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Trafficking in Chance

Gambling--an exploding entertainment industry starring cash--offers both outlandish jackpots and financial ruin.

July-August 2002

The dozens of ATM machines lining the entrances to the Mohegan Sun casino don't operate in quite the usual way. If you withdraw $400 in cash, for example, you'll receive four $100 bills. In casinos, the C-notes are ubiquitous. Like snowflakes on ski slopes, they represent the natural element that makes business possible.

The spectacular décor of Mohegan Sun, a tribal casino in eastern Connecticut, plays up natural themes—exposed beams of hewn logs, waterfalls and rock formations, entry portals styled "Winter," "Spring," "Summer," and "Autumn." As we enter the main gambling area, the roof yawns 40 feet above. The casino also houses Indian exhibits, like the life-size statue of Mohegan medicine woman Gladys Tantaquidgeon, her own best advertisement at age 102. In an odd juxtaposition, this tribal elder looks out on an enormous room filled with row upon row of slot machines. At random intervals, wild whoops ring out from somewhere in the forest of slots, brief arias of triumph sung against a background chorus of steady losses—the chiming, jingling din of gaming technology swallowing thousands upon thousands of customers' dollars per hour.

Clouds of cigarette smoke waft by, but should this prove disagreeable, a sign points the way to "Smoke Free Slots." Personal preferences will be honored here, as long as that helps the gambling continue without interruption. An attentive host, Mohegan Sun makes it comfortable to stick around. Cashiers roll carts of change through the slot aisles, ensuring that no customer runs short. Food is tasty and inexpensive: a dinner of porcini ravioli, baby greens with balsamic vinaigrette, and a glass of Merlot might run $20. Shows by "Legendary Performers"—Tony Orlando, Chubby Checker, Isaac Hayes—attract players with a soft spot for has-been vocalists. And luxury amenities abound, reflecting the casino's billion-dollar cost: polished granite gleams in the rest rooms and again at the bar, where barstool stations have their own video slot displays that allow wagers and blood-alcohol levels to rise together.

Slot machines are the profit centers of casinos: about 80 percent of the house's revenue comes in though their orifices. Then there are table games of pure chance, like roulette and craps, and card games involving skill—blackjack, poker, baccarat.

Having made our way past the ATMs, the tobacco smoke, the slots, and the waterfalls, we arrive in the poker room, where CNN, sports, and other fare light up a dozen television monitors suspended from the ceiling, while a PA system announces new seats opening up at tables. At a medium-stakes table ($10 minimum bet, $20 maximum), Tom Lynch, Ed.M. '92 hopes to draw a third queen to complete a "boat"—a full house—and win a pot of about $200 in a game of seven-card stud. A young Asian woman deals with dazzling dexterity, casually spinning the cards in pinwheel arcs to Lynch and seven other men. The play moves ahead with astonishing speed. In an hour, the table will play 30 to 40 hands, at a minute or two apiece. The pace, of course, is designed to maximize the house's take and, incidentally, the dealer's tips. The casino rakes off about 6 percent of the aggregate bets in poker, by Lynch's calculation; at certain monetary thresholds, the dealer extracts a chip from the pot and slides it into a slotted metal device that sucks it away to join millions of others on the credit side of Mohegan Sun's balance sheet. The giant sucking sound at the other end of that slot is in crescendo. It is the whir of the engine that drives America's new boom industry: gambling.

 

The gaming industry's stack of chips has been growing for years at an astounding rate. In 1962, Americans placed about $2 billion in legal and illegal commercial bets (i.e., excluding "friendly" private bets). The commercial take from these wagers was about 10 percent, so in 1962 it cost Americans $200 million to gamble. By 2000, the nation was betting a staggering $866 billion. Though the take had diminished to 8 percent, due to increased competition, the revenue of the gambling industry was about $70 billion—up 35,000 percent. Paul Weiler, Friendly professor of law, who assembled these figures, watches gambling closely, since it bears crucially on two of his specialties, sports law and entertainment law. "The sum total spent on tickets to all movies, plays, concerts, and live performances, plus all sports events, is only about $22 billion per year," Weiler explains. "Americans are spending three times as much on gambling as on all other kinds of entertainment combined. And it is a major, major source of pathology."

Gambling—or the "gaming industry," as its corporate owners prefer to style it—includes state lotteries, casinos, horse and dog tracks, sports betting, bingo, and an increasing volume of Internet wagering. State lotteries and casinos are the two most popular formats, accounting for most of the growth. Lotteries have sprung up everywhere since New Hampshire began the trend in 1963. Casinos, in contrast, remained confined to Nevada deserts for nearly half a century, but have proliferated rapidly since 1988.

In 1963, the lottery juggernaut began when New Hampshire elected Democratic governor John W. King. "New Hampshire had a budget deficit, and the only rational way to deal with it was finally to have a state tax of some kind," says Weiler. "But King didn't want to do that, so he proposed a 'voluntary tax'—a state lottery." The idea of raising revenue without raising taxes appealed to many state governments, and lotteries have since spread to 38 states. The early lotteries, like New Hampshire's, were inconvenient—players had to go to banks or post offices to buy tickets and fill out forms; drawings were infrequent. With time, lotteries evolved into a form of "convenience gambling." Thousands of variety and convenience stores were authorized to sell lottery tickets; many more players bought chances; jackpots got bigger and drawings more frequent. Eventually the drawing and the ticket purchase merged into a single event with the advent of scratch-off "instant win" lottery tickets. A 1999 Gallup poll found that 57 percent of American adults had bought a lottery ticket in the previous year. According to the Massachusetts Council on Compulsive Gambling, scratch-off lottery tickets have become a major factor in problem gambling.

The first Nevada casino opened in 1931. Las Vegas became a national "fly-in" resort with seductively low rates on hotel rooms, restaurant meals, and shows. Then, in 1976, amid a recession, New Jersey voters approved a referendum that legalized casinos in Atlantic City. Unlike Vegas in its desert setting, Atlantic City drew players from nearby population centers like Philadelphia and New York: the era of "drive-in" casinos had begun.

Then, 12 years later, the gold rush began. Between 1989 and 1998 nine more states, from Mississippi and Connecticut to Iowa and Minnesota, legalized casino gaming, and today 429 commercial (nontribal) casinos operate in 11 states. For tribal gaming, 1988 was the watershed year when Congress passed the Indian Gaming Regulatory Act, allowing states to regulate—and draw revenue from—tribal casinos. Today, there is tribal gaming throughout the land, ranging from high-stakes bingo to the world's largest casino facility, Foxwoods, located just south of Mohegan Sun in Connecticut. The six-casino complex at Foxwoods, operated by the Mashantucket Pequots, takes in an estimated $1 billion in annual revenue, largely drawn from the population of 30 million souls who live within a two-hour drive of its roulette wheels, dice, slots, and tables. More than 40,000 patrons visit Foxwoods every day.

Meanwhile, Las Vegas has become a "full destination resort" embracing art museums, golf, and a plethora of five-star restaurants. Affluent vacationers, a quarter of them from southern California, fly in, spend three or four nights in Vegas, and budget an average of $665 for gambling. But the more accessible drive-in casinos have made it easy for a much broader slice of the public to feed the slots. (Las Vegas took a nosedive during last fall's air-travel collapse, while drive-in casinos continued to thrive.) In 1999, 30 percent of American households gambled in a casino, averaging 5.4 trips per year, and the casino-goer's median income was $45,700, about 10 percent above the national figure. Between 1975 and 1999, people 65 or older dove into gambling with more gusto than any other age group: only 35 percent of older adults had ever gambled in 1975, but by the end of the century, that proportion was up to 80 percent.

Today, only two states—Hawaii and Utah—prohibit all forms of gambling. In recent years, gambling has become a governmental strategy both for raising revenue and for economic development. "There is a pattern," says Robert Goodman, a professor of environmental design at Hampshire College and author of The Luck Business, a 1995 book critical of the gambling industry and its connections to government. "A state has economic problems, often due to a recession, and introduces gambling. Gambling revenues climb, then taper off, flatten out, and decline. At that point the state introduces some other form of gambling. For example, in the late 1980s, every state lottery was flat or declining. There was a recession, yet a strong demand for public services. This created a clash: how can politicians raise revenues without raising taxes? So the push began for casino gambling and riverboats. The trend is always toward more 'hard-core' forms of gambling—instead of things that require some knowledge, like horse racing or card games, the market seeks out entry-level things like slot machines, which demand no knowledge. The hard-core forms are where the problems become even more severe. The government's revenue stream comes to depend more and more on problem gamblers. Where will the states turn next? Now they are concerned about competition from offshore Internet casinos. The states may try to get in on Internet gambling."

The new wave of gambling expansion has made games more convenient and has accelerated the pace of play, as with "instant win" lottery tickets. There are ever-faster win-loss cycles. Early slot machines were mechanical devices: pulling the lever spun, say, three wheels independently, and a player could win if all three stopped on a picture of a cherry or peach. Now, electronic slots have screens that respond with the speed of microchips. But quicker cycles of play may aggravate the problems of gambling addicts. Compulsive slot players can easily pile up big losses at speeds impossible before the advent of microprocessors. Gambling-related websites currently number about 34,000, up from 20,500 a year ago. (Similarly, day traders mesmerized by their own computer screens whiz through short-term "bets" whose outcome is largely determined by chance. In fact, day trading "is a form of gambling," says Howard Shaffer, associate professor of psychology in the department of psychiatry and director of Harvard Medical School's Division on Addictions. "It is not investing." The difference: in Internet casinos, ticker symbols are spades, hearts, diamonds, and clubs.)

As gambling has come to pervade American life, public opinion has shifted in its favor. What was once a deviant activity, run by organized crime and furtively pursued by the low-order criminal types of Guys and Dolls, has now joined the mainstream. State governments have shifted from being gambling's regulators to its promoters. But "Who polices the government?" asks Goodman. "Church and state have been the two greatest opponents of gambling," says Shaffer. "They are now two great proponents of gambling." According to the 1999 Gallup poll, 63 percent of the American public approves of gambling, and, if done in moderation, 75 percent find it no worse than going to movies or sports events. Only 26 percent saw gambling as an immoral vice. "This is the first time that a generation has grown up amid legalized gambling," says Shaffer, "in a social setting that not only permits but endorses the gambler."

The consequences of this changed ethos may already be playing themselves out beyond casino walls. "There are very high rates of pathological gambling, and gambling in general, among college students," says Weiler. "In the 1980s and early '90s, many college students were getting addicted to the pleasures of gambling. When they got out into their professional careers, they decided to gamble with the stock market. That is what set off the surge in NASDAQ stocks and in things like Enron. The pathological features of gambling played a significant role in turning the stock market upside down."

 

At the Mohegan Sun poker table, Tom Lynch's "river" card—the seventh and last card dealt in his poker hand—arrives, and it is the hoped-for queen. Lynch calculates that it costs $40 per hour in antes just to stay at the table, so he needs to win at least three hands per hour to stay alive. This one is a good win; with his full house, Lynch hauls in a $220 pot and tosses a couple of chips to the dealer. He bet aggressively on his cards, confident that his one remaining opponent held no better than two pair—jacks and eights—which his queens and tens would have beaten even without the full house. Lynch had seen a jack in a hand that folded earlier and hence knew that chances of drawing another one were slim. "The best skill is being able to read what's in the other guy's hand—what are you playing against?" he explains. "Otherwise, you're so focused on your own hand that you can lose your shirt." Lynch takes a break to have a sandwich and talk for awhile. "There's a lot of free testosterone in the room," he muses. "Some very good women poker players come here, but the vast majority are men. And their male egos can hurt them at the tables. A lot of players lose big money but never trace the cause to themselves."

Lynch, an investment manager in southeastern Massachusetts, plays poker at Mohegan once a week, driving 85 miles each way to the casino to get in five or six hours of action. There was a time when he played a lot more poker: as a young officer in the U.S. Navy from 1958 to 1960, when he might be at sea for four weeks at a time. At times his ship carried as many as 1,800 Marines, and Lynch often played with their officers. "Poker was an extension of their egos," he says, smiling. "Good poker players fold hands early and often. But not these guys—'Marines don't quit! If you fold those cards, you're a little coward!' When you raised their bet, they took it as a personal affront—'Raise me? Oh yeah?—I'll raise you.' All this is very good news for a poker player. On one cruise from San Diego to Hawaii, I won $500 in dollar-limit games, and put up a few of my friends at the Moana Hotel for 10 days when we reached Honolulu. Semper fi!

"Unlike blackjack, poker is a predatory game—the other player's loss is your gain," Lynch continues. "Sometimes you have several people holding good hands, raises going around the table. You want other players to get emotionally involved; it clouds their judgment. When your ego gets into it, you become so convinced that your hand is going to prevail that you no longer objectively assess what is happening. Then you've got trouble. Poker is a lot like investing money. Many portfolio managers are good card players—particularly poker and bridge. Stocks and cards don't know who owns them."

 

For some gamblers, emotional involvement with the game reaches an extreme. "That small percentage who are totally addicted to gambling bet far too much, lose more than they can pay, borrow money, and put themselves into that land of big debt," says Paul Weiler. Gambling addicts are more likely than others to have been on welfare, declared bankruptcy, or been arrested or imprisoned. In a 2001 meta-analysis of 146 prevalence studies, Howard Shaffer and colleague Matthew Hall estimated that in the past year, about 1.5 percent of adults met criteria for the most serious form of gambling disorder ("pathological gamblers") and that an additional 2.5 percent ("problem gamblers") have "subclinical" difficulties with gambling. The rates are far steeper for college students and adolescents, who showed prevalence rates of nearly 5 percent and 15 percent respectively.

There are many similarities between pathological gambling and drug or alcohol addiction (see "Deep Cravings," March-April 2000, page 60). Although gambling has no strict parallel to drug abuse, there is definitely gambling dependence. Shaffer notes that some researchers "report that about 50 percent of pathological gamblers show symptoms of withdrawal—irritability, sleeplessness, gastrointestinal disorders—if they can't gamble. And gambling will make these symptoms go away. Like alcoholics, they also experience blackouts: periods of time will go by when they have no idea what they did. There's a major central-nervous-system correlate here."

Assistant professor of psychiatry Hans Breiter, a neuroscientist at Massachusetts General Hospital, last year showed that six brain regions involved in rewards or pleasures increase their blood flow during gambling situations. Breiter used high-field functional magnetic resonance imaging to study the brain activity of 12 young adult men with no history of problem gambling. Each was given $50 to cover potential losses on a computer game resembling a roulette wheel with some slot-machine features. The six motivational centers ("and there are many more," Breiter says)—including the amygdala, nucleus accumbens, sublenticular extended amygdala, ventral tegumental area, hypothalamus, and orbital gyrus—had greater blood flow even when subjects only imagined winning a wager. Breiter had previously found that cocaine users' brains showed stimulation of these same regions, which are rich in the neurotransmitter dopamine. "We cannot distinguish any difference between the brain pattern of someone gambling and someone ingesting cocaine," he says. "And whatever areas are involved in addiction affect these regions." His paper in the journal Neuron asserted that "the same neural circuitry is involved in the highs and lows of winning money, abusing drugs, or anticipating a gastronomical treat."

These findings suggest that gambling, and especially pathological gambling, may activate a deep motivational core in the human nervous system. No wonder it is so popular. "Hans is identifying the neurocircuitry of motivation," says Shaffer. "The long-term implications are astounding." One possibility is the eventual synthesis of a drug to treat gambling disorders. Or consider Breiter's data on imagined wagers, which suggest that certain fundamental states involving reward and uncertainty may be the true habit-forming experience, not the actual cash on the line. "At some point a pathological gambler will run out of money," says Shaffer. "But do they even need to have money to gamble?"

The reward pathways of gambling addicts may become scrambled, disproportionately magnified, or warped by a mix of social, psychological, and neurochemical factors. Problem gamblers often recall a "big win" early in their betting careers, and this gratifying experience may powerfully imprint their brains, like the pleasures recalled by heroin addicts who are forever trying to recapture the "rush" of their first high. Gambling addicts also have severely distorted memories: they vastly overestimate the sums they have won relative to those lost. And, "In the same way that drug users need to up their dosage, bettors need to up the amounts they're betting to keep themselves interested," says Peter Alson '77, author of the 1996 book Confessions of an Ivy League Bookie, a memoir of a year he spent taking sports wagers in New York City.

Sports betting is an especially dangerous format for problem gamblers, because you can place a bet just by making a phone call, without a dime to your name. Bookies don't run credit checks (or take Visa) and generally require individual bookmakers to make good on unpaid debts of their "clients." This leads bookies into debt-collection tactics not sanctioned by the Federal Trade Commission. For example, the bookie might introduce a gambler in arrears to a loanshark. The next turn of the screw comes when the unhappy bettor cannot pay the vigorish, and so turns to embezzlement or other criminal acts. An insurance broker with a gambling problem, for example, might collude in insurance frauds. Expensive drug habits can also motivate theft, but because drug use generally betrays itself with other symptoms, employers tend to notice it sooner. The gambling addict can stay on the job undetected for years, stealing enormous sums.

Pathological bettors gradually dig themselves into deeper debt and more serious troubles. Typically, they imagine winning a big "score" and paying off their arrears—but even if the big win comes, the gambler usually plows most of the gains back into betting. To take an extreme case, a staff member at the Massachusetts Council on Compulsive Gambling saw a player who actually won a $1-million prize in the state lottery, to be paid out over 20 years at $50,000 annually. His first year's after-tax winnings were $37,500—and that very year, he lost $60,000 on scratch-off lottery tickets.

It seems likely that a certain segment of humanity harbors a special vulnerability to the pleasures of betting. If so, the headlong spread of gambling in our society could create many more pathological and problem gamblers than the five million who are currently struggling against the odds. Psychologically, the nature of pathological gambling is unclear. It can be a compulsive activity, like an obsessive-compulsive disorder, but it can also be an impulse disorder—a vastly different diagnosis—or a form of mania. Some of us have a much lower threshold for discharge of impulses than others. "How do you distinguish someone who has an overwhelming impulse to act," asks Shaffer, "from someone who is unable to resist an impulse to act?"

Some psychologists see syndromes like impulsivity as the root causes—pre-existing disorders that somehow attach themselves to gambling. "The rapid expansion of gambling makes it seem that gambling is the horse and disordered gambling is the cart," Shaffer says. "But it may be that our impulses are finding a route of expression." If so, the impulses seem to find that outlet more readily when experienced near a casino. According to data collected by the National Gambling Impact Study Commission (NGISC), the prevalence of pathological and problem gambling doubles when a casino is available within 50 miles.

Congress created the NGISC in 1996, and the commission, predictably buffeted by relentless political pressure, produced its two reports in 1999. Sociologist Dean Gerstein, Ph.D. '76, a senior vice president at the National Opinion Research Center, supervised the commission's research design, data collection, and analysis; he wryly notes that he had "never before done a study that involved being threatened with a lawsuit by the president of a Las Vegas casino." Nonetheless, NGISC produced a wealth of findings, such as the fact that addictive gamblers are much more likely than low-risk gamblers to have had mental or emotional problems, including manic and depressive episodes. The NGISC studies estimated that pathological and problem gamblers together comprise 2.5 percent of adults, but this group probably accounted for 15 percent of sums wagered by Americans in casinos, on lotteries, and at pari-mutuel windows. Such out-of-control bettors cost society about $5 billion per year in productivity reductions, social services, and bad debts. "These numbers," Gerstein adds, "don't capture the costs of divorce and family disruption."

 

Disordered gambling clearly raises a host of fascinating research questions—many of which the medical school's new Institute for Research on Pathological Gambling and Related Disorders (www.ncrg.org/Institute/institute.htm) plans to tackle. In December, the institute (a part of the Division on Addictions) held its first conference, on the diagnosis of gambling disorders, at the Mirage Casino-Hotel in Las Vegas. The institute's budget comes from the National Center for Responsible Gaming (NCRG), a Kansas City, Missouri-based nonprofit organization funded by the casino industry, which has sponsored gambling research at the division since 1997. "At first I had trepidation about getting involved with the gaming industry," says Shaffer. "I discussed it with a colleague who said, 'Tell them you'll have a press conference if you don't like the way they're running the ship, and see if they'll still have you." So far there has been no press conference; Shaffer pushed the NCRG toward funding neuroscience, and says he has never felt undue pressure to spin research in an industry-friendly direction. The institute has awarded $700,000 to various gambling-related studies, and, Shaffer says, "The industry people played no part in the selection."

The Division on Addictions aspires to some pathfinding research of its own. Richard LaBrie, Ed.D. '69, its associate director for research and data analysis, says it has proposed a five-year, multimillion-dollar project to the National Institute on Mental Health: "the first-ever prospective longitudinal study of pathological gambling." The researchers would study 2,500 persons with some history of problem gambling in their lifetimes, a sample drawn from Clark County, Nevada (which includes Las Vegas), a venue LaBrie calls "the epicenter of the phenomenon."

Paul Weiler's study of gambling persuades him that there is a rational way to deal with the problem of pathological gamblers. "We don't need a gambling ban, but we do need a gambling cap," he says. "The first step is to commercialize all gambling, including bets now made with illegal bookies—turn it into a legal market. Currently, one arm of the government promotes gambling in lotteries and casinos, and another arm is arresting people for gambling on the things they are most interested in, like who is going to win the Super Bowl. Second, you need to carefully regulate those activities—not only sports betting, but the lotteries and casinos even more. Third, place a limit on how much people are allowed to lose betting. To gamble in a casino or lottery, you would have to use a credit card, and the credit card would have a gambling limit, pegged to some fraction of the U.S. median income. For wealthy people, it might be rational to lose more, so by sending in your 1040 form, you could have the limit raised. Winnings could be added to the limit; it's the net losses that you want to cap."

 

Tom Lynch is far from an impulsive gambler. He keeps detailed records of every trip to the casino: number of hands played, time spent at the table, number of hands won, total winnings or losses. He starts each evening with $200 and goes bust only once or twice a year; sometimes he cashes in $1,000 in chips after his stint at the tables. "At the end of the year I am always within one standard deviation, plus or minus, of breaking even," he says. "Poker is not gambling; if it were, you wouldn't see the same guys winning at the World Series of Poker year after year. You are trying to take the gamble out of it. You don't sit down hoping for good cards.

"I don't do it for money," Lynch continues. "I do it for enjoyment. Some players say, 'I play to win money.' I can tell you this: A negligible percentage of players win money at casino poker. The fun consists of winning hands, beating the other people. I'm competitive by nature—I want to be the best guy, the smartest guy at the table."

Some of those motives also apply to Peter Alson, whose bookie days are long behind him; he is now a writer and magazine editor in New York City, as well as one of the nation's best poker players. Alson plays poker tournaments, including the annual World Series of Poker, where the entry fee is $10,000 and the game of choice is no-limit Texas hold 'em, in which all players are dealt two down cards, followed by five common cards face-up in the middle of the table. The challenge is to make the best five-card hand from your two personal cards and three of the five common ones. It is a game in which "bluffing is an extremely powerful weapon," Alson says. "The information is a lot greater because of the common cards." Alson also frequents underground clubs. ("Poker is illegal only if the house is taking a rake," he explains) and has never had a losing year. It's fun, but Alson does play for money.

While he has felt the rush of hitting a number in roulette, that does not, for Alson, carry the thrill of winning at cards. "Poker is a lot like life: you can get short-term results, but over the long run it favors skill," he explains. "I have a conflicted relationship with poker," he adds. "It is a kind of addiction, and like any addiction it can become just a void filler. When I feel I'm playing to fill a void or to avoid dealing with real life, I get uneasy. And I hate losing. When I have a losing streak, I question what I'm doing and why I'm doing it."

 

Such concerns rarely seem to trouble participants in the nation's most popular form of gambling, state lotteries. For her senior honors thesis in economics, Emily Oster '02 investigated why people play the lottery, despite odds of winning that are vanishingly small: in the Powerball lottery, for example, they might be 80 million to one. Players get big eyes when they see a $250-million jackpot, but forget that someone else is losing that $250 million (and more, given the states' take and expenses). As an investment, lotteries appear to be a game for the arithmetically challenged, or, as some have called them, a "tax on stupidity."

Indeed, a stubborn fact of the gambling business is that nearly everybody loses. Whether buying a lottery ticket, rolling dice, or picking a football winner, in the long run at least 90 percent—perhaps 99 percent—of the players end up poorer.

Yet some aspects of lottery play conform to conventional economic analysis. Lotteries are regressive taxes in that the poor spend more of their income on tickets than the rich. But poor people have little to lose by gambling—they will still be poor if their number isn't drawn. Wealthy people, by contrast, have plenty to lose, and nothing to gain—unless the jackpot is so huge that it would take them to a new level of wealth. And indeed, as lottery jackpots get larger, wealthier people buy tickets.

"People with no money buy lottery tickets. Is that wrong? Is that a problem gambler—someone who has diverted resources from covering basic needs to a high-risk, low-return situation?" asks Richard LaBrie. "For someone with dismal prospects, hitting a $50-million lottery will change his or her life, which is otherwise not likely. It gives them a way out. How else, legally, can they change their lives?"

That is a rational analysis, but Oster's thesis turns on a different argument, based on the emergent discipline of behavioral economics, which adds psychological and emotional elements to the economic equation (see "Purse Strings of the Heart," September-October 2001, page 11). She analyzed data from the Powerball lottery, whose jackpot pools receipts from 22 states. Drawings are held twice weekly, and the pot grows in size each time there is no winner. The jackpot usually ranges from $10 million to $250 million, and in 1998 there was a $300-million Powerball winner; when the payoff starts getting large, it tends to snowball rapidly as more people, including the affluent, buy in.

Oster explains that economic expected-utility theory would predict that people would never buy lottery tickets, since the chances of winning are minuscule and the money could be better spent elsewhere. Another approach, prospect theory, notes that humans overestimate the likelihood of events with very small probabilities, like airplane crashes. "If this is the reason why they play, then people are being taken advantage of," Oster says.

Instead, she suggests that players do not really view the lottery as an investment. "There's evidence that people like to dream about winning, and how their lives would change—that's entertainment, not exploitation," says Oster. "Perhaps it's worth more than a dollar to think, 'If I won, I could be sailing around the Caribbean.'" Her data show that, with Powerball drawings held each Wednesday and Saturday, ticket sales rise on Tuesdays and Fridays—a "deadline effect." But there's also an excess of Friday's sales over Tuesday's, says Oster, suggesting that a lottery ticket is part of one's weekend entertainment package. Furthermore, many players buy tickets for future lotteries, sometimes for six drawings over the next six months. "Rationally, it would be just as good to buy six tickets for this week's drawing," she says. "Actually, you should wait for a big jackpot and then buy several chances. But purchase patterns show that people just like to be participating."

 

State governments have promoted their gambling enterprises in many ways ("If You Can Say It, You Can Play It" announced a Massachusetts billboard). One marketing concept has been the idea of earmarking lottery proceeds (states typically keep 40 to 50 percent of the revenue) for causes like education or the environment. This rationale may soften the blow of losing—"It's not so bad, since the money is going for kids." However, according to Selling Hope: State Lotteries in America (1989), by Philip J. Cook and Charles T. Clotfelter, Ph.D. '74, earmarking is largely a sham. In most cases lottery proceeds end up in the state's general fund; the government, for example, may simply reduce its education budget and make up the difference with lottery revenue. Lotteries don't change the amount spent, only its source.

The usefulness of lotteries for state governments is clear, but for almost all the players, lotteries are simply a way of regularly lightening their wallets. The long-term effect of casinos in their communities is also debatable. Although the gaming industry promotes casinos as a virtually unqualified boon for communities—producing jobs, tax revenue, and minimal social disruption—in reality, the effects are mixed. Dean Gerstein summarizes the NGISC's findings, derived from a 100-community statistical database and 10 community case studies on the effects of casino openings: "When you build a new casino, it generates a wave of construction business and gives people jobs. That's it." Then he elaborates: " It does provide a mild economic stimulus. If you start with a place that has a small population and is poor, the casino creates jobs that benefit the immediate community and the surrounding area. It also creates a need for public services—transportation, road improvements, policing, infrastructure upgrades—and usually, localities court the gaming companies with tax abatements. It's hard to say how it affects the tax base. There's an immediate measurable economic benefit; a place with 7 percent unemployment will see that drop to 6 percent, and welfare payments are reduced. But money spent on gambling is money not spent elsewhere: casinos tend to wipe out employment in local bars, restaurants, and retailers. It's like when you open a Wal-Mart—what does it do to Main Street?"

The situation is different when Native American tribes operate the casinos, according to Katherine Spilde, senior research associate at the Kennedy School of Government, who grew up on the White Earth reservation in Minnesota, where her parents were teachers. After earning a doctorate in anthropology at the University of California at Santa Cruz, she moved to Washington, D.C., and worked for NGISC as a senior researcher and policy analyst. She got to know tribal leaders from all over the country and found herself immersed in the political fray: "Some Las Vegas people, and others, were trying to misrepresent what Indian gaming was," she recalls. She then spent two years with the National Indian Gaming Association, a nonprofit trade association that represents 168 tribes with gaming, before coming to the Harvard Project on American Indian Economic Development last fall.

The first recorded Indian gaming facility began operating in 1979 in Florida, where the Seminole Nation ran bingo games. Florida law limited bingo jackpots to $100, but the Seminoles wanted to play "high-stakes" bingo for larger sums, and successfully argued in court that as a sovereign nation, they were not subject to state law. (The U.S. Constitution recognizes that Indian tribes are sovereign nations, distinct from both the federal and state governments. Tribes, of course, cannot legalize criminal acts on their lands, but they do have great latitude regarding civil regulatory authority.) In 1987, the U.S. Supreme Court concurred with the Florida ruling, holding that if a game is legal, then tribal nations can operate the game without state regulation.

State governments fought back, declaring gambling regulation a states-rights issue. The political upshot was the 1988 Indian Gaming Regulatory Act, passed by Congress despite the opposition of some Indian tribes. This act established three categories of games, from traditional powwow games to bingo and casinos; created the National Indian Gaming Commission; and gave the states, along with the tribes, power to regulate casino gaming. Since Indian nations are governments, the state and federal governments cannot tax them directly (governments cannot tax other governments). All gaming revenue goes not to shareholders, as happens at Bally's or Harrah's, but to the tribal governments, which in that sense amounts to 100 percent taxation by the tribal nation. (Naturally, Indian casino workers, like others, pay applicable income taxes.)

Today, of 561 federally recognized Indian tribes, 198 run 326 gambling facilities, including casinos, in 28 states, generating about $10 billion per year in revenue, or one-seventh of all gambling proceeds. The 1988 law allows tribes to spend these proceeds in only five specific areas: tribal economic development, charitable organizations, local government funding (for things like road building into tribal lands), tribal government programs, and the general welfare of the tribe. "Indian gaming is separate from Las Vegas or Atlantic City," Spilde says. "By definition it has to occur on Indian land, and therefore in Indian communities. Commercial casino owners like Donald Trump don't live anywhere near their casinos; they don't experience the social impacts. But Indian tribes do—and so they build them differently. They invest in nearby towns and counties, and in tribal development. The money isn't going to business shareholders, but to a tribe that is invested in the community."

The economic benefits aren't limited to the tribes. The Foxwoods casino, for example, has a "revenue-sharing agreement" with Connecticut that gives 25 percent of the net win from its slot machines to the state—since 1993 it has sent $1.4 billion to Connecticut's coffers. Foxwoods' 11,500 employees pay state payroll taxes, sales tax is paid on all purchases, and, theoretically at least, gamblers pay taxes on their winnings. (Nationally, 75 percent of tribal casino employees are non-Indian.)

Spilde, who has visited more than 90 reservations, says that tribal gaming "gives Indian people a chance to move back and live on the reservation. Not just to take casino jobs, but also in management, in radio, in public relations, or as medical doctors on the reservations. Before, there was nothing for them to do; unemployment, depression, and alcoholism went together. Now there's a positive social ripple effect. Young people can get scholarships for college, go to law school. It's a period of hope, especially for youth."

 

Hope, of course, is essential to gambling, just as it is to Wall Street, trout fishing, and romantic love. The key to gaming may be the enjoyment humans take from that special state of arousal that occurs when the payoff is either joy or grief, and the outcome is in doubt. The excitement of risk can also come from a novel, a film, a baseball game. Perhaps gambling has seized the national imagination in part because technological and economic advances have removed so much of the risk from daily life; something in us, maybe even the very structure of our brains, seeks out risk. Peter Alson remembers attending the funeral of one of his erstwhile bookmaking colleagues and hearing the rabbi's delicately phrased eulogy that mentioned how the deceased "had a great love for sports, and the uncertainty of their outcomes."

The odds lines on sports events come out of Las Vegas, in part because a 1993 federal law made Nevada the only state where sports betting is legal (excepting one sport, horse racing, which is legal in many states). Weiler marvels at the fact that it is legal to bet on a game in Las Vegas, but illegal to place a bet there by telephone from New York. He says that the invention of the "point spread"—an oddsmaker's prediction of the winning team, and its margin of victory—in the late 1950s fueled the popularity of football and basketball betting by offering a simpler alternative to odds.

The point spread helps make the Super Bowl the most watched and profitable event broadcast on television. (It draws about double the audience of the next-most-watched event, the Academy Awards—itself an occasion for widespread betting.) "The winner of the Super Bowl is often decided by early in the second quarter," says Weiler. "But we don't know who is going to win with the point spread. The ratings are even higher at the end of the game than at the beginning."

"The NFL [National Football League] desperately wants to keep football betting illegal," says Alson. "It's a funny paradox for them. Obviously there is hypocrisy—betting lines are printed in every newspaper, and people come on TV and pick games against the spread. But as long as it stays illegal, the NFL can maintain the fiction that it doesn't sanction gambling, and that gambling isn't part of their marketing strategy. If it were legal, they'd have to deal with it, and it would raise questions about the integrity of pro football every time there was a game where something funny went on. Still, they need the betting—a lot of people wouldn't watch the games if they didn't have money riding on them. If they don't have an 'interest' in the game, they don't have an interest in the game."

For its part, the NFL has strict gambling policies in place—it now prohibits the dissemination of point-spread information on NFL game broadcasts, for example. In 1997, the NFL's executive vice president, Jeffrey Pash '77, J.D. '80, articulated the league's views in testimony for the Senate Judiciary Committee on a bill regulating Internet gambling. "Since its inception, the National Football League has sought to protect the integrity of its games from the threat presented by sports gambling," Pash said. "Simply put, sports gambling breeds corruption and undermines the values our games represent—especially for our youngest fans, for whom our players are heroes. We do not want our games or our players used as gambling bait, whether via the Internet or any other medium."

Nonetheless, as long as there are games, there will be bets laid on them, and for some, this drastically enhances the excitement of the contest. Alson recalls watching the 1994 Super Bowl between the Dallas Cowboys and the Buffalo Bills with his fellow bookmakers. The point spread for that game had shifted; Dallas began as nine-point favorites, then later the spread moved up to 11 points, tempting some gamblers to take the Bills. Alson's operation had taken lots of bets on Dallas, giving nine, and then lots more on Buffalo, taking the 11 points. With the clock winding down and Dallas leading 30-13, Buffalo began a drive that, if successful, could make the final score 30-20. The Bills would still lose, but by 10 points—and in that event, the bookmakers would have to pay off on both sides of the wager, losing about $500,000. "The game had been over for the whole second half, the touchdown drive was meaningless," Alson recalls. "But the bookies were on the edge of their seats. On the last play of the game [Bills quarterback] Jim Kelly was run out of bounds on the one-yard line, and we all just collapsed in relief. I have never watched a more exciting end to a game."

Yes, gambling can boost entertainment value; indeed, gambling is entertainment. Humans are willing to pay for that experience, and some pay very dearly. The complexities of the gambling industry work themselves out on a dizzying array of interlocking levels, from boys pitching pennies against a wall to high-rolling baccarat players losing their yachts, houses—and maybe their marriages—at the table, to politicians whose future can hang on a casino referendum. Ponder gambling on all its levels, from personal to societal, and take to heart the venerable adage of poker players, who use the term "fish" for naïve gamblers. "If, in the first half hour, you can't spot the fish," Alson explains, "you are the fish."

Craig A. Lambert '69, Ph.D. '78, is deputy editor of this magazine.