 The introduction to the National Gambling Impact Study Commission final report. This is a LibriVox recording. All LibriVox recordings are in the public domain. For more information and to find out how you can volunteer please visit LibriVox.org. Recording by Sam Stinson. The introduction. June 18th, 1999. To the president, congress, governors, and tribal leaders. At the inaugural meeting of this commission two years ago, I stated that we had been charged by congress with a very broad and very difficult task to conduct a comprehensive legal and factual study of the social and economic implications of gambling in the United States. We have now completed that task. This report presents the principal findings of that effort and the recommendations we believe provide a coherent framework for action. The commission devoted considerable attention and resources to discharging its responsibilities. Efforts which included holding a series of hearings around the country in which the commission and its subcommittees received testimony from hundreds of experts and members of the public, making several site visits, commissioning original research, conducting surveys of the existing wide-ranging literature, and soliciting and receiving input from a broad array of individuals and organizations. Despite these extensive efforts, we have not exhausted the topic. The subject of gambling's impact is too extensive to be fully captured in a single volume. Through our contracted research, we have added important new information in several fields, but the need for additional research remains. In fact, one of our most important conclusions is that far more data is needed in virtually every area. But even though the need for additional information cannot be contested, this cannot be allowed to become an excuse for inaction. It is likely that necessary information will always be in short supply and insufficient to compel agreement on controversial issues, or to lay out a roadmap for the future. However, it is our belief that we have substantially reduced the uncertainties that are an inevitable part of that process. Two years ago, I also stated that this commission had a diverse makeup, representing broad differences of opinion, and that I expected that diversity to be fully and forcefully voiced. I believe anyone who has been present at any of our proceedings will acknowledge that that was an accurate forecast. That diversity did not necessarily make for quick decisions or easy consensus, but it did ensure a healthy representation of a wide range of interests and perspectives. One need not claim perfection for the process to understand that this approach is the foundation of representative democracy. In the end, however, the unanimous adoption of this report speaks for itself. That is not to say that every commissioner has agreed with every point or recommendation. Even in areas of agreement, each commissioner brought to our work his own point of view, some of which is reflected in the individual statements appended to this report. But the determination of the commissioners to search for a common ground without sacrificing a vigorous advocacy of their perspective is a testament to their dedication to public service. This is the report of a national commission to the president, congress, state governors, and tribal leaders. But although the growth of gambling is a national phenomenon, gambling itself is of greatest concern to the individual communities in which it operates or is proposed to operate. It is at that level that its impact is felt most keenly and where the debates surrounding this issue are most energetically contested. Those communities form no common front. One community may welcome gambling as an economic salvation while its neighbor may regard it as anathema. As such, there are few areas in which a single, national, one-size-fits-all approach can be recommended. Thus, with only a few exceptions in areas such as the internet, we agree that gambling is not a subject to be settled at the national level, but is more appropriately addressed at the state, tribal, and local levels. It is our hope that this report will help spark the review and assessment of gambling in those same communities and jurisdictions. For that reason, we have recommended a pause in the expansion of gambling in order to allow time for an assessment of the costs and benefits already visible, as well as those which remain to be identified. The only certainty regarding these reviews is that any results will be as individual as the communities undertaking them. Some will decide to curtail the gambling they already have. Others may wish to remove existing restraints. Still others may conclude that their situation requires no change. What is most important, however, is that these reviews take place and that whatever decisions are made are informed ones. The recommendations in this report are not self-enacting. In the end, the usefulness of the commission's work can only be measured by the actions of others, be they in government or in the private sector. Regardless of whether or not their actions draw directly upon the recommendations in this report or are the result of other efforts that this commission may help prompt, it is our hope that those who bear the responsibility for protecting and promoting the public's welfare will find this report useful toward that end. That alone would be sufficient reward for our efforts. I want to express my deep appreciation to the members of this commission for their perspective, sacrifice, and commitment to a fair, balanced, and objective analysis of the issue. Our ability to come together with a unanimous report is indicative of their diligence, as well as the outstanding support provided by the commission's staff. On behalf of my fellow commissioners, thank you for the opportunity to serve the American people. KC James, Chairman. End of the introduction. Chapter 1 of the National Gambling Impact Study Commission Final Report. This is a LibriVox recording. All LibriVox recordings are in the public domain. For more information and to find out how you can volunteer, please visit LibriVox.org, recording by Sam Stinson. Chapter 1, Overview. Today, the vast majority of Americans either gamble recreationally and experience no measurable side effects related to their gambling, or they choose not to gamble at all. Regrettably, some of them gamble in ways that harm themselves, their families, and their communities. This commission's research suggests that 86% of Americans report having gambled at least once during their lives. 68% of Americans report having gambled at least once in the past year. In 1998, people gambling in this country lost $50 billion in legal wagering, a figure that has increased every year for over two decades, and often at double digit rates. And there is no end in sight. Every prediction that the gambling market was becoming saturated has proven to be premature. The Expansion of Legalized Gambling. The most salient fact about gambling in America, and the impetus for the creation of the National Gambling Impact Study Commission, NGISC, is that over the past 25 years, the United States has been transformed from a nation in which legalized gambling was a limited and a relatively rare phenomenon into one in which such activity is common and growing. Today, all but two states have some form of legalized gambling. Paramutuel, race tracks, and betting are the most widespread form and are now legal in over 40 states. Lotteries have been established in 37 states and the District of Columbia, with more states poised to follow. Indian casinos operate in every region of the country. Non-Indian casino gambling has expanded from Nevada and Atlantic City to the Mississippi Gulf Coast, Midwest riverboats, and western mining towns. As gambling sites proliferate on the internet and telephone gambling is legalized in more states, an increasingly large fraction of the public can place a bet without ever leaving home at all. Universally available, round-the-clock gambling may soon be a reality. Once exotic, gambling has quickly taken its place in mainstream culture. Televised megabucks drawings, senior citizens day trips to nearby casinos, and the transformation of Las Vegas into family-friendly theme resorts in which gambling is but one of a menu of attractions have become familiar backdrops to daily life. Impact and Controversy This massive and rapid transformation clearly has had significant economic and social impacts on individuals, communities, and on the United States as a whole. But what are they? And is the net impact positive or negative? Not surprisingly, the spread of legalized gambling has spawned a range of public debates and fused with the drama of contests between great interests and sharpened by a visceral emotional intensity. Typically, proponents of gambling choose to stress the potential economic benefits that the gambling industry can produce, such as jobs, investment, economic development, and enhanced tax revenues, whereas opponents underline the possible social costs such as pathological gambling, crime, and other maladies. Many of the positive economic impacts are in fact easy to point to, if not always to quantify. Sleepy backwaters have become metropolises almost overnight. Skyscrapers rise on the beaches at once fading tourist areas. Legions of employees testify to the hope and opportunities that the casinos have brought them and their families. Some Indian nations have leapt from prolonged neglect and deprivation to sudden abundance. Gambling has not just made the desert bloom in Las Vegas, but has made it the fastest growing city in the United States. Others, however, tell a different tale of lives and families devastated by problem gambling, of walled-off oases of prosperity surrounded by blighted communities, of a massive transfer of money from the poor to the well-off, of a Puritan work ethic giving way to a pursuit of easy money. Which of these images is true? If elements of both exist, how does one weigh them? Assuming an assessment is even possible, what should be done? These are obvious questions, but few answers suggest themselves as readily, at least not to all observers. Certainties may abound for the respective partisans, but the ongoing public debate is evidence that these viewpoints have not yet settled the matter. It was for this reason that the NGISC was created and given a mandate to investigate and report on the impact of gambling on America. The task set by Congress, one which the commissioners confirmed in their own deliberations, was not to shoulder the impossible burden of resolving all disputes, but instead to provide far greater clarity regarding what is really happening in our country, in service of the informed public debate that is a prerequisite for decision-making in a democratic society. A moving target. Gambling is an ephemeral subject. The study of it is frustrated by the apparently solid, repeatedly slipping away. A good starting point is a recognition that the gambling industry is far from monolithic. Instead, it is composed of relatively discreet segments, casinos, commercial and tribal, state-run lotteries, perimutual wagering, sports wagering, charitable gambling, internet gambling, standalone electronic gambling devices, EGDs, such as Videopoker and Videokino, and so forth. Each form of gambling can in turn be divided or aggregated into a variety of other groupings. For example, perimutual wagering includes the subgroups of horse racing, dog racing, and gy-ally. In addition, the terms convenience gambling and retail gambling have often been used to describe standalone slot machines, Videokino, Videopoker, and other EGDs that have proliferated in bars, truck stops, convenience stores, and a variety of other locations across several states. This term may also be applied to many lottery games. These groupings will be discussed in greater detail later in this report. Each group has its own distinct set of issues, communities of interests, and balanced sheets of assets and liabilities. For example, lotteries capture enormous revenues for state governments, ostensibly benefiting the general public in the form of enhanced services, such as education. But critics charge that the states knowingly target their poorest citizens, employing aggressive and misleading advertising to induce these individuals to gamble away their limited means. Casinos spark different discussions. In Atlantic City, the casinos have transformed the boardwalk and provide employment for thousands of workers. But opponents point to the unredeemed blight only blocks away, made worse by elevated levels of crime that some attribute to the presence of gambling. And so-called convenience gambling may help marginal businesses survive, but at the cost of bringing a poorly regulated form of gambling into the hearts of communities. The Internet brings its own assortment of imponderable issues. The fortunes of each segment also differ greatly. As a group, the destination casinos have done well. Las Vegas, like America, constantly reinvents itself with an endless line of new projects. Indian gambling has expanded rapidly, but with enormous disparities in results. Paramutuel racetracks have kept their heads above water in the face of increasing competition for gambling dollars, but often only at the price of mutuating into quasi-casinos. Lottery revenues have plateaued, prompting some to expand their inventory to include even more controversial sources of income, such as Kino video. The terrain also is becoming more complicated. As gambling has expanded, it has continued to evolve. Technology and competitive pressures have joined to produce new forms, with the onset of the Internet promising to redefine the entire industry. The participants in the various debates are similarly varied. Even the designations, proponents, and opponents must be applied with care, because opponents can include those opposed to all gambling, those content with the current extent of gambling but opposed to its expansion, those favoring one type of gambling but opposed to another, and those who simply want to keep gambling out of their particular community, the latter being less motivated by questions of probity than of zoning. Proponents can be similarly divided. Few people in the casino industry welcome the advent of gambling on the Internet, and the owners of racetracks are no friends of the state lotteries. Similarly, if polls are to be believed, a clear majority of Americans favor the continued legalization of gambling. In fact, in any given year, a majority of Americans report having gambled, but a clear majority also opposes unlimited gambling, preferring continued regulation. Drawing the line on gambling has proven difficult, and in fact, most lines in this area become blurred when examined closely, but governments are in business to draw lines, and draw them they do. The role of government. The public has voted either by a statewide referendum and or local option election for the establishment or continued operation of commercial casino gambling in 9 of 11 states where commercial casinos are permitted. Similarly, the public has approved state lotteries via the ballot box in 27 of 38 instances where lotteries have been enacted. Whatever the case, whether gambling is introduced by popular referendum or by the decision of elected officials, we must recognize the important role played by government in the industry's growth and development. Government decisions have influenced the expansion of gambling in America, and influencing those decisions is the principal objective of most of the public debates on the issue. Although some would argue that gambling is a business like any other, and consequently it should be treated as such, in fact it is almost universally regarded as something different, requiring special rules and treatment, and enhanced scrutiny by government and citizens alike. Even in the flagship state of Nevada, operation of a gambling enterprise is explicitly defined as a privilege, an activity quite apart from running a restaurant, manufacturing furniture, or raising cotton. Unlike other businesses in which the market is the principal determinant, the shape and operation of legalized gambling has been largely a product of government decisions. This is most obvious in the state lotteries where governments have not just sanctioned gambling, but have become its enthusiastic purveyors, legislating themselves an envied monopoly, and in Native American tribal gambling where tribal nations own, and their governments often operate casinos and other gambling enterprises. But the role of government is hardly less pervasive in other forms of gambling. Governments determine which kinds of gambling will be permitted and which will not. The number, location, and size of establishments allowed, the conditions under which they operate, who may utilize them, and under what conditions, who may work for them, even who may own them. All of this is in addition to the normal range of governmental activity in areas such as taxes, regulations, and so forth. And because governments determine the level and type of competition to be permitted, granting, amending, and revoking monopolies, and restricting or enhancing competition almost at will, they also are a key determinant of the various industries' potential profits and losses. No Master Plan To say that gambling has grown and taken shape in abysses to government decisions does not imply that there was a well thought out overall plan. All too commonly actual results have diverged from stated intentions, at times completely surprising the decision makers. There are many reasons for this awkward fact. And the U.S. Federalist system, use of the term government, can easily mislead. Far from a single actor with a clear-eyed vision and unified direction, it is in fact a mix of authorities, with functions and decision making divided into many levels, federal, state, local, and others, including tribal. Each of these plays an active role in determining the shape of legalized gambling. The states have always had the primary responsibility for gambling decisions, and almost certainly will continue to do so for the foreseeable future. Many states, however, have delegated considerable authority to local jurisdictions, often including such key decisions as whether or not gambling will be permitted in their communities. And the federal government plays an ever greater role. Indian gambling sprang into being as a result of federal court decisions and congressional legislation, and even the states can see that only Washington has the potential to control gambling on the Internet. And almost none of the actors coordinate their decisions with one another. The federal government did not poll the states when it authorized Indian gambling within their borders, nor have Mississippi and Louisiana, nor for that matter any other state, seem fit to adopt a common approach to gambling. In fact, rivalry and competition for investment in revenues have been far more common factors in government decision making regarding gambling than have any impulses toward joint planning. Those decisions generally have been reactive, driven more by pressures of the day than by an abstract debate about the public welfare. One of the most powerful motivations has been the pursuit of revenues. It is easy to understand the impetus. Faced with stiff public resistance to tax increases, as well as incessant demands for increased or improved public services from the same citizens, tax revenues from gambling can easily be portrayed as a relatively painless method of resolving this dilemma. Lotteries in riverboat casinos offer the clearest examples of this reactive behavior on the part of legislatures. The modern history of lotteries demonstrates that when a state authorizes a lottery, inevitably citizens from neighboring states without lotteries will cross the border to purchase tickets. The apparent loss of potential tax revenues by these latter states often gives rise to demands that they institute lotteries of their own in order to keep this money in state for use at home. Once any of these states installs a lottery, however, the same dynamic will assert itself and still other states further afield. This competitive ripple effect is a key reason why lotteries now exist in 37 states and the District of Columbia, with more poise to join the list. The same pattern surfaced in legislative debates regarding riverboat casinos. As the great majority of these casinos have been sited on borders with other states, they quickly gave rise to charges of one state rating the pocketbooks of its neighbors. This often prompted cries in the affected states to respond by licensing their own riverboats, which when generously distributed along their own borders in turn often stimulated similar reactions from other states far removed from the original instigator. For both lotteries and riverboat casinos, the immediate legislative attempt to capture fleeing tax dollars created a powerful yet usually unacknowledged dynamic for the expansion of gambling. Some believe another contributing factor has been the increasing volume of political contributions from interests with an economic stake and virtually every place expansion is sought. Critics have asserted that this legislative pursuit of revenues has occurred at the expense of consideration of the public welfare, a serious charge indeed, albeit an unprovable one, but advocates have successfully deployed many other arguments for legalizing or expanding gambling, economic development for economically depressed areas, the general promotion of business for the investment and employment opportunities it can bring with it, undermining illegal gambling and the organized crime it supports and so forth. There is even the eminently democratic motivation of responding to public demand. A number of election campaigns and referenda have been successfully waged on the issue of legalizing or expanding gambling. The lack of information. Presumably, many of the debates could be settled if either the benefits or costs of gambling could be shown to be significantly greater than the other. But such a neat resolution has evaded would-be arbiters. Efforts to assess the various claims by proponents and opponents quickly encounter gambling's third defining characteristic, the lack of reliable information. Regarding gambling, the available information on economic and social impact is spotty at best and usually inadequate for an informed discussion, let alone decision. On examination, much of what Americans think they know about gambling turns out to be exaggerated or taken out of context and much of the information and circulation is inaccurate or even false, although often loudly voiced by adherents. Add to this the fact that many of the studies that do exist were contracted by partisans of one point of view or another and uncertainty becomes an understandable result. Nevertheless, decisions must be made and governments have shown little hesitation in making them. The problem is not simply one of gathering information. Legalized gambling on a wide scale is a new phenomenon in modern America and much of the relevant research is in its infancy. Many phenomena are only now beginning to be recognized and defined, a prerequisite to gathering useful information. And many of the key variables are difficult to quantify. Can the dollar cost of divorce or bankruptcy adequately capture the human suffering caused by problem gambling? The more difficult the measurement, the more the weighing of competing claims retreats from science to art or with even greater uncertainty to politics. Nevertheless, the lack of information will not reduce the pressures on governments to make decisions. To take but one example, what are the economic impacts of gambling? The answer in great part depends on the context selected. On an individual basis, it is obvious that some people benefit and others do not. Including both gamblers and non-gamblers. The larger the group examined, however, the more ambiguous the possible conclusions. Single communities boasting a positive impact can readily be found. But the radius of their concerns usually does not extend to surrounding areas where negative consequences for others may surface as a direct consequence of this good fortune, such as loss of business, increases in crime, reduced tax revenues, and problem gamblers taking their problems home. For example, gambling has been touted as an instrument of economic development, especially for poorer areas. In communities like Tunica, Mississippi, the arrival of large-scale gambling has had a highly visible and generally positive role bringing with it capital investment, increased tax revenues, and enhanced public services, as well as vastly expanded employment opportunities and health care benefits for many people who formerly were without much of either. But some argue that that prosperity is offset by negative impacts in the surrounding area, including nearby Memphis, a major source of casino patrons. But even if the communities in the immediate area were seen to benefit, or at least not to suffer, what can be said about the impact beyond? Is California hurt, helped, or left untouched by gambling in Nevada? Some claim that Californians leave their spending money and tax dollars in Nevada and bring back a slew of economic and social costs, such as pathological gambling. There are surprisingly few independent studies that have addressed issues such as these. And as for the impact on the national economy, efforts to estimate the net impact of gambling on national statistics, such as investment, savings, economic growth, and so forth, break down in the face of our limited knowledge. But even when the economic benefits are clear and agreed upon, there are other equally important issues to be decided. In fact, the heart of the debate over gambling pits possible economic benefits against assumed social costs. What are the broad impacts of gambling on society, on the tenor of our community's lives, on the weakest among us? Because they inevitably involve highly subjective, non-quantifiable factors, assessing these is a more controversial exercise than the more pleasant task of estimating economic benefits. How can one ruined life be compared with the benefits provided to another? How can the actual costs of gambling-related crime be measured? Where is the algorithm that would allow the pursuit of happiness to be measured against the blunt numbers of pathological gambling? Time for a pause. It may be that the expansion of gambling accurately reflects the will of the people, as expressed in referenda, state legislatures, tribal reservations, and in Washington. The impressive financial resources already accounted for by businesses, workers, and public officials further strengthen the industry's ability to voice its interests. This commission, however, believes that gambling is not merely a business like any other, and that it should remain carefully regulated. Some commissioners would wish it to be far more restricted, perhaps even prohibited. But overall, all agree that the country has gone very far, very fast regarding an activity, the consequences of which, frankly, no one really knows much about. In an attempt to better understand those consequences, this commission has examined many issues, received testimony from hundreds of individuals and organizations, and deliberated over a period of two years. This broad in-gathering of information and discussion of issues will be reflected in the following chapters, which outline the parameters of the many debates, discuss the available evidence, and offer recommendations. Inevitably for a commission of such diverse makeup, some differences in viewpoint refuse to melt away, and the existing evidence is insufficient to compel a consensus. But there is an encouraging breadth of agreement among commissioners on many individual issues, such as the immediate need to address pathological gambling, and on one big issue, the commissioners believe it is time to consider a pause and the expansion of gambling. The purpose of the pause is not to wait for definite answers to the subjects of dispute because those may never come. Additional useful information is, of course, to be hoped for, but the continuing evolution of this dynamic industry has produced visible changes even in the short lifetime of this commission, and indicates that research will always trail far behind the issues of the day and moment. Instead, the purpose of this recommended pause is to encourage governments to do what to date few if any have done, to survey the results of their decisions, and to determine if they have chosen wisely. To restate, virtually every aspect of legalized gambling is shaped by government decisions. Yet virtually no state has conformed its decisions in this area to any overall plan or even to its own stated objectives. Instead, in almost every state, whatever policy exists toward gambling is more a collection of incremental and disconnected decisions than the result of deliberate purpose. The record of the federal government is even less laudatory. It is an open question whether the collective impact of decisions is even recognized by their makers, much less wanted by them. Does the result accord with the public good? What harmful effects could be remedied? Which benefits are being unnecessarily passed up? Without a pause in reflection, the future does indeed look worrisome. Were one to use the experience of the last quarter century to predict the evolution of gambling over the next, a likely scenario would be for gambling to continue to become more and more common, ultimately omnipresent in our lives. And those of our children, with consequences no one can profess to know. The Commission through its research agenda has added substantially to what is known about the impact of gambling in the United States. The Commission also has tried to survey the universe of information available from other sources. But it is clear that Americans need to know more. In this context, the Commission's call for a pause should be taken as a challenge, a challenge to intensify the effort to increase our understanding of the cost and the benefits of gambling, and deal with them accordingly. Policy makers and the public should seek a comprehensive evaluation of gambling's impact so far and of the implications of future decisions to expand gambling. In fact, state and local versions of this Commission may be an appropriate mechanism to oversee such research. If such groups are formed, they will find, as did the Commission, that the search for answers takes time. Therefore, some policymakers at every level may wish to impose an explicit moratorium on gambling expansion while awaiting further research and assessment. Although some communities may decide to restrict or even ban existing gambling, there is not much prospect of its being outlawed altogether. It is clear that the American people want legalized gambling, and it has already sunk deep economic and other roots in many communities. Its form and extent may change, it may even disappear altogether, but for the present, it is a reality. The balance between its benefits and costs, however, is not fixed. To a welcome extent, that appears to lie within our power to determine. We can seek to shape the world we live in, or simply allow it to shape us. It is in service of the former that this final report and its recommendations are offered. And of Chapter 1. Chapter 2 of National Gambling Impact Study Commission Final Report This is a LibriVox recording. All LibriVox recordings are in the public domain. For more information, or to find out how you can volunteer, please visit LibriVox.org. Recording by Eugene Smith. National Gambling Impact Study Commission Final Report Chapter 2, Gambling in the United States In 1999, the gambling landscape is varied and complex. This chapter provides a snapshot of the scope and location of legal gambling activities in the United States, which occurs in a variety of places and takes many forms. The chapter also outlines each form of gambling, describing its scope and availability, and introducing some of the issues raised by each type of gambling. Lotteries Lotteries held a prominent place in the early history of America, including an important role in financing the establishment of the first English colonies. Lotteries frequently were used in colonial-era America to finance public works, projects such as paving streets, constructing wharves, and even building churches. In the 18th century, lotteries were fused to finance construction of buildings at Harvard and Yale. Several lotteries operated in each of the 13 colonies in 1776. Most forms of gambling, and all lotteries, were outlawed by the states, beginning in the 1870s, following massive scandals in the Louisiana lottery, a state lottery that operated nationally, and which included bribery of state and federal officials. The federal government outlawed the use of the U.S. mail for lotteries in 1890, and in 1895, invoked the Commerce Clause to forbid shipments of lottery tickets or advertisements across state lines, effectively ending all lotteries in the United States. The revival of lotteries began in 1964, when New Hampshire established a state lottery. New York followed in 1966, New Jersey introduced its lottery in 1970, and was followed by 10 other states by 1975. In 1999, 37 states and the District of Columbia have operating lotteries. Growth of Lotteries Along with the lottery's rapid expansion, lottery revenues have increased dramatically over the years. In 1973, lotteries were found in seven states, and had total sales of $2 billion. In 1997, lotteries existed in 37 states and the District of Columbia, and garnered $34 billion in sales, not counting electronic gambling devices, EGDs, sales. This rapid growth is a result of both the expansion of lotteries into new states, and increased per capita sales, from $35 per capita in 1973 to $150 in 1997. Figure 2-1 per capita lottery sales in states with lotteries, 1973 versus 1997. In 1973, $35 per year. In 1997, $150 per year. In addition to expansion and increased per capita sales, technological advances have played a major role in lottery growth, especially online computer links between retail outlets and the central computer, which are required for the daily numbers, games, and lotto. Changing technologies also have allowed lotteries to branch out into new games, enabling them to compete with casino-style gambling. Types of Lottery Games Before the mid-1970s, state lotteries were a little more than traditional raffles, with the public buying tickets for a drawing at some future date, often weeks or months away. The introduction of new types of games has almost entirely displaced the original sweepstakes form of the lottery. Today, states offer five principal types of lotteries, instant games, daily number games, lotto, electronic terminals for Kino, and video lottery. Instant games utilize a paper ticket with spaces that can be scratched off, revealing numbers or words indicating whether the ticket wins or loses. Daily numbers games allow players to choose their own three- or four-digit number. Often there are a variety of bets that can accompany these numbers, each with a different probability and a different payout. The lotto allows bettors to choose their own numbers by picking from a large set of possibilities. Drawings of winning numbers take place at regular intervals. Video Kino requires bettors to choose a few numbers out of a larger group of numbers, with drawings held quite often, sometimes several times an hour. The payoff is a function of how many numbers the better chose, which corresponds to the probability of winning in each case. EGDs require a terminal that can be programmed to carry a wide variety of games, such as video poker. These games offer bettors a chance to play a game and receive immediate payouts for winning bets. The Contradictory Role of State Governments The lottery industry stands out in the gambling industry by virtue of several unique features. First, it is the most widespread form of gambling in the United States. It also is the only form of commercial gambling that a majority of adults report having played. Furthermore, the lottery industry is the only form of gambling in the United States. It is a virtual government monopoly. State lotteries have the worst odds of any common form of gambling, but promise the greatest potential payoff to the winner in absolute terms, with prizes regularly amounting to tens of millions of dollars. One theme that emerged at the commission hearings is the contradictory role of state government as an active promoter of lotteries, while imposing a heavy sin tax on the lottery buyer. According to experts, states have gone into business selling a popular consumer product and they have carried on with Madison Avenue Gusto and an unfettered dedication to the bottom line. The complete about face from prohibition to promotion in one state after another is remarkable to say the least. Lotteries are established and run exclusively by state governments and the government of the District of Columbia. Since the beginning of the wave of lotteries in the 1960s, state governments have seized on the lottery as a state operated monopoly. State governments have become dependent on lottery sales as a source of revenue and have tried to justify the money by earmarking it for good causes, such as education. Lotteries are used to finance various state programs and services. Of the 38 state lotteries, a revenue from only 10 go into their general funds. Of the remaining states, 16 earmark all or part of the lottery revenues for education, making that the most common use of lottery funds. For example, in Georgia, lottery money is used for the Hope Scholarship Program, which provides college scholarships and for kindergarten education for 65,000 children. Georgia also sets aside several hundred thousand dollars of lottery profits for gambling treatment programs. Other uses range from the broad, parks and recreation, tax relief and economic development, to the narrow, mariner's stadium in Washington and police and firemen pensions in Indiana. Although earmarking might be an excellent device for engendering political support for a lottery, there is reason to doubt if earmarked lottery revenues in fact have the effect of increasing funds available for the specified purpose. When expenditures on a earmarked purpose far exceed the revenues available from the lottery, as is the case with the general education budget, there is no practical way of preventing a legislature from allocating general revenues away from earmarked uses, thus blunting the purpose of the earmarking. Although lotteries often are seen as a principal source of state revenue, actual contributions to state budgets are exceedingly modest. In 1997, total own source general revenues from the 38 lotteries ranged between 0.41% in New Mexico to 4.07% in Georgia. By contrast, state general sales taxes and income taxes each averaged one quarter of all own source general revenue collected by states. Another important issue regarding lotteries is the ability of government at any level to manage an activity from which it profits. In an anti-tax era, many state governments have become dependent on painless lottery revenues, and pressures are always there to increase them. The evolution of state lotteries is a classic case of public policy being made piecemeal and incrementally with little or no general overview. Authority is divided between the legislative and executive branches with the result that the general public welfare is taken into consideration only intermittently. Policy decisions taken in the establishment of a lottery are soon overcome by the ongoing evolution of the industry. It is often the case that public officials inherit policies and a dependency on revenues that they can do little or nothing about. Convenience gambling and standalone electronic gambling devices. The terms convenience gaming and retail gaming have been used to describe legal standalone machines, video poker, video kino, and other EGDs that have proliferated in bars, truck stops, convenience stores, and a variety of other locations across several states. However, these terms do not adequately convey the range of locations at which EGD gambling takes place, nor do they describe the spectrum of laws and regulations that apply or fail to apply to EGDs. Some states, including Louisiana, Montana, and South Carolina, permit private sector businesses to operate EGDs. In other states, such as Oregon and California, this form of gambling is operated by the state lottery. In Nevada, slot machines can be found in many public locations, including airports and supermarkets. Montana was the first state after Nevada to legalize standalone EGDs, specifically video poker in bars. In California, video kino operated by the state lottery can be found in most traditional lottery outlets and in many other locations as well. The following table shows the number of EGDs reported in several of the states in which this form of gambling is legal. Table two dash one reported number of machines in seven states, Louisiana in 1999, 15,000, Montana in 1998 and 1999, 17,397, in Nevada, 1999, 17,922, New Mexico, 1999, 6,300, Oregon, 1999, 8,848, South Carolina, 1999, 34,000, South Dakota, 1998, 8,000. South Carolina, where video poker has been legal for eight years, reports by far the largest number of legal non-casino EGDs. In that state, video poker machines, which can be played 24 hours a day, excluding Sundays, operate in about 7,500 separate establishments, including bars, restaurants, gas stations, convenience stores, and video game malls. Video poker machines started as arcade games where players could only win credits to replay the game, but in 1991, the South Carolina Supreme Court ruled that cash payoffs were legal if the money did not come directly from the gaming device. According to recent figures from the South Carolina Department of Revenue, EGDs in that state generated $2.5 billion in annual gross machine receipts, cash in and paid prizes, cash out, to players of $1.8 billion, a payout rate of approximately 71%. Video poker licensing fees yielded $60 million during most recent fiscal year. Although several states have legalized standalone EGDs, illegal and quasi-legal EGDs, offering a similar, if not identical, gambling experience to legal EGDs, are common in the bars and fraternal organizations of many other states, including West Virginia, New Jersey, Alabama, Illinois, and Texas. Quasi-legal EGDs are often referred to as gray machines, because they exist in a gray area of the law. Typically, they are legal as long as no winnings are paid out. In fact, they are often labeled for amusement only. In practice, however, winnings are not paid out directly by the machine, but are instead paid more or less surreptitiously by the establishment in either monetary or non-monetary forms. The exact number of gray machines available has not been accurately measured, but there are estimates for some states. For example, in West Virginia, there are approximately 15,000 to 30,000 gray machines. In New Jersey, it is estimated that there are at least 10,000 machines. The Alabama Bureau of Investigation estimated that there were 10,000 illegal EGDs across that state in 1993. Illinois is estimated to have 65,000 issues. One controversial feature of legal and illegal EGDs is their location. Because this form of gambling occurs in close proximity to residential areas and or at consumer-oriented sites, patrons regularly encounter them in the course of their day-to-day activities. Most other forms of gambling take place at gambling-oriented sites, such as casinos and racetracks, which patrons visit specifically for the purpose of gambling and other entertainment. EGDs proliferate rapidly because they can be purchased and installed quickly at existing sites with a relatively small capital investment. By contrast, casinos and racetracks require substantial capital investment and cannot be built overnight. This form of gambling creates few jobs and fewer good quality jobs, and it is not accompanied by any significant investment in the local economy. Opponents of convenience gambling argue that electronic gambling creates dependency and should not be widely available or legalized. Robert Hunter, a clinical psychologist in Las Vegas who specializes in problem and pathological gambling, calls electronic gambling devices the distilled essence of gambling. He claims that video pokers hold on people as caused by the game's rapid pace and experienced player can play 12 hands a minute, the ability to play for long periods of time, and the mesmerizing effect of music and rapidly flashing lights. Of problem and pathological gamblers who use these machines, Mr. Hunter says, they sort of escape into the machine and make the world go away. It's like a trip to the twilight zone. Hunter is widely quoted as calling EGDs the crack cocaine of gambling. Former Governor David Beasley of South Carolina called the machines a cancer. Anti-gambling advocates in South Carolina are in the process of filing a class action suit to collect millions on behalf of gambling victims. Currently in the discovery stage, the suit has named 36 plaintiffs with well over 100 more to join. The class action suit will go after all profits illegally obtained over the past five years on behalf of gambling victims. According to Columbia, South Carolina attorney Pete Strom, the illegally obtained profits are those that break the South Carolina gambling laws, such as the restriction of $50 in losses to anyone gambling in one city. Despite being lucrative, the proliferation of convenience gambling devices is controversial. Much of the controversy regarding convenience gambling stems from its disparate locations outside of traditional gaming venues. It's rapid proliferation. The belief that this form of gambling provides fewer economic benefits and higher social costs than more traditional forms of gambling casinos. Before the beginning of this decade, legalized casinos operated in two jurisdictions, Nevada and Atlantic City. Casinos are now legalized in 28 states. With the multiplication of locations, there was a metamorphosis of the types of casinos. In addition to Las Vegas resort casinos, there are now nearly 100 riverboat and dockside casinos in six states and approximately 260 casinos on Indian reservations. The expansion of gambling to these new sites is being called the most significant development in the industry in the 1990s. Casinos are an important source of entertainment, jobs and income. The largest casino markets are Nevada with 429 full scale casinos, 1,978 slots only locations, one Indian casino, and gross casino revenues for $7.87 billion. New Jersey with 14 casinos and gross casino revenues for 1997 of $3.9 billion. And Mississippi with 29 state regulated casinos, one Indian casino, and gross casino revenues for 1997 of $1.98 billion. The largest concentration of casinos is in urban areas, including Clark County and Las Vegas, with 211 casinos, 30.5 million visitors in 1997, and gross casino revenues for 1997 of $6.2 billion, accounting for 79% of the Nevada market. Atlantic City, where all of New Jersey's 14 casinos are located, with 34.07 million visitors in 1997, and gross casino revenues for 1997 of $3.9 billion, accounting for 100% of the New Jersey market. And Tunica County, Mississippi with 10 casinos, approximately 17.4 million visitors in 1997, and gross casino revenues for 1997 of $933.3 million, accounting for 47% of the Mississippi casino market. For many people, casinos symbolize the gambling industry. Hence, casino locations are often viewed as indicative of a community's embrace of the gambling industry. Riverboat casinos. Riverboat casinos are a relatively new and uniquely American phenomenon. Riverboat casinos began operating in Iowa in 1991, and quickly expanded throughout the Midwest. By 1998, there were over 40 riverboat casinos in operation in Illinois, Indiana, Missouri, Iowa, and nearly 50 riverboat and dockside casinos in Louisiana and Mississippi. In 1997, revenues were riverboats total $6.1 billion. The same year, riverboats paid over $1 billion in gambling privilege taxes. And growth has continued, with revenues up 11.3% from 1996 to 1997. With these original states now approaching saturation point, several state governments have decided to take a closer look at the record compiled so rapidly by this industry. Iowa, a pioneer state, recently legislated a five-year moratorium on the expansion of casinos in part to allow time to assess the impact to date. Indiana has established a commission to examine and report on the economic and social effects stemming from the state's experience with gambling. In this regional pause, advocates for and against casinos strive to make their arguments heard. The record of state decision making regarding riverboats is not comforting. In the hierarchy of considerations of state policymakers, the original arguments in favor of tourism and economic development have often been displaced by the need to generate and maintain tax revenues. The various state's decisions have been driven to a surprising extent, not by a steadfast concern for the public welfare, but by a fierce interstate competition for tax dollars and in the process revealing remarkably similar patterns of decision making. Prominent in each state's calculations have been the twin desires of securing tax revenues from the citizenry of neighboring states while also blocking those same states from undertaking a similar raid of their own. Riverboat casinos seem to be ideal instruments for delivering this budgetary nirvana. When located on the borders of other states, often conveniently near major population centers across the river, they could be assured of drawing at least some of their revenues and thus tax receipts from the populations of their benighted neighbors. Unfortunately, the spectacle of their citizen's taxes going to benefit other jurisdictions proved too stress inducing for the public officials in the targeted states who quickly retaliated with riverboats of their own in the name of recapturing the revenues of their wayward citizens. The fact that they were not above attempting their own raids by locating a portion of their new boats near the casino deprived populations in states far afield from the original aggressor meant that the pattern tended to be self-propagating. Despite the intense search for money from outside their borders, the resulting counter actions have meant that the net revenue gains from and losses to non-resident populations tend to cancel each other out. But the very same strategy has ensured that every state's population is now within an easy commute of the casinos. In setting out to tap into their neighbor's pocketbooks, state governments have ended up tapping into that of their own citizens. Measuring the impact of a single industry in a dynamic economy is often complicated by an inability to determine a clear cause and effect relationship. For example, a 1994 study by the Illinois Economic and Fiscal Commission on the impact of riverboats found that there had in fact been a measurable increase in non-gamely related commercial activity in the riverboat communities, but concluded that although some locations did appear to have benefited economically from the casinos, in most locations the improvement was more likely due to an upturn in the general economy than to the riverboats. It did find, however, that those gains that did occur tended to be greater the smaller the community. Similarly, a separate study of the Illinois riverboat communities concluded that one fact is clear. Any city fortunate enough to be selected as a site for a riverboat casino is guaranteed a windfall. However, the same report continues with the caveat that little is known about the impact that gambling has had on the dozens of municipalities in the region surrounding each riverboat. Thus, it is possible that the benefits to a host community may come at the expense of the surrounding area. Opponents counter claims of local benefit with the specter of cannibalization. This term refers to the phenomenon where the apparent increased economic activity produced by a casino may actually be the result of its having drained money away from local non-gambling businesses. The fate of an area's restaurants is a commonly used example. Subsidized facilities on riverboats may thrive by taking customers away from their land-based non-casino counterparts. Thus, opponents allege what appears as an increase in spending on restaurants due to the presence of a casino may in fact represent only a simple transfer of customers and spending from one place to another. There has also been much information provided to this commission that counters this view. Arthur Anderson's study of the gaming industry considered cannibalization or the substitution theory, as it is sometimes called, and reported the following. First, the size of the US economy is not fixed. Rather, it expands over time as new jobs are created. Second, at the macroeconomic level, the industries which some maintain have been affected by consumer spending on gaming have grown concurrently with the gaming industry. Third, economists have known for centuries that for an economy to grow, it must produce the goods and services which consumers prefer. Fourth, casino gaming relies more heavily than most industries on domestic labor and domestic supplies, including capital. In addition, spending by foreigners in US casinos also represents an export activity for the domestic economy. The study conducted by Arthur Anderson of the microeconomic impacts of casino gambling also contained information relative to the substitution theory. In each jurisdiction surveyed, this study documented the creation of economic growth fostered by the casino gaming industry. For example, in Biloxi Gulfport, Mississippi, prior to the arrival of casinos, the combined value of commercial construction permits in 1991 and 1992 was $12 million. During the three years following the arrival of casinos, the combined total was $447 million. From 1990 to 1995, the construction industry added almost 1,300 new jobs, an increase of 50%. Retail sales growth rates increased from an average of 3% a year from 1990 through 1992 to approximately 13% between 1993 and 1995. However, the record of riverboat casinos in promoting general tourism development is mixed. It appears to have been most successful in places such as Galena, Illinois, where the tourism industry was already well established. But in other places, the expected boom has yet to appear. The most important reason for this lagging development is that the evidence shows that most gambling at riverboat casinos is from regional or day trip patrons who do not incur the expense of an overnight stay. These day trippers or excursionists tend to concentrate almost entirely on gambling and to spend little or no time and money at non-gambling locations. Thus, there is often little boost to the local tourist industry in the form of hotel occupancy, retail sales, increased patronage at restaurants, etc. The key to large-scale tourism development is inducing gamblers to stay at least one night and preferably more, which requires attracting individuals from beyond the radius of an easy round trip by car. Becoming such a destination resort, including the lucrative market of mainstream conventioneers, however, involves considerably more investment of capital than has been the case with the vast majority of riverboats, including the creation of an infrastructure of non-gambling-related attractions, such as golf courses and theme parks, as well as airports and highways. Some critics assert that riverboat casinos that draw their customers primarily from the local population have a regressive economic impact on the community because the profits go to owners outside of the community and the benefits of taxes raised locally are distributed throughout the state. The possibility of a regressive impact becomes more clouded when placed in the context of economic development. Riverboat casinos have often been located in poorer neighborhoods with the specific intention of stimulating economic development there. However, some observers contend that, as a result, a disproportionate amount of the casino's winnings are drawn from residents of this same community who tend to be poorer and less educated than the state average, thereby hurting the very people the riverboat casino was intended to help. According to one critic, casinos have drawn monetary resources away from depressed communities and away from individuals who are economically poor, those who can least afford the costs of gambling. Native American tribal gambling. Large-scale Indian casino gambling is barely a decade old. Most Native American tribal gambling started after 1987 when the United States Supreme Court issued a landmark decision in California, the Cabazon Band of Mission Indians. This decision, in effect, confirmed the inability of states to regulate commercial gambling on Indian reservations in an effort to provide a regulatory framework for Indian gambling. Congress passed the Indian Gaming Regulatory Act, IGRA, in 1988. IGRA provides a statutory basis for the regulation of Indian gambling, specifying several mechanisms and procedures and including the requirement that the revenues from gambling be used to promote the economic development and welfare of tribes. For casino gambling, which IGRA terms Class III gambling, the legislation requires tribes to negotiate a compact, with their respective states, a provision that has been a continuing source of controversy in which will be discussed at length later in this chapter. The result of those two developments was a rapid expansion of Indian gambling. From 1988, when IGRA was passed, to 1997, tribal gambling revenues grew more than 30-fold, from $212 million to $6.7 billion. Figure II-II increase in tribal gambling revenues 1988 versus 1997. In 1988, $212 million per year. In 1997, $6.7 billion per year. By comparison, the revenues from non-Indian casino gambling, here and after termed commercial gambling, roughly doubled over the same period from $9.6 billion to $20.5 billion in constant $1997. As was IGRA's intention, gambling revenues have proven to be a very important source of funding for many tribal governments, providing much-needed improvements in the health, education, and welfare of Native Americans on reservations across the United States. Nevertheless, Indian gambling has not been a panacea for the many economic and social problems that Native Americans continue to face. More than two-thirds of Indian tribes do not participate in Indian gambling at all. Only a small percentage of Indian tribes operate gambling facilities on their reservations. According to the Bureau of Indian Affairs, BIA, there are 554 federally recognized tribes in the United States with 1,652,897 members or less than 1 percent of the U.S. population. Of these 554 tribes, 146 have Class III gambling facilities operating under 196 tribal state compacts. In 1988, approximately 70 Indian casinos and bingo halls were operating in a total of 16 states. In 1998, approximately 298 facilities were operating in a total of 31 states. For the majority of tribal governments that do run gambling facilities, the revenues have been modest, yet nevertheless useful. Further, not all gambling tribes benefit equally. The 20 largest Indian gambling facilities account for 50.5 percent of total revenues, with the next 85 accounting for 41.2 percent. Additionally, not all gambling facilities are successful. Some tribes operate their casinos at a loss, and a few have even been forced to close money-losing facilities. Only a limited number of independent studies exist regarding the economic and social impact of Indian gambling. Some have found a mixture of positive and negative results of the impact of gambling on reservations, whereas others have found a positive economic impact for the tribal governments, its members, and the surrounding communities. This is an area greatly in need of further research. However, it is clear from the testimony that the subcommittee received that the revenues from Indian gambling have had a significant and generally positive impact on a number of reservations. Perimutual Wagering The perimutual industry, so-called for the combining of wagers into a common pool, consists of horse racing, grey-hailed racing, and Jai ally. Perimutual wagering provides for winnings to be paid according to odds, which are determined by the combined amount wagered of each contestant within an event. The increased interest in racing and Jai ally in the 20th century is largely attributed to the rise in the perimutual style of betting. The Horse Racing Industry The largest sector within perimutual gambling is the horse racing industry. Historically rooted with tradition, the first American horse race was run in Hempstead, New York in the late 1660s. Following the race, the British Governor of New York, Colonel Richard Nichols, ordered the regular running of races so as to improve the stamina and speed of the horses. Today, several of the larger racing venues, such as Churchill Downs in Louisville, Kentucky, have been operational since the 1800s. Many economic and traditional aspects of the horse racing industry stem from the agro-industrial sector. This base is responsible for the diversity of racing's economic impact. Beyond directly related occupations such as track operators, trainers, owners, breeders, and jockeys, the beneficiaries of the racing industry include veterinarians, stable owners, etc. The total employment for the horse racing industry has been estimated at 119,000. Perimutual wagering on horse racing is legal in 43 states, generating annual gross revenues of approximately $3.25 billion. While there are over 150 operational race tracks, most wagering takes place away from the venue of the originating race. Fueling this development is the availability of satellite broadcasting, making it possible to simultaneously broadcast races either between race tracks or at off-track betting sites, OTB, where no racing occurs at all. The simulcasts provide for larger betting pools by increasing patron access to numerous race tracks. Until recently, simulcasting races did not include at-home perimutual betting. However, several companies have made the transition into cable in our broadcasting races through 24-hour racing channels. Furthermore, one U.S. company is presently broadcasting races through the Internet. Through the process of setting up accounts at racing venues, patrons in eight of the nine states that permit account wagering can telephone their wagers from anywhere, including their homes. Approximately $550 million was wagered through account wagering in 1998. The Greyhound Industry The Greyhound Industry began in 1919 with the first track in Emeryville, California. Today, there are 49 tracks operating in 15 states. Greyhound Racing is responsible for approximately 14 percent of the total handle of perimutual betting. In 1996, a gross amount wagered in the Greyhound Industry totaled $2.3 million with $505 million in revenues. The industry accounts for approximately 30,000 jobs directly related to the operation of the race tracks and other agricultural operations. Over the last decade, the Greyhound Industry has experienced significant financial decline, dropping $300,000 in handle annually. One example is the Wichita Greyhound Park in Kansas, which experienced a 22% decline in attendance and a 16% decline in betting between 1995 to 1996. Jay Ali Jay Ali, the smallest segment of the perimutual industry, involves players hurling a hard ball against a wall and catching it with curved baskets in a venue called Fronton. With a handle of approximately $275,000 annually, Jay Ali accounts for less than 2% of the total handle among the three perimutual sectors. Originating in Spain, the sport of Jay Ali was brought to the United States by a group of wealthy Bostonians. Jay Ali has experienced a dramatic decline in overall revenues over the last decade. Jay Ali hit its peak in the early 1980s with over $600 million wagered annually. By 1996, the total amount wagered was less than $240 million. Florida, once home to more than 10 Frontons, remains the leader in the industry with only six facilities throughout the state. Other states with Jay Ali include Rhode Island and Connecticut. Efforts to rejuvenate the industry include Florida's state legislature passing a law to change the taxing structure on Jay Ali profits and a recently proposed bill in that state to allow electronic gambling devices at all perimutual venues including Frontons. Issues. The issues facing perimutual wagering have changed dramatically in the last 30 years. Legalizing slot machines and other EGDs is a highly contentious issue throughout the perimutual industry. Even with the increased availability to racing information and account wagering, the perimutual industry is facing economic problems. Industry officials point to the expansion of different forms of gambling as the reason for the downward financial turn. They say that competing for gambling dollars is making it increasingly difficult to maintain wagering pools large enough to pay for the cost of running the races. In response, several members of the perimutual industry have fought for and received the opportunity to provide for alternative forms of gambling at race tracks. Presently, several states such as Delaware, Rhode Island, South Carolina, and West Virginia permit EGDs at the racing venues. Opponents of installing EGDs point to increased revenues raised at the race tracks from both the machines and from larger number of patrons betting on the actual races. Other states have fought off the battle for increasing forms of gambling at perimutual venues and are looking for alternatives to keep the industry alive within their state. Recently, Maryland provided $10 million in subsidies to the state's ailing horse racing industry to stave off another round of campaigning to provide slot machines at race tracks. EGDs and the perimutual industry. A separate area of controversy regarding EGDs and an example of how they can blur the former distinctions regarding gambling are efforts by many dog track, horse track, and GI-LI owners to install them at their facilities. Proponents in the perimutual industry contend that they seek a level playing field that will allow them to compete with state lotteries and Indian gambling facilities. They argue that the EGDs will draw larger crowds to race tracks and thereby save existing jobs connected with racing or even create new jobs. Conversely, opponents contend that track owners view EGDs as means of transforming their businesses into quasi casinos, thereby allowing them to capture the much larger profits characteristic of that form of gambling and that the perimutual aspect of the business will be allowed to wither. They also oppose the further spread of casino-style gambling in the form of assisting race tracks. Currently, Delaware, Rhode Island, South Carolina, and West Virginia allow EGDs at their race tracks. According to the National Council against legalized gambling, efforts to legalize EGDs at perimutual facilities have failed in 12 states since 1995. Simulcasting and account wagering. In addition to EGDs and slot machines, the perimutual industry is taking advantage of advances in communication technology and changes in regulations to expand gambling opportunities. In 1978, Congress passed the Interstate Horse Racing Act, IHA 15 USC section 3001 to 3007, which extended authority for states in the perimutual industry to provide regulated interstate wagering on races. The law allows the racing industry to create larger wagering pools by combining bets from sources beyond the originating track. To facilitate interstate wagering, the perimutual industry uses satellite communications to instantaneously broadcast races known as simulcast wagering. Even before passage of the IHA, wagering was available at off-track venues, commonly known as off-track betting OTB sites. In 1970, the New York legislature approved the first OTB operation. Since then, simulcast wagering has grown rapidly, both in the United States and internationally. Presently, at least 38 states have authorized simulcast interstate wagering. Along with OTB sites, racetracks began offering telephone account wagering services to their patrons. Racing patrons now can establish accounts with licensed racetracks in eight of the nine authorized states, which are Connecticut, Kentucky, Maryland, Nebraska, Nevada, New York, Ohio, Pennsylvania, and Oregon. To establish accounts, individuals must appear in person or provide documentation by mail as well as deposit money in an account which may be increased or reduced according to their wins and losses. According to the American Horse Council, most money wagered on races now occurs at sites other than where the originating race takes place. Recent industry figures estimate that off-track and simulcast wagering constitute more than 77% of the total annual amount wagered on paramutual races. In 1997, they accounted for $11.8 billion of the $15 billion industry total. In 1998, the amount wagered through telephone account wagering systems reached almost $550 million. Although previously available in some regions for a number of years, various efforts are now underway to expand the broadcasting of races directly into the home and, in some cases, offer accompanying account wagering. Several companies are developing racing channels which are offered either through basic cable or as a subscription-based channel. For example, Television Games Network, TVG, is a company that combines several communications technologies to provide coverage and account wagering in the home. United Video Group, under its parent company, TV Guide Incorporated, operates TVG through the use of satellite technology to broadcast live horse races on a cable channel. To access this technology, hardware is installed on Better's television set, enabling him or her to use special remotes to scroll through on-screen information menus. To place bets, Better's deposit money in account with Churchill Downs, the sponsoring racetrack, and place wagers after providing a username and confidential PIN number. Although currently operating only in Kentucky, TVG has broadcasting agreements with a number of other racetracks in anticipation of offering a wider scale of racing to its patrons. Many in the horse racing industry see this system as an integral step toward expanding the base of the paramutual clientele. Sports wagering. Despite its popularity, sports wagering in America is illegal in all but two states. Nevada has 142 legal sports books that allow wagering on professional and amateur sports. Oregon runs a game called Sports Action that is associated with the Oregon Lottery and allows wagering on the outcome of pro football games. Outside of these two states, wagering on sports is illegal in the United States. According to Russell Gwinden, Senior Research Analyst for Nevada's Gaming Control Board, sports wagering reached $2.3 billion in Nevada's legalized sports books in fiscal 1998. Nevada sports books took in $77.4 million in revenue on college and professional sports wagering. According to one major strip resort, betting on amateur events accounted for 33% of revenue. Estimates of the scope of illegal sports betting in the United States range anywhere from $80 billion to $380 billion annually, making sports betting the most widespread and popular form of gambling in America. Many Americans are unaware of the risks and impacts of sports wagering and about the potential for legal consequences. Even when Americans understand the illegality of sports wagering, it is easy to participate in, widely accepted, very popular, and at present not likely to be prosecuted. One reason Americans may not be aware of the illegality of sports wagering is that the Las Vegas Line, or Point Spread, is published in most of the 48 states where sports wagering is illegal. Some have argued that the Point Spread is nothing more than a device that appeals to those who make or solicit bets. Critics claim that the Point Spread does not contribute to the popularity of sports, only to the popularity of sports wagering. Because sports wagering is illegal in most states, it does not provide many of the positive impacts that other forms of gambling offer. In particular, sports wagering does not contribute to local economies and produces few jobs. Unlike casinos or other destination resorts, sports wagering does not create other economic sectors. Issues This commission heard testimony that sports wagering is a serious problem that has devastated families and careers. Sports wagering threatens the integrity of sports, it puts student athletes in a vulnerable position, it can put adolescent gamblers at risk for gambling problems, and it can devastate individuals and careers. There is considerable evidence that sports wagering is widespread on America's college campuses. Cedric Dempsey, executive director of the NCAA, asserts that every campus has student bookies. We are also seeing an increase in the involvement of organized crime on sports wagering. Students who gamble on sports can be at risk for gambling problems later in life. There is evidence that sports wagering can act as a gateway to other forms of gambling. Therefore, it is important to understand the scope of the problem and educate students to the dangers of sports wagering. The commission needs to know how widespread the phenomenon of underage sports gambling is now, the relationship between sports wagering and other forms of gambling, and the ways to prevent its spread. Those who attempt to draw adolescence into illegal sports wagering schemes deserve the full attention of law enforcement efforts. There is much justifiable concern about the rise of sports wagering on college campuses. For example, Dempsey has argued that there is evidence more money is spent on gambling on campuses than on alcohol. Dempsey claimed that every campus has student bookies. We are also seeing an increase in the involvement of organized crime in sports wagering. Bill Som, who is the NCAA official who oversees efforts to address gambling, has called campus betting the number one thing in the 90s in college. Three years ago, sports illustrated called college betting rampant and prospering. Gambling rings have been uncovered at Michigan State, University of Maine, Rhode Island, Bryant, Northwestern, and Boston College, among many other institutions. While studies of college gambling are sparse, Leser has found in a survey of six colleges in five states that 23 percent of students gambled at least once a week. The same study found that between six and eight percent of college students are probable problem gamblers, which was defined in that study as having uncontrollable gambling habits. There is some concern that gambling by students may lead to problem or pathological gambling in later life. Internet. Beginning with its introduction on the World Wide Web in the summer of 1995, Internet gambling is the newest medium offering games of chance. While projected earnings are open to subjective interpretations, the previously small number of operations has grown into an industry practically overnight. In May of 1998, there were approximately 90 online casinos, 39 lotteries, eight bingo games, and 53 sports books. One year later, there are over 250 online casinos, 64 lotteries, 20 bingo games, and 139 sports books providing gambling over the Internet. Sebastian Sinclair, a gambling industry analyst for Christians and Cummings Associates, estimates that Internet gambling revenues were $651 million for 1998, more than double the estimated $300 million from the previous year. A separate study conducted by Frost and Sullivan shows that the Internet gambling industry grew from $445.4 million in 1997 to $919.1 million in 1998. Both the Sinclair and the Frost and Sullivan studies estimate that revenues for Internet gambling doubled within one year. Several factors have contributed to the dramatic growth. First, Internet access has increased throughout the world, particularly in the United States. As interest in the Internet has increased, technologies that drive the Internet have continued to improve. Internet gamblers can participate instantaneously through improved software, providing real-time audio and visual games and races. Additionally, the public's confidence in conducting financial transactions online has increased. Furthermore, a number of foreign governments, such as Australia and Antigua, are licensing Internet gambling operators within their borders. However, along with its meteoric rise, Internet gambling is raising issues never previously addressed and exacerbating concerns associated with traditional forms of gambling, while preventing underage gambling and reducing problems associated with problem and pathological gambling are concerns for all forms of gambling. Reducing these concerns is particularly challenging for Internet gambling. The Internet provides the highest level of anonymity for conducting gambling to date. While Know Your Customer is a motto of the gambling industry, this becomes particularly challenging through technologies available to Internet users. Screening clients to determine age or if they have a history of gambling problems is difficult at best. For the users of gambling, the Internet fuels concerns regarding the legitimacy of the games and the gambling operators. General concerns about the relationship between gambling and crime, including money laundering, become particularly acute when considering gambling on the Internet. Various public officials and interest groups are initiating efforts to address the concerns of Internet gambling. Several states have passed or are considering legislation to ban Internet gambling within their jurisdictions. Several attorneys general have brought lawsuits against Internet gambling operators. Individuals who have incurred credit card debt have brought lawsuits against their credit card companies and their respective banks. The Department of Justice has arrested or issued warrants for arrest on 22 Internet gambling operators and successfully indicted several individuals. Legislation to ban Internet gambling in the United States has been introduced during the 105th and 106th Congress and is presently under consideration in the Senate. Groups that have supported these measures include state gambling regulators, professional and amateur sports associations, and a rare stance for federal involvement by the National Association of Attorneys General. Still, mechanisms to enforce prohibitions have raised concerns regarding the role of Internet service providers and possible infringement on freedom of speech. Furthermore, most Internet gambling businesses operate offshore and are licensed by foreign governments, making it difficult to prevent access to illegal sites. Politically, sentiments surrounding Internet commerce are unique, as demonstrated by the President's Declaration of the Internet as a free trade zone.