The Rise and Fall of the Third Wave: Gambling will be Outlawed in Forty Years (1991) (notes)

Published in 1991

On September 6, 1989, the Oregon State Lottery began taking bets on games of the National Football League. Fifty years from now that date will be remembered as the beginning of the end of the Golden Age of Legal Gambling.

If the future depended solely on advances in technology, the future of gambling could be summed up in two words: ‘video poker.” The video poker machine is the closest thing we have to the perfect gambling device.

But we are not about to see video poker machines in every convenience store, at least not right away, no more than we are going to find the other great gaming fantasy, true sports betting, enter every home through the living room television set. The technology already exists, but other important factors shape what forms of gambling are allowed under the law.

It must be remembered that legal gambling is still viewed by a majority of the population as a morally suspect industry. This means that only certain forms will be allowed, and then only under limited circumstances

Part of the answer can be seen in Americans’ attitudes toward legal gambling. Most people simply do not take gambling seriously, unless they are asked to approve it in their own backyards. Then, if it is viewed as one of the “safe kinds,” bingo or a state lottery, it will be allowed. If it can be isolated to mountain town, or somehow sanitized by 30 feet of river water, that is somehow also viewed as all right. But if the general population is asked to vote for casino gambling or slot machines where their children might be tempted to play them, then they will say no.

Gambling will continue to spread, in this manner, for the same reasons it has in the past:

1. The morality argument is dead. It is no longer considered acceptable to oppose gambling on the ground it is immoral. This reflects a general trend throughout the United States of the rise of situational ethics. But gambling opponents lost their main moral spokesmen. Once churches started running bingo games they lost the right to say that betting on a horse race is a sin. Government no longer enforces morals. Seventy years ago all gambling was illegal and it was a crime to sell someone a drink. Today, government is selling lottery tickets and bets on football games and there is talk of legalizing drugs. With no one to say what is right or wrong, everything has become a cost/benefit analysis. And gambling makes money, even accounting for social costs, particularly if it is run as a monopoly. It is certainly less painful to start another game than to raise taxes.

2. Government has said it is okay. With all the talk about forbidden fruit, it is important to remember that most people will not break the law, even if they will not get caught; drivers stop at red lights at 3 a.m. in the desert. There are also millions of adults who believe government knows best and will protect them; it is not a coincidence that George Orwell called his 1984 dystopia dictator “Big Brother.”

3. The outrageous becomes acceptable if taken in small doses. This is the tremendous power of incremental change. The first state lottery of this century, the New Hampshire Sweepstakes in 1964, cost $3, required players to fill out a form, and drawings were held only twice a year; it was a financial failure. New York followed; but it too did not live up to its expectations. But other operators, particularly New Jersey, discovered the secret of marketing gambling, making lottery tickets cheap and drawings often. In a series of short steps, twice-a-year to weekly to daily drawings to rub-off tickets, we have arrived at Player Activated Terminals, where the lottery player can put money into a machine and be paid on the spot. Thirty years ago it would have been unthinkable that states would be operating such slot machines.

4. The domino effect. New Hampshire was first, but 80% of its players came from New York, Massachusetts and Connecticut. The second lottery was New York, the third, its neighbor, New Jersey. When every state has lotteries, the first to introduce off-track betting or casinos has an advantage. In the next few years, the non-lottery states will fall like dominoes; in fact, Texas is the only prize left worth pursuing. Low-stakes and riverboat casinos will spread like ripples in a pool throughout the middle of the nation.

5. The easy money is not so easy; states are hooked on gambling. Lottery tickets are poor consumer items; people buy them for a while and stop. States are forced constantly to come up with more promotions and new games. Lotteries want desperately to get into sports betting; they will, starting with sports cards. States like Iowa, which thought they could sit back and make millions on $5 maximum casinos on riverboats, will find that the state will have to constantly support the enterprises, particularly during winter, and come to the rescue of failing operations.

6. Gambling begets gambling. Players always want games that are faster and easier, with at least the illusion of player participation. The faster and bigger versions of the state lottery have almost wiped out the instant ticket games; casino table games are dying out, with many casinos becoming nothing more than video slot warehouses. Eventually we will see video poker machines and lottery terminals in every city.

7. Competition for the gambling dollar is fierce. Casinos in Nevada have had to introduce Megabucks and million dollar keno games to compete against California’s lottery. Innovations, like state-wide electronically linked video poker tournaments, wait to be developed. Bingo games on Indian land are already linked by computers and satellites, MegaBingo offers a guaranteed prize of $1 million. Race tracks, having lost their customers to lotteries and casinos, will soon offer slot machines, telephone wagers and sports betting theaters. Off-track betting parlors will spread, with more exotic bets like “Pick 9” to compete against lotto. Charities, hurt by state lotteries and Indian games, have already asked for permission to raise their prize limits, to play keno in the name of bingo, and to dispense break-opens from vending machines; electronic bingo devices are being tried everywhere; charity-run sports books may be next. With Indians operating their high-stakes casinos in South Dakota, will the state legislature still limit casino gambling to $5 bets in Deadwood? Iowa thought it would have a monopoly with its riverboat gambling, a parasitic casino industry growing fat off the Chicago market. But, you cannot prohibit other jurisdictions from legalizing; Illinois will beat Iowa at its own game, while the courts will allow Iowa Indians to offer high-stakes casinos on their land throughout the state.

8. Operators push to the limits. Games like MegaBingo are already going across country, and soon they will be international. Bingo and lottery devices are the next electronic frontier, since slot machines are the fastest developing part of the casino industry. Casino gambling will continue to come in the back-door through acceptable alternatives, such as riverboats. The wild card is the Indians, who may offer sports betting and lotteries by phone and mail before the public is ready.


In my 1986 book, Gambling and the Law, I wrote that a third wave of legal gambling is sweeping the nation. Five years later it looks like I was too conservative; it is not a wave but a virtual explosion. I am not talking just about the money, although that is significant.

We know that over $200 billion is bet legally each year. And that does not include illegal sports wagers, which may be the biggest form of gambling in the country. To give a comparison, even in 1989, the best year in motion picture history, with Batman I, Ghost Busters II, Indiana Jones III, Star Trek V and James Bond XIV, all of the movie theaters in the United States took in about $8 billion, only 3% of the amount bet legally and about one-third of the total amounts won by commercial gaming industries in the U.S. State lotteries alone sold twice as much as the movies.

It is not just the money, but rather the general availability of gambling that is the real story.

And since these wagers are legal, and usually heavily regulated, they know that the game is honest, they will be paid if they win and will not, be robbed on the way to the car, and they will not be arrested for simply making a bet. For legal gambling operations, the blessing is definitely mixed. New games introduce new players to gambling, but competition for the gambling dollar is fierce.

Another analogy may be more appropriate: the legal gambling dollar is like a child’s rubber balloon: the more available gambling is, the more people will gamble; however, players can only lose their gambling dollar once, and if the balloon expands too far, it will burst.

My impression is that most people do not treat gambling money as merely part of their entertainment, budget. People are spending just as much on movies or beer as they were before the current gambling boom. So where is the money coming from? The California Lottery, for example, sold over $2 billion in tickets in 1990, and kept half.

It is important to remember that the prior two gambling waves ended with nation-wide prohibitions on gambling. Is the current boom headed toward the same bust?

Like a prophecy fulfilled, it looks like we are doomed to repeat our history, having failed to learn the lessons of the past. Twice before in American history players could make legal bets in almost every state, but these waves of legal gambling came crashing down in scandal and ruin.

The anti-gambling prohibitions epitomize the traditional approach taken by American laws. These laws are not only designed to protect people from themselves, but are part of a greater moral framework designed to reflect the legislators’ and courts’ views of a paradigm society.

But a casino is not an adult Disneyland. The casino’s goal is to make as much money as it can by beating its own customers in any way short of losing its license. As one extreme example, Nevada casinos know that in the 60 years that gambling has been legal; no casino has ever been fined for allowing minors to gamble. To exploit this opportunity, some casinos in Las Vegas entice children in by setting up low-stakes blackjack tables on weekends and by not checking the identifications of slot players, unless the minor wins, then the casino refuses to pay! When the casino wins it keeps the child’s money; when the casino loses, it keeps the child’s money; and when the casino gets caught gambling with children, it pays no fine.

Disneyland would not exploit minors, or drunks, or compulsives, even if it could get away with it. But some casinos do it every day and then lie about it, even to themselves. A large gambling operation has no morals.

Gambling has once again spread virtually everywhere in the United States, and in every form.

Twice before in American history when gambling was available everywhere it led to complete prohibition.


To see where we are going it is first necessary to review where we have been. With legal gambling in America we find patterns of booms and busts that repeat in great seventy year cycles.

Gambling has had a recurring, consistent pattern throughout the country’s history, beginning in the earliest colonial period and persisting up to the most recent elections. When all forms of gambling are illegal there is pressure for legalization, first of one game and then, gradually, of all forms. Although it may be illegal, many people are gambling, at either social games or underground commercial lotteries, race books and casinos. The anti-gambling laws are difficult to enforce and the general population does not want arrests made anyway, if it means taking police resources away from more serious crimes. The result is widespread evasion of the law, leading to disrespect and corruption of law enforcement and the legal system. The response by the public is a demand for reform, for something to be done to prevent involvement by officials in these areas of moral ambiguity, for legalization.

Once one form of gambling has been legalized, the anti-gambling arguments based on morality begin to fade away.

And gambling is the least harmful of the victimless crimes.

People see the state legalization of one game as the moral approval of gambling in all forms and see hypocrisy in the remaining prohibitions. Even the legalization of a game by a neighboring state can start the decline of the moral barriers against gambling. It is difficult for a state official to argue that a lottery would be immoral when his constituents are going across the state line by the millions to buy tickets.

Once the idea of legalized gambling has been accepted, at least in principle and even if only with a single game, proponents can direct discussion away from morality and toward cost/benefit analyses of various other games that might be legalized. Once all of the states in a region have the same game, the first to legalize a new game has an advantage and can siphon off the disposable income of its neighbors, until they too install that game. A domino effect is created, as can be seen by the spread of state lotteries from state to state throughout the Northeast and now across me nation.

Meanwhile, the police and prosecutors are finding it increasingly difficult to enforce those anti-gambling laws that are still on the books, and venality is growing. Even the police begin to see hypocrisy in trying to prohibit a wager when an almost identical game is being actively promoted by the state. Again, there are cries for reform and for a relaxation of the laws against all forms of gambling.

‘This is where America is in the 1992, with the wave of legalized gambling still rising throughout the nation. …

…of the at least $200 billion that is bet each year, most is in the form of untraceable cash.

It is not difficult to understand the temptation to rig the outcome of a legal game. But cheating can be devastating to the long-term acceptability of the game. Players can live with adverse odds, but cheating cannot be tolerated, particularly when it results in winners not being paid.

What appears to be the final stage of the cycle is the revolt by the majority of the population, sweeping in an era of reform, of moral fervor, and with it an attempt to outlaw gambling forever.

Statutes and even constitutional amendments are passed to lock in the prohibitions on gambling.

The first wave of legal gambling began even before there was a country. The American colonies were awash in legal gambling: they were founded by lotteries. The first race track was set up in New York in 1666. But by the 1820s and 1830s numerous well-publicized scandals and the spread of Andrew Jackson’s reborn morality brought gambling, particularly lotteries, into nearly universal disrepute. By 1862 only two states, Missouri and Kentucky, had legal lotteries.

The second wave came with the Civil War and the expansion of the western frontier. Licensed casinos dominated the heart of Gold Rush San Francisco and tickets for the infamous Louisiana Lottery were sold in every city and by the millions through the U.S. Mail. Again, scandals and the spread of Victorian morality spelled the end. In 1909, the territories of New Mexico and Arizona were forced to outlaw casinos if they wanted to become states. By 1910 only Maryland, Kentucky and New York allowed betting, and only on horse races, and in that year New York closed down its tracks. Even Nevada outlawed all forms of gambling.

The third wave began with the Depression. In the 1930s Nevada re-legalized casinos, 21 states opened race tracks, and charities began playing bingo, in open violation of the law. The 1940s saw the race track boom continue and casino gambling come to Puerto Rico. Bingo and social gambling began to be legalized in the 1950s, but it was not until the 1960s that the states got into the act: New Hampshire rediscovered the state lottery in 1963.


Today, legal gambling is the nation’s fastest growing industry.

Race tracks have been found in almost every state for decades. But the big growth in the 1980s has been off-track betting. Most common are inter-track wagers: virtually every track allows bettors to wager on races being held at another track. But, off-track betting has also spread to county fair grounds, where there may not even be a track, and luxurious teletheaters, with restaurants and wide screen closed circuit television.

Gambling is not limited to licensed games. Mailboxes are stuffed with “You May Already Be A Winner” sweepstakes. Gambling came back to the stock market for the first time since the Great Crash of 1929, with similar results, when Congress overrode state anti-“bucket shop” laws to legalize trading in stock index futures.

And then there are the state lotteries.

If you think about it, it is extremely strange for governments to be pushing lottery tickets. The lottery is the only consumer product actively promoted and sold by the state. The state does not sell toothpaste, or even brushing your teeth, but it now tells people they should gamble. In those few states where the government owns all the liquor stores the state does not actively try to get people to drink.

Lotteries were made legal, originally, because of the old argument: “people are going to gamble anyway, so it is better for government to get the money than organized crime.”

Today, lotteries are the only part of government whose sole purpose is to make as much money as it can.

But the lottery, as a part of state government, faces political restrictions that are not imposed on private enterprises.’ For example, no state lottery would promote sales through welfare offices or to the unemployed, although, these are natural marketing targets.

There is, however, an additional danger; lotteries do not realize that the more successful they are, the faster they will be outlawed.

Nobody has bothered to ask whether this is the proper role for government. Should it be the official policy of the State of California to get people to start gambling who otherwise would not make a bet?

In communist countries (those that are left), the government owns everything; in America, the only retail businesses owned by government are liquor stores in a few states, and state lotteries. Why not let private enterprise run the lotteries? If making money is the goal, why doesn’t the state own all the restaurants, or open its own brothels?

The answer is that gambling is still morally suspect. History has shown that private ownership of lotteries leads to widespread cheating. One hundred fifty years ago lotteries were outlawed because they sometimes did not have a drawing at all, the operators simply kept all the money. A game with terrible odds, if the only game in town, is one thing. But no gambler will stand for a game where no one wins.

Whatever happens abroad, we know the history of gambling here at home. In America legal gambling self-destructs after a few decades.


The timing of the waves is also sketchy; it is hard enough to see what is happening around us without trying to predict how people will feel in forty years.

In the eyes of the law, gambling is still a morally suspect industry. Unlike traditional businesses, like manufacturing, legal gambling cannot even exist without a change in a state’s laws.

The most dramatic reversal of the law’s traditional antipathy toward gambling came in the Supreme Court’s 1987 decision that a full-time gambler could declare himself to be in the trade or business of gambling for tax purposes. The case involved a handicapper who spent all his time at the track, but, importantly, at the end of the year he had lost more than he won.

Lower courts are also changing their views toward legal gambling. The spread of state lotteries makes it hard for a state to say it has a public policy against gambling.

The next decade will see a 100% reversal, from an overwhelming majority of jurisdictions closing their doors to collection suits to virtually every state acknowledging that it no longer has a public policy against legal gambling.

The crash will come when the general population says, “This is too much.” Many visitors are turned off by Nevada’s slot machines in grocery stores; how will they feel if they see similar devices at home, run by charities or the state lottery?

The next crash will be triggered by scandals, inevitable given the enormous cash involved. State lotteries, the most heavily regulated, honest businesses in America, have already been rigged by insiders.

Sports betting will speed the fall. Security of the game is impossible; after all, how much does it take to bribe a college kid, especially when he does not have to lose, only shave a few points? And if it is okay to bet on pro and college games, how about high school games? Alabama was hit in 1989 by a scandal over alleged fixing of prep school games.

Sports betting will spread quickly, once a successful game format is developed.

Legal gambling will die if it is hit by scandals at the same time the nation is undergoing a rebirth of conservative morality.

It is somewhat amazing that gambling spread so far during the Reagan era; it is difficult to imagine Dwight Eisenhower pushing state lotteries. There is a theory that America goes through 30 year cycles, the 1980s were like the 1950s, etc. This means we are due for another swing to the right in the 2010s.

It is easy to imagine a reborn morality sweeping the nation in the year 2019 or earlier. Legal gambling will be only a small part of a general moral upheaval. A majority of the population probably already by their arguments: “homosexuality is not merely an alternative life-style; a woman should not be allowed to have an abortion simply because pregnancy interferes with her tennis lessons; there is too much sex and violence in the media; legal gambling is destroying the work ethic.”

If the big crash comes, who will survive? State lotteries will be the first victims; they are creatures of the state that can be erased by a swipe of the pen if they are seen as doing more harm than good. Similarly, the experiment in Atlantic City is just that, and experiment; and when experiments fail they are quickly discarded.

First gambling has to spread everywhere, and there is plenty of room to grow. The 1990s and the first decade of the 21st century will be the final boom. By 2029 it will all be outlawed, again, for a while.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s