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In the past 11 months, the coronavirus pandemic has devastated national budgets. From massive losses in tax revenues to the significant cost of fighting the virus and helping those struggling with unemployment, states can take years to recover financially. An October headline in the Wall Street Journal warned grimly: “The US states are facing the biggest monetary crisis since the Great Depression.”
An option has emerged in several states to address this financial crisis: legalized gambling. In 2017, the Supreme Court ruled that states have the right to determine the status of sports betting for themselves. In the past four years, more than two dozen states – from New Hampshire to New Mexico – have legalized sports betting, either online, in casinos, or both.
The economic impact of the coronavirus has accelerated the dynamism of the sports game. Voters in Louisiana, Maryland and South Dakota approved the sports betting election in November, while lawmakers in Virginia and Washington state passed bills early last year. New York Democratic Governor Andrew M. Cuomo recently rolled back his opposition to online gambling over the projected billion dollar deficit in the state budget. The pandemic has sparked enthusiasm for legislation in California, Connecticut, Missouri, and numerous other states. The Super Bowl is the nation’s biggest sports betting event of the year, and Sunday’s big game could give states another boost to try and capitalize on gambling revenue.
The recent proliferation of sports betting is not surprising, as state governments have long turned to legalized gambling to address financial problems during economic crises. During the Great Depression, and then again in the 1970s and 1990s, states went well to gambling to address budgetary problems.
The history of gambling, however, commands caution to lawmakers. Gambling income, while obviously attractive, can only represent a fraction of government income and shouldn’t stand in the way of more fundamental measures to resolve government tax problems.
At the turn of the 20th century legalized gambling was on the run in the USA. Amid a wave of progressive moralism, many believed that betting harmed the poor, lowered national work ethics, and undermined Christian values. In the 1890s, Congress cracked down on the last state-chartered lottery – the notoriously corrupt Louisiana State Lottery Company – and a number of states banned horse racing betting, one of the few forms of betting that remained legal. Even Nevada, which had allowed gambling since 1869, banned it in 1909.
However, the anti-gambling values fell short of the promise of tax-free government revenue, and the Great Depression sparked a massive wave of gambling legalization. With the advent of pari-mutuel betting, which allowed players to bet against one another without the involvement of an accountant, numerous states re-approved horse racing betting, including 10 states in 1933 alone. Budget problems reached the point that four states even Legalized slot machines that a Kansas judge had called “the viciousest form of gambling” just a few years earlier. Nevada lifted its ban on legalized commercial gambling in 1931 and set the state on the path to becoming the nation’s post-war oasis for legal vices.
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After the end of the Depression, the spread of legalized gambling slowed – with the exception of bingo for charity. Gambling fell out of favor after the 1950-1951 investigation by the Kefauver Committee that revealed the mob’s links to illegal betting. According to Senator Estes Kefauver (D-Tenn.), Who chaired the committee, gambling was not only an activity that corrupted individual participants – as the progressives of the early 20th century claimed – but also the source of the influence of organized crime across the board America society.
As postwar economic growth slowed in the 1960s, states turned to gambling again, this time hoping to finance the combination of generous public services and low taxes that citizens had expected. In the 1970s, population growth, coupled with rising inflation and competition from rebuilt overseas economies, created budgetary problems for state governments. The deficits increased and the surpluses shrank or disappeared. Legislators were forced to expect unpopular tax hikes or even less popular cuts in government programs. Massachusetts State Lawmaker Anthony Scibelli declared in 1972 that the Commonwealth was “on the verge of financial disaster”.
That year, instead of meeting citizens’ unrealistic expectations of the state budget, the Bay State began selling tickets to the country’s fourth state lottery. Lotteries embodied the hopes of lawmakers and taxpayers that the post-war low-tax / great-government deal could continue despite changing economic conditions. The expectations were high. A “state-run lottery could generate enough revenue to enable tax cuts,” a resident of West Belmar, New Jersey, wrote to the local newspaper in 1964. “New Jersey could have bigger and better schools, better hospitals and senior housing.” and medical care for the elderly. “
Unsurprisingly, lotteries couldn’t get close to these lofty goals. Few proponents had assumed that the state’s actual net income was only a fraction of gross sales, around 45% at the time and around 27% today.
In most states, lotteries accounted for around 2% of total revenue, a significant sum but barely enough to offset a tax cut and meaningfully support government spending. New Jersey’s Lottery Commissioner confessed in 1971, “I don’t think lotteries will solve states’ financial problems, nor are they saving taxpayers. They just don’t make enough money.”
Disappointment with the lottery hasn’t dampened the public’s enthusiasm for legalized gambling as a quick fix to budget problems. In the 1980s and 1990s, high rates of poverty and rampant unemployment in tribal areas led to the construction of casinos on Native American reservations. For select residents of certain tribes and for certain tribal governments, reservation casinos may be the only example of gambling revenue that actually meets expectations as an instrument of economic development.
From the 1990s onwards, states tried to replicate the tribal model, gradually allowing non-reserved casinos to foster stagnant economies. Cities like Detroit, Gary, Indiana, and Bethlehem, Pennsylvania have become locations for new casinos and river boats instead of investing in professional training programs or helping communities affected by deindustrialization. While gambling created jobs and increased government revenues, a federal commission wrote in 1999 that the expansion of gambling had created “closed oases of prosperity surrounded by devastated communities”.
Gambling is not a panacea, and as history shows, it has never been so. Profits are small relative to total states’ incomes, and while many bettors gamble casually, the improved access that comes with state approval can also lead to an increase in problem gambling. Some games – especially lotteries – disproportionately appeal to less educated, low-income, and non-white players.
While legalized gambling has seen its ups and downs over the course of American history, no state has passed a major gambling ban in more than a century. The coronavirus pandemic – and the inevitable headlines about the total amount wagered on Sunday’s Super Bowl – are likely to cause even more lawmakers to take a closer look at sports betting.
While the possibility of new, creative sources of income is attractive, addressing budget deficits must also address the underlying issues, such as ensuring that the rich pay their fair share of taxes. After all, states have bet a lot and in most cases are still waiting for the long shot bet to pay off.
Jonathan D. Cohen, who has a PhD in history from the University of Virginia and is completing a book on the history of American state lotteries, wrote this piece for the Washington Post.