April 06, 2012

Mega Millions Lottery Fever Shows the Hypocrisy over Gambling

With the Mega Millions lottery reaching over $600 million, the American public went lottery crazy. Citizens who rarely played the lottery waited in long lines and dreamed about a life changing win despite knowing full well they had a better chance of being hit by an asteroid than picking the winning Mega Millions numbers. And it wasn’t just ordinary citizens playing the lottery. Newscasts featured pictures of rich celebrities plunking down hundreds of dollars in hopes of winning more than even they could dream of earning. But the newscasts also showed pictures of politicians puffing out their chests and telling the public how fabulous the interest for the lottery is because the state proceeds from the lotteries has been earmarked for everything from children’s clinics to amateur sports to education. What the politicians didn’t say is that it’s for that exact reason that many states are currently opposing online gambling.

Tracing the history of the lottery in the United States it’s clear that the lottery was always viewed as a way to raise needed revenue. Prior to independence, lotteries were used as a means to finance colonization and when the country was created all 13 colonies had their own lotteries. In fact playing the lottery was actually seen as a civic responsibility. The country didn’t have income taxes so the lottery was a means to pay for infrastructure and to build institutions like universities and hospitals. The public enjoyed it and saw it as a win-win for themselves and the colony. More importantly the proceeds from the lotteries were clearly earmarked for set purposes. So in the colony of Massachusetts for example, the public understood that lottery proceeds would be used to build Harvard, Yale etc. Over time, the lottery lost favor in the U.S. as the puritans started having a larger influence but eventually it gained interest again, primarily in the old west. The interest in lotteries came and went and illegal lotteries like the Irish Sweepstakes gained popularity, but it was only in the mid 1960s that states started sponsoring lotteries. The public was weary of increasing taxes and state politicians viewed the lottery as a hidden tax without the risk of upsetting voters. The northeastern states were the first to offer lotteries but it later spread throughout the U.S. Today only 8 states do not have a lottery and Utah is the only state that has never expressed an interest in creating one, likely because it is forbidden under Mormon rules. Yet as mentioned earlier most of the money that is generated from lotteries is earmarked for preset purposes such as education, healthcare or amateur sports. Only a small portion in a few states is put aside for general revenue and that according to some is the real issue.

I spoke to a former legislator in New Jersey who asked that he not be named in this article but he was happy to express his views on why so many states are currently opposing online gambling and it all falls back to the lottery.

“States are currently starving for money,” the legislator told me, “and they don’t want to make the same mistakes they did with the lottery. When the lottery was introduced in the 1970s and 1980s the states didn’t believe the citizens would accept it unless they were told exactly how the revenues from the lottery would be used, so most states apportioned the majority of revenues for items that citizens would approve.

That was fine with the states because most were doing quite well and they never envisioned the financial mess most are in now. They also could never have imagined how much revenue the lottery was actually going to bring in. Also, many states allowed Indian nations to open casinos starving themselves of that revenue and now they are regretting that decision. But with online gambling they know exactly what it brings. Before the gambling law a few years back was passed (the UIGEA), U.S. citizens were betting upwards of $6 billion a year offshore and estimates are that legal regulated U.S. based online gambling would bring more than double that. So politicians want to make sure that the revenues go to them in the form of general revenues to pay down debt and use as they see fit, not earmarked for some purpose which they won’t be able to touch.”
The legislator specifically pointed to California where he believes an online poker network if implemented properly could almost wipe out their debt. But he was also clear that California won’t move forward unless the Governor and state treasurer are assured the money will go directly towards state debt and not to the tribes or special interests. And he was certain other states in the same boat are willing to wait it out until they have those assurances. Even in his own state of New Jersey he is confident that Governor Christie is waiting for a rule that clearly outlines how the state will get the majority of the revenue to use for debt and infrastructure before moving forward with online gambling and sports betting. The horse racing industry in New Jersey is terrified that online poker will cannibalize betting at the tracks and is prepared to sue the state should legalized state-sanctioned online poker overtake horse racing in popularity. And Atlantic City casinos want assurances that any online casino and poker products will be managed by them and they will get the revenues to supplement their dying land based product. But the legislator believes that Christie, Lesniak and others in New Jersey just want their share of the revenue and could care less who runs it.

“Whichever company or organization that can generate the most revenue will be given the license to run the online gambling in New Jersey,” the legislator said. “Obviously the state wants to ensure that the horse racing industry and casino owners are treated fairly and are given some of the revenue to offset any losses that occur as a result of online gambling but the vast majority of revenues must go to the state. And this revenue has to be undesignated.” As for sports betting if and when it is legalized in New Jersey, the legislator believes that will be tendered out and probably go to an offshore company like Ladbrokes or Betfair which has the experience and software already available. But in the end the state will want projections and the bid will go to the company that can guarantee the most revenue with the least risk.

As for the lottery, the legislator said that the long lineups all last week is proof that Americans are tired of living as they are and just want the chance at success and happiness. “It’s the American dream after all,” the legislator said.

“People in the U.S. love to gamble. It’s in our blood and everyone wants the chance to win it big. The country was founded on gambling and every time some politician has tried to stop it, the activity just went underground. Most states have now accepted that and simply want to ensure they can maximize their revenues from the activity plus they want to limit competition. It was illegal for Full Tilt Poker to advertise but land based poker rooms advertise all the time. State lotteries tell you to dream about living a life of luxury but the state justice department also tells you that you are abetting a crime if you get involved in a numbers racket. But Americans don’t care. If you tell them that they have a shot of winning a million dollars for a one dollar bet they’ll do it. Unfortunately, the lottery also encourages those who can’t afford the dollar to play because it’s their one chance to escape poverty but we can’t make laws and decisions because of how it will affect the very minority. Heck I’m fairly wealthy but I bought 100 tickets.”

The legislator also said that he has a real problem with the government’s stance of promoting land based casinos and lotteries but condemning offshore wagering.

“It’s very hypocritical. That’s why when I had some influence I urged the Governor to legalize all gambling and to also take bets from everywhere. Telling Americans that they’re doing a service to the state by betting at a local casino but also telling them that they are committing a crime by wagering at a website that is legal in another country is just selling them snake oil. And Americans aren’t buying it. Even with all the websites that were closed down, Americans have found other websites that are happy to take their action. Those websites are just more cunning on how they disguise payments. I always believed that instead we should have agreements with other countries that allow them to bet at American websites and Americans can bet at foreign websites. In the end I’m confident far more foreigners would play with American websites than the other way around and the U.S. would be far better off. People in Canada, Australia and even Hong Kong would almost certainly play at a Caesars or Trump online casino but I doubt many Americans would seek out G’day Mate poker if they can wager online with Caesars.”

The Mega Millions lottery was proof that Americans are gambling hungry and the fact that so many websites still take U.S. action is proof that the UIGEA is ineffective. If states and the federal government did as the legislator suggested and opened U.S. gambling websites with reciprocal agreements with jurisdictions like the EU and Australia, the U.S. would clearly come out ahead. Unfortunately that reality still seems to be lost on the majority of politicians, and states will continue to go further into debt until the Governors take their heads out of the sand.

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