Gambling in American History

Basketball betting for both professional and college games follows the general structure of football betting, with straight bets utilizing a point spread and with bets on total scores also being popular. Parlay bets with and without cards are also wagered quite often. As margins of victory vary considerably and do not come together on specific numbers – such as three in football – the threat of middling is less for the sports book. Most sports books also offer teaser bets.
The general condition of basketball betting would seem to suggest that theoretical hold percentages would be more likely achieved than with football games; however, another factor makes this achievement more difficult. There are many more basketball games than football games, and the results of basketball games are much more dependent upon individual players. One player or two can dominate a team’s performance much more than in football – with the general exception of the quarterback. There is a need for greater information about players in order to more accurately predict the outcomes of games. Yet with the number of games all over the country, bettors may have more information than the sports books – information about players’ health, emotional disposition, disputes within teams with accuracy, distractions based upon player life circumstances (perhaps examination schedules and class performance for college players). The college basketball betting public is also the most sophisticated of those making sports wagers. The most sports betting scandals have hit the college basketball ranks. Professional gamblers sense that they can compromise players who can more easily affect the points of victory (shave points) in college basketball. Many major league professional players make $1 million or more per season and hence are not vulnerable to offers of money or other favors to shave points. It must be noted, however, that the sports books (and illegal bookies as well) will probably be very cooperative with authorities in exposing players or teams that may be willing to compromise their point spread lines, because as the line is compromised, the sports books not only lose customers who feel that games are not honest but also find it more difficult to balance their books, hence realizing their theoretical profit margins. Dishonest games hurt the bookies and sports book the most – in a financial sense, anyway.

Football

Football did not carry much interest among bettors until the National Football League gained television contracts and displayed its special kind of action for the public. A critical event was the climax of the championship playoffs of 1957, as the Baltimore Colts defeated the New York Giants in a sudden-death overtime game viewed by the largest television audience for a sports event up to the time. The game marked a critical point at which national interest in football exceeded interest in baseball, a game that did not translate well to the public over television, as it had too many breaks in action.
Football sports betting received an extra boost as a new professional league began operations in the 1960s and then merged with the National Football League, bringing teams and games to each major city in the United States.

The Point Spread

The growing interest in football was tied to betting on the games. Betting increased considerably among bookies when a handicap system of point spreads was developed. Prior to the use of point spreads for football wagering, the bookies only offered odds on winners and losers of games. As many games were predictable, odds became very long. Players realized that they had little chance to win with the underdog, but at the same time, the bookies did not want to accept bets of sure-thing favorite teams, and they were reluctant to accept the possibilities of an underdog winning with odds of twenty to one or more. Therefore, many games simply were not available for the betting public. There is a dispute over just who invented the point spread. A Chicago stock market adviser, Charles McNeil, was credited by some for inventing the spread in the 1930s; two other bookies, Ed Curd of Lexington, Kentucky, and Bill Hecht of Minneapolis, are also cited for creating the spread decades later.
Bookies and the few legal sports books in operation in the 1950s and 1960s loved the spread for football and certain other games, as it greatly reduced their risks. Bookies do not want risks. They are businesspeople who want stability in their investments. The essential feature of the point spread was a guaranteed profit for the bookies – if the books could be balanced. Points are set for games with the goal of having an equal (nearly equal) amount of money bet on either side.
The point spread is called the line. The point spread refers to the betting handicap or extra point given to those persons making wagers on the underdog in a contest. Those betting on the favorite to win must subtract points from their team before the contest begins. The point spread is used most often for bets on basketball or football games. As an example, the New York Giants may be a seven-point underdog against the Green Bay Packers. Thus the line is Green Bay minus seven. Those betting on Green Bay will lost their bets unless Green Bay wins by more than seven points. Those betting on the New York Giants will win unless the Giants lose by more than seven points. The bet is a tie (called a push) if Green Bay wins by exactly seven points (Thompson 1997).
In 1969 the New York Jets were double digit underdogs against the Baltimore Colts in the Superbowl football game. The point spread was as high as eighteen points. Yet New York, under the guiding leadership of quarterback Joe Namath, defeated the Colts sixteen to seven. Although some considered that the point setters failed miserably on that game, they did anything but fail at all. Money books were balanced, and the bookies won their transaction fees. Although players bet on one side of the line, they must put up $11 in order to win $10. This means that if the books are perfectly balanced, with $11,000 bet on one side, and $11,000 bet on another, the bookie pays back $21,000 to the winning bettor, and keeps $1,000 out of the $22,000 that has been bet – for a 4.55% advantage over the bettors.
In actuality, this theoretical advantage is seldom realized. Bettors do not line up evenly on either side of the point spread, and some bettors have knowledge about the games superior to that of the point setters, taking advantage of the spread numbers. The bookies often find that they have to adjust lines in order to get more even betting on each side. In certain cases, a line may move two or three points, resulting in a situation called “middling,” whereby bettors on both sides—early bettors on one side, later bettors on the other side – can be winners. This happened with betting on the Superbowl in 1989. The three-point line, with San Francisco favored over Cincinnati, was moved to five or more points, as the bettors clearly favored the San Francisco 49ers (they were not only a California team – that is, near Las Vegas – but also they had won the Superbowl twice in the previous seven years). The game finished with a four-point San Francisco victory.  Early San Francisco bettors won; later Cincinnati bettors won. Many of the bettors won both ways. The bettor gets the point spread that is listed at the time the bet is made, unlike the pari-mutuel situation in which odds are based upon the cumulative bets of the players.
Then there is the case in which the point setters do what some might consider their “job” perfectly. In the 1997 Superbowl game between Green Bay and New England, the Green Bay Packers were favored by fourteen points. The point setters were on target; they were perfect. The Packers won with a fourteen-point margin. The bookies and legal sportsbooks won exactly 0 percent on the game. They had to give all the money bet back to the bettors. The bets were a tie, a “wash.” Because ties on point spreads are bad for the sports books, there is a tendency to use half points in spreads, although these are moved when betting behavior demands that the points be changed. Also, bookies realize that certain spreads will lead to ties more often than others will. More games end with a three-point victory than any other specific point margin. Moving points up or down around the three-point margin is also dangerous because of the “middling” factor.

The Structure of Football Bets

The standard bet on football results has a player wagering that a favored team will either win by so many points or, conversely, that an underdog team will either win or will not lose by more than a determined number of points. If a game is considered to be an even match, no points are given either way. Such an even-match bet, with no points either way, is called a “pick-’em” by bettors. If the point spread is expressed as a full number, and the favorite team wins by that many points (or an even match ends in a tie), the bet is considered a tie (or “wash”), and the money wagered is returned to the player. There is no bet.
There are many betting opportunities other than a straight-up bet on which team will win and whether it will win by so many points. A very popular bet made on professional football games and many college games as well is the over-under. Here the point setters indicate a score that is simply the total number of points scored in the game. Bettors wager $11 to win $10 that the total score of the game will be more or less than the set number. There are also teaser bets that may be used either with one game or usually with bets on several teams. The bettor is given extra points for a game in exchange for having the odds on the bet changed against him.
Parlay bets are combination bets whereby the bettor wagers that several games (with point spreads) will be won or lost. For instance, on a two-team parlay, a bettor wagering $10 will win $26 (for a payback of $36) if both picks are correct. At even odds, the player should receive 3 to 1 for such a bet, or a return of $40. This means that the house edge on the bet is theoretically 10% – again assuming that bets on all sides of the parlay action are even amounts of money. A three-team parlay pays 6 to 1, and the even odds of such a parlay would be 7 to 1. The theoretical edge in favor of the sports book would be 12.5%. There are two kinds of parlay bets: ones made based upon the point spreads of the moment, and others made on a card where the point spread is fixed until the game is played. The latter type of cards may have a theoretical edge as high as 25% or more. For a three-bet parlay, cards usually payoff at a 5 to 1 rate. Sometimes cards allow tie bets to be winners; other times they are figured as “no-bets”; some cards may treat ties as losers.
There is also a wide array of proposition bets that are usually reserved for special occasions. Bettors may wager on many situations for the Superbowl game each year. For instance, the bettor is allowed to wager on which team will win the coin toss, have the most passes completed, score first; on how the first score will be made (touchdown, field goal, etc.); on which player will score first, how many fumbles there will be in the game, which team will lead at halftime, and many other situations. In the 1986 Superbowl, a Las Vegas casino offered a wager on whether Chicago Bear William “the Refrigerator” Perry – a 300-plus-pound offensive lineman would score a touchdown in the game against New England. He had been used as a back on gimmick plays during the season.  The betting started with odds at thirteen to one but quickly came down as the betting public wagered that Perry would score a touchdown. Late in the game, which had become a rout (Chicago won forty-six to ten), coach Mike Ditka called Perry’s number. He lined up in the backfield and was given the ball. He scored a Superbowl touchdown.
There are possibilities for odds betting for some football games, although the sports books put the players at a considerable disadvantage for any games where the point spread betting exceeds seven points. One can wager on the “sure thing” but only at considerable risk. For instance, on an even, no-points, “pick-’em” game, players betting either side advance $11 in order to win $10. With a three-point spread, those wagering on the favorite bet $15 to win $10, and those wagering on the underdog wager $10 to win $13. For a 7.5 point game, those betting on the favorite might be asked to wager $40 to win $10, while those betting on the underdog would wager $10 to win $30. The theoretical house edge thereby moves from 4.55 percent for the even game, to 8 percent for the three-point spread game, to 20 percent for the 7.5-point game.
The biggest bet on a football game was made by maverick casino owner Bob Stupak, the owner of Vegas World and the creator of and an initial investor in the Stratosphere Tower. In 1995 he bet more than $1 million on a Superbowl game. He wagered $1,100,000 to win $1,000,000. And he won. It was great publicity all the way around. The Little Caesar’s Casino and Sports Book basked in the glow of publicity as it happily paid the $2,100,000 check (for winnings and original bet) to Stupak. He basked in the light of publicity, as he was seen as the ultimate “macho-man.” He put it all on the line for his team, and he had won.
One newspaperman was rather suspicious about the deal, as it seemed too good to be true for both the casino and the bettor. The newspaperman made an official inquiry of the Nevada Gaming Commission as to the veracity of the bet. The commission confirmed that Stupak had bet $1,100,000 on the game and that his win was legitimate. The commission reported no fact other than it was a legitimate bet. Sometime later, news media personnel uncovered “the rest of the story.” Stupak may have bet on both teams. He may have been a $100,000 loser for the day – but it was worth it to gain the desired publicity, if he had won $1 million on one bet and lost $1.1 million on the other. The Nevada Gaming Commission has absolutely no obligation to report information on losing bets—indeed, that information is rightfully considered to be very private. Publicly, that information certainly would harm the industry, as Las Vegas seeks to portray itself as a place where “winners” play. There was nothing illegal about playing both sides of a sports bet.

Sports betting occurs when gamblers make wagers on the results of games and contests played by other persons. The results of the games and contests are completely independent from the wagering activity of the gamblers. In other words, the gamblers have no control over the outcome of the games – that is, as long as the wagering is honest. Whether it is legal or not is another matter.
There are sports betting opportunities with a wide variety of games and contests. Although in a generic sense sports betting includes wagers made on the results of horse races and dog races, these games (contests) are usually considered to be different than other contests. In this encyclopedia, they are discussed separately, as are jai alai contests and betting on dog fights (pit bull fights) and cockfighting.
Sports betting in North America involves many kinds of games. It may be suggested that making wagers on the results of games is the most popular form of gambling in North America. It is certainly the most popular form of illegal betting in the United States.
In Nevada, there are 142 places, almost all within casinos, that accept bets on professional and amateur sports contests. Nearly $2.3 billion was wagered in these sports books in 1998. The casinos kept $77.4 million of this money; that is, they “held” 3.3% of the wagers, owing to the fact that the players bet on the wrong team and also that the casino structures odds in its favor. The sports wagers constituted just over 1% of all the betting in the Nevada casinos. About two-thirds of the wagers were on professional games and the rest on college games (National Gambling Impact Study Commission 1999, 2–14). Although the profits casinos realize directly from sports bets seem to be low, sports betting is very important in Las Vegas and Reno. The major gamblers like to follow sports, and the wagering possibilities draw them to the casinos. Also, the casinos sponsor championship boxing matches and give the best seats to their favorite gamblers. Superbowl weekend is the biggest gambling weekend in Las Vegas each year, as the casinos have special parties, usually inviting sports celebrities (retired) as well as other noted personalities to come and mingle with their gamblers. Of course, many of these invited celebrities turn out to also be heavy gamblers.
In 1998, the Oregon sports lottery sold $8.5 million worth of parlay cards on professional football and basketball games, and the state retained over $4.2 million (50 percent) as its win. This is less than 1 percent of total lottery winnings, but 4 percent of the winnings on non-video lottery terminal lottery games. The sports lottery is structured to produce a return of 50 percent to the players on a pari-mutuel basis.
The National Gambling Impact Study Commission suggested in its 1999 Final Report that illegal gambling activities draw wagers of several hundreds of billions of dollars each year, perhaps as much as $380 billion (National Gambling Impact Study Commission 1999, 2–14). It is likely that the operators of these games hold 3 to 5 percent of the wagers as profits. The illegal sector commands considerably more activity than the few legal outlets for sports gambling in the United States.
Betting has developed rapidly in recent decades. In 1982, the Nevada sports books attracted $415.2 million in wagers and kept only $7.7 million (less than a 2 percent hold). The hold increased an average of 16.6% every year until 1998, after which it leveled off. Only California card rooms and Native American gambling operations had greater annual increases. In comparison, casinos increased 10.4 percent each year and lotteries 13.5% (Christiansen 1999). The added interest in sports betting has been affected by an added interest in sports in the United States. Although individual sports have different experiences with their growth, one factor that has affected all sports has been television access to games and news media on odds and points spreads. Most Nevada sports betting was confined to small parlors outside of the major casinos until the late 1970s. The gambling activity was discouraged by the fact that the federal government imposed a 10 percent tax on each sports wager; however, this was lowered to 2% by 1975. In that year, the amount wagered in Nevada quadrupled. The state of Nevada changed laws in 1976, making it easier for casinos to have sports books. Then, a final breakthrough came in 1982 when Congress lowered the federal betting tax on sports contests to 0.25%, which is where it is today.  Major sports betting areas were constructed in many casinos, the largest books (in physical size) being found today in the Las Vegas Hilton and Caesars Palace.
Ironically, given the widespread nature of sports betting, the gambling is also very controversial. Popular opinion on betting is very mixed, and indeed, opinion is more strongly against legalizing this particular form of gambling than are negative factors on any other type of gambling. The survey taken for the Commission on the Review of the National Policy toward Gambling in 1974 found majority acceptance of several forms of gambling – bingo, horse racing, lotteries – whereas fewer than half of the respondents supported legalization of casinos (40%) and offtrack betting (38%), and the fewest supported legalized sports betting (32 percent) (Commission on the Review of the National Policy toward Gambling 1976, App. II). A 1982 Gallup poll found majority support for all other forms of gambling but only 48% approval for betting on professional sports events (Klein and Selesner 1982). Opponents of sports betting suggest that the activity may have a tendency to corrupt the integrity of games, as those making wagers could try to influence the activity of the players in the contests.
Sports betting is authorized in Canada, Mexico, and other parts of Central America and the Caribbean region; however, sports betting is very limited in the US. Actually only in Nevada can a gambler legally make a wager on an individual contest or game. In Oregon the lottery runs a sports game in which the player must select several professional teams playing basketball or football on the same day or weekend. Nonetheless, sports betting is very pervasive in the United States, as bets on almost all sports events take place among friends or fellow workers or among social acquaintances in private settings. Almost all of these wagers, as already discussed, are illegal, as are wagers made through betting agents known as bookies. The appearance of the Internet and the worldwide web, which provide services in a form available to most residents, has led to a substantial increase in the amount of sports betting by Americans, most of which is also clearly illegal. There is some debate, however, as to whether Internet gambling, which is controlled by an operator in a jurisdiction where it is licensed and legal, is always illegal if the player is in another jurisdiction.
The greatest amount of sports betting – both legal and illegal – in the United States consists of wagers made on American football games. The National Football League (professional) games attract the most action, with the championship game (the Superbowl) being the initial attraction, the most wagering “action”. The Superbowl attracts wagers approaching $100 million in the casinos of Nevada, and perhaps fifty times that amount or more is gambled on the game illegally. Most of the illegal gambling on the Superbowl consists of private bets among close friends or participation in office “pools” in which the participants pick squares representing the last digit of scores for each of the two teams. Following the Superbowl in importance for the gambling public are the college basketball championship series, the World Series for professional baseball, and the National Basketball Association (NBA) championship series.
Each kind of game has different structures for gambling. Basically, wagers are made on an odds basis, on a basis involving handicapped points for or against one of the contestants (teams), or on a combination of odds and handicapped points.

The voters of South Dakota made the state the nation’s third commercial casino jurisdiction at the ballot box in November 1988. The voters in effect amended the state constitution to permit limited stakes gambling, but only in the town of Deadwood. In 1989 the legislature passed an enabling act, and the voters of Deadwood ratified the decision to have casinos in their town. Several casinos opened in November 1989, and there are now over sixty casinos in Deadwood. The ostensible purpose of casino gaming was to generate revenues for tourist promotion and for historical preservation projects in Deadwood. Wild Bill Hickok had been shot in the back while playing poker in Deadwood in 1876, but the town was a decaying relic from that time. The town’s main block of buildings had burned in the mid-1980s.
Prior to casino gaming, the state had permitted dog- and horse-race wagering. The state had instituted a lottery in 1987, and in 1989 the lottery had also began operation of video lottery terminals in age-restricted locations. Each location was allowed twenty machines that awarded, on average, 80 percent of the money played as prizes given back to the players. In the 1990s, nine Native American casinos compacted with the state to operate facilities. The casinos are located at Sisseton, Hankinson, Watertown, Wagner, Lower Brule, Mobridge, Fort Thompson, Pine Ridge, and Flandreau.
The commercial casinos in Deadwood were originally allowed to have thirty games (machines or tables), but as facilities were built together, the state changed the limitation to ninety games each for a single retail location. In addition to machines, which guaranteed prizes equaling 90% of the money played, the only games permitted were blackjack and poker. Bets were limited to five dollars per play. In the poker games the casino could rake-off as much as 10% of the money wagered. The casinos pay 8% of their winnings to the state in taxes; of this, 40% goes to tourist promotions, 10% to the local government, and 50 percent to the state for regulatory purposes. If regulatory costs fall below this amount, the remaining money is dedicated to historical preservation projects.
In 1989, the lottery began using video machines located in restaurants and bars around the state. In 2000, antigambling interests made attempts to stop the lottery machines, but according to the New York Times of 9 November 2000 (B-10), the voters decided to keep them.

During the 1990s, South Carolina became the land of gambling loopholes. During the 1970s and 1980s video game machines began to appear in many South Carolina locations. Cash prizes were given to players who accumulated points representing winning scores at the games. No cash was dispensed by the machines; instead, the owners of establishments with the machines paid the players. Although the arrangements seemed on the surface to violate antigambling laws, they survived legal challenges. In 1991 the state supreme court bought into a loophole that the operators offered in their defense. The operators argued that the machines were not gambling machines as long as the prizes were not given out by the machines directly. The court agreed, and so naturally a gaming machine industry began to blossom throughout the state (Thompson 1999).
Operators “seen their opportunity”, as the famous turn-of-the-last-century political philosopher George Washington Plunkitt of Tammany Hall would say, “and they took ’em”. As the gaming revenues flowed in, the operators formed a very strong political lobby to defend their status quo. The legislature addressed the issue of machine gaming, but it could only offer a set of weak rules that have not been rigorously enforced. Legislation provided that gaming payouts for machine wins were supposed to be capped at $125 a day for each player. Advertising was prohibited. There could be no machines where alcoholic beverages were sold, operators could not offer any incentives to get persons to play the machines, and there could be only five machines per establishment. Machines were also licensed and taxed by the state at a rate of $2,000 per year. (Of the tax, $200 is now given to an out-of-state firm to install a linked information system).
The rules have not been followed in their totality. Establishments have linked several rooms, each having five machines. As many as 100 machines have appeared under a single roof. Progressive machines offer prizes into the thousands of dollars. Operators claim they pay each player only $125 of the prize each day. In some cases, they award the full amount of the prize and have the player sign a “legal” statement affirming that the player will not spend more than $125 of the prize in a single day. Advertisements of machine gaming appear on large signs by many establishments. Bars and taverns have machines.
There have been thousands of citations against establishments, and fines have been levied. In 1997 and 1998, there were $429,000 in fines in a nine-month period. The practices did not end, however.
Several interests in the state did not care for gambling. They persuaded the legislature to authorize a statewide vote on banning the machines. According to the legislation authorizing the elections, votes were to be counted by counties. If a majority of the voters in a county said they did not want the machines, the machines would be removed from that county. In 1996, twelve of forty-six counties said they did not want the machines. Before they could be removed, however, the operators won a ruling from the state supreme court saying that the vote was unconstitutional. The court reasoned that South Carolina criminal law (banning the machines) could not be enforced unequally across the state. Equal protection of the law ruled supreme in the Palmetto State.
Over the last years of the 1990s, the legislature and state regulators continued to wrestle with issues surrounding machine gaming. One effort to have all the machines declared lotteries and banned in accordance with a state constitutional prohibition on lotteries failed, as the supreme court held by a single-vote majority that the gaming on the machines did not constitute lottery gaming. The 1998 gubernatorial election seemed to turn on gambling issues, as supporters of machine gaming and lotteries gave large donations to the winning candidate. The new governor has sought to win wide support by initiating new “more effective” regulations, but these have not yet won consensus support in the legislature. One new proposed regulation would allow machines to have individual prizes of up to $500 that could be won on a single play. Another proposal would set up a new state regulatory mechanism for machine gaming.
In the meantime, machine gaming flourishes. At the beginning of 1999 there were over 31,000 machines in operation. They attracted over $2.1 billion in wagers, and operators paid out prizes of $1.5 billion. Machine owners and operators realized gross gaming profits of $610 million – approximately $20,000 per machine per year. Almost all of the machines were made outside of the state. Over half were Pot o’ Gold machines made in Norcross, Georgia. These cost $7,500 each. Most of the operators share revenues with owners of slot machine routes. There has been no mandatory auditing of machine performance, although the state authorized the installation of a slot information system.
In 1999 the voters were authorized by the legislature to decide if the machines should stay or be removed. If the voters did not determine the machines could stay, they had to be taken out. But in a surprise decision, the state supreme court ruled the referendum vote unconstitutional and ordered that the machines be removed by 30 June 2000. In November 2000, the voters removed a constitutional ban on lotteries. A lottery will begin in 2001.

Machine gambling is essentially a house-banked gambling operation. Certainly the player is wagering against a machine. As many states have lotteries or allow only games such as bingo that are played among players, the states have sought to keep Native American tribes from having slot machines of the type that are found in casinos. For instance, in California, the state spent a decade fighting the tribes, insisting that the tribes had to have only machines that were linked together so that players had to electronically pool their money, from which 95% – or some percent – could be awarded as prizes. Only the voters who passed Proposition 1A in March 2000 were able to change the situation, and now by popular approval, the tribes have slot machines. In the state of Washington many tribes agreed to have these pooled arrangements for their machines. Although the state may seek to find some legal technicality that makes pools acceptable and regular slot play unacceptable, the players will have a hard time telling the difference.  Moreover, the state is doing a major disservice to the notion that the player should be given an equal chance to make the big win on every play as he is in Las Vegas, rather than having a list of winning prizes that diminishes every time a player takes a win. In Las Vegas and other places with regular slot machines, the machines have random number generators that are activated with each play. The player has the same chance of winning a jackpot, a line of bells, bars, or other prizes with every single pull, and the casinos could conceivably lose on every single pull. It is called gambling, after all.
The reality is, however, that the law of large numbers applies to slot machine play, and the payout rates are very consistent over time. Table 1 shows the rates of returns for each of the casinos in New Jersey, Illinois, Indiana, and Iowa over each month of 1999. Even if the state mandated a specific return, as it does for a lottery or for a bingo game, the returns could not be much more consistent. Note that some states and casinos have better returns than others – actually Las Vegas casinos offer the best returns – consistently over 95 percent. In no way does the different return amount come from any manipulation of the computer randomizer chip in the machines. Quite simply, it comes from the payoff schedule. Two machines can have exactly the same play dimensions, but payout percentage returns to the player can differ greatly simply by setting the win for a certain configuration (say three bells) at 18 rather than 20, or on a poker machine making the wins for flush and full house 5 and 8 instead of 6 and 9. Sophisticated players know the machines, and they can discern the best payout machines by simply looking at the prizes listed on the front of the machines. For obvious reasons, payoffs are better at the higher-denomination machines. A five-cents machine may cost as much to buy as a dollar machine; therefore the casino expects that it needs to hold a higher percentage of the money played on the nickel machines. Actually today all the big casinos have very high denomination machines; indeed, several have machines that take $500 tokens in play – and to win the best prizes on these machines, the player has to play three coins a pull – you would not want to make my mistake on a $500 machine.
Machines have appeal to both the player and the operator. In most cases they can be played alone. The player can study the machine before playing it. It is rare that a player will criticize the way another one plays (I enjoyed one of those rare moments), and with a little study the machine playing is easy to learn. Operators like machines because they do not involve much labor, they are very secure (although cheating has been a historical problem), and they can be left alone to do their job without complaining.
Machine play is the bread and butter for most casinos around the world. Machine gambling offers opportunities pursued by many lotteries and offers the golden hope (or silver bullet) that many feel can save the racing industry. Machines have also crawled into Nevada convenience and grocery stores, and if policymakers allow them, they will be in bars and taverns across the country, all across the globe. It could easily be predicted that machine gambling is the wave of gambling in the future, but now the Internet has come onto the scene, and perhaps it is that machine that will soon be the most lucrative and alluring gambling device.

Bally’s was the worldwide innovator. It moved machines from being mere mechanical devices activated by pulling a handle to being electromechanical devices. The handle pull was now just an alternative way to push a button to make the machine run. Bally’s first machine was the Money Honey, which contained a much larger capacity to store coins, making bigger payoffs more possible. In 1964, Bally’s developed a progressive machine, which permitted a jackpot amount to grow each time the player made a losing play. The possibility of winning thousands of dollars on machine play was opened up. Also, the machines could accumulate jackpots large enough that the expected payoff return for a player could become positive (over 100 percent). Soon the company made multipliers, that is, machines that accepted up to five coins; with each additional coin put in, the prizes would multiply. Bally’s added reels to some models. In 1968 it marketed a machine that had three play lines on it. In the late 1970s it developed low-boy machines that had flat horizontal playing surfaces, over which the player could lean. Eventually, this style of machine was adjusted to be operational on a bar surface. Bally’s also developed the popular Big Bertha, an extremely large machine (six to eight feet across) that would dominate a casino floor, drawing attention to slot machine play. In 1980 Bally’s engineered another breakthrough. It linked machines together so that several could offer one very big progressive jackpot.  The Hilton casinos of Las Vegas used these networks of machines to offer million-dollar guaranteed Pot of Gold jackpots.
The 1980s were not kind to Bally’s. It entered the casino business as an owner of an Atlantic City casino and then several casinos in Nevada. Other casinos became somewhat reluctant to buy Bally’s products and thereby display the name of a competitor of their gambling floors. But more importantly, the computer age had descended, and Bally’s was hesitant to make the leap. One of Bally’s sales executives, Si Redd, worked on the development of a video gambling device with a cathode-ray tube. Poker could be played on his device. He wanted Bally’s to market the machine and give him the appropriate credit. Bally’s higher executives, however, did not want to stray from their “winning formula” of the 1960s and 1970s. They struck a deal: Si Redd would leave the company and promise not to make any machines that would compete with the Bally’s models nor to use knowledge he had gained at Bally’s. In turn, Redd would be given a five-year exclusive right to develop his poker machine. Redd became instrumental in starting International Gaming Technologies (IGT), which manufactured and sold video poker machines. Five years was all he needed. By the mid-1980s, IGT surpassed Bally’s in machine sales, and after IGT won the right to make reel machines as well, it thoroughly dominated the market, with over 75% of the sales of machines in the United States and Canada. IGT now stands as perhaps the largest slot machine company in the world, sharing that world market stage with Aristocrat and Sigma.
The computer technologies and cathode-ray tube video screens have changed the look and operations of machines in many ways. When California authorized a state lottery in 1984, Nevada casinos worried. They could not compete with a multi-million-dollar jackpot; IGT came to the rescue. The company developed Mega-Bucks, a statewide network of machines offering one progressive jackpot. Although the jackpot has never risen to the levels of some lottery jackpots, it has gone over $10 million several times, and it keeps many Nevada regulars from running to the state line to buy California tickets – at least until the California jackpots get really high. The Mega-Bucks network includes upward of 1,000 machines. Within casinos there are many other linked networks of machines.
Modern machines developed by IGT, Sigma, Bally’s, Anchor, Mikohn, and other companies have also incorporated other features. One machine has holograms in its displays. One blackjack machine features a three-dimensional dealer who appears to actually deal out cards as he talks to the players, wishing them good luck, congratulating them on wins, consoling them on losses, and urging them to try again. Sigma has simulated a racetrack and horse races. The games have also taken on names of popular nongambling games. Mikohn has a Yatzee machine. Anchor developed a Wheel of Fortune game involving reel play; when a certain winning combination appears, a wheel above the machine spins for the superjackpot as noises from the television Wheel of Fortune game are heard. There is also a monopoly game. Several casinos have banks of Elvis machines. Although all the machines offer gambling games, with their variety has come a variety of rules, making the machines much more sophisticated than the ones that just asked the player to pull a handle – or decide how many coins to play and then pull a handle.

The notion of using a machine for gambling bounced around in many inventors’ heads during the last decade of the nineteenth century. It was the era of inventions, after all. Gambling contraptions of one sort or another proliferated around San Francisco. There, in 1893, Gustav Frederick Wilhelm Schultze registered a patent for a wheel machine. This gave the inspiration for Charles August Fey to make a machine with spinning reels. Three years later he put together his final version of a machine that bears a resemblance to today’s machine. Fey called his machine the Liberty Bell. It had three reels with bells, hearts, diamonds, spades, and horseshoes. Three bells paid off ten-for-one in drinks. Schultze challenged Fey’s and others’ rights to make machines, but he was unsuccessful in having his patent stand up in court, as the validity of gambling machines was questionable.
Fey did not seek to win a patent for his machine. Instead, he sought to guard it by maintaining ownership over each unit he produced. He arranged to place the machines in establishments around San Francisco and other nearby areas with an arrangement that he would take 50% of the revenues from the machine and let the owner of the premises have 50%. The process was effective for several years, but according to Fey’s grandson, Marshall Fey, in 1905 someone from the Mill’s Novelty Company of Chicago secured a machine through unauthorized means and used it as a model for their own machine (Fey 1983). Soon the Mill’s company was making a wide line of machines. In 1906 it developed the first machine that stood upright on its own and did not have to be placed on a stand. This machine, “the Kalamazoo”, and all others came under the scrutiny of legal enforcement against gambling.
Back in San Francisco, the police chief arrested several premise owners. One was fined but appealed. He won the appeal in the Superior Court, which ruled that the machine games were not lotteries. Police actions were also frustrated by defense allegations that enforcement was hypocritical in that California permitted poker card clubs. Nonetheless, the machine makers were wary of legal crackdowns, and they made several adjustments to try to defend their products. Some adjustments and subterfuges used by the manufacturers over the early days of machines included the following (many of these ruses are still attempted in various places):
Machines indicated that prizes were paid off as cigars or drinks or other merchandise rather than cash.
Signs on machines indicated that the machines were not gambling machines.
The machines played music as the coins entered them, and they had signs saying.
Buttons were placed on the machines, and reels could be stopped from spinning when the buttons were pushed. In this way a skillful player could always win, hence the element of chance was removed and the machines were not gambling machines.
The machines portrayed game symbols from games that were legal. For instance, they used poker hands in California.
One of most ingenuous attempts at seeking to avoid the tag of being a “gambling” machine came early, as machines were developed that would tell the player exactly what they would win when they put the next coin in. There was no chance. Of course, what the player was seeking was a chance to play in order to find out what would come after that. Courts wrestled with definitions of gambling on these kinds of machines for many decades.
Machines also were configured so that a player would actually get a piece of gum or some other novelty prize with each play, under the ruse that they were buying merchandise from the machine.
Through the twentieth century, cat-and-mouse games were played among machine owners, operators, police, and the courts. But these games were often quite secondary to the fact that machines were illegal and yet were operating. Public acceptance along with patterns of public bribery and lax law enforcement allowed the machines to proliferate in most locales of the United States. During the years of national prohibition of alcoholic beverages, mobsters gained control over the placement of many machines, and accordingly, the machines became associated with organized crime in the minds of many law enforcement people.  As gambling became legalized in many forms, such an association caused policymakers to leave machines out of the mix of legalized gambling products. Even down to the current day, the biggest battles over the scope of Native American gambling permitted under the Indian Gaming Regulatory Act of 1988 has focused upon whether a state has to allow a tribe to have slot machines (or other gambling machines).
Over the years since Fey’s first Liberty Bell, down to the 1980s, the machines did not change much in basic appearance. Although their facades contained many variations, they all had the spinning reels. Growth in the numbers of machines was constant into mid-century. In 1931, a new company in Chicago developed the Ballyhoo pin ball machine. Bally’s placed over 50,000 of such “skill” machines in bars and restaurants during their first year of operation. The machines allowed players to win more games but not money. In fact, winners could be paid for the number of games they won. Bally’s concentrated on these “novelty” machines as its corporate strength grew.
In 1951 the federal government passed the Johnson Act in an attempt to stop illegal gambling machines. The law exempted machines from prosecution if they were in legal jurisdictions, and as a result, many operators moved their businesses to Nevada. The law also caused Bally’s to lobby Illinois for permission to make machines. In 1963 Illinois repealed the state prohibition on manufacturing machines. At this time the Mill’s company and two others (including Jennings, a spin-off from Mill’s), dominated the gambling machine business. This was soon to change, as Bally’s entered the field with a new knowledge base about recreational machines and their players. Within twenty years Bally’s took over three-quarters of the machine business in the United States.

A Personal Story

Let me tell you about my introduction to slot machines, an introduction that taught me about beginner’s luck. That is what I had the first time I went to a casino in Las Vegas. I was on my job interview at the University of Nevada, Las Vegas, in 1980. The department chairman recruiting me suggested that we go to the Hilton. There I saw bank after bank of slot machines and tables. I indicated a hesitation to play the table games, as I did not know the rules, and they seemed somewhat complicated. Moreover, the games moved very fast, and the players at the tables really looked as if they knew what they were doing. Like other slot machine players, I felt “intimidated” by the table play. So we found some empty machines. I thought I would just have to put in the coins, so I “bought” ten dollars worth of quarters. The machine asked me a question, however: Did I want to play one, two, or three coins? I had to think about that for a while (something a player cannot do when he sits down at a table – take a little time to think things over). The machine indicated that with one coin I could win only with cherries; with two, I could win with cherries and other fruit and bells; with three coins, I could win any time the machine showed a winning combination – cherries, fruit, bells, and the jackpot bars. Well, we were educated, smart people (we both had Ph.D.s, and those are not easy to come by). So we figured the jackpot ($100) was just a bit too much to hope for, too much of a “long shot.” I would play two coins. I played the two coins the first time and lost. I played two coins again, the reels spun, and what do you know, one, two, then three bars – jackpot! Bells and whistles, lights, the $100 jackpot sign flashed. The trouble was that no money flowed from the machine. I had not won the jackpot that the machines so proudly proclaimed for the world to see, because I had only put two coins into the machines. That was bad enough, but soon other people around me were telling me, “Why, you didn’t win because you have to put three coins in for a jackpot.” I was quite aware of what had happened (Ph.D.s have some intelligence). Then someone else would tell me the same thing. I also heard side comments about that “stupid tourist” who does not know you always put in the maximum number of coins. I had most of my roll of quarters left, so I played on, but with very little enthusiasm. When the coins were gone, I left as quietly as I could.
Beginner’s luck? Some might not think so. I certainly did not feel “lucky” at the moment. After I began to study gambling, however, I became quite convinced that that is precisely what I had experienced – beginner’s luck.
Just think, within five minutes of my first exposure to slot machines, I had learned that machines were not easy things that could be played without some thought. Indeed, since 1980 the slots have increased in variety and in complexity. I learned that the gambling devices were smarter than I was and that that might have something to do with the fact that they seemed to be taking over the casinos and winning so much money from the players. I also learned the best lesson any new resident of Las Vegas can ever learn – that the player has to be a loser, or to put it in personal terms, this player (I) was a loser. The lesson has not stopped me from gambling, but it sure has slowed me down. Imagine my potential gambling history had I won $100 after playing one dollar and fifty cents. I shudder to think about it. I have to live in Las Vegas, a city with nearly 200,000 slot machines, and they are everywhere – on the Strip, in locals’ casinos, in bars and taverns, restaurants, car washes, liquor stores, convenience stores, drug stores, and supermarkets.

The Value of the Machines

Slot machines are very attractive. They are the devices that usually get amateurs started gambling. They move very fast and they can be quite “captivating.” This can be quite all right if the gambling is responsible. Certainly, machines add a lot to the entertainment value of many lives. They also shift revenues to employees, as well as to government coffers. Individual slot machines make considerable sums of money for their owners, ranging from about $50 a day ($18,000 plus a year) to over ten times that much ($200,000 plus a year) each, depending on where they are found. Yet each machine usually represents an investment of less than $3,000 or $4,000 a year. A machine and related equipment cost from $5,000 to $10,000, and labor and energy costs to operate the machine are minimal, perhaps an equal amount of dollars (supervisors can watch ten to twenty machines, and a service person can handle 100 machines). These are lifetime costs. The costs can then be divided by a three- to five-year annual cycle. For example, the typical Las Vegas casino machine might cost the operator $4,000 a year to maintain (including all overhead), whereas it produces $35,000 in revenue – that is, it takes $35,000 a year away from the players (even the “smart” ones who know they should put in the maximum three coins each time they play).
In the early days of Las Vegas casinos (the 1930s into the 1970s), slot machines were an extra among the gambling products. The really serious gambling was at the tables, and the machines produced only a small part of the house revenues. Casino owners would say such things as, “They pay the electric bills,” or in a sexist phrase, “They keep the women busy while their men are doing the real gambling at the tables”. Now this casual attitude about machines is gone. One discussion of Las Vegas games published in the 1960s told how machines made about 15 percent of the revenues of the big Strip casinos. Now many Nevada casinos, especially those such as Texas Station that serve local residents or casinos appealing to drive-in gamblers from Phoenix or southern California (e.g., those in Laughlin), bring in over 80 percent of their revenues from machines. Over the past two decades, the machines have also become much more generous to the players, often giving respectable returns of over 95% – a gamble as good as that offered at many table games. The higher returns are essential for the success of the machines, as the players of machines are now much more sophisticated – in terms of searching for best payout schedules.
The value of slot machines for the casinos is reflected in the fact that almost all the casino properties in any competitive jurisdiction will give free services (complimentaries) to slot machine players, something they did only for table high rollers in the recent past.  Since the mid-1980s, the casinos have instituted “slot clubs”, and through magnetic cards they record the amount of play an individual has, then award extra prizes – free meals, free casino stays, free shows, merchandise, and even cash bonuses – based on the player’s patronage. In the Harrah’s chain of casinos (over twenty properties) there is a single slot club, and players can use their card in any of the casinos to accumulate points for prizes.
If there is a Gresham’s law in gambling, it would simply be that slot (and other) machines for gambling will, where permitted, eventually drive out all other forms of gambling. I have studied the intricacies of European casino gambling over the past fifteen years. Country after country seriously deliberated over issues such as whether the casinos could serve drinks on their gambling floors; whether local residents could enter the casinos; whether casinos could advertise and have signage; whether the casinos could cash patron’s personal checks. Although public officials oversaw such earthshaking measures in order to properly protect the public from this “sin” industry, the same governments with very little deliberation decided that slot machines could go almost anywhere – in taverns, in children’s arcades, in seaside recreation halls. Even though Spanish casinos were being “taxed to death” (they pay a gross win tax averaging over 50 percent), over 500,000 slots filled Spanish restaurants and bars, paying scant taxes. British authorities delayed for years a decision to allow casinos to expand their offerings of two machines to four, while at the same time giving no attention to the fact that gambling halls throughout the urban areas and recreational communities were able to have hundreds of machines. The issue in European gambling is no longer how to apply intricate detailed regulation to casinos, but just how wide open noncasino machine gambling can become. Or in the case of France, the issue is to what extent will machine gambling be allowed to go within casinos that were prohibited from having them until the late 1980s. In several U.S., Canadian, and other Western Hemisphere jurisdictions, lotteries are finding that their best revenues come from slot machines dispersed throughout their territories and called video lottery terminals. In many of these places, horse- and dog-race tracks have turned to machines to boost their revenues and have found that slot machines have become their essential business product. More and more, all over the world, the expansion of gambling has become essentially an expansion of machine gambling.
The era of machine gambling seems to have arrived with the twenty-first century, but the ride of machine gambling from the latest years of the nineteenth century has been an uneven and rocky journey.

It has been said that it is an ill wind that blows no good. When I heard of such an occasion on a visit to Puerto Rico, it reminded me of a similar situation in Las Vegas. I visited Puerto Rico a year or so after a tragic fire had killed scores of patrons at the Du Pont Plaza Hotel and Casino on New Year’s Eve 1986. I asked a manager of another hotel about the effects of the disaster on casino business in San Juan, expecting to hear that revenues had gone down. To my surprise, he said, “I can’t say this too loudly, but you know, that fire really helped our business”. I was somewhat stunned, but he added, “Before the disaster nobody knew that Puerto Rico had casinos; now the story about one of our casinos was on the front page of every newspaper in the world”. I was reminded that years before that tragedy in Puerto Rico, Las Vegas had been just a cowboy town with a few casino joints, hardly in the minds of anyone far away. Then on 20 June 1947 a bullet rushed through the handsome head of Benjamin Siegel, a mobster who had orchestrated the construction and the opening of the most glamorous casino of the day. The next day his murder was headline material for newspapers everywhere. Part of the story focused upon the property he had developed and the many glamorous people – mainly movie stars – who frequented his Flamingo Hotel Casino resort. Las Vegas was on the map!
In death, Benjamin Siegel, also known as “Bugsy”(although no one dared to call him that), became an indelible part of the history of Las Vegas, credited in large part for developing the Las Vegas Strip. The reality diverges somewhat from the myth. Siegel did not start the Strip, he did not own the Flamingo, and his role as the manager-builder of the property was secondary to his image as a handsome but nonetheless ruthless mobster who controlled rackets on the West Coast mainly through intimidation. But his death certainly was a bit of marketing genius for Las Vegas, although it can be certain that city promoters were not responsible for pulling the trigger on the Army carbine that did the trick.
Benjamin Siegel was born in 1905 in Brooklyn. As a youngster he became a friend of Meyer Lansky, and the two drifted into rackets, including bootlegging and illegal gambling. The engendered fear that Siegel cast upon others as he walked through his shortened life was a product of the fact that the “Bugsy and Meyer” gang gained a reputation for doing contract work for other organized crime interests.  But all need not have feared. As Siegel told builder Del Webb, who was constructing the Flamingo, “We only kill each other”. Lansky and the other New York Mob leaders chose Siegel to be the chief of their West Coast operations, specifically the wire services that carried information on horse and dog races. In California, Siegel befriended the Hollywood movie crowd, and himself became somewhat of a celebrity. He pushed himself into most local rackets. He took a piece of the action from gambling boats operating off the Pacific shore, he controlled action at dog tracks, and he had a piece of the Agua Caliente track and casino in Tijuana. Siegel also bought into several Las Vegas casinos, including the Golden Nugget and Frontier.
In 1945, Meyer Lansky and Siegel drove to Las Vegas together to check on their interests there – the casinos and the wire services – and they discussed the notion of having a new resort that could attract a real tourist crowd as opposed to the existing “sawdust” joints that throve on local and drive-in trade. They found the Flamingo. It had been the dream of Billy Wilkerson, an owner of a nightclub in Hollywood. Wilkerson shared lots of friends with Lansky and Siegel, but he did not have access to their money. His dream was stymied by a lack of financial resources. Siegel and Lansky saw an opportunity, and they took over the project. The organized crime elements in New York and Chicago invested $1.5 million into the venture. Siegel was given the task of getting it done and opening the doors.
Siegel, like Wilkerson, had financial problems with the property. World War II was ending, and materials were scarce. He paid Del Webb’s construction firm top dollar for overtime to rush the construction schedule. Many suppliers found that Siegel did not have a business sense that allowed him to keep track of inventories, and they effectively cheated him out of many dollars worth of goods. Cost overruns followed cost overruns. At the same time, Siegel was carrying on a relationship with Hollywood actress Virginia Hill. That tempestuous affair caused him to neglect work duties as well. As the mobsters back East were being hit for more and more money for construction, they became suspicious that Siegel himself was stealing from the project. They became convinced when Virginia Hill started making trips to Europe and visited Swiss banks. By the end of the project, the price tag had risen from $1 million to $6 million, and the conversations about changing management via assassination had arisen.
Siegel was allowed to survive to open the property, and he did so on 26 December 1946. The opening was another financial disaster, however. The hotel’s rooms were not finished, so guests stayed elsewhere. Bad weather precluded many celebrities from flying in from Los Angeles for the opening. And the players had a run of luck beating the house. To stop the financial hemorrhaging, Siegel closed the Flamingo. He reopened it in March 1947 when the rooms were done and the weather was better. His luck was better, too, and soon the Flamingo was turning a profit. Unfortunately, it was not soon enough for Siegel.  His mobster partners had entered the contract for his life. Virginia Hill was in Europe in June, but Bugsy decided that a trip to her apartment in Beverly Hills would beat staying in the Las Vegas heat. He was sitting in her living room reading the Los Angeles Times when three bullets flew into the window and changed the mythology and probably also the history of Las Vegas. The identity of the killer was never discovered.