Gambling Research Paper

Gambling has never in law or custom been considered inherently evil (malum in se). Why then is betting—or accepting bets—sometimes considered a crime? Reasons that can be singled out include the belief that gambling undermines the work ethic, is destructive of personality, invites fraud and deception, and engenders social decay. Such a view of gambling, although present in most English-speaking countries, is a minority viewpoint, especially in the United States, where a variety of gambling forms are permitted under differing legal regimes. These include casinos, lotteries, wagering on horse or dog races, electric gaming devices and slot machines, jaialai, and Internet gambling.

The Historical Lottery

Lotteries were popular—and remain so— because they present a rare opportunity to accumulate capital by luck alone. Despite Puritan opposition, the British Parliament authorized numerous lotteries between the sixteenth and nineteenth centuries. ‘‘By 1775,’’ asserted the Royal Commission on Lotteries and Betting in

1933, ‘‘the lottery had become virtually an annual event.’’ The lottery made its entrance into American history for much the same reasons. Lotteries were said to be the ‘‘reall and substantiall food, by which Virginia hath been nourished’’ (Ezell, p. 8). No American governmental entity—with the exception of post–World War II Nevada or possibly nineteenth-century Louisiana—has ever been dependent upon gambling revenues for so large a proportion of its budget as was the British government. Not until the early nineteenth century, as the lottery became more widespread in England and dependence upon it increased, did its enemies gather enough influence to destroy it. England saw the last of its state lotteries in 1823.

England’s Puritan opposition to lotteries reinforced America’s opponents of gambling. By the 1840s and 1850s, most of the South began to feel the anti-lottery pressure, and lotteries seem to have been relatively unpopular by the time of the Civil War. National opposition to the lottery strengthened Louisiana’s anti-lottery forces, who captured the governor’s office and a majority of the legislature. Consequently, Louisiana discontinued its lottery. With the twentieth century approaching, lotteries vanished from the American scene.

The Contemporary Lottery

No state-sponsored lotteries appeared in the United States until 1964. In that year, conservative New Hampshire adopted a sweepstakes. The state had no sales or income tax, and already derived more than 60 percent of its revenues from ‘‘sin taxes’’ on horse racing, liquor, tobacco, and beer. From the late 1960s onward, most states searched for alternative revenue sources. Gambling became a prime candidate, particularly through the lottery, off-track betting, and casino gambling. Politicians often welcome legal gambling since it does not depend on the coercive power of the state.

Lottery revenues were often referred to as ‘‘painless’’ although legislators recognized that the burden of providing such revenues fell disproportionately upon identifiable income strata. The lottery is usually a regressive source of public revenue since persons who occupy lowerincome positions have the most incentive to purchase lottery tickets. Although lottery ticket purchases are voluntary, so is the purchase of most goods and services, which are taxed at a rate considerably lower than the usual percentage that states take before lottery payoffs.

As states compete with one another for the lottery market, novel ways are developed to stimulate demand. States advertise and market lotteries through the following means: frequent drawings; inexpensive tickets; better chances of prize-winning; higher payoff ratios; attractive prizes (including a larger first prize); simpler buying, drawing, and paying procedures; fast notice of results; and the opportunity for players to choose their own ticket numbers. The move from state lottery prohibition to promotion in half a century is remarkable, but not entirely unprecedented given the lottery’s fluctuating history of acceptance and rejection in England and the United States.

Extent of Gambling

According to the 1976 report of the U.S. National Commission on the Review of the National Policy toward Gambling, 80 percent of Americans favored the legalization of some form of gambling, and two-thirds had actually gambled, signaling widespread public acceptability. Roughly a quarter of a century later, acceptance had escalated into embrace. The 1999 National Gambling Impact Study Commission, which described the intervening period as ‘‘transformative,’’ found that by 1999 more than forty states had legalized pari-mutual racetracks and betting; thirty-seven states had established lotteries, and several others were considering introducing them. Casino gambling expanded from Nevada to Atlantic City, New Jersey, and then nationwide to the gulf coast of Mississippi, to New Orleans, to Midwestern cities on riverboats, to Detroit, and to western mining towns. The immense transformation has been accompanied by an acceptance of gambling in mainstream culture. The winning lottery numbers in ever bigger jackpot games are routinely announced on the evening news. Racetrack betting takes place over the telephone and in off-track neighborhood betting parlors in New York City. ‘‘Legions of employees’’ testified to the National Gambling Impact Commission about the hope and opportunities that casino jobs have brought to their families. Others, however, told tales of families devastated by problem gambling, of blight and sleaze, of a work ethic undercut by the pursuit of easy money.

When made criminal, gambling is quintessentially a victimless crime. Players rarely, if ever, call police to report that an illegal bookmaker has taken their bet. New York City’s Knapp Commission found systemic corruption where police regularly received payoffs from illegal bookmakers and numbers racketeers. In recognition of this, and the consequent difficulties of enforcement, the trend in gambling law and policy has been away from strict prohibition to regulation, with distinctions made according to type and sponsorship of gambling activity. This is not entirely new. Even at common law, gambling was not criminal if the game of chance was played privately. Only when conducted openly or notoriously, and where inexperienced persons were fleeced, was gambling a crime. Most gambling statutes imposed minor misdemeanor penalties for public social gambling, with somewhat harsher penalties for gambling with a minor. Gambling by a professional player might be classified as a felony. The 1976 National Gambling Commission gave considerable attention to state criminal laws prohibiting gambling—and found that they were more widely violated than any other type of prohibition. Criminal violation of state gambling laws was scarcely an issue for the National Gambling Impact Commission. Instead, the Commission focused on social policy and consequences of the widespread growth and acceptance of legal gambling.

Gambling and Organized Crime

Federal criminal law monitors organized crime and gambling through the Gaming Devices Act of 1951 ( Johnson Act, 18 U.S.C. & 1804), which prohibits interstate transportation of gaming devices; the Racketeering Influenced and Corrupt Organization Statutes (RICO, 18 U.S.C. & 1961 et. seq.); and amendments made in 1985 to the Bank Secrecy Act (31 U.S.C. & 103), also known as the Currency and Foreign Transactions Reporting Act). The latter act requires several cash intensive businesses, and explicitly casinos, to report cash transactions in amounts greater then $10,000. In addition, the Money Laundering Control Act of 1986 and the Treasury Department’s Financial Crimes Enforcement Network were enacted to ‘‘establish, oversee, and implement policies to prevent and detect money laundering’’ (U.S. Treasury Order No. 105–108).

The federal interest in casino gambling can be traced to Nevada’s casino gambling industry, which was established and developed by wellknown organized crime figures. Although not all casinos have connections to organized-crime, such roots have at times become visible. During the 1970s, a number of casinos were found by Nevada authorities and the U.S. Department of Justice to be infiltrated by organized crime families who controlled union pension funds that facilitated casino expansion.

The introduction of strong regulatory measures by the states has been a factor in enabling casino gambling to expand throughout the United States. Moreover, gambling enterprises are typically owned and run by major hotel and leisure industry companies, whose stocks are publicly traded, reviewed by financial analysts and the Securities and Exchange Commission as well as by federal and state law enforcement agencies. In the 1980s only two U.S. jurisdictions, Nevada and New Jersey, had legalized casinos, in good part restrained by the industry’s history of organized crime connections and financing. By the year 2000, twenty-eight states had legalized some form of casino gambling, usually in resorts, such as in Biloxi, Mississippi, or on riverboats. Detroit, Michigan, was the only major industrial United States city to have legalized casinos. Approximately 260 casinos were located on Indian lands, with many more expected, especially in California, in the twenty-first century.

Native American Tribal Gambling

The U.S. Supreme Court issued a landmark decision in California v. Cabazon Band of Mission Indians, 480 U.S. 202 (1987), holding that California had no authority, on Indian lands, to enforce its criminal statutes forbidding bingo. The Court declared that gambling is a legitimate tourist activity, like hunting and fishing, for Indians to exploit. Congress passed the Indian Gaming Regulatory Act (IGRA) in 1988 to provide a statutory basis for conducting gambling on Indian lands. IGRA divides gambling into three classes: Class I consists of traditional tribal games; Class II consists of games such as bingo, lotto, and punch cards. If these games, such as charity bingo, are permitted by a state and do not violate federal law, they may be conducted on Indian lands without state approval. Class III consists of all other games, especially casino games, parimutual racing, and jai alai. To introduce casino gaming, IGRA requires states to negotiate compacts with Indians. From 1988, when IGRA was passed, to 1997, revenues from tribal gaming grew more than thirtyfold from $212 million to $6.7 billion (National Gambling Impact Study Commission, p. 6–1,2).

Nevertheless, disputes have arisen between states and Indian tribes over the requirements of IGRA in the areas of regulation, the scope of permitted gambling activities, and the requirement that states negotiate in good faith with tribes. The U.S. Supreme Court, in Seminole Tribe of Florida v. Florida, 517 U.S. 44 (1996), held that, under the Eleventh Amendment, Congress was forbidden from authorizing suits by Indian tribes to bring states to the bargaining table to negotiate a gaming compact. This decision, in effect, invalidated the good faith negotiation requirement of IGRA.

By no means, however, did the Seminole decision portend an end to the expansion of Class III (casino) gambling sponsored by Indian tribes. States could voluntarily negotiate with Indian tribes, as Connecticut had earlier with the Mashantucket Pequot tribe, who built and ran the highest-grossing casino in the world. In September 1999, California’s governor and legislature ratified gaming compacts with fifty-seven tribes. In March 2000, California voters passed a constitutional proposition ratifying these compacts and legalizing a major expansion of Indian casino gambling in California.

Gambling: Personality and Social Costs

Fun, excitement, and the occasional thrill of winning seem to motivate most gamblers. Whatever else may be said against it, gambling is not physically risky. Some psychologists have even argued that gambling can be psychologically beneficial because some gamblers affirm their existence and worth by using skills in a risky setting (Kusyszyn). Other psychiatrists compare the excitement of gambling to the intoxication of drugs. A psychologist who interviewed members of Gamblers Anonymous seems to agree: ‘‘The compulsive gambler continues to bet because the action has come to be a refuge from thought of the outside world. His anxieties associated with his wife, family, debts, or job disappear when he concentrates on money and action’’ (Livingston, p. 55).

Pathological gambling is often cited as a major cost of gambling’s expansion. A Harvard University sponsored meta-analysis of research on gambling found that 2.9 percent of gamblers had in the previous year reported ‘‘disordered and pathological’’ gambling. The lifetime rate was 5.4 percent. This was low as compared to alcohol dependence and abuse (9.7%, previous year; 23.5% lifetime). Disordered gamblers often experience ‘‘co-morbidity,’’ that is, other life problems, such as alcoholism or drug abuse.

Those citing the social costs of gambling usually include, in addition to pathological or disordered gambling, its attraction to youth, elevated crime rates, suicide rates, family problems, bankruptcy, and the corruption of legislators. However, since gambling also provides economic benefits through employment opportunity, economic renewal of declining resorts and urban areas, and taxation, legal gambling has become an increasingly attractive option for many communities. As expansion has continued, at the turn of the century a backlash has occurred, with several states declining to introduce lotteries or casinos.

Internet Gambling

Five federal statutes address Internet gambling, particularly the Wire Act (18 U.S.C. & 1084), which makes illegal the use of ‘‘wire communications’’ to assist with placing bets or wagers. The Wire Act’s applicability to the Internet is nevertheless questionable in an era of wireless cellular and satellite technologies.

Several states, including Nevada, Texas, Illinois, and Louisiana, have introduced or passed legislation specifically prohibiting Internet gambling. Nevertheless, the large majority of Internet gambling sites, along with their owners or operators, are beyond the reach of state attorneys general.

On 17 July 2000, the U.S. House of Representatives voted down the Internet Act, legislation that sought to shut down many new online gambling sites—the number of such sites was estimated at between seven hundred and one thousand—most of which operated beyond U.S. borders. Proponents of the legislation included an unusual coalition of Nevada gaming interests, major sports leagues, and Christian conservatives. Proponents cited the potential dangers of Internet gambling, including the undermining of the integrity of sporting events; the potential for defrauding unsophisticated gamblers; the ease of access by children; an increase in gambling addictions; and the need to preserve state revenues from legal, state-run gambling.

Opponents carried the day arguing that the legislation would drive online gambling underground; tamper with the Internet economy; invade Internet privacy; and be difficult to enforce against sophisticated but inexpensive technologies. Even assuming that law enforcement could develop the technological capacity to detect violations, provisions allowing for prosecution of gamblers would require enormous expansion of federal law enforcement to obtain and administer search warrants and subpoenas. Also cited were issues of jurisdiction, comity, and sovereignty, especially where other countries have chosen, or likely will choose, to regulate, that is, license and tax, Internet gambling.

Most basic to the legal and social issues of Internet gambling is the reality that cyberspace transcends borders. Consequently, Internet gambling markets are inherently global, undermining the traditional territorial basis for legal regulation of borders. Governments have the power to grant licenses and to tax within their sovereign territory. The Internet makes it possible to supply the demand for gambling ‘‘services’’ such as blackjack, poker, sports, or horse race betting outside any state or national borders, and without paying gambling privilege taxes. State-licensed casinos in the United States are taxed on their winnings at 7.75 to 8 percent, as in Nevada and New Jersey, and to two to three times that amount in some riverboat states. Internet purveyors will be able to offer better odds to price-sensitive gambling consumers. Will gamblers demand better odds from land-based gambling sites, such as casinos and racetracks? Will states be forced to lower gambling taxes? Will cyberspace gambling replace sited gambling or increase the demand for it? At the onset of the twenty-first century, predictions are difficult. Nevertheless, most commentators agree that gambling on the Internet will increase, perhaps exponentially, as the new century unfolds—and with uncertain but feared consequences regarding gambling taxation, the social costs of expanded gambling, and the viability of present control systems through licensing, taxation, and enforcement.

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