Gambling in California

By Roger Dunstan


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.

Gambling is a Major Category of U.S. Leisure Spending

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.

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.

Casinos Account for Major Portion of U.S. Gambling Handle...

But Relatively Greater Gross Profits go to Other Games

Charitable 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

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

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.


Form of Casino Gaming

Year of Legalization


Unlimited Stakes


New Jersey

Unlimited Stakes


South Dakota

Limited Stakes






Limited Stakes






Riverboat, Dockside



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

Land-Based Casinos are Still Largest 1995

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.

Top U.S. Publicly-Owned Casino Companies

Indian Gaming

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 Gambling

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.

Trends in U.S. by Gaming Handle 1982 to 1995

Trends in U.S. by Gaming Handle 1982 to 1995

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.

Parimutuel Wagering


Card Rooms

Casino Gaming

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

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:

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.



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.

  1. The United States has had a long history of allowing some forms of legal gambling and a degree of tolerance of illegal gambling.
  2. 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?


III. Lotteries

" 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.

Largest State Lotteries Sales - 1995

Per Capita Lottery Sales - 1995




Washington , DC












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

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 lottery is one of the appeals of lottery gaming.

There have been some instances of fraud in modern lotteries, although the incidents pale in comparison to the experiences of the 18th and 19th century American lotteries. In 1982, there was a scandal in the Pennsylvania lottery. In a drawing where balls were used to determine the winning number, some of the balls were injected with fluid to make them heavier. Because they were heavier they would be chosen in the mechanized selection procedure. The perpetrators included the TV announcer and were quickly discovered. Another significant lottery scandal also occurred in Pennsylvania when a computer vendor printed a ticket with the winning numbers. Again the perpetrator was quickly discovered. In a slightly different kind of case, New York closed down its lottery for a period after the agency announced winning tickets that the lottery officials knew had not been sold.

States Have Been Very Effective at Stimulating Demand. As noted, New Hampshire started with a couple of drawings a year. The results were not spectacular. As more states legalized lotteries, the states have become very effective at innovating and creating new games. One of the first innovations was to increase the frequency of drawing and the size of the prizes. Another new product was the instant tickets, termed "scratchers." Then lotteries started daily drawings which are modeled after the illegal numbers game. One of the biggest booms to lotteries was the introduction of Lotto. Lotto is a game where winners are determined by matching the player's number with numbers that are drawn. If the winning numbers are not held by a player the prize rolls over and grows. The rolling over of the prize is crucial to a modern lottery's success, because it creates a large jackpot which has a significant effect in stimulating sales.11

Lottery Players are Widespread. Lotteries are the most popular and broadly played form of gambling despite having the lowest payout. A large proportion, about 50 to 60 percent of adult Americans play legal lotteries in lottery states. Two-thirds of these play regularly, which means that about one-third of the adults are regular players. Heavy players are about 10 percent of all lottery players.12 The poor, minority, Catholic, undereducated, and middle-aged are all more likely to play.13 Two of the first 11 big winners in California were illegal immigrants.

There is substantial evidence that youths play the lottery, although they are forbidden by law. Studies have found large number of high schools kids playing lottery games. Some of these individuals have characteristics of pathological gamblers.14

The total number of all lottery players is probably greater then reflected in statistics because illegal lotteries still exist. They can exist because their payout ratio is much higher. State lotteries are a very unattractive gambling proposition as they return a relatively small amount of the money as prizes.

The Typical Individual Spends $100 Annually.15 This amount exceeds the amount spent directly on prescription drugs and reading materials. Also, a small number of poor families spend a very large sum on lotteries.16 In general, the amount spent on lotteries per person does not vary as much as the percent of income spent. That is because higher income people spend proportionally much less on the lottery.

Research has shown that a relatively small minority of customers provide a large share of revenues. A study based on California data showed that, typically about two-thirds of the take is provide by about 10 percent of the customers.17

Lotteries have come to be seen as "implicit taxes" by researchers.18 That means that they are not, of course, taxes because no one is obligated to pay them. But lotteries are similar to taxes because they raise money for public purposes. Some critics would argue that lotteries are not wholly voluntary because of the coercive nature of the advertising and the fact that people buy them on impulse.19 The counter argument is that it is in fact a voluntary purchase. Even if purchased on impulse, so are candy bars and lottery tickets do not cost much more.

Lotteries Raise a Disproportionate Share of Money From Low-Income Groups. Almost every study conducted by economists and researchers has found lotteries to be regressive form of raising money.20 Regressive means that as income rises, the proportion of money spent on a given product, lotteries in this case, declines. The regressivity of a lottery is heightened because of how the money is spent. The proceeds tend to go for programs that benefit the population as a whole, namely education. The regressivity could be diminished if lottery proceeds went for programs that aided lower income groups exclusively.

In other states there has been criticism that lotteries have targeted low-income people. The lottery in Illinois rented billboards in Chicago 's most blighted neighborhoods with the slogan "This Could Be Your Ticket Out."21 After receiving significant criticism, the ad campaign was dropped.

Why do People Play the Lottery? The main reasons are availability, no skill is required to play, players have little or no fear of corruption, and gamblers can wager small amounts. People play despite the low payout compared to other forms of gambling. However, playing the lottery is a cheap way to have an opportunity of winning big dollars and become a celebrity. If you win a big lottery prize you are put in the newspapers. The celebrity status of winners may be an important aspect in encouraging play.

The odds of success in lotteries do not seem that important to players. When interviewed, consumers do not seem to know the odds or the payout rate. Researchers have found that once people believe that a low probability event can occur, they tend to overestimate the chances of it occurring.22 And a small number of people do win and win large amounts of money, although the overwhelming majority lose money.

Lotteries give an illusion of control to some players. Because you can pick your own numbers in some games, you can choose your own lucky number. Tabloids feature articles about how to improve odds at picking lottery numbers, obviously a forlorn hope because the winning numbers are a product of a random process. Another attraction of the lottery is that people enjoy the non-monetary aspects of it, including talking about playing, engaging in the ritual weekly purchase, socializing with friends and coworkers to pool to buy tickets, and dreaming about winning, perhaps the favorite activity among lottery players.

According to some research, lotteries recruit people into commercial gaming, especially in states that have had little legalized gaming or exposure to such activity.23 This finding is interesting because lotteries have been opposed by commercial gaming interests. Another view is that lotteries have sanitized gaming and popularized it.24

Gambling can be an addiction for some gamblers and the resulting costs from these compulsive gamblers is quite significant as discussed in Chapter IX. It is unclear what role lotteries are having on the compulsive gambler.25

Illegal Gambling Isn't Eliminated by Lotteries. One justification that has been used to win approval of lotteries is that they will undercut the illegal numbers game. Nevertheless, illegal numbers still persist, although they are probably smaller.26 Numbers persist because its convenient, flexible, offers credit, and if you owe the government for taxes or welfare, it may be a better place to bet your money. And the payout is much larger than the approximately 50 percent of state-run lotteries. Although the size of numbers is not known, researchers note that estimates put drugs as a far bigger source of funds to criminal interests.27

Economic Impact of Lotteries is Unclear. The lotteries help retailers that sell lottery tickets, especially the small ones. But of course by removing money from expenditure on other goods and services it can have a harmful impact on other retailers, but that has not been quantified.

Some research on the California lottery shows that it has a pronounced impact on rural areas. The lottery raises money throughout the state, but proceeds and purchases of inputs do not benefit the state equally. An economist estimated that the lottery may take $711 million out of rural California , in other words, it is an "anti-rural development program."28

There are New Directions for Lotteries. State lottery commissions are intrigued by several new directions. These include video lottery terminals and betting at home through touch-tone phones or cable television. Another is sports betting. Sports betting may be the most popular type of betting, although much of it is illegal. Four states have used sports betting in the lotteries, but Congress acted to outlaw it at the behest of professional athletic organizations. There was a widespread concern that any legalized sports betting could make the athlete more concerned with the bet than the game.

State lotteries have not been involved in casino gaming. A different situation exists in Manitoba , Canada , where the lottery operates a casino.

Lotteries have gone to quickdraw keno and it has become quite popular. Monitors are placed in bars and restaurants and drawings are held on a very frequent basis, approximately every five minutes. Critics argue that it exposes young people to casino-type gaming. California earned more than any state on quickdraw keno.29 The state's earnings plummeted sharply after the California Supreme Court ruled that the lottery's keno game was not a lottery game as authorized by the constitution and was illegal because it was a banked game. Lottery games are played against other players and not against the house, in this case the California Lottery. California law prohibits all banked games, that is those games where the house has a stake in the outcome.

As will be discussed further in the Indian Gaming section, the Coeur D'Alene Indian tribe in Idaho is proposing a national lottery. That lottery would be available in all states that have a lottery, including California . Such a lottery would allow someone to use a credit card to purchase a ticket over the phone. The person would be able to buy on credit and would not have to leave his own home. Another advantage is that the lottery does not have to earmark money for a purpose, such as the California lottery. Some lottery analysts say this could be a large advantage.30 The tribe is, however, proposing to share the revenues with other Indian tribes and states. Whether this will drive their payout to a higher or lower level than the state's is not clear.

There is a strong link between the lotteries and Indian gaming. The Indian tribes are allowed to operate whatever type of gambling that is not prohibited to everyone within a state. The games used by the lottery are often used to pave the way for expanded Indian gaming in states that do not otherwise allow casino gaming.

Lotteries May Not Stay Public. Governor Rowland of Connecticut has proposed selling a portion of the state lottery to private investors to raise money for the state. It would not have a significant impact on the operation because only a minority, about 6 percent of the state lottery, would be sold.

Appendix I

Start-up Year



Approval Rate


New Hampshire




New York




New Jersey




























Rhode Island




























Washington DC




















West Virginia








South Dakota


















































New Mexico




VII. Why do People Gamble?

Earlier sections of this report presented data on the growing popularity of gambling nationally, as well as in California . Given the popularity of gambling, this raises an obvious question: "Why do people gamble?" What is the major motivation for engaging in this activity? And why do some people gamble more than others and who are these people? Why do people gamble when it isn't a sure path to riches? As one researcher noted:1

"Yet the fact that empirical evidence strongly indicates that the best way of finishing up with a small fortune as a result of gambling is to start with a large fortune is played down."

Gambling is defined by the Webster's New World Dictionary as the following:

Various Theories Exist on Why People Gamble. There is a debate over whether the motivation to gamble is positive or negative. A common view is that gambling is negative. In particular, this view is common among religious groups.2 Others argue that the motivation is positive, that people enjoy gambling and it is usually a harmless diversion. Because people enjoy it they continue to gamble in spite of losing.3

Any discussion of the motivation of gambling usually starts with the natural comparison to life. Life is a gamble. Everyday, people are faced with situations which involve risk and chance.

Gambling activities are extensions of the risk and chance in life. The activity of gambling becomes play, it becomes a game. Gambling allows the person the choice of engaging in the activity, the amount of risk and, in many cases, the stakes. The stakes are a necessary element for many people. It turns the bet into not just an opinion but a commitment.

The concept of gambling mimicking the risk and chance of life has a parallel in the history section of this report. As noted in that portion, gambling was a popular activity during the gold mining era. Mining was a high-risk enterprise that required constant gambles by the participants. Considering that the people who accepted risk were drawn to mining, it is not surprising that gambling would become a popular leisure activity.

The fact that recreational gambling mimics life does not really help us determine why people gamble. If risk and chance are integral parts of life, why do some people seek out gambling activities and why are others content without it? Researchers have attempted to answer this question, but thus far no definitive answer has been found, but plenty of articles have been published.

Another way to determine why people gamble is to ask them. Why do people say they gamble? In a survey in Washington , those sampled reported that they gambled for fun, to win money, or they were looking for excitement and a challenge.4

Modern theories of gambling motivation are quite a change from some earlier theories. Early social scientists theorized that gambling was a way to deal with the pressures of industrialization. Karl Marx grouped it with religion as an opiate for the masses. Psychoanalysts had a different view. Sigmund Freud analyzed Fyodor Dostoyevsky's heavy gambling and diagnosed him as punishing himself for his oedipal urges.5

Different groups are more inclined to gamble than others. A review of several studies on demographic factors which relate to gambling behavior helps answer the question of who gambles the most. The following represents a synopsis of some of the research findings:6

VIII. Why do People Gamble Too Much?--Pathological and Problem Gambling

To many people, gambling is a simple form of entertainment. But to some others, it becomes an uncontrollable behavior. Many terms are used to describe a person who has a problem with gambling, including pathological gambler, gambling addict, compulsive gambler, or problem gambler. All of these terms are used to describe a person for whom gambling has become more than an innocent diversion.

Some of these terms lack specific meaning. This report will follow the literature and use "problem gambling" to mean an umbrella term to describe a situation where gambling activity disrupts one's life, but the extent of the disruption is not defined. Problem gambling includes pathological gambling, which is a more severe condition and is a term with specific medical meaning.

Pathological gambling is recognized as a medical disorder by the American Psychiatric Association and has elements of addiction similar to alcohol and drug addiction. It describes a gambler who loses control over gambling behavior with damaging personal, social and financial effects. Very often, the pathological gambler suffers from legal problems. Because the gambler is losing control it is referred to by mental health practitioners as an impulse disorder. Pathological gambling is a progressive disease, meaning that the symptoms will get worse over time. Mental health professionals see it as a complex disease often seen in conjunction with other disorders including depression and chemical dependency.

Graphic Stories Exist of Those Whose Lives Were Destroyed by Pathological Gambling. The media readily tells the tales of those whose lives were destroyed by their uncontrollable gambling. These are some stories that have been pulled from press clippings:1

Tragic examples such as these receive an enormous amount of publicity and are often used by anti-gambling groups to fight the spread of legalized gambling. Industry observers credit attention from these stories as blocking laws that would have relaxed betting limit regulations in Missouri .2

Describing the behavior is much simpler than explaining why the problem gambler persists in behavior which is so damaging.3 There are several models that are used to describe the problem gamblers.

Mental-health professionals prefer the term "pathological gambling" because it stresses the disease aspect of the issue. Pathological gambling is a progressive and chronic disorder that is clearly distinguished from social gambling. Psychiatrist Richard J. Rosenthal, who has written the official medical definition, defines it as:

"a progressive disorder characterized by a continuous or periodic loss of control over gambling; a preoccupation with gambling and with obtaining money with which to gamble; irrational thinking; and a continuation of the behavior despite adverse consequences."4

The results can be quite devastating. The disorder is incapacitating. The pathological gambler is unable to maintain solvency or provide basic support for themselves or their family. Further, as noted in the American Psychiatric Association description of the condition, "When the individual's borrowing resources are strained, the person may resort to antisocial behavior to obtain money."5 That is a vague medical term for theft, embezzlement, fraud, and other crime. A significant percentage of pathological gamblers have a second addiction to drugs or alcohol.

Pathological Gambling Recognized as a Medical Problem. In 1980, the American Psychological Association included pathological gambling in their Diagnostic and Statistical Manual of Mental Disorders, Third Edition (DSM-III). By including pathological gambling, it gave official medical recognition as a disease. Pathological gambling is also identified as a disease by the World Health Organization.

Since 1980, the definition of pathological gambling has undergone some major changes. At first, the emphasis was on the damage and disruption caused by the disease. The motive was of little importance. Subsequent versions have changed this description and revised the diagnostic criteria for pathological gambling, emphasizing the addictive nature of the disease. It mentions issues concerning tolerance and withdrawal, suggesting a physiological basis for the disorder. In the case of the pathological gambler, tolerance refers to their increasing need for gambling and usually gambling with greater risks to get the same emotional effect. As with chemical dependency, withdrawal refers to the pain and discomfort associated with not practicing the behavior.

According to the latest version of the manual, DSM-IV, a person who exhibits at least five of the following behaviors may be a pathological gambler:6

Researchers consider pathological gambling an invisible problem with symptoms that are hard to distinguish from non-pathological gambling.7 This contrasts with drug or alcohol addiction where there are obvious symptoms of intoxication. Further, individual cases will vary greatly.8

Who is Most at Risk For Becoming a Pathological Gambler? Research has shown that there are factors that increase the risk of being a pathological gambler. Surveys of pathological gamblers show a greater proportion of:9

These findings are from prevalence surveys, not from studies of who is in treatment. White middle-aged males are the pathological gamblers most likely to end up in treatment.10

Researchers have been less successful in determining what causes problem gambling and what the differences are between problem and normal gamblers. There are many people who have a variety of risk factors but don't become problem gamblers.

Studies Indicate That There is a One to Five Percent Incidence of Problem Gambling in the Adult Population.11 Specifically, the studies usually show the following results:

These incidence figures are surveys for the adult population as a whole. The rate of compulsive gambling among teens may be higher, reaching seven to eleven percent.12

One of the most comprehensive research projects on compulsive gambling prevalence was conducted by Rachel A. Volberg with funding by the National Institute of Mental Health.13 In this study, randomly selected individuals in five states were interviewed by telephone, using a survey instrument that detects pathological gamblers. California was one of the five states surveyed. There have been surveys of other states.

Prevalence over Lifetime







Problem Only


California , 1990




Average of 13 States





Current Gambling Problems







Problem Only


Average of 6 States




Controversy Exists Over the Accuracy of the Surveys. The survey instrument used is the South Oaks Gambling Screen (SOGS). This survey instrument is a twenty-item scale that was derived from the diagnostic criteria for pathological gamblers published in DSM-III.14 Critics of the SOGS say that the instrument is too broad and vague, and it overstates the persuasiveness of the problem.15 They point out that one incident of an argument with a spouse and some remorse over losses from exceeding gambling limits can lead to a positive result on the screen. The potential for false positives may be increased because gambling may be more likely to lead to occasional problem elements by normal individuals.16 In other words, there may be some low or occasional incidence of distress that cannot truly be considered problem or pathological, but does result in a positive score according to the test.

Another criticism is that the screen doesn't accurately detect problem gambling in the young. The screen was developed from response and behavioral patterns of adult pathological gamblers. There is also a concern that it based on the criteria in the DSM-III, not the DSM-IV. Those that use the screen retort that it is accurate for many different groups.17 The screen is in the process of being updated to the new DSM-IV definitions.

Some critics argue, however, that the screen doesn't detect enough problem gamblers. Some observers are concerned that researchers can't realistically conduct phone surveys of problem gamblers. They point out that problem gamblers are at the clubs or afraid to answer the phone because the gamblers don't want to talk to somebody they owe money.18 Another point of interest is that there is a large rate, 27 percent in the California study, of people who refuse to answer a telephone survey. That is similar to other telephone surveys regarding sensitive questions.19

Controversy Exists Regarding Whether Prevalence Studies Suggest a Link Between Pathological Gambling and Legal Gaming. Results of the Volberg study suggest that problem gambling is a greater problem in those states where legal wagering has been available for some time.20 This conclusion is arrived at by comparing rates in different states. Drawing conclusions from comparisons of one state over time or a cross-sectional study of multiple states is difficult. Such comparisons are based only on the prevalence rates and not by looking at population differences that could explain the different rates.

Another way that prevalence studies attempt to shed light on the same question is by conducting the studies over time. In South Dakota , prevalence studies show that despite the legalization of casinos, the prevalence did not change in a statistically significant way over time. A study in Iowa came to quite different conclusions. It showed a dramatic increase from 1.7 percent in 1989 to 5.4 percent in 1995.

Mental health professionals who treat pathological gamblers tend to believe that legalization leads to increased compulsive gambling.21 The DSM specifically notes that the onset of pathological gambling can result from greater exposure to gambling.22

Counselors form this belief based on their experience and the nature of addiction. They tend to hold the view that some people may be predisposed to an addiction. If a person was predisposed to have a drinking problem, but never came into contact with alcohol, she or he would not become an alcoholic. The pathology of their predisposing factors may still cause some damage to them and others. They might also be some other kind of addict, but they would not be an alcoholic. In the same way, a person with a predisposition to problem gambling may not see it manifested until access to gambling becomes available. Another element of this is that legalization leads to greater acceptance of gambling and greater exposure for the average person.23

This behavioral pattern occurs because pathological gambling is a problem of impulse control. The more accessible gambling is, the harder it is to maintain the control. Despite the logic of this line of reasoning, there are no prevalence studies that prove the notion that expanded gambling will lead to increased problem gambling.

Another theory of problem gambling counselors is that electronic games such as slots and video lottery terminals are especially addictive.24 They refer to these as the "crack cocaine of gambling," because of the low cost per wager and their rapid play.25 This connection is disputed. Those disagreeing point to survey results from South Dakota . The amount of video lottery sales in the state increased, but prevalence of gambling problems remained unchanged.26

Regardless of any possible links, legal gambling probably cannot be blamed for all pathological gambling. Research in Texas before the lottery began operating showed that a small percentage of Texas had gambling problems.27 Conversely in Louisiana , a recent study showed a very high rate of gambling problems and that problem gamblers tended to spend more than those in other states.28 Louisiana has a great deal of accessible legal gambling.

If gambling were prohibited, would problem gambling stop? Probably not. According to Jean Falzon, executive director of the National Council on Problem Gambling, "Problem gambling is going to exist despite the availability of legalized gambling or the lack thereof. Many problem and compulsive gamblers have problems with sports betting which is predominantly illegal in this country."29

Social Costs in California Could Easily be $5 Billion. The following table shows how the cost estimates are derived, and shows social costs that range from $1 billion to $10 billion. These are derived from cost estimates from other states and prevalence studies both from California and other states. It is not known with accuracy either the social costs or the actual number of problem gamblers. Hence, the table presents a range. The social costs per pathological gambler are in the low range as other studies have shown costs as high as $50,000 to $80,000 per gambler.

Estimated Social Costs of Pathological Gaming in California

Percentage and Number of Pathological Gamblers

Cost Per Pathological Gambler

Total Cost




$844 Million


$1.6 Billion




$1.7 Billion


$3.2 Billion




$2.5 Billion


$4.8 Billion




$5.0 Billion


$9.5 Billion

Source: California Research Bureau

The social costs of pathological gambling are explained in more detail in the economics chapter.

The State of Florida estimated that crime and social costs attributable to casinos would total $2 billion at a minimum. For California , with slightly over twice the population, the total would then exceed $4 billion, a figure in line with the above estimates.

Pathological Gamblers Play a Number of Different Games. Surveys have shown that some play a number of games. A study in a state with casinos showed that the majority of problem gamblers were having problems with non-casino gambling, including the state lottery.30 The study also looked at the reasons that people called a help-line. Among these, a small majority said their problem was related to casino gambling. But, significant numbers said that their problem was lotteries or sports and race betting.

There are Two Main Types of Pathological Gamblers. With so many different types of gambling opportunities, the course of the disease can be broken into two types:

Pathological Gambling and Gamblers Exist Outside of Gaming Establishments. One article points to Donald Trump and Robert Maxwell.31 Both men were gambling that their empires would emerge unscathed from the challenges they faced. Both men gambled incorrectly as subsequent events have shown. They are identified because of the nature and size of the risks they took. Experts in pathological gambling point to some of the more notorious financial market trading scandals as evidence of pathological gambling outside of gaming establishments.32

Resources for Treating Problem Gamblers Have Grown. Historically, problem gambling was regarded as an individual failing rather than as a medical or social problem.33 As such, little treatment was available.

The original treatment for problem gamblers was Gamblers Anonymous. It is also known by the shorthand GA. GA was established in 1957 and until the 1970's, it was the only treatment program in the United States for problem gamblers. The program of Gamblers Anonymous is based upon Alcoholics Anonymous. AA is a spiritual program that uses twelve steps as a guide to help program participants recover from alcoholism and its effects. GA uses the same basic twelve steps for treating uncontrolled gambling. The program is supported entirely by member contributions. The only requirement for membership is a desire to stop gambling. Like alcoholics, GA members attend meetings and talk of their experiences. GA members believe that they cannot control their gambling and must abstain. They learn to avoid gambling establishments and also learn that gambling won't solve their problems. For the problem gambler, the fellowship of GA represents a source of comfort, friendship, and social activities rather than turning to gambling.

Since its Inception, the Number of Gamblers Anonymous Chapters Has Grown Rapidly. In 1960, there were 16 chapters in the U.S. This number grew to 130 in 1970, and by 1988, 600 chapters existed.

The National Council on Compulsive Gambling (now called the National Council on Problem Gambling) was founded in 1972. The first inpatient treatment program for compulsive gambling was established at the Veterans Administration Hospital in Ohio in that same year.

With the inclusion of pathological gambling in the DSM-III in 1980, people started to look at this problem as a disease, and paid more attention to treatment. There were an increasing number of treatment programs for compulsive gambling. Some programs were established by state legislatures in response to concerns voiced by the opponents of legalized gambling. There are also a number of private practitioners whose private practices are focused on compulsive gamblers. Generally, treatment is modeled on the treatment of alcoholism and other drug addictions. That consists of 12-step programs, behavioral modification and counseling, including individual, group, and family therapy, although, a review of the literature shows that a variety of treatment forms have been tried, including electric shock treatment and aversion therapy.

Treatment is complicated by the nature of the disease. Addicts are in denial of their disease, hence they cannot be relied upon to accurately report their condition. Many GA members were in therapy prior to joining GA, usually for depression, anxiety, and marital conflict, but their gambling problem was not admitted, recognized, or discussed. The employer can be a valuable tool in requiring an employee receive treatment. But because gambling is a disease that involves loss of control over money, any pathological gambler who is handling money is especially reluctant to let their employer know that they have a problem.

Another complicating factor is that pathological gamblers often don't have insurance to cover treatment. Many are having financial and employment problems so they don't have health insurance. If they have health insurance it may cover alcohol or drug treatment but only rarely gambling.

Effectiveness Rate of Treatment is Not Accurately Known. Although individual pathological gamblers can be quite successfully treated, little is known about the effectiveness of treatment programs. Self-help programs such as GA don't keep track of their success. One study showed that 8 percent of the members haven't gambled two years after joining the program. It is likely the effectiveness is greater because some members take longer than two years to completely refrain from gambling. When GA is combined with outpatient and/or inpatient treatment, the success rate is thought to be more like 50 percent.34 However, many members leave GA because they don't want to abstain or they have difficulty with the concept of admitting a lack of control and having to decide to turn their life over to a power greater than the individual.

There is a school of researchers that argue that prevention is much more cost-effective, because of the high treatment costs and the uncertain success. Prevention programs include public awareness advertising and programs in the schools to make individuals aware of the disease. Again, despite the questions about the overall success rate, clinicians describe the disease as very treatable for any particular individual who has the appropriate motivation and receives the proper treatment.

Very Small Minority of Pathological Gamblers Seek Treatment. Although accurate figures are not known, the consensus of researchers is that it is a small minority. The best estimate for the population of Gamblers Anonymous is about 80,000. There are about 1 to 2 million pathological gamblers in the United States . A much smaller number gets professional treatment without going to GA.

One gambler who did seek treatment was Chet Forte, who was better known as the director of "Monday Night Football." He also was producer-director of the 1984 Olympics. Mr. Forte won 11 Emmy awards. But he also gambled away nearly $4 million including his million-dollar home. He was spared from prison only because the judge recognized his cooperation and his efforts in gaining treatment for his gambling addiction. According to press accounts, he paid back his debts, including back taxes, and continued attending Gamblers Anonymous meetings up until his untimely death from a heart attack in May 1996.

Some States Have Directed Significant Resources to the Problem. California is not among their number. Some examples include Texas where the agency that administers alcohol and drug abuse programs also has a gambling responsibility. The agency sponsored a pathological gambling prevalence survey in Texas . Massachusetts funds the Massachusetts Council on Compulsive Gambling with unclaimed lottery winnings. The State of Texas contributes to the Texas Council on Problem and Compulsive Gambling. Other states have sponsored extensive prevalence studies or provided funds directly for treatment and public education. Some states fund their programs through a portion of the lottery proceeds or fees on gaming activities.

The Gaming Industry Has Responded to the Issue of Problem Gambling. Though there is debate over the prevalence of problem gambling, the industry generally accepts that there are problem gamblers. Some gaming companies are participating in programs aimed at educating the public about problem gambling and providing information about the help that is available to those who need it. But participation is far from uniform. One observer has characterized the industry as doing surprisingly little.35

There are different approaches to educating the public about problem gambling. Toll-free help-lines have become popular and one can see posters or stickers with the 1-800 number posted in casinos. Public service announcements on television and radio have also become popular. These announcements are often sponsored by the casino industry or a specific casino company.

While the industry is taking some responsibility and has been an active participant in the education effort, it does not feel its responsibility extends to treatment. The industry view is that pathological gambling should be treated like any other medical condition. Individual members of industry may have donated to charitable organizations that promote the counseling and treatment of problem gamblers.

Could casinos do more? One researcher noted that it is possible that seasoned casino personnel can be quite effective in identifying pathological gamblers. However, once a pathological gambler is identified it is not clear what is the appropriate response. Industry action is complicated by the concern that a gambler may walk down the street to a competing casino or facility.36

There are Regulatory Strategies That Might Reduce Pathological Gambling Problems. The situation is quite different in European countries than in the United States . In Europe , individuals can request to be banned and even family members can request that an individual not be allowed in the casino. Some areas go so far as to prohibit locals from entering casinos.

The British experience with casinos provides an interesting contrast. This discussion is drawn from an article by the noted University of Nevada researcher Dr. William Eadington.37 British casinos are run on a club basis with members and guests as the only allowed patrons. Credit is not granted and alcohol is prohibited. There is not any advertising for the general public. Casinos are required to provide printed material to advise patrons of wise gambling strategies.

Pathological Gamblers Leave High Costs in Their Wake. People seek treatment for compulsive gambling, but not just because of the losses they run up. Pathological gambling is not just a problem of lost money. Compulsive or pathological gamblers seek treatment when other addicts do, when their life is an absolute mess and they can't take it anymore. Mental health professionals point to factors such as widespread borrowing, deception, and crime making the lives of pathological gamblers uncontrollable. Reportedly, a large number of compulsive gamblers are involved in white-collar crime. Not surprisingly given the pathological gambler's need for funds, a significant proportion of those incarcerated may be pathological gamblers.38

These problems don't even begin to detail the impact of their behavior on their family, including children. In other words, pathological gambling is not victimless. Research has shown that children of pathological gamblers had a variety of problems and were much more likely to be abused. In the parlance of the mental health professionals, "Children of pathological gamblers show more signs of serious psycho-social maladjustment."39

Asians and Native Americans (as well as the young) have been identified as being particularly sensitive to pathological gambling problems.40 Another study identified the elderly, the poor, minorities, and housewives.41 Asians have been identified because gambling is a more accepted part of their culture and participation tends to be much higher. The young are at risk because of their immaturity, which can lead to excess.42 Those involved in treating pathological gamblers also note large numbers of senior citizens, although this may reflect their high participation rate in gambling.43

Underage Gambling Shows Worrying Trends. Some who are concerned about the issues say that gambling-related problems are overtaking drug addiction as the most prevalent problem among teenagers.44 Surveys among young people show that a very large number gamble. The surveys show that about 80 percent responded that they have gambled by the time they were 15.45 Approximately one-eighth of the nation's compulsive gamblers are teenagers.46

An alternate point of view is that young people engage in a variety of experimental behavior of which gambling is but one example, and can be viewed as relatively normal.47

A survey of teenagers in New Jersey showed that 64 percent of high school students had gambled at the casinos.48 As reports note, there are tragic stories behind the figures:

A recent story that received considerable press attention involved three students at a New Jersey high school who ran a betting ring. They were charged with extortion, kidnapping and terrorists threats. The ring came to the attention of authorities when they kidnapped a 14-year old student who owed $500. The student was dropped off at a housing project. The ring took in $5,000 to $7,000 per week.

Many played games that were illegal for minors to play and a significant number also bet on sports. Problem gambling counselors find this pattern of behavior worrying because it is illegal, hence it may have implications for those caught and convicted. Second, gambling among minors may lead to increased levels of problem gambling when they become adults.49 A significantly larger percentage of pathological gamblers than the population as a whole report starting when they were young. At least some mental health practitioners view problem gambling, like alcoholism, as a family disease.50 That is, there is a definite link between parental problem gamblers and their dysfunctional household and a higher level of addiction in their children, including pathological gambling.

The prevalence studies seem to show a consistently higher rate for youthful gambling than adults.51 One study of college students showed that 87 percent had gambled at some point, 26 percent gambled weekly, and 11 percent said they had gambled more than $100 in one day. In that study, 5.7 percent were pathological gamblers, a higher figure than that found in adult prevalence studies.

There is some question about the actions taken by regulators and the casinos to deal with the problems of underage gambling. Although there are figures on the thousands of underage patrons that were turned away or escorted from a casino, according to one researcher, no casino has even been fined for allowing minors to gamble.52 His article is several years old, however, and there are recent press reports of such fines, but it is not know how widespread they are.

Recent Louisiana Study Showed High Proportion of Young Problem Gamblers. The study released in July of 1996 showed that one in seven state residents between the ages of 18 and 21 are problem gamblers.53 The rate was three times the adult rate. Technically these are not underage gamblers, because 18 is the legal age for most gambling in Louisiana . They are also not yet pathological gamblers.

Legal Treatment of Pathological Gambling Varies. Despite the recognition of pathological gambling as a medical condition, it is specifically excluded from the Americans with Disabilities Act. It is at least theoretically possible that a pathological gambler could claim disability under social security. Such a claim would not likely be for the gambling itself, as it isn't clear how that would make an individual disabled and unable to work. However, the gambling would probably be an indicator of another disorder. Many pathological gamblers also suffer from another mental illness.

California law has protected the pathological gambler by not allowing enforcement of the collection of gambling debts. The reasoning of the Supreme Court in a recent case was that, "...the law should not invite them to play themselves into debt. The judiciary cannot protect pathological gamblers from themselves, but we can refuse to participate in their financial ruin."54

The liability of gaming proprietors is largely unexplored. The courts have been quite ready to hold dispensers of alcoholic beverages liable for damages to third parties from accidents caused by drunk drivers. There have not been any lawsuits yet for third-party damages from pathological gamblers, but the analogy has not been lost on observers.

Test for Gambling Addiction

If you answer yes to any of these questions, you might reconsider your gambling, according to experts on problem gambling.

XI. Gambling and Crime

Gambling is often associated with crime. The relationship is easy to understand. Many types of gambling have been, indeed still are, illegal. Hence, by definition, criminals were the only operators of games. When gambling restrictions were relaxed, criminals were the first to open up legal gambling establishments. A lax regulatory framework in Nevada did not prevent members of organized crime from openly owning and operating casinos. To some degree, Nevada needed the criminals to make gambling viable because no one else had their expertise and experience.1

Up to the 1960s, Nevada had a Difficult Time Keeping Mobsters out of the Casinos. Nevada was plagued by teamster financing, hidden ownership, employment of individuals of questionable character and background, and the clear links to organized crime.2 In this context, organized crime doesn't just mean Mafia.3 Nevada improved its regulation only under the threat of federal intervention.4 The federal government believed, with good reason, that Nevada casinos were fueling organized crime throughout the country.

Because of this history, the concern about organized crime usually is raised whenever legalizing gambling is discussed. Even when New Hampshire began its state lottery in 1964, there was concern that organized crime would take over.5

Much has changed since the days when Bugsy Siegel started the first modern casino in Las Vegas . Organized crime has become part of the mystique of gambling but it is without significant influence today. Las Vegas and the Flamingo are part of an historical association with organized crime.

Modern Casino Gaming Has Safeguards to Protect Against Organized Crime. Casino gaming has become one of the most highly regulated industries in America . The companies and individuals involved are very carefully scrutinized and held to extremely high standards. The organized crime scare is simply that, a scare according to many observers.6 Gambling is indeed associated with crime, specifically political corruption.

The casino companies suggest that they are devoid of organized crime influence because they are:

Nevertheless, there remains an ever present concern about organized crime. The sheer volume of money, cash in particular, that is generated by gambling, makes it a tempting target. Organized crime has been successful infiltrating ancillary businesses such as machine maintenance or those that provide other services.7 Often labor unions are used as the vehicle to carry out the infiltration.8 There are examples of organized crime infiltration. For example, as discussed in the section on gambling and politics, the FBI is investigating allegations that Louisiana state legislators took multimillion dollar payoffs to approve an expansion of video poker. The individuals attempting to buy influence were connected to organized crime families.

Researchers state that organized crime is more of a product of illegal or poorly regulated gambling than well-regulated gambling.9 That is especially worrisome because gambling isn't just done within the large casinos. There are many other gambling opportunities and not all are as well-regulated or as free of organized crime influence as casinos. In California , cardrooms and Indian casinos have been a focus of concern about criminal infiltration.

The Role of Organized Crime and Indian Gaming has Been a Controversial One. As noted in the section on Indian gaming, the charge that Indian gaming has been infiltrated by organized crime has been made. Competitors and antigambling interests use that charge as an attack on Indian gaming. Some researchers and industry observers are quick to point out that, however, there is no evidence that organized crime has significantly infiltrated Indian gambling operations.10 Others counter that inadequate regulation and oversight make it harder to find evidence. But there is ample evidence of attempts, some of which have met with success.

The Los Angeles Times ran a lengthy article on Mafia attempts to take over an Indian gaming operation in California .11 The attempts were ultimately unsuccessful. The information used in the article was from a long-running federal investigation. The same investigation eventually ended with the conviction of Richard Silberman, the former State Director of Finance, on charges unrelated to the gambling infiltration attempt.

There have been other incidents.12 Two tribal leaders who had complained that Indians weren't getting a fair share of gambling profits at another facility were later murdered. At the Barona Reservation, a bingo manager was caught rigging games so that shills in the audience could win. Later, he testified about mob involvement in a number of Indian casinos throughout the country. Some of what he said has been substantiated. These events did occur, however, during the earlier years of Indian gaming.

Gambling is a Natural Target for Criminals Because of the Large Amounts of Cash. Gambling operations, including cardrooms, earn large amounts of cash and present particular opportunities for skimming and money laundering. Dealers don't have to continually inventory their chips and money while they are working, providing opportunities for fraud. In addition, cheats are drawn to casinos and cardrooms because of the large amount of money generated by the facilities. Dealer skimming of chips by palming or collusion is probably the greatest risk.13 Clubs allow employees to gamble when they aren't working, a situation that can lead to collusion. Other risks include credit abuse, card cheaters, and currency transaction violations. Because of these factors, proper operations and security are very important.

Skimming has been a significant problem. The Kefauver committee found that it was widespread. There were indictments in the early 1960s of casino owners for tax evasion. Skimming can also occur with the granting of credit. Credit can be granted to individuals who aren't required to repay all of the loan. One solution is to prohibit credit, but that can increase the problem of loan sharking.

Money laundering is another problem. Bettors can come in with a large amount of cash and purchase chips. The chips can then be cashed in, labeled as "winnings" and the money is now legal. In California cardrooms, where the house is not the banker, it is harder to dispute claims of large winnings. Federal regulations require that currency transactions of $10,000 or more must be reported including multiple transactions that exceed $10,000. Employees have to be alert to the time periods and possibility of multiple transactions.

Another issue is kickbacks. These occur in a variety of different situations. Operators can receive kickbacks for allowing money laundering. Employees can be pressured into giving kickbacks for preferred assignments.

Crime has Been an Issue for Cardclubs. Although there has not been an overall comprehensive study, information is available from a report by the Attorney General, new reports, as well as a report by the City of San Jose Police Chief.14 According to these sources, there have been robberies and assaults of patrons who had left the cardclubs after making money. In the news reports, the criminals and victims are usually Asian and have been playing Asian games which frequently have high stakes.

There is debate about the role of the clubs and crime. The City of San Jose produced a memorandum showing dramatic increases in crime in the area where a new club opened.15 But it is hard to know if that is a result of more people coming into the neighborhood or criminals following the money. The police chief of San Bruno states that the club there presents no crime problem.

Some of the crime may be unrelated to the gambling that occurs at the cardclubs. Rather, the club is a suitable place to meet individuals who are willing to buy stolen property, drugs, or cars without registration. Other activities such as loan sharking and credit card/check fraud have been noted. Unfortunately, some of these crimes are difficult to prosecute. There is some belief that gambling crimes are victimless. This thinking ignores the role of organized crime behind some of these. Loan sharking can be difficult to prosecute because the victim doesn't want to be involved.

In the City of Commerce , seven individuals linked to a Chicago crime syndicate were indicted by a federal grand jury for racketeering, extortion, and conspiracy. The loansharking and bookmaking operations occurred in the California Bell Club before the Gaming Registration Act was fully implemented in 1984.

Since then, however, there have been other incidents. A Santa Clara grand jury indicted 14 individuals associated with the Garden City cardclub. Skimming of approximately $4 million in club revenues occurred. The subjects were eventually convicted of filing false income tax returns, making illegal campaign contributions, theft of club assets, and perjury. This is a case where upper level management of the club was involved. While less frequent than participation by low or mid-level employees, the scope for criminal activity is greater when upper level management is involved. Another example was the attempted effort of Chinese organized crime figures to purchase a cardclub.

Detailed information about the cardclub in Bell Gardens , the Bicycle Club, sheds light on criminal acts in cardclubs. The Federal government was a part owner. The club had been seized because it was financed through ill-gotten gains. Following is a listing of some important developments at the club:16

  1. In 1986, Asian games were introduced and club revenues went from around $12 million per year to $60 million, then $80 million annually.
  2. One of the club's pit bosses was arrested and eventually plead guilty to seven counts of extortion and weapons' violations.
  3. Wall Street Journal article identified the Asian Games manager as a member of an Asian crime family.
  4. The Internal Revenue Service fined the club $4.2 million for ignoring laws designed to prevent money laundering.
  5. Government audits turned up a lack of adequate cash reporting and internal accounting controls.
  6. The Attorney General alleged that the founder is skimming millions in the form of kickbacks from the manager of the Asian games.
  7. Three more employees were arrested involving possession of automatic weapons and heroin smuggling. They provided evidence that led to the arrest of the manager for Asian games on conspiracy and extortion charges.
  8. A new Asian Games Manager was hired. Part of the job was for her to grant credit to gamblers and pay operating expenses. Her money came from an organized crime figure.
  9. The sale of the club was discussed with organized crime figures. One is in Nevada 's "Black Book," meaning he is barred from even walking into a casino. The deal eventually fell through.
  10. The casino manager suspends the next Asian games manager. The City of Bell Gardens then forced the manager to reverse the action and canceled the work permit of the club security manager. The Department of Justice suspended the license of Asian games manager and that of the Casino manager.
  11. The Attorney General alleged that the federal trustee had knowingly allowed illegal activities at the club, including loan sharking, kickbacks, and cheating.

The television news show, "60 Minutes" did a report on the club. They were able to catch on camera the laundering of money at the club.

Loan sharking has also been an issue for the clubs.17 This crime is particularly dangerous for the problem gambler who needs money for gambling. Because of their compulsion it is easy to end up in debt to a loan shark.

The purpose of detailing some of the crime is to give a general sense of some of the problems that have occurred. A more detailed listing of cardclub crime can be found in the information available from the Department of Justice.

Federal Concern for Money Laundering Evidence by New Regulatory Requirements. During 1996, the U.S. Department of Treasury's Financial Crime Enforcement Network proposed to more tightly regulate cash transactions at California cardrooms and Indian casinos. The federal regulation adds cardclubs and Indian casinos to the definition of financial institutions under the Bank Secrecy Act. The purpose is to prevent fraud and tax evasion. Under this rule, the facilities will be required to maintain a comprehensive record keeping program and establish anti-money laundering safeguards. Part of the justification that the Treasury provided was that California is unable to monitor and regulate the activities of cardclubs absent additional resources and a gaming commission.

Another Crime Issue Associated with Gambling is Street Crime. U.S. News and World Report did a comparison of crime rates in cities with gambling versus those that do not. The crime rates were significantly higher in the places that allowed gambling.18 Industry researchers dispute the view that cities with gambling have higher crime rates and assert that the rates aren't higher when the tourist population is considered.19 The article failed to consider that these cities are vacation destinations and their population is swollen by the influx of tourists.

Atlantic City showed a jump in crime when gambling was legalized. The city went from 50th in the nation in per capita crime to first.20 But when the number of tourists are taken into account, Atlantic City doesn't appear to have a crime rate that is much different from other cities.

In Deadwood, there were significant increases in crime and violence when gambling was legalized.21 The researcher acknowledges that the influx of people may be the cause. Another possible cause is the boom-town atmosphere.

Another researcher has pointed out that the crime that is attributable to compulsive gamblers is often underreported.22 This includes bad checks, embezzlement, check forgery and fraud. The crime rate is usually for street crimes, which aren't typically attributed to compulsive gamblers.

As noted in the economic section, Australia legalized a number of casinos. As such it offers a kind of a laboratory to see the results of expanded legal gaming. There was a noted increase in minor crimes, including vandalism and property damage by casino patrons. That may just reflect the growing number of tourists. There was not a big crime wave or any infiltration by organized crime.

Illegal Gambling is Still a Significant Problem. How big is illegal gambling? It may run as high as $100 billion per year.23 Other estimates put the figure even higher.24 That may seem like a very large figure, but as noted earlier, sports betting is immensely popular and most of it is illegal. The large extent of illegal sports betting is one of the reasons that some used to advocate its legalization. Others claim that business with illegal bookies would not decline because they offer better odds, credit, tax free payouts, and greater convenience in placing bets and collecting winnings.25

Sports books are not the only component of illegal gambling. In San Jose , police raids led to the confiscation of 60 illegal slot machines at 14 different business establishments.