A History of Legalized Gambling

A Turbulent Past

Despite the rapid growth of the gambling industry over the last two decades, gambling is not a new phenomenon. Throughout the history of mankind, gambling has experienced periods of rapid growth and acceptance and periods of exclusion. The relatively short history of the United States has seen such cycles.

Some colonies allowed lotteries before the United States earned its independence. Most of these lotteries, though, became corrupted and were banned by the commencement of the Civil War. Yet by 1990, 42 states and the District of Columbia were operating lotteries.1

Acceptance of private organized gambling has also fluctuated. It experienced gradual acceptance following the Civil War as people began to move west. But nationwide, most private gambling had ceased by 1910.

In Minnesota, the Constitution originally outlawed all organized gambling inside its borders. The state, however, has steadily liberalized its stance on gambling, first by legalizing bingo for charities in 1945, and then by allowing gambling in bars in 1978.

The most rapid expansion of gambling in Minnesota has occurred recently as a result of the introduction of Indian casinos and the advent of a state lottery.

Chronology of Legal Gambling in Minnesota

1857: Organized gambling prohibited by state constitution.

1945: First bingo law permits charitable organizations to conduct bingo.

1978: Additional games (tipboards, paddlewheels, and raffles) legalized for purposes of charitable gambling.

1981: Pull-tabs legalized for charitable gambling.

1987: California v. Cabazon Band of Mission Indians decided by the U.S. Supreme Court.

1988: State lottery approved.

1988: Indian Gaming Regulatory Act becomes law.

1989: State and tribal governments begin negotiation of compacts pursuant to IGRA.

1990: State lottery begins.

1991: Video gambling, blackjack compacts completed with tribal governments.

1992: 17 tribal casinos operating in Minnesota.

1992-97: Expansions of gambling rejected.

Indian Casinos

Indian casinos began to spring up in the early 1990s following a change in federal law. In 1987, the United States Supreme Court announced a decision that changed the structure of federal gambling law. The case, California v. Cabazon Band of Mission Indians,2 declared that a state which allows certain gambling contests to be conducted in any capacity must also allow them to be played on Indian reservations. Minnesota allowed slot machines and blackjack to be played in conjunction with charitable fundraising, so the state could not prohibit the play of those games on Indian reservations located in the state.

In 1988, the U.S. Congress enacted the Indian Gaming Regulatory Act (IGRA)3 which required tribes to negotiate compacts with the states governing the play of games before they could conduct gambling on their lands. This new law gave the states some regulatory control over games that Indian tribes, under the Supreme Court decision, had a right to conduct. States could negotiate for a minimum age of players, regulations on security in tribal casinos, and other safeguards to maintain the integrity of the operations.

Minnesota negotiated a series of compacts with the tribes that made requests for them. These compacts governed the play of slot machines and blackjack—the two casino-style games the state allowed for charitable purposes. By 1992, tribes were operating 17 casinos in Minnesota and were generating $300 million in revenues.4 The next year, revenues increased to $500 million.5 Nationwide, gambling revenues had exceeded $44 billion by 1995 and were increasing rapidly.6

As mentioned above, Minnesota runs its own lottery. The state approved a state lottery in 1988 and began operations in 1990. By 1992, the lottery generated over $110 million in revenue for the state.7

The Great Gambling Debate

Gambling is one of the most controversial issues in the political arena. The industry attracts highly paid lobbyists and interested parties with millions of dollars at stake. Advocates of legalized gambling have long touted the beneficial effects of gambling on a surrounding community. Opponents argue just the opposite—saying gambling increases crime rates and decreases the general welfare of a society.

1. Economic Development or Financial Drain?

Recently, the debate has focused on the potential of gambling to constitute a viable strategy for economic development. Gambling opponents argue that gambling revenues are normally offset by costs to the state. Some contend that the legalization of gambling eventually causes increased taxes, a loss of jobs from the region attempting to raise revenues, economic disruption of other businesses, increased crime and large social welfare costs to the surrounding community.

Problem gambling alone contributes significantly to the costs of a municipal or state government. A recent study found an increase in the amount of problem gambling in Minnesota between 1990 and 1994, the period of most rapid gambling expansion in the state.8 The study explains that "[b]etween the first study [in 1990] and the second study [in 1994] Minnesota gambling has changed significantly."9 Specifically, one category of problem gamblers increased from 1.6 percent of those surveyed in 1990 to 3.2 percent in 1994.

It is difficult to determine the cost of problem gambling to the state since most of the costs are indirect. Nevertheless, the State of Minnesota created the Gambling Problems Resource Center to counteract problem gambling which might result from increased legalized gambling, and this organization was allocated over $1.4 million in fiscal year 1998.10 This is a direct cost to the state caused by the legalization of gambling. This institution aims to suppress problem gambling statewide.

Gambling proponents argue that legalized gambling can stimulate the economy just like any other economic activity. Organizations such as the American Gaming Association have sponsored studies that investigate the effects of gambling on the surrounding community.

In one such study, researchers found that gambling generates income for surrounding businesses and provides job opportunities for local residents.12 Specifically, the survey found that employment in the gambling industry grew by 16% over a two-year period between 1995 and 1997, while growth in nonagricultural employment totaled just 2.2%, and growth in services amounted to 3.5%. In addition, a high percentage of employees reported that they left welfare as a result of their employment. The study also looked at the economic impact on surrounding businesses. It described purchases of homes, automobiles, food from restaurants, and other goods and services from local businesses.

On the surface, this type of report appears to provide evidence of the beneficial impact of casinos on surrounding communities. Yet while the report shows specific business that was generated by casino employees, it fails to consider the indirect consequences. For example, if a patron loses $100 at a casino, that $100 can be given to employees who can then spend it on products. But the original patron who lost the $100 could have spent the money on those same goods had he not gambled.

2. Legitimate State Enterprise?

The Minnesota lottery is run by the state itself. The resulting state promotion of gambling activity raises strong concerns.

Some contend that state encouragement of gambling stands in direct conflict with the government’s role of protecting its citizenry. When a state promotes gambling activity, it increases the likelihood that individuals will become problem gamblers. Instead of protecting people from harm, the state in effect harms people who participate in its lottery.

Moreover, state lotteries do not exist passively, simply providing gambling opportunities for those wishing to participate. States lure in customers with slick advertising.

State advertisements actually target gamblers at risk of becoming problem gamblers. One Massachusetts advertisement, for example, shows a person whose usual numbers are picked in the lottery but who failed to buy a ticket that one day. In 1991, The California Lottery had actually become the largest purchaser of advertising in Los Angeles County.14 Gambling advertising preys on common fears of problem gamblers and sells them its myth of riches and happiness. An Illinois State Lottery billboard in a low-income Chicago neighborhood reads "This could be your ticket out."15

In addition, states hire market research analysts and monitor player attitudes to see if people are losing interest in the existing games. This invariably happens, and states then frequently create new games. Creating new games is a common way of keeping people interested and keeping revenues stable.

The largest form of gambling in Minnesota—Indian casino gambling—brings new issues to the table. First, the state does not have a choice about allowing Indian gambling. As stated earlier, tribes earned the right to make their own determinations about gambling when the federal gambling laws changed. Thus, the discussion of economic impact does not become one of allowing casinos to operate but one of mitigating harmful effects and harnessing beneficial dividends.

In a recent survey administered by the Minnesota Office of Senate Counsel and Research, municipalities surrounding Indian casinos responded to questions regarding their perception of changes since the introduction of casino gambling.16 In the end, the responding cities were divided in their perceived impact of casinos:

• 26.5 percent of the precincts reported higher crime rates (versus 1.5 percent reporting lower crime rates)
• 36.8 percent reported increased traffic congestion (versus 1.5 percent reporting less traffic)
• 37.5 percent reported more problem gambling (versus 1.5 percent reporting less problem gambling)

On the other hand:

• 33.7 percent reported a decline in unemployment (versus 0.7 percent reporting increased unemployment)
• 24.3 percent reported an increase in tourism income (versus 5.1 percent reporting a reduction).

The survey found several examples of working relationships between tribes and nearby municipalities. Ultimately, those cities that were able to make agreements with the tribes were the ones that were the most able to mitigate the harmful effects of gambling.

Casino gambling as it now exists in Minnesota gives certain categories of people (namely, Indians) an opportunity that other groups do not have. This aspect often produces division and feelings of resentment. The social ramifications of Indian gambling can lead to a charged debate. Indian business people are now allowed to procure their livelihood at the expense of gamblers. Other entrepreneurs are not given the same profitable opportunities. People often resent tribes because of this preferential treatment.

One Gamblers Anonymous study found that:

• 67 percent of the Gamblers Anonymous members’ household debt was due to gambling.
• 67 percent of gamblers’ spouses were harassed by creditors.
• 61 percent of gamblers’ spouses become violent toward the gambler.
• 78 percent of gamblers suffer from insomnia.
• 26 percent had been divorced or separated because of gambling.
• 34 percent lost or quit their job.
• 44 percent had stolen from work to pay gambling debts.
• 18 percent had gambling-related arrests.
• 66 percent had contemplated suicide.
• 11 percent had attempted suicide.18

Both gambling proponents and opponents recognize the possibility that gambling can become addictive and costly if misused. Problem gambling has become more serious as the gambling industry has grown over the last two decades. The economic development argument addresses the harmful effects of problem gambling in aggregate terms, but problem gambling affects real individual people. Often, problem gambling leads to embarrassment, indebtedness, bankruptcy, child neglect, or even divorce.

Every month, the Minnesota Compulsive Gambling Hotline receives hundreds of calls requesting help with gambling problems or with the problems of a loved one. Often, these callers have racked up thousands of dollars in debt, in many cases without the knowledge of their spouses. For example, one woman had gone so deeply in debt that she was unable to pay her mortgage, and it was foreclosed. She entered into a rental agreement with the mortgage company but missed a rent payment. The mortgage company sent an eviction notice. This woman lost her home without her husband even knowing.17

Many agencies have experience with problem gambling and can give good advice. One such agency is the Minnesota Compulsive Gambling Hotline, which can be reached at (800) 437-3641.

The Future of Legalized Gambling

Since 1992, the State of Minnesota has rejected a number of proposals that would expand statewide gambling. For example, the legislature rejected the authorization of keno in the state.19 The state’s policy on gambling since the negotiation of the compacts and the legalization of off-track betting (which was overturned in the following year) has been conservative.20

Nevertheless, gambling expansion continues to be a threat. In 1997 and 1998, for example, gambling expansions of various sorts were proposed in the legislature, and ultimately defeated, to fund construction of a new Minnesota Twins baseball stadium. At the same time, legislative attempts to restrict gambling advertising and to raise the legal gambling age from 18 to 21 were defeated.