In New Jersey, voters approved off-track phone betting; in 1980 they had voted down innocuous Sunday racing. In Arizona, a large majority voted to extend the state lottery, despite repeated crises and religious opposition.
Gaming opponents rarely can gather enough signatures to get repeal on the ballot. They failed in 1998 in both Michigan and Mississippi. But the vocal opposition can sometimes force fearful legislators to let the voters decide.
Anti-gambling forces did have a couple of victories. A nasty fight in Maryland ended with a win for incumbent Gov. Parris Glendening, a vocal opponent of racetrack slot machines. Even here, surveys showed that gambling was not an issue; voters were most concerned about education. The only wins in 1998: in Arizona and Missouri voters outlawed cockfighting.
The November 2000 elections reconfirmed the tidal change in the way voters view legal gambling. In a self-congratulatory (and fund-raising) newsletter to its followers, the Rev. Tom Grey, Executive Director of the National Coalition Against Legalized Gambling, portrayed the results of the Nov. 7, 2000 races as follows: “By their votes at the polls Americans proved that they are waking up to the threat facing our country and have soundly rejected legalized gambling in Arkansas, Maine, West Virginia, New Mexico and Wisconsin.”
Arkansas certainly was an election defeat. But the proposal was so bizarre that it was not a fair test of the voters’ feelings toward legal gambling. West Virginia’s election was even stranger. Only voters in rural Greenbrier County cast ballots. There were only 7,065 “No” and 5,109 “Yes” votes. They rejected the plan to put a casino, open only to registered guests of the Greenbrier Hotel, in a converted bomb shelter.
Elsewhere legal gambling won big. In South Dakota, voters approved keeping their video lottery terminals and, finally, raising the maximum betting limits in casinos in Deadwood from $5 to $100. South Carolinians voted to establish a state lottery. Voters in Colorado approved joining multi-state lotteries, and those in Massachusetts voted to keep their greyhound racing (at least for the moment).
The best the Rev. Grey could say about these smashing state-wide defeats of the anti-gambling movements was, “In those states where gambling was defeated, it was by a much higher margin than in those states where gambling initiatives passed.” The margins of victory could be significant if they were part of a national trend. But history has demonstrated that the trend is exactly the opposite of what the anti’s want. Fifty years ago every one of these pro-gambling proposals would have been defeated at the polls, and by margins of two- or three-to-one. The fact that any of them made the ballot, let alone won, shows that voters have come to accept legal gambling as merely another part of everyday life.
One of the most interesting results of the Fall 2000 election shows how political power has shifted in the last decade. Democrat Maria Cantwell beat Washington State’s most powerful politician, incumbent Sen. Slade Gorton, by less than one-tenth of one percent, with the help of $1 million from the state’s gaming tribes.
Most proposals for legalization still do fail. For example, a plan in 2010 for an Indian casino to be opened in Youngstown, Ohio, went nowhere, in part, because there are no federally recognized tribes in Ohio, and in part because the plan came from a former member of Congress who had been convicted of corruption! Still, the fact that even such a ridiculous proposal could get any attention at all, shows how widespread the dream of legalizing gaming has spread. And Ohio voters have, twice, approved more rational plans for casinos.
The tsunami nature of the third wave of legal gambling has been confirmed in events which would have been considered impossible a decade or two earlier. Voters approved amending the State Constitution to allow high-stakes casinos in Ohio’s four largest cities, and then again to relocate the Columbus casino, while the governor got the state legislature to approve gaming machines for the state’s racetracks. Kansas became the first state to own true casinos, considered “lotteries” under Kansas state law, which therefore could be operated by the State Lottery. Delaware legalized and opened sports books, the only ones east of the Mississippi, and then approved table games to add to its racinos. Maryland approved slot machines, and is on the verge of allowing table games, and maybe Internet gaming. Both houses of the Massachusetts Legislature have approved casinos. Tracks and other operators of Class II gaming devices opened magnificent casinos in Alabama, until the Governor led a vendetta to close them down. The governor of Pennsylvania worked hard to get table games approved, to join the 60,000 slot machines at that state’s casinos. In a world on the brink of an economic depression, where attention is naturally drawn to casino bankruptcies and gaming tribes defaulting on multi-million dollar loans, it is natural that almost no one noticed in December 2009 that more money was put into the legal, licensed slot machines in Pennsylvania in all the slot machines in Atlantic City.
Reasons for the Spread of Legal Gambling
1) The morality argument is dead. It is no longer considered acceptable to oppose gambling on the ground it is immoral. This reflects a general trend throughout the United States of the rise of situational ethics. But gambling opponents lost their main moral spokesmen, once churches started running bingo games and government began selling lottery tickets. Ninety years ago all gambling was illegal and it was a crime to sell someone a drink. Today, government is selling lottery tickets and taking bets on football games and there is talk of legalizing, or at least decriminalizing, drugs. On November 5, 1996, voters in California and Arizona approved the use of marijuana for medical treatment. This November, we vote on legalizing pot just for the tax revenue. With no one to say what is right or wrong, everything has become a cost/benefit analysis. Gambling makes money, even accounting for social costs, particularly if it is run as a monopoly.
2) Government has said it is okay. A large segment of society believe government knows best. With all the talk about forbidden fruit, it is important to remember that most people will not break the law, even if they will not get caught; drivers stop at red lights at 3 a.m. in the open desert. There are also millions of adults who believe government knows best and will protect them; it is not a coincidence that George Orwell called his 1984 dystopia dictator “Big Brother.”
3) The outrageous becomes acceptable if taken in small doses. As mentioned previously, there is tremendous power in incremental change. The first state lottery of this century, the New Hampshire Sweepstakes in 1964, cost $3, required players to fill out a form and was held twice-a-year; it was a financial failure. But drawings went from twice-a-year to weekly to daily to rub-off tickets. We now have VLTs, where the lottery player can put money into a machine and be paid on the spot. Thirty years ago it would have been unthinkable that states would be operating such slot machines.
4) The domino effect. New Hampshire was first with a state lottery this century, but 80% of its players came from New York, Massachusetts and Connecticut. The second lottery was New York and the third, its neighbor, New Jersey. When every state has lotteries, the first to introduce off-track betting or casinos has an advantage, until that spreads.
5) The easy money is not so easy; states are hooked on gambling revenues. Lottery tickets are poor consumer items — people buy them for a while and stop. States are forced constantly to come up with more promotions and new games. States like Iowa, which thought they could sit back and make millions on $5 maximum casinos on riverboats, find that the state has to constantly support the enterprises, particularly during winter, and come to the rescue of failing operations. After half its casino riverboats sailed south, the Iowa Legislature raised the betting limits to match nearby Illinois.
6) Gambling begets gambling. Players always want games that are faster and easier, with at least the illusion of player control. Many casinos are becoming nothing more than video slot machine warehouses. Eventually, we may well see video poker machines and VLTs in many major cities.
7) Competition for the gambling dollar is fierce. Casinos in Nevada have had to introduce Megabucks and million dollar Keno games to compete against California’s lottery. The racing industry has been particularly hard hit by the introduction of lotteries and tribal casinos. The surviving tracks are asking state legislatures to let them have slot machines and Internet betting, to avoid putting hundreds of people out of work.
8) Operators push to the limits. If the law allows “pull-tabs,” operators will construct devices with a slot and video screen and call the machines “video pull-tabs.” Every time the rules are relaxed for one form of gambling or operators, political opponents immediately demand “a level playing field.”
The Impact of Technology on Legal Gambling
Although it is possible to see the general trends and cycles in gambling, it is impossible to predict how exactly it will develop, because the games are so much dependent on technology. Daniel J. Boorstin, in his book Cleopatra’s Nose, analyzed the differences between what he calls the new “Machine Kingdom,” and the traditional designations of the “Animal, Vegetable and Mineral Kingdoms.” The development of the Internet in general and online gaming in particular, illustrate how invention creates a demand that did not formally exist, because the technology itself did not exist.
Inventions redefine experience. Modern technology has played havoc with traditional legal categories. The New Jersey State Lottery and casinos in Atlantic City battled over which would have the right to run Keno games. The law can react to unexpected technological developments. However, inventions cannot be uninvented. If the demand has been created, technology will eventually find ways of getting around the legal barriers.
Boorstin points out that the “most potent machines assimilate all environments.” Every form of gambling can now be played on a computerized video screen. Inventions expand experience — technology creates its own demand. One of the most popular forms of gambling in 2010 is on video poker machines: Did anyone want to play video poker, before it was invented? Video games and home computers created the ability to play faster games more conveniently; the video poker machine created the need for games that play like video poker machines. Inventions are increasingly intrusive. “The advance of technology in our times attests our increasing inability to exclude novelties or their consequences from our daily lives.”
Whether this is a bad thing is difficult to judge. “Our nation has grown by its need for the unnecessary, another name for human progress.” Law constantly has to adjust to technological developments in gambling, designing new means of control. As Boorstin put it, “For us invention has become the mother of necessity.”
Changes in the law always trail changes in society. As gambling becomes more accepted, and technology makes the games more interesting, intrusive and easily available, prohibitions will continue to fall.
History tells us that this is the Golden Age of Legal Gambling. Because “golden ages” are always recognized only in retrospect, after everything has once again been made illegal.
I. NELSON ROSE
Professor I. Nelson Rose is a Distinguished Senior Professor at Whittier Law School and Visiting Professor at the University of Macau, an internationally known scholar, author and public speaker, and is recognized as one of the world’s leading experts on gaming law.
Prof. Rose is best known for his internationally syndicated column and 1986 landmark book, “Gambling and the Law®.” He is the co-author of Internet Gaming Law (1st and 2nd editions), Blackjack and the Law, and the first casebook on the subject, Gaming Law: Cases and Materials (LexisNexis). Prof. Rose is co-editor-in-chief of the Gaming Law Review and Economics.
Harvard Law School educated, Prof. Rose is a consultant to governments and industry. He has testified as an expert witness in administrative, civil and criminal cases throughout the United States, in Australia and New Zealand, including the first NAFTA tribunal on gaming issues. Prof. Rose has acted as a consultant to major law firms, international corporations, licensed casinos, Indian tribes, and local, state and national governments, including the provinces of Québec, Ontario, the states of Arizona, California, Delaware, Florida, Illinois, Michigan, New Jersey, Texas, and the federal governments of Canada, Mexico and the United States.
With the rising interest in gambling throughout the world, Prof. Rose has addressed such diverse groups as the National Conference of State Legislatures, Congress of State Lotteries of Europe and the National Academy of Sciences. He has taught classes on gaming law to the F.B.I., at the University of Ljubljana in Slovenia, Sun Yat-sen University in China, the Universidad de Cantabria in Spain, Université de Toulouse in France, and as a Visiting Scholar for the University of Nevada-Reno’s Institute for the Study of Gambling and Commercial Gaming. Prof. Rose has presented scholarly papers on gambling in Nevada, New Jersey, Puerto Rico, Canada, England, Australia, Antigua, Portugal, Italy, Argentina and the Czech Republic.
Prof. Rose can be reached through his website: www.GamblingAndTheLaw.com.