In the early days of the republic, gambling policy was considered the prerogative of state governments. The new government was structured to be one of delegated powers. The government of the constitution was created by “We the People”, and officials of the government were empowered to make policy only in the areas designated by the “People.” Congress was delegated certain powers in Article I, Section 8, and nowhere on the list were powers to regulate gambling activity. Moreover, the 10th Amendment of the U.S. Constitution specifically reserves the “powers not delegated to the United States… [nor] prohibited” to the states to the “States, respectively, or to the people”. Accordingly, the federal government stayed away from gambling for nearly a century – that is, except for the few lotteries actually run by the government or authorized by the government. Congress was empowered to raise money.
Congress was also given the power to “establish post offices” and to “regulate commerce… among the several States”. Congress turned to these powers when concerns were raised, first about illegal lotteries, and then about the legal but disrespected Louisiana lottery. In 1872, the use of the mails was denied to illegal lotteries. This was followed by a series of laws aimed at curbing the interstate activities of the Louisiana Lottery.
On 19 July 1876, President Grant signed an act that provided legal sanctions against persons using the mails to circulate advertising for lotteries through the mails (44th Congress, Chapter 186). On 2 September 1890, an act was signed, proscribing any advertisements in newspapers for lotteries. (51st Congress, Chapter 980). The Louisiana Lottery managers saw a loophole in these antilottery laws, and they moved their operations to Honduras. They were only a few years ahead of the law, however. On 27 August 1894 (53d Congress, Chapter 349), legislation was passed prohibiting the importation “into the United States from any foreign country… [of] any lottery ticket or any advertisement of any lottery.” All such articles would be seized and forfeited. Penalties of fines up to $5,000 and prison time of up to ten years, or both, would be assessed against violators. The next year (2 March 1895; 53d Congress, Chapter 191), Congress passed an act for the suppression of all lottery traffic through national and interstate commerce. Very specifically, the mails could not be used by lotteries to promote their interests.
These federal laws had a desired effect. They put severe restrictions upon the operators of the Louisiana Lottery. Also, the citizens of Louisiana came to recognize that the operators were bribing state political leaders and extracting exorbitant profits from the lottery, whereas state beneficiaries were being shortchanged. There were also exposures of dishonest games. Under pressure from citizens, the legislature ended the state sponsorship of the lottery in 1905.
In two U.S. Supreme Court decisions, the acts of Congress were determined to be constitutional. That is, they were passed within the scope of the powers of Congress. In 1891, the Court ruled in the case of In re Rapier (143 U.S. 110) that the 1872 prohibition was a valid exercise of congressional power to regulate the use of the mails. In 1903, the justices held in Champion v. Ames (188 U.S. 321) that Congress had the power to pass an appropriate act against a “species of interstate commerce” that “has grown into disrepute and has become offensive to the entire population of the nation”.
Although there were no other legal state-authorized or -operated lotteries until New Hampshire began its sweepstakes in 1964, there were lotteries that sought markets in the United States. There were illegal numbers games in all major cities, and there was the Irish Sweepstakes. The Irish Sweepstakes was created by the Irish Parliament in 1930 as a means of benefiting Irish hospitals. The Irish were well aware that they did not have a substantial marketing potential if they aimed only at customers within the Free State, so they looked outward to Europe and to the United States. At first, they used the mails to promote and sell tickets to customers in the United States; however, the U.S. Post Office successfully intervened with legal action to stop this blatant violation of the 1895 law. Then the Irish Sweepstakes operators turned to smuggling tickets onto U.S. shores. Using ship-to-shore operations, as well as Canadian border cities, they were quite successful into the 1960s and 1970s, when U.S. states began to meet them with competition from their own lotteries.
When radio became established as a viable entertainment media, the federal government found that it was necessary to create the Federal Communications Commission (FCC) and to establish uniform regulations for operations of radio stations across the country. The Communications Act of 1934 stipulated rules for advertising “on the air”. Within a few decades, the rules applied also to television signals.
The broadcasting law held that persons would be subject to fines of $1,000 or penalties of one year in prison, or both, if they used radio stations to broadcast or knowingly allow stations to broadcast “any advertisement of, or information concerning, any lottery, gift enterprise, or similar scheme, offering prizes dependent in whole or in part upon lot or chance…” (Federal Communications Act of 1934, Public Law 416, 19 June 1934).
But that was 1934, when no government in the United States had its own lottery. That situation changed in 1963, when New Hampshire authorized a lottery that began operations the next year. By 1975, eleven states had lotteries. The limitations on advertising seemed to be adverse to the fiscal interests of state budget makers. Congress responded to a demand for exemptions to the 1934 act.
In 1975, Congress passed legislation that allowed a state-run lottery to advertise on radio and television stations that only sent signals within the state. Courts later held that the substantial portion of the signals had to be within the state. In 1976, the exemption was expanded to allow advertisements on the air that extended into adjacent states as long as the other states also had state-run lotteries.
In 1988, the exemption included signals into any other state that had a lottery. (Nonprofit and Native American gaming was also exempt from the 1934 act; in 1964 the FCC issued rules allowing horse race interests to advertise “on the air” as long as the advertising did not promote illegal gambling.)
By the last years of the century, the application of the law was in reality an anomaly, with only commercial casino gambling subject to the ban on “lottery” advertising. Lotteries were fully exempt. The anomaly was short-lived, as the 1934 provision was deemed unconstitutional as a violation of freedom of speech after a 1996 U.S. Supreme Court case in a related matter .
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