A History of American Gaming Laws

American gaming laws are heavily influenced by the history of gambling itself. Games of chance first came to the American colonies with the first settlers. Attitudes on gambling varied greatly from community to community, but there were no large-scale restrictions on the practice at the time. For many years, the colonies used lotteries to help raise revenues. For example, lotteries were used to establish or improve dozens of universities and hundreds of secondary schools during the 18th and early 19th centuries. In fact, a 1769 restriction on lotteries by the British crown became one of the many issues which fueled tensions between the Colonies and England prior to the American Revolution.

As America grew, gambling spread and diversified. Lotteries continued to be used at the state and federal level, and privately owned gambling businesses slowly developed in various communities. The lower Mississippi River valley became a hotbed of gambling activity, and New Orleans became the nation's leading gambling center. However, a backlash against gambling began to gain momentum in the mid-19th century, pushing gaming from the Mississippi River west into younger, less well regulated territories and onto the famous Mississippi River Boats. As anti-gambling forces in the northeast continued to gain supporters, state sponsored lotteries in these locations came to an end. Similarly, the spread of railroads harmed the Mississippi River Boat industry, deeply cutting profits to these operations. The California Gold Rush caused San Francisco to become a popular gambling city, even as New Orleans began its gaming decline. Post Civil War reconstruction efforts saw the brief return of lotteries and other forms of gaming as a means of generating revenues, but by the beginning of the 20th century it was once again almost uniformly outlawed throughout the United States.

The increasing legal pressures on gambling gradually created opportunities for illegal operations. As a result, and not surprisingly, gambling was one of the most popular illegal operations run by many organized crime syndicates. During the Prohibition Era, illegal liquor provided an additional revenue stream for mob figures, and organized crime blossomed. Towns which had already had lax attitudes about vice such as Miami, Galveston, and Hot Springs became major gambling centers attracting tourism from around the nation. The Great Depression saw the legalization of some forms of gambling such as bingo in some cities to allow churches and other groups to raise revenue, but most gambling remained illegal. Major gangsters became wealthy from casinos and speakeasies.

The stock market crash of 1929 and the Hoover Dam project led to the legalization of gambling in Nevada as a way of generating revenue for the state. Interest in development of Nevada was slow, however, given its arid climate and sparse population. However, as gaming laws again became more restrictive after World War II the desert town of Las Vegas became an attractive target for investment by crime figures such as New York's Bugsy Siegel. The town rapidly developed during the 1950's, quickly eclipsing the popularity of illegal gambling empires such as Galveston. During the 1960's, the casino industry in Nevada exploded as legitimate investors like Howard Hughes recognized the huge profit potential of such operations.

In response to Nevada's success, New Jersey legalized gambling in Atlantic City in 1977. The city rapidly grew into a significant tourist destination, revitalizing what was previously largely a run-down slum community. In 1979, the Seminole tribe opened the first reservation-based commercial gambling beginning a trend that would be followed by other reservations. Gradually, lotteries and some types of parimutuel betting were legalized in other areas of the country.

In the 1990s, riverboat casinos were legalized in Louisiana, Illinois, and other states. In 1996, Michigan legalized gambling in the city of Detroit creating an economic center for potential casino growth. As the Internet grew in the late 20th and early 21st centuries, Internet gambling also exploded in popularity.

Today, gambling is legal under US federal law, although there are significant restrictions pertaining to interstate and online gambling. Each state is free to regulate or prohibit the practice within its borders. If state-run lotteries are included, almost every state can be said to allow some form of gambling. However, casino-style gambling is much less widespread. Federal law provides leeway for Native American Trust Land to be used for games of chance if an agreement is put in place between the State and the Tribal Government under the Indian Gaming Regulatory Act of 1988.

Nevada and Louisiana are the only two states where casino-style gambling is legal statewide. Both state and local governments impose licensing and zoning restrictions. All other states that allow casino-style gambling restrict it to small geographic areas (e.g., Atlantic City, NJ), or to American Indian reservations, some of which are located in or near large cities. As sovereign nations, American Indian tribes have used legal protection to open casinos, which has been a contentious political issue in California and other states. In some states, casinos are restricted to "riverboats", large multi-story barges that are, more often than not, permanently moored in a body of water.

Online gambling has been more strictly regulated, however. The Federal Wire Act of 1961 outlawed interstate wagering on sports but did not address other forms of gambling. The Unlawful Internet Gambling Enforcement Act of 2006 (UIEGA) did not specifically prohibit online gambling; instead, it outlawed financial transactions involving online gaming services, effectively turning online gaming into a video game with no real prizes available to winners. In response, online gaming has moved offshore, with some foreign providers simply ignoring American laws.

Many have pointed to the history of gambling in America as a testament to why other, presently criminalized activities should be legalized, such as drug use or prostitution. Just as with gambling, drugs and prostitution are seen as “victimless” crimes, designed to curb vice rather than present one person from harming another. While many feel that these vice crimes tend to breed other crimes and social problems, advocates for legalization point to the way that legitimization of the gambling industry contributed to the decline of organized crime and the improvement of economies in areas where these activities are now legalized.

Nevertheless, even though some form of gambling is now legal in almost every state, it is highly regulated. Private betting clubs, though widespread, are often still illegal. For example, betting pools, fantasy football leagues, and small poker clubs are all likely to be technically illegal in most jurisdictions, though enforcement is extremely difficult and lax. Some of these small ventures, however, run afoul of gambling laws like UIEGA when they take to the Internet, usually failing to recognize that they constitute a form of gambling or because the organizers are not aware of the legal restrictions on online gaming.

For example, during the economic downturn, many who had purchased real estate at inflated prices during the housing boom sought alternative means of divesting themselves of these bad investments. One solution was to create house raffles, where hundreds or even thousands of players could purchase raffle tickets at a tiny fraction of the cost of the house (often less than $100 each). Once sales had passed a certain point (usually the number of ticket sales required to pay off any financing on the house) the raffle winner would be drawn and the house awarded to the lucky winner. However, this was simply a form of lottery, which is heavily regulated in almost every state, and these operations ended almost as quickly as they began.

As a result, if you have questions about gaming laws, whether because you have an idea for a new business model, because you oppose gambling in your community, or because you want to know your rights and the rights of gaming institutions in your area, then you should contact a local attorney familiar with this area of the law.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.