Sunday, March 18, 2012

State-Approved Gambling

It comes in waves. The most recent wave began to rise in 1964. In the period 1894-1964, no lotteries were permitted anywhere and only Nevada had casinos, permitting them to operate anywhere in the state. The public sector’s gambling fever set in in 1964 when New Hampshire instituted a lottery, followed by New York in 1967, and then New Jersey in 1971.

The following tabulation, which I’ve constructed from Wikipedia’s article on “Gambling in the United States” (link), shows the situation at the present time. Data are for fifty states and the District of Columbia.

States that
All of above

The states that permit every kind of gambling are Iowa, Louisiana, and Michigan. The two states that prohibit gambling of any kind are Hawaii and Utah. Tennessee prohibits every category except lotteries.

Charitable gambling, of which the most popular form is Bingo, is used as a fundraiser by charitable organizations. Pari-mutuel betting is usually associated with horse or dog racing. The category labeled Indian signifies that the wagering is superintended by a Native American tribe. Commercial, in the designation above, refers to casino or riverboat gambling.

Pari-mutuel may not instantly communicate the process—but everybody knows it. It is a form of wagering where betting is closed before an event begins and the payout is based on the odds. A horse or hound everybody thinks will win—and therefore garners most of the bets—has low odds. A horse or hound no one thinks will win gets high odds. It works like this. The total bets are pooled. Suppose that the total is $1,300—net of racecourse commissions. The total bets on the winner were $90. We then determine the odds by dividing 1300 by 90, yielding 14.44. Every winner gets $14.44 for each dollar he or she bet. But lets suppose, instead, that most of the money went on the winner, say $900. Then the odds are 1300/900 or 1.44. The yield now is much less.

Gambling in 2009, based on a tabulation in the 2012 Statistical Abstract (Table 1259), amounted to $89.3 billion. The three big sectors were Commercial casinos, Indian casinos, and Lotteries, together accounting for 93 percent of all gambling revenues. Growth trends in the 2000-2009 period were uneven. Indian casinos grew in that period at an impressive 10.3 percent annually followed by Lotteries at 4.3 percent. Charitable gambling declined at a rate of 1.9 percent yearly, pari-mutuel betting did worst, declining 3.6 percent a year. Commercial casinos displayed anemic growth of 1.9 percent a year. Clicking on the graphic will enlarge it, Esc returns.

Views on state-promoted gambling tend to be shaped by values. A cynical but rational view is that such gambling is avoidable taxation. A more communitarian view holds that it exploits human weakness and represents regressive taxation. The interesting question is what happens next—meaning what happens when the market, as it were, gets saturated and embracing gambling no longer yields the supposedly free benefits of lower taxes? Revenues were dropping in the 2008-2009 period, but selective data (on commercial casinos) showed a degree of “revival” in 2010. 


  1. Legalizing gambling also has the advantage of making illegal gambling much less attractive and profitable. Illegal gambling was a huge revenue source for the mob back when legal gambling was broadly outlawed.

    I reckon there are a lot of good reasons to legalize gambling and other vices, so as to better regulate them and minimize some of their worst aspects. And yet ... when I see state-sponsored ads enthusiastically touting the lottery, I can't help but think that our state is now officially trying to encourage the *wrong* behavior among some of its most vulnerable citizens.

    1. Government benefits lots from alcohol and tobacco--by taxing it. It could legalize gambling and, for that matter, levy heavy taxes on it. It does so on tobacco. But that's meaningfully different from "owning" the biz and advertising it. The contradiction is also present in the other categories.