Archive for September, 2010
Special gambling taxes provide large amounts of revenues to many of the jurisdictions with legalized gambling. In the state of Nevada, casino taxes provide the largest share of public revenues from any tax source. In 1997, more than $586 million was generated by the 6.25% gross win tax, plus various fees on licensing, machines, and table games. Additional revenues go to local governments in the form of fees as well as property taxes. That year more than 40% of the state’s internal source funding came from the casino sector of the economy. More revenues flow to the state treasury as a result of the nongambling activities of tourists who are drawn to the state because of its casinos. These taxes take the form of room taxes, entertainment taxes, and general sales taxes. No other state or provincial jurisdiction in North America receives as high a proportion of its revenues through gambling activities.
In a recent year the state of Mississippi receives $262 million, or about 10 percent of its internally generated revenues from casino taxes. No other state receives as much as 4 percent of its revenues from casino taxes. Lotteries yield low portions of state budgets as well. At the low end, New Mexico’s lottery gives the state only 0.4% of its budget; at the high end, Georgia receives 4.1 percent of its state revenues from its lottery (Christiansen 1999).
Although Nevada is the state that is most dependent upon gambling revenues, many other states receive more dollars from gambling sources. Nevada ranks only thirteenth among the states in taxes and other gambling revenues. New York leads the list. Governments of the Empire State, Texas, and Massachusetts each receive over $1 billion a year from lottery operations. Illinois and New Jersey each receive approximately $900 million from a combination of lottery revenues and casino taxes. Ohio, Florida, and California receive between $700 million and $800 million from lotteries. Lottery receipts in Pennsylvania and Georgia exceed Nevada gambling tax revenues, as do the combined lottery revenues and casino taxes of Indiana and Michigan. Quebec and Ontario, the two largest Canadian provinces, also receive more government funds from gambling sources than does the state of Nevada. Both provinces have large lotteries. Quebec has three government-owned casinos, which provide all their profits to the government. In Ontario, the government is the casino owner, but there are private operators. The operators pay a 20% gross win tax, then they take 5% as their share of the profits. After other casino expenses are paid, the province is given the remainder of the revenues.
The questions of who pays the gambling tax and its impacts upon society are important policy questions. The answer is that the gambler pays the taxes, as the gambler is the source of the tax money – no matter how many hands it is processed through before it reaches a state treasury. When gambling opponents proclaim that we should “tax the casinos” more or that the “casinos must pay their fair share”, false notions are being generated. All taxes come from people, and that is especially the case with gambling taxes. The proper question to ask is, “which people?” For sure they are volunteer gamblers. But are they local residents, or are they tourist visitors who would not otherwise be spending money in the community? More important, are they affluent people who can afford the recreational activity of gambling, or are they poor people who must divert funds from family needs in order to gamble?
Studies of lotteries have suggested that the burden of taxation from sales of tickets falls most heavily upon poorer people. Their purchases of tickets constitute a higher proportion of their income and resources than do purchases of tickets made by more affluent persons. Moreover, many have suggested with empirical studies that governments purposely put lottery ticket sales outlets in poorer residential areas in higher proportion than they do in other neighborhoods. They also direct their advertisement messages toward poorer people. These people are considered their best potential customers in terms of volumes of sales. The National Gambling Impact Study Commission was very critical of lottery advertising. Lottery taxes are considered to be regressive (National Gambling Impact Study Commission 1999, 3–17).
Pari-mutuel racing locations are such that betting on races is not as convenient as buying lottery tickets. Hence, fewer numbers of poor people are attracted to this kind of gambling. Also, the process of selecting probable winners of races is much more difficult than buying a lottery ticket. Nonetheless, many of the regular race-track bettors are poorer people—perhaps because they are regular bettors.
Casino taxes may be regressive or progressive. Casino betting may be convenient, or it may require such major investments of time, energy, and travel money that poorer persons avoid the gambling. For instance, in Las Vegas, taxes on casino gambling can be considered both regressive and progressive. Slot machines are permitted in bars, convenience stores, and grocery stores within walking distance of almost all the residents of Las Vegas. Tourists do not play at these machines. Nor do affluent persons. Many of the bars and 7–11-type stores are established for the primary purpose of offering machine gambling. The grocery stores of Las Vegas stay open twenty-four hours a day in order to service gamblers. A high proportion of the grocery store and 7–11 players are probably problem gamblers. Taxation of the gambling exploits the conditions of these players and must be considered regressive (Thompson 1998, 459–461).
On the other hand, the Las Vegas Strip casinos attract tourists. Over half of the casino visitors arrive in Las Vegas by air. They stay at the hotels for an average of four days, but they gamble only four hours each day. Their gambling dollars are from their recreational budgets. They can afford to gamble; hence, taxes on their activity tend to be progressive taxes (Las Vegas Convention and Visitors Authority 1999).
Lotteries
A typical lottery ticket may sell for $1. Of this amount, half may be designated for prizes to be returned to players. Fifteen percent of the ticket price is often directed toward expenses (advertising, ticket distribution and sales commissions, printing tickets, managing funds). About 35% is reserved for government treasuries, either for a specific use or for general uses. If we consider that a ticket purchase results in a value of $0.50 going to the player, we can assume that the player has purchased a product worth $0.50. At the point of purchase, however, the price was $1, or $0.50 more. If the lottery purchase was considered to be the purchase of any other product, we could say that it carried a 100% sales tax. If we see the extra $0.50 as a profit margin, we could say that the seller was paying a tax of 70% on the gross profit – that is, $0.35 on $0.50. Or we might simply say that the government tax is 35% of the gross sales, and all other costs are costs of doing business. However we conceive the rate of taxation, we can see that lottery operations carry the highest taxation rates of any gambling products. Also it can be claimed that the use of a lottery to raise money for government activities is very expensive. It costs $0.15 in expenses to raise $0.35 for government use.
Pari-mutuel Racing
In pari-mutuel wagering, players typically make all their bets, and these are placed into a common pool (e.g., $1,000). A set amount of the pool is then given back to the winning players (about $800). As a sales tax, we can say that the tax on the player is 25% ($20 on $80). Expenses and shares given to the track and animal owners constitute most of the $200, however. The government would typically keep only $60 or $70. It might then be said that the government tax is 30 percent or 35% of the profits from the wagering, or 6% or 7% of the gross sale price of the betting tickets. As the government incurs only a very small part of the cost of race-betting operations (having a state racing commission), the cost of raising the $60 or $70 is very small, perhaps less than 10% of the amount raised.
Casinos
Casinos typically pay many kinds of fees as well as taxes on their gambling winnings. Fees are charged for licensing activities and also for having individual numbers of machines or gambling tables. Taxes on the winnings are assessed on the gross gambling win – that is, the amount of money the casino retains after all prizes are given to the players. The rates of the casino win taxes vary considerably among the commercial casino jurisdictions of the United States. Nevada has the lowest rate – 6.25% of the win – followed by a rate of 8 percent in New Jersey, Mississippi, and South Dakota. In Michigan, the state tax on wins is 18%, and Louisiana has an 18.5% win tax. Several states have taxes of 20% (Iowa, Indiana, and Missouri). The highest rate is found in Illinois, where a graduated tax climbs to as high as 35% of the casino win. These taxes are generally more efficient than those for lotteries and pari-mutuel racing. The government collection costs are consumed by state regulatory commissions and are normally less than 5 percent of the revenues collected.
A primary rationale for the legalization of almost any form of gambling has been the anticipation of government revenues derived from special taxation on the gambling activities. Proponents of gambling often argue that “since people gamble anyway”, the activity should be legalized so that it can be taxed. Persons opposed to gambling might dispute the premise that there is “gambling anyway”, and they claim that even where there is legalization, the amount of tax revenue gained is in most cases only a small part of a government’s budget. It is also argued that the legalization efforts will result in increased gambling, as government actors will begin to rely upon gambling revenues, whatever their amount, and they will therefore encourage the activity. This is especially the case where the gambling is conducted as a government enterprise (e.g., state and provincial lotteries). Increased gambling can have a depressing effect upon other tax revenues when the gambling products are substitute purchases replacing the sale of other goods, which would also be taxed. Mindful of these arguments, when Great Britain legalized commercial casinos in 1968, the nation purposely provided that there would be no special casino taxes. The government simply did not want government officials to have an incentive for allowing the activity to increase.
Additional issues concerning the taxation of gambling revolve around the “fairness” of the taxes. Critics ask: Do the taxes fall most heavily upon poor people, or upon people who can afford to pay more taxes? Of course, proponents of gambling emphasize that taxation in this case is “voluntary”.
 The Republic of Suriname, the former Dutch Guyana, is located on the northeast coast of South America. There are an estimated 450,000 inhabitants; more than 300,000 of these persons live in and around the capital, Paramaribo. Paramaribo is on the coastal plain of the country and is by far the largest and most developed city. Because of the early importation of slave labor from Africa and contract labor from Asia, the society is one of the most ethnically diverse in the world. The main language is Dutch, but English is widely spoken. Owing to the multicultural environment, additional languages commonly heard include Spanish, Hindi, Chinese, and Portuguese as well as the local language, called Sranan.
Suriname has been claimed at various times by England, France, and the Netherlands. It remained a dependency of the Netherlands from 1815 until 1954, when it obtained a parliamentary form of government and the right of local constitutional revision. Suriname became independent from the Netherlands in 1975. In 1980, the country experienced its first military revolution, and during the next fifteen years there were at least three attempted coups. A newly elected democratic government was formed in 1996.
Suriname has the lowest market share of tourism receipts and tourist arrivals of any of the countries in the Americas. Gambling is not a tourist attraction. There is a lottery, which serves as a distraction for local citizens seeking to forget the grueling trials of daily life. Bingo may also take up their time.
In 1962, while still under Dutch authority, casino gambling was legalized by a government corporation, the Landsverordening Hazardspelen. In 1962 the Hotel Maatschappij Torarica opened the first legal casino. Shortly after that the Palace Hotel opened its casino, but it closed in the late 1970s owing to high maintenance and refurbishing costs. Tararica, the only legal casino currently operating, has seventy-four slot machines, four blackjack tables, and four roulette tables. The slots are very popular, with a minimum bet of US$0.25. Blackjack has an average wager of US$10 and roulette US$125. The casino currently enjoys a loyal enthusiastic clientele.
In 1996, the Wild Forest Hotel Resort and Casino and two additional hotel companies were issued casino licenses. The Wild Forest Casino and one other are located in Paramaribo, and the third is two hours’ driving distance from Paramaribo.
Gaming is a privileged industry. Ownership and employment in the casino are limited by the Gambling Act. The district commissioner is authorized to provide permits in compliance with the Ministry of Justice and Police. The district commissioner must approve casino employees with supervisory responsibilities.
The licensee is required to refuse entry to or evict any individual who is believed likely to disrupt the normal operation of the casino. The licensee is required to ensure against alcohol abuse. Patrons who are intoxicated are not to be allowed entry to the casino. Patrons who become intoxicated while in the casino are to be evicted from the casino. Any incidences of disturbances or eviction due to intoxication are required to be reported to the police.
 Proponents of legalized gambling of one form or another are wont to call “the law” a hypocrite by pointing to the fact that governments that proscribe gambling in casinos, at racetracks, or in private homes are the same governments that endorse the existence of the stock markets. Indeed, they are the same governments that invest pension funds in the markets, the same governments that go to the markets for bonds to use for various public projects. If it is good enough for the government, why will the government not allow others to play games of chance as well?
There can be little debate about whether stock market and bond market trading (stocks and bonds are referred to as securities) involves some of the elements of gambling. Persons put up something of value for consideration; that is, they advance money into the market. They do so with the hopes of achieving a prize; that is, a financial gain. And, as with gambling, there is some risk involved. Yet although all of these elements of gambling may be found in the market, and although some people who enter the market do so with the same inclinations as people who wager on the green felt tables of Las Vegas, there are material differences between betting at a casino, at a race track, or on a lottery, on the one hand, and putting your money down on a commodity – bond or stock – in the market, on the other hand. The differences are so substantial in a material way that I choose not to give any in-depth treatment to stock markets. Nonetheless, I feel that a clear delineation between market investments and wagers at games of chance should be offered.
Those who would think that Wall Street is a casino must also think that any business venture is gambling. Yet stock investments, bond investments, and other commodity transactions are vehicles for the creation of wealth. By investing, the stock-purchasing public is saying it has confidence that certain products and services will be desired by others and will serve to meet demands of a public. A bond purchase or the purchase of an initial public offering (IPO; the first sale of a stock by a company) does indeed transfer money from individuals to entrepreneurs. Most stock purchases, however, are on a secondary market, such as the New York Stock Exchange; that is, people buy and sell stocks, and money is transferred back and forth between the buyer and seller without any money going to the company. Nonetheless, if the stock performs well it benefits the entrepreneurs in many ways. First of all, such a performance creates an incentive for recruiting talent, as the companies invariably give stock options to top managers and perhaps to all other employees as well. The company takes some stock and holds it in reserve, putting a current price on it as of the time it was put into the reserves. The company then tell the employees that if they stay with the company for some period of time, they may buy the stock from the company at that predetermined price. If the value of the stock goes up, the employees of the company gain wealth, and their loyalty to the company is enhanced. New employees can more easily be recruited if the stock values are rising. A second benefit of a successful stock, in terms of its market price, is that it makes it much easier for a company to issue new shares, through an IPO and hence recruit more capital for corporate projects.
But let us go back to the individual investor. The investor may or may not give close study and scrutiny to the purchase of a stock. After all, not all of us have the time, energy, or financial acumen to make the best choices on the market. For a fee, however, we can find persons with expertise. On the other hand, we may want to play a hunch. Or we may just wish to take a dart and throw it at the New York Stock Exchange or National Association of Securities Dealers Automated Quotations (NASDAQ) listings in the Wall Street Journal. Is this not just like going to Las Vegas and betting on a red seven on the roulette wheel? The answer is “No, it is not”. The roulette wheel, the craps table, the blackjack game, the lottery, and the horse race are all zero-sum games. For each set of winning numbers there is more than that number of losing numbers. Indeed, the casino game is not a zero-sum game, but by necessity must be a negative-sum game that casts the players as a collective into a losing position over any period of time except a very short run.
Although the stock player going through a broker must give a commission for a sale, that commission can be considerably less than 1 percent of the value of the purchase. This compares favorably to the best odds one can get at a craps table and is substantially better than the casino’s brokerage fee of 2 to 20% on other games. It is far better than the predetermined house edge of 20% on the typical horse or dog race and even much better than the 40 percent to 50 percent commission the lottery player pays the government for the right to enter that market. The casino games are rigged against the players as a whole, and this can be justified only on the basis that they are selling an entertainment value for the play experience. Wall Street does not exist to sell entertainment value in trading.
The stock market can very well be a positive-sum game in which every player can be a winner. Indeed, through the 1990s the substantial majority – perhaps 90% or more – of the investors were winners. They did not take their wins away from anyone; they did not win against other stock owners; they did not win against the companies in which they invested. They won because the companies in which they invested created wealth through their entrepreneurial activities. They made products out of raw materials and labor and ingenuity, and when the products were sold, the public bought them at a price considerably higher than that of the sum of the input investments into the products. In turn, this gave greater value to their shares. Ah! But it is true that everyone can also lose. Witness the sad days of October 1929, or October 1987, or more recently April 2000. Here then is another difference between the casino and Wall Street. In the casino the roulette wheel stops, the dice stop, the reels of the slot machine stop, the Ping-Pong balls of the bingo or lottery game quit floating to the surface, and the horses cross the finish line. The game in terms of time is finite. It ends, and someone has to pay the piper right then and there. But until a company goes fully bankrupt – the bankruptcy laws, with their chapters 9 and 11 and in the worst cases chapter 7, use the lucky numbers of gambling to indicate the status of a company that has failed – the stockholder can hold on and wait for a better day. The stock market may be a game, but if it is, the game is continuous, and it need end only when the investor decides to make his or her final sale. It hurt to receive my portfolio statement in May 2000. As I am for the most part a passive investor, however – I have a broker, and I have a pension fund that handles my investments – I just sat still with a small frown. A smart investor could have grabbed at the opportunity – because just as in poker, every day is a winner and every day is a loser on the market, but I just sat still. My pension fund was back on target by the end of the summer of 2000, and my other investments were beginning to approach their March 2000 levels – at least they were way ahead of the 1998 and 1999 levels at which I had made my purchases.
Who knows what tomorrow may bring? If we look at history, we can see only good results. The cumulative stock exchange has never gone downward for a full decade. Indeed, for a ten-year span, the stock market since its beginnings in the nineteenth century has never moved upward less than 10.5%. That was the gain during the Depression years of 1929 to 1939. There is no secret to success on the market. To be on the safe side, however, one could suggest that investors purchase index funds that go up and down with the full market – for instance, a fund consisting of all the stocks on the New York Stock Exchange or one of the 500 funds – or the thirty leading stocks upon which the Dow Jones average is based. There is a fund (with the symbol QQQ fund) that includes the top 100 NASDAQ stocks (newer stocks that have become identified with technologies of the computer age).
If one gets in the mood to throw darts and really feels like taking a risk, however, one can buy options. These are purchases of the right to buy or sell a stock at a certain value at a time 30, 60, or 90 days in the future. Here, unlike other stock investments, there is a time certain when a transaction must be completed, and although the options may promise great rewards, they also carry risks of great losses – such as the loss of the total investment, a risk that is very rare for a stock purchase. Even more risky is a practice that has become more popular in recent years as computers have allowed investors to have immediate information on the movement of prices of stock. It is called day trading.
Day trading is the act of quickly buying and selling stocks and bonds throughout the day. At the end of the day, the day trader usually owns no securities. Indeed, when he or she places an order to buy, there is a period of time (usually three business days if he or she has an account with the broker) to complete the purchase by providing funds for the security, during which time the investor eagerly seeks to make a sale of the security, because it is unlikely that he or she has the actual funds to cover the initial purchase. The day trader is not a professional and typically has little or no formal training in the financial markets. He or she is an amateur, usually working without any supervision and using his or her own money to buy and sell the stocks, futures, and options. The day trader may sit in front of a computer screen, watching the price movements of the stocks he or she is trading, hoping to make a quick “killing” with the slightest movement upward of the stock during the day.
As an example, consider that AT&T is selling for $60 a share. The trader places an order for 1,000 shares, hoping to sell it for $60.125 (60 and one-eighth) if it moves. This very small movement is the smallest movement publicly listed on the exchange, which measures prices in eighths (although an exchange can be at the 1/32th of a dollar value). The smallest movement is soon to be changed from eighths to tenths. If the investor sells the stock, the quick profit is $125. By making similar moves throughout the day, the day trader can achieve some very nice gains.
Several factors work against repeated success on these ventures, however, and make day trading quite similar to gambling. For one thing, there are commissions that must be paid when purchases and sales of stock are executed. Even at a low rate of $8.95 from a broker who will handle the transaction without offering advice, the buy and sell will cost $17.90. This commission is paid, win or lose, whether the stock goes up, stays at sixty, or descends in value. For each dollar the stock goes down, the trader loses $1,000 plus the commission. Another psychological factor against repeated success is that the trader has to hold his or her breath waiting to see whether he or she makes a sale before the payment is due—it is unlikely the day trader actually has the $60,000 for the purchase.
Another cost to day traders, who may gather at a broker’s office, is a fee to use computers there. Also, under the arrangement, the broker is not selling advice but rather only a space to work. A broker who works with an ordinary investor seeks to find value in the market, because he or she too will be receiving a commission – a little higher than the $8.95 charged by the passive broker – and wants a lot of repeat business. The broker has an incentive for performing well. On the other hand, a day trader and a gambler are both alone with their money and the roll of the dice on the computer screen. Each day the gambler trader must prove his worth by successfully trading to make a profit or by getting out of the deal with as little a loss as possible.
Often if losses begin to accumulate, the day trader’s money reserve begins to dwindle. Possessing some of the same traits as a pathological gambler, the losing day trader will seek funds from every possible source for his games. A brokerage firm, like a casino, may actually loan the day trader money for transactions and, in a sense, help him or her string out the losing experience. The loans have to be secured with the day trader’s stock account assets. Losing these, the trader turns to his or her home mortgage and other hard assets to bail himself or herself out. Often day traders do not get out in time, and they start downward on the same slippery slope as the problem gambler.
Over the course of time, the stock market performs quite rationally. Long-term trends have been solid. In the short run, the market can do many irrational things. Stocks of established companies could be expected to increase in the long run if the company has a record of successful performance and has value behind the price of the stock. In the short-run, however, prices can take quick dips and rises that may be totally unexpected. The inability to live with these wild short-term swings in price has ruined many a day trader. The market can be beaten, but it takes patience, and actually there is no one to beat – as there is with the casino.
Spurred on by greed and promises of great riches, day trading has become the modern-day California gold rush. Unfortunately, very few day traders make money – or perhaps this is fortunate, because day traders are not playing the game the way it is supposed to be played. They are not investors. Still, no one really likes to lose money, and fewer accept losses when they realize that their own bad judgment caused them. Consequently, day traders have been known to irrationally blame others for losses. This happened in Atlanta, Georgia, during the summer of 1999. A day trader faced with losing everything, including his business and his house, blamed the manager of a brokerage house where he did his trading. He felt that the manager of the firm that specialized in giving services to day traders should have warned him to be more vigilant. He also was angry with other day traders for not sympathizing with his plight. He went to the firm’s office and began shooting people. After a murdering rampage, he committed suicide.
A long-term, patient investor should be secure in feeling that the stock market will be kind to him or her. A short-term day trader may make a killing, but it is just like the pathological gambler’s first big win. Losses are sure to catch up and overtake wins, if he or she does not get out quickly. There is only one difference between day trading and gambling: In Las Vegas the gamblers get free drinks.
The National Collegiate Athletic Association, along with the professional leagues, has been a critic of betting on sports games. The NCAA is currently lobbying Congress for a national law that would ban all legal betting on college sports contests. Bills were introduced in Congress in both 2000 and 2001 to effectuate the ban. The college sports regulatory group cautions that gambling activities are now widespread on campuses throughout the country. Cedric Dempsey, who serves as the executive director of the NCAA, asserted that “every campus has student bookies. We are also seeing an increase in the involvement of organized crime on sports wagering”.
Gambling rings were exposed in recent years at many colleges, including Michigan State University, Boston College, and the universities of Maine and Rhode Island. The betting did not have to be confined to local bookies, as college students have ready access to Internet services. There are over 400 sports betting services on the web. Most are operating illegally, but some are sanctioned and licensed by foreign governments.
A University of Michigan study reported by the National Gambling Impact Study Commission indicated that 45 percent of male college athletes admitted to betting on sports events. Five percent indicated that they furnished information about team activities to others for gambling purposes and also may have gambled on games in which they participated.
During the late 1990s, a series of scandals involving student athletes’ altering their performance in games in exchange for bribes from gamblers rocked college sports. The scandals involved basketball players at high profile schools such as Northwestern University and Arizona State and football players at Boston College. All of the college scandals involved illegal gambling, but in some cases, college gambling rings used Las Vegas sports books for lay-off services when they found that their student gamblers were betting too heavily for one team against another. Las Vegas casinos helped the Federal Bureau of Investigation (FBI) and the NCAA in exposing the sports betting scandals as they discovered unusual betting patterns that prompted investigations.
The NCAA bylaw 10.3 prohibits any student athlete from sports gambling involving any team, professional or collegiate. The organization’s literature explains:
In clear, simple language, here’s what the rule means: You may not place any bet of any sort on any college or professional sports event. You may not give information to anyone who does place bets on college or professional sports. That means … NO wagers … even those that don’t involve your college. NO sports “pools,” …NO Internet gambling on sports events… NO sports wagering using “800” numbers. NO exchange of information about your team with ANYONE who gambles. In other words, no information about injuries, new plays, team morale, discipline problems, or anything else.
The penalty for violations of the rule was put bluntly: “You are declared ineligible to compete in college sports. You are off the team”.
U.S. senator Bill Bradley, himself a former professional basketball player, commented on the need to ban legalized betting on sports. “Based upon what I know about the dangers of sports betting, I am not prepared to risk the values that sports instill in youth just to add a few more dollars to state coffers… sports gambling raises people’s suspicions about point-shaving and game fixing”.
Spokesmen of the American Gaming Association, representing Nevada casinos and sportsbooks, accept that the integrity of games is extremely important. Indeed, they realize that without honest games, the sports book function of the casino would collapse. For this reason, they point out that the Las Vegas casinos work closely with the NCAA, the professional leagues, and the FBI in any investigation of corruption of sports by gamblers or gambling. In fact, they have been the source of much information that has led to investigations. On the other hand, they can easily point out that almost all of the situations mentioned above involved gambling that was illegal. They question whether making sports gambling in Las Vegas illegal would markedly improve the integrity of games. It would take the eyes of the Las Vegas establishment – including those of the Nevada Gaming Commission – off the intricacies of play inside each game covered on the boards of the casinos. There was no Las Vegas betting on the UNLV-Baylor football game. There was no central betting place where wagers could be monitored to observe if the play on the field was just “stupid” play or if it was motivated by something else.
When the professional leagues oppose legal betting on games, questions have to be raised about possible hypocrisy, as almost every league allows gambling behaviors by owners and also works with media that spread betting information to the public. Every league also recognizes that public betting adds to the television interest and revenues that come to the team owners through television contracts.
Baylor, the home team, had fought hard, sometimes uphill, but now it had the game in the proverbial bag. Five points ahead. Just kneel down, and it is over. Baylor had the ball on the opponent’s eight-yard line. Second and goal. Ten seconds remaining in the game. University of Nevada, Las Vegas, (UNLV) had no time outs. But wait, the Baylor quarterback takes the snap and hands it off, the runner swings to the outside, but he bobbles the ball. A UNLV linebacker somehow grabs the ball in the air, and ninety-five yards later, with no time left on the clock, the linebacker runs into the Baylor end zone. UNLV wins. This incident really happened in the fall of the 1999 season. It cannot be explained. Or could it be explained? Could a coach or quarterback be so foolish as to try to score points after the game is all wrapped up in their favor? Players take intelligence tests to assure that they are qualified to be students at the college they are attending. Could the coach or player that made the call have been able to pass a simple intelligence test? Should such tests be given to coaches? Perhaps the following could have happened. Could a point spread of nine or ten points with Baylor being favored represent a motivation to try to score not just a victory, but a victory of eleven or twelve points – not five points? Could a team risk victory in order to win by a big enough margin to satisfy all their fans that might have bet on the game?
That is precisely the kind of rationale that is used by the National Collegiate Athletic Association (NCAA) as well as professional sports leagues when they urge that there be no legalized betting on their games. More worrisome to the leagues is the notion that players could try to manipulate the score (called shaving points) so that professional gamblers could be assured of winning their bets while at the same time the players’ team could still win the game.
Scandals have followed sports throughout the past century. The scandals are single episodes, but they are also ongoing; they date back to the first decade of the twentieth century, and they occurred in the last century of the twentieth century. The scandals have in almost all cases involved betting and wagering on contests – usually illegal wagering.
Early boxing matches of the twentieth century were held in Nevada towns such as Goldfield, as the contests were illegal in most states. The matches were used to draw players to casinos, but betting was also very heavy on the contests. Boxing promoters such as Tex Rickard had close ties with members of organized crime, and it was generally accepted that matches were often rigged in order to favor certain gamblers. At the end of the century, the reputation of the sport had not been fully cleansed, as promoters such as Don King and fighters such as Mike Tyson have records of legal problems.
Early baseball leagues also had problems with gambling. The National League began in 1876, and attempts to control bribery and gambling passed to team owners. The owners instituted the “reserve clause” that prohibited players from freely leaving one team and negotiating to play for another team. In turn, the owners lowered salaries for players and made many working conditions intolerable. Players responded by selling favors to gamblers – favors including fixing game results. There were attempts to fix the World Series games in 1903 and 1904, and rumors spread that the 1912 and 1914 series were “thrown” by the losing teams. The game was put into major disrepute when it was revealed in 1920 that eight members of the Chicago White Sox team had accepted bribes that were passed by professional gambler Arnold Rothstein (who controlled bookies in many major cities) through an intermediary and had purposely lost the championship to the Cincinnati Reds. Their purported motivation was a salary dispute with an owner reputed to be “one of baseball’s biggest skinflints,” Charles Comiskey.
As a reaction to the “Black Sox” scandal of 1919, the eight players implicated were banned for life from the sport, although no legal action was ever taken against Rothstein and his organized crime cohorts. A new commissioner of baseball was appointed and given extreme powers to clean up the image of baseball. He was a federal judge named Kenesaw Mountain Landis. Landis proclaimed that “no player that throws a game, no player that entertains proposals or promises to throw a game, no player that sits in a conference with a bunch of crooks where the ways and means of throwing games are discussed, and does not promptly tell his club about it, will ever play professional baseball”.
Landis came down hard on players who were accused of fixing games, but he was not so strict with others who merely gambled on games. Gambling and baseball were never far apart. In the 1940s Brooklyn Dodger manager Leo Durocher was a close friend of gambling gangster Bugsy Seigel and was perhaps a compulsive gambler. Durocher was suspended from the game for the 1947 season for activities related to his gambling. As late as 1969, there were suggestions that he may have manipulated games, as he was the manager of the league leading the Chicago Cubs while they let an almost sure championship slip out of their hands with a end-of-the-season losing streak. The next year, a leading pitcher, Dennis McClain, who had led the Detroit Tigers to a championship in 1968, was suspended from the league for his own gambling activities and associations with mobsters. Contemporaneously, two of the most outstanding players of the century – Mickey Mantle and Willy Mays – were banned from having official associations with baseball for a period of time in the late 1970s because of their employment by Atlantic City casinos in public relations positions. The ban was lifted when the stars ended their casino employment.
One of the most notable sports gambling scandals became public in 1989 and its effects have carried over into the twenty-first century. Pete Rose, one of the greatest players of all time, was accused of betting on his own team while he served as the manager of the Cincinnati Reds. As a player, Rose had set the major league all-time hits record. He led the league in hitting three times, and he held the longest hitting streak in the National League history – forty-four games. He had been an All Star team member over a dozen times, and he wore a World Series championship ring. Rose admitted that he had been a relatively heavy gambler, but he also insisted that he had never bet on baseball games. The Rose episode was exposed when he and some compadres won a pick-six race ticket at Turfway track in northern Kentucky. His gambling habit was exposed, although the proof of his betting on baseball, especially betting on his own team, was not definitively revealed in a public way to the satisfaction of all observers—but certainly to some. Even his harshest critics have never in one single case accused him of betting against his team or in any specific way changing his coaching strategy in order to favor bets that he made. I noted earlier that baseball is bet on an odds bases and not on a handicapped runs (point spread) method. Rose acquiesced in a commissioner decision that he be banned from baseball for life, with the status of the ban open to review after one year. Because Rose had many of his winning bets recorded, but did not keep recorded proof of his losing, the Internal Revenue Bureau made a claim that he had not paid sufficient income taxes. He was without a defense, and because of his losses, he was without the funds necessary to pay the back taxes, penalties, and fines. He was sentenced to prison and served six months because of these tax problems. Rose’s lifetime suspension has not been fully reviewed by league officials. He has been banned from consideration for membership in the Hall of Fame, a body filled with many old-time players and managers who regularly gambled – even on their own teams.
Basketball scandals have touched college basketball and professional basketball; however, the latter cases have not received close public attention. Professional basketball did not have a widespread public following until race barriers were broken down and the tempo of the games increased to make them more exciting. Professional league expansion and television exposures have also increased support. Very high salaries have made the prospects of bribing players unlikely. On the other hand, many players have succumbed to temptations of illicit drug use. College players often have financial needs. Bribes are always available to key major teams if they leave themselves open to the possibility – if they do not purposely decide to avoid certain contacts. In 1951, everything “hit the fan” with revelations that thirty-three players on seven top national college teams had “shaved” points in exchange for money from gamblers. It was suggested that eighty-six games had been influenced – and that in some, players threw victories. Colleges such as Columbia, City College of New York, Manhattan, and Long Island University were never able to regain their reputations as nationally competitive teams. Kentucky fans did not give up, and that team has remained solid. In the 1980s, a hint that difficulties existed returned, as a former Boston College player admitted to taking bribes, and a Tulane player revealed that he had traded point-shaving activities for cocaine.
In December 1999, a former defensive back on Northwestern University’s football team pleaded guilty to lying to a grand jury about his role in betting on college games. Ten other players on both the football and basketball teams had already been charged, and all had pleaded guilty to offenses related to betting and point-shaving activities. The century was ending with a cloud over sports activity – much as the century had begun.
Early football games must have been important for someone beyond local supporters or campuses, as games became very violent, and quite often “ringers” (noneligible players) were put into lineups. The initial owners of professional football teams had ties to organized crime confidants. George Hallas, founder of the Chicago Bears, was backed by a “crony” of Al Capone. Art Rooney was a prominent Pittsburgh gambler before he was owner of the Steelers. So was Baltimore Colt (and later Los Angeles Rams) owner Carroll Rosenbloom, also a very high stakes gambler in the 1950s. In fact, he was close to Mob leader Meyer Lansky and others who owned Havana and later Bahamas casinos. In contemporary times, Philadelphia Eagles owner Leonard Tose lost the team because of his compulsive gambling activity.
Players were in a different situation. Two New York Giant players were approached by gamblers prior to the 1946 championship game and offered a bribe to shave points. They refused; however, because they did not disclose the bribe offer, they were suspended. They went to play in the Canadian Football League. One of the players, Frank Filchok, was later the head coach of the Denver Broncos. In 1963, Detroit Lions star Alex Karras and Green Bay Packer Paul Hornung were forced to sit out a year because they had bet on their own teams.
The famous 1958 championship game was celebrated for making football the number-one spectator sport in the United States, but the game was never officially investigated for obvious manipulations. Baltimore Colts owner Carroll Rosenbloom reportedly had made a very large wager on his own team – the Colts. In fact, his betting caused the original line (Colts favored by 3.5) to move up two points (Colts favored by 5.5 points). The game ended with a tie score of seventeen to seventeen and was decided in a sudden-death overtime period. After holding the Giants on their first series, the Colts marched eighty yards down the field toward the Giants’ goal line. They reached the eight-yard line with a second down. They did not try a “sure thing” field goal. Rather they passed the ball. They were lucky; the ball was caught and run to the one-yard line. On third down, they did not try a field goal. Instead, halfback Alan Ameche ran the ball over the goal line. It was a risky way to win the game, but then it was the best strategy to follow if you had to win by more than 3.5 or 5.5 points and cover the owner’s bets. Moldea reported that rumors circulated around the National Football League that the Colts were playing to make sure they covered the point spread.
There was a league investigation of Leonard Tose’s gambling problem. Officials found that as long as he had the money to make his wagers, there was no problem. The problem was that he was a compulsive gambler, and he did not have enough money to cover his losses. He supposedly would bet as much as $70,000 a hand at blackjack. The league had a rule against owners’ borrowing money from each other, but Tose was allowed to break the rule. The owner of the Tampa Bay Buccaneers loaned him $400,000 so he could pay off casino debts. Then Tose turned to William Clay Ford (of the Ford Motor Company family), who owned the Detroit Lions. Ford arranged for a bank he controlled to make more loans to Tose. The league’s commissioner Pete Rozelle, commented that he would be “a hell of a lot more concerned if he knew that a player had bet at the casinos …”.
There is a reason why the league had a rule against inside financial deals among owners. One of the consequences of the Ford-arranged loan to Tose was that Tose – who had a winning personality, a common trait among many compulsive gamblers – lobbied hard among all the owners to have the 1985 Superbowl game played in January 1985 in the frozen tundra of Pontiac, Michigan – albeit inside the Silverdome stadium.
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