Predatory gambling is when state governments partner with powerful corporate gambling interests to use commercialized gambling – gambling being run as a business – to exploit and defraud citizens and their communities across the United States. It’s America’s most-neglected major problem.
Over the next eight years, the American people are on course to lose more than $1 trillion of their personal wealth to predatory gambling. At least half of this personal wealth – $500 billion – will be lost to state lotteries.
Through its massive advertising and marketing, predatory gambling has become the public voice of American government to citizens today. It’s what we advertise to the American people more than anything else.
It has metastasized across the country not because of a grassroots citizens movement demanding slot machines, $100 lottery scratch tickets, and internet gambling in their homes and communities. Instead, predatory gambling has spread because of the greed of big gambling operators combined with a lust for power of some politicians from both political parties.
What separates commercialized gambling from every other business, including vices like alcohol and tobacco, is it’s a big con game. It’s a form of consumer financial fraud and exploitation, similar to price-gouging and false advertising.
If you pay for a pizza, a ticket to a sporting event, or a glass of wine, that’s what you receive in return. In commercialized gambling, what you receive is a financial exchange offering the lure that you might win money. But this financial exchange is mathematically stacked against you so inevitably you will lose your money in the end, especially if you keep gambling. Citizens are conned into thinking they can win money on games that are designed to get them fleeced in the end. Success only comes at someone else’s expense.
The most revealing truth about the fraud behind commercialized gambling is that nearly all of the people who profit from regional casinos and lotteries and the public officials who lobby to bring them in, don’t gamble themselves. We have awarded these individuals special status in what we call “The Hypocrite Hall of Fame.”
The most profitable form of the con are slot machine-style games, designed mathematically so users are certain to lose their money the longer they play. (See image on left.) At the same time, slot-style games are literally designed so citizens cannot stop using them, exploiting aspects of human psychology and inducing irrational behavior.[i] Every feature of slots – their mathematical structure, visual graphics, sound dynamics, seating and screen ergonomics – is designed to increase a player’s “time on device” – which means how long a person plays.
[i] Natasha Dow Schull, PhD, Addiction By Design, Machine Gambling in Las Vegas, (2012), available at http://press.princeton.edu/titles/9156.html
The Dave Ramsey Show, hosted by personal finance expert Dave Ramsey, is the 5th most downloaded podcast in the United States. Why? Because tens of millions of people are broke!
60% of Americans have less than $1000 in savings. 50% of the U.S. population has zero or negative net wealth.
Amid this financial distress, Americans are suffering life-changing losses of personal wealth to commercialized gambling, especially state lotteries. The sheer size and scope of these financial losses lacks any comparison: over the next eight years, the American people are on course to lose more than $1 trillion of their personal wealth to government-sanctioned gambling. At least half of this personal wealth – $500 billion – will be lost to state lotteries.
There is no debate among scholars that those who are financially desperate look to government-sanctioned gambling as a way to improve their lives and help them escape their financial condition.
It’s become a Hail Mary investment strategy, one that dooms them to inevitable failure.
State governments concentrate lottery outlets in economically-distressed regions to entice more citizens from the lower rungs of the income ladder. Lotteries are pushing scratch tickets as high as $50 in low income communities to citizens who earn a minimum wage of $7.25 an hour in those same states. It takes seven hours of work to lose it all on a $50 ticket.
Building assets, the accumulation and investment of savings, are key for anyone looking to make a better life. A home, a college fund, retirement accounts, a stock portfolio—these assets are the hallmarks of middle and upper class America, and they are all the result of savings. Creating wealth by the accumulation and investment of savings is the direct opposite of what state lotteries and local casinos represent and encourage.
Public officials and opinion leaders of all political stripes who profess a desire to improve opportunity and alleviate poverty often lament how few levers they have to pull. No single policy reform would create more financial peace for low-to-middle-income citizens than reversing the current scheme of turning tens of millions of Americans who are small earners, who could be small savers, into habitual bettors.
In 1969, New Jersey congressman Cornelius Gallagher wrote that if the Garden State enacted a lottery “we could abandon all taxation in New Jersey and increase every service in our state four times over.”
Today, New Jersey has a state lottery, several casinos, online casino gambling, and commercialized sports betting. Yet the state is in the worst fiscal condition of any U.S. state, ranking 48th in the nation in George Mason University Mercatus Center’s report on the fiscal condition of states.
New Jersey exemplifies how government-sanctioned gambling has been a spectacular failure as a revenue source. It’s proven to be THE biggest budget gimmick and the calling card of anti-reform politicians across the U.S.
Yet gambling lobbyists and some public officials continue to tout government-sanctioned gambling as a way to raise tax revenue. But history has shown repeatedly that this argument is either overstated or wrong. According to the Rockefeller Institute of Government at State University of New York-Albany, the organization doing the best independent research on public revenues from gambling, states creating new revenue streams from gambling may see momentary bumps in tax income but “in the long-run, the growth in state revenues from gambling activities slows or even reverses and declines.”
That’s because income from government-sanctioned gambling does not grow over time like general tax revenue and expenditures on education and other programs will grow more rapidly than gambling revenue. As a result, new gambling operations that are intended to pay for normal increases in state spending add to, rather than ease, long-term budget imbalances.
Many states tout lotteries as a way “to improve education” yet these states have not seen significant improvement in their education rankings over the last two decades.
Beyond its obvious status as a budgetary shell game, government-sanctioned gambling incurs major social costs that end up footed by all taxpayers. In addition to targeting and exploiting the financially desperate and cultivating addiction, government-sanctioned gambling leads to increases in rates of personal bankruptcy and provides new avenues for crime and money laundering.Gambling operators don’t pay for the harms they cause families, businesses, and communities. Taxpayers do. Lower-income Americans lose money on gambling, get it back by relying on more financial help from their government, who get it from taxpayers.
Also troubling for taxpayers, gambling operators are not allowed to fail by the state. For example, when casinos come up short, states usually provide new infusions of money, reduced taxes, reduced funding for gambling addiction measures, or other concessions such as lifting smoking bans and loss limits, in order to sustain revenues and profitability. Rhode Island, Delaware, and New Jersey, to just name a few, have all taken special steps to help casinos that might otherwise fail. Public tax dollars too often prop up gambling operators.
All the citizens who don’t gamble also pay another way. Government-sanctioned gambling lowers our national standard of living because it’s a sterile transfer of money from millions of ordinary people’s pockets into a small number of other people’s pockets, producing nothing new and nothing of lasting value. Its economic impact is similar to throwing your money on the street so someone else can pick it up – it redistributes wealth without creating it. Because this nonproductive activity nevertheless uses up time and resources, we experience a reduced national standard of living, a consequence that impacts all of us.
The way we raise money to pay for our government says as much about our democratic principles and values as the way we spend it.
The almost sole focus of state-sanctioned gambling has been to maximize profits, not protect the public interest.
The business model for state lotteries and local casinos depends on blatantly exploiting the financially desperate and the addicted. It cannot survive without these citizens.
The New York Times reported that state lotteries extract between 70%-80% of their profits from just 10% of the players.
Electronic gambling machines are the most lucrative form of gambling marketed by local casinos and some state lotteries.
Every feature of a video gambling machine – its mathematical structure, visual graphics, sound dynamics, seating and screen ergonomics – is designed to increase a player’s “time on device” – which means how long a person plays. Gambling operators found their profits were not about the size of the gamblers’ stakes but the volume of their play.
“If you provide them with the right time-on-device, they will stay and play,’” one slot designer said. “If you take it too quickly and they lose, they’re going to leave.’”
The goal is to get every user “to play to extinction’’ — until all their money is gone. “I want to keep you there as long as humanly possible,” said another video gambling machine operator. “That’s the whole trick, that’s what makes you lose.”
Electronic gambling machines are designed to be so effective at extracting money from people they are “a product that, for all intents and purposes, approaches every player as a potential addict – …someone who won’t stop playing until their means are depleted.”
The effectiveness of this design is undeniable: over the last decade there are 11 different independent studies that show 40%-60% of electronic gambling machine profits are taken from citizens who can’t stop using them.
“No taxation without representation” was one of America’s founding principles. After 45 years of state governments using lotteries and regional casinos to exploit and defraud their own citizens to extract as much money as possible, the time has come to add the principle of “no taxation by exploitation” beneath it.
How a government taxes its citizens is a declaration of a country’s values.
To all the non-gamblers out there, “You Pay Even If You Don’t Play.” Here are a few of the ways you pay:
- For the two-thirds of citizens who never gamble, you end up paying higher taxes for less services and worse state budget problems over the long term. You foot the bill for the inevitable budget deficits produced by state-sanctioned gambling.
- A key reason is the crazy cycle that commercialized gambling creates: lower-income Americans lose money on gambling, get it back by relying on more financial help from their government, who get it from taxpayers.
- You pay in another damaging way. Government-sanctioned gambling lowers our national standard of living because it’s a sterile transfer of money from millions of ordinary people’s pockets into a small number of other people’s pockets, producing nothing new and nothing of lasting value. Its economic impact is similar to throwing your money on the street so someone else can pick it up – it redistributes wealth without creating it. Because this nonproductive activity nevertheless uses up time and resources, we experience a reduced national standard of living, a consequence that impacts all of us.
- You also pay in at least one other way. The nation’s corporate and political elite have transformed gambling from a private and local activity into the public voice of American government, such that ever-increasing appeals to gamble, and ever-expanding opportunities to gamble, now constitute the main ways that our government communicates with us on a daily basis. Nothing else comes even close.
While there may be risk associated with buying shares in the traditional stock market, that is where the analogy ends.
The gambling operators know it. With the zeal of a teetotaler, nearly all of the people who profit from regional casinos and lotteries, and the public officials who lobby to bring them in, don’t gamble themselves. Yet they put their money into assets like stocks and real estate. Why?
Because it’s a statistical certainty that the vast majority of people will lose money gambling at regional casinos and on state lotteries. The longer and more frequently you wager against the house, the more you’re going to lose. It’s a sure thing.
In sharp contrast, the Annualized Dow Jones Industrial Average Return (DJIA) including dividends reinvested was 11.02% between 1950 and 2016, for an astounding 66 year total DJIA return of 116,125%. While the DJIA can and has gone down in some of those years, and that people can and do lose money speculating and trying to time the market, the record of steady, conservative stock market investing is excellent.
In addition, commercialized gambling operators hire the brightest people they can find (e.g. odds-makers, computer programming whizzes, sophisticated marketers) for the specific purpose of taking as much money as possible from customers. On the other hand, the investment industry hires the smartest and best-performing analysts it can find in order to help make money for customers. It’s about as different as it can get.
Watch Warren Buffett, one of the world’s greatest stock market investors, describe why government-sanctioned gambling should be phased out.
The primary source of information for the size and scope of illegal sports gambling in the U.S. has been the American Gaming Association, the national lobbying organization for gambling operators who have a vested financial interest in seeing commercialized gambling metastasize.
No American jurisdiction has EVER documented a decline in illegal gambling after states began sponsoring gambling, regardless whether it’s lotteries, casinos or internet gambling.
Common sense tells you that if the illegal sports gambling operators supposedly cannot be controlled right now, as the big commercial gambling operators claim, then how can you control and regulate the gambling operators you license? If you can’t shut down the illegal sports gambling operators now, how would you possibly shut down licensed operators who don’t follow the rules?
When gambling operators call for “regulation,” what they really mean is government granting monopolies and awarding regulatory advantages to favored firms.
There are a number of other reasons why Illegal gambling tends to increase when states sanction gambling:
- Untaxed illegal operators can offer better odds and tax avoidance that legal operations cannot.
- Once gamblers start betting legally, they become less averse to gambling in unlicensed venues
- Law enforcement in gambling states view illegal gambling as a state revenue issue rather than a criminal activity, making enforcement less of a priority.
Lastly, it’s revealing to contrast government-sanctioned gambling operators with illegal gambling operators. No illegal gambling operator is putting liens on the homes of citizens to collect gambling losses, like legal operators do. No illegal operator sends free gambling wagers by direct mail to your house to lure you back to the local casino, like legal operators do. No illegal operator is pushing $100 lottery scratch tickets, seven days a week, in economically-depressed communities, like state lotteries do. No illegal operators are running gambling ads during live broadcasts of sporting events with such intensity that one out of every five ads is to place a bet. No illegal operator is sponsoring pro sports teams like the legal operators do in the U.S.
The criminalization of for-profit lotteries and casino-style gambling was successfully practiced for a large portion of American history. This does not mean illegal gambling was absent from society, but public institutions did their best to contain it. They did not incentivize citizens to lose their money gambling.
In reality, commercialized gambling like state lotteries and regional casinos seem purpose-built for organized crime. For those running a human sex trafficking ring or selling heroin in a community, they take their illicit profits, buy a share in a winning lottery ticket or launder their dirty cash through slot machines, get someone to redeem it, and then they end up with clean money they can use to buy legitimate assets like property or stocks.
No group has suffered more because of government-sanctioned gambling than America’s youth.
- Millions of kids are growing up in families who are financially desperate due in large part to adult family members gambling away their paychecks, household savings and government-subsidy checks.
- Many kids now spend countless hours at home by themselves while one or both parents gamble regularly at the nearby casino or on the gambling machines at the local tavern.
- Millions of American kids grow up to get hooked on government-sanctioned gambling. The younger children start gambling, the more likely it is they will become habitual and problem gamblers, regardless whether they are from an urban or a suburban community.
- Many kids make local headlines for being found left locked in the car alone in casino parking lots while their parent or grandparent chases their losses inside the casino.
When The New York Times asked a slot machine designer at International Gaming Technology if he ever plays the machines he builds, “he acted as if I had insulted him. ‘Slots are for losers,’ he spat.”
The actions of the IGT employee are not an isolated case. State-sanctioned gambling is the only business where most of the people who profit from it and promote it don’t do it and don’t want to live near it.
These hypocrites cause life-changing financial losses for millions of American citizens. People like Sandy Hall, who had the courage to be interviewed as part of a 60 Minutes investigation into slot machines. Her life was reduced to almost nothing because of slots.
See our head-shaking list of gambling operators and public officials who don’t gamble but they want you to do it: The Hypocrite Hall of Fame.
Let people gamble if they want, you may say. But we already have the freedom to gamble. Many Americans participate in office pools for the Super Bowl, NCAA March Madness brackets, a Friday night poker game, or make casual wagers on the golf course with their friends.
Government is not simply permitting private, consensual behavior as some public officials who support state-sanctioned gambling attempt to argue. If it was their true intent, then this purpose could be achieved by allowing small, unlicensed games and keeping gambling private and local. Such an approach would be in line with the most effective and appropriate state stance toward gambling which is not encouragement, but rather containment.
This is a big government program that actively advertises more and more extreme forms of gambling at higher and higher wagering amounts in our communities. It also grants monopolies and awards regulatory advantages to favored firms.
State government shouldn’t be telling people how to live by encouraging them to gamble on state lotteries or at regional casinos, especially on games they are guaranteed statistically to get fleeced.
And in the process, they are violating the rights and freedoms of the two-thirds of the public who almost never gamble yet are being forced to foot the bill for the lower standard of living and budget deficits that state-sanctioned gambling leaves behind.
One can be a libertarian on this, while at the same time, believing that we cross an unacceptable ethical line when we go from allowing individuals to gamble to allowing our government to set up a massive marketing and distribution scheme urging people to do so.
Commercialized gambling is a naked money grab disguised as economic development.
Let’s contrast it with any other business that sells a product or a service. Take a blanket-selling business, for example. If you go out to buy a blanket for you or your family, other people don’t have to give up their blankets for you to get one. But imagine a blanket-selling business where in order for a few people to get a blanket, mostly everyone else had to turn in their own blankets and go without. And many people actually ended up owing blankets.
The primary winner in a blanket-selling business such as this are the people who operate the blanket redistribution scheme. It’s an exchange where, over a period of time, they are guaranteed statistically to end up with all the blankets.
Despite the inherent predatory and dishonest nature of the scheme, it escapes from being shut down because the blanket sellers provide state governments a percentage of their bounty. In fact, only those who partner with states are allowed to run the scheme and they’re usually handed regional monopolies to do it.
Those who never buy a blanket also lose. They end up paying extra for those who gave up their blankets and now need help. They also have to subsidize the state budget problems that result when the gimmick revenues inevitably dry up.
This is the essence of the government-sanctioned gambling scheme.
The analogy underscores how the economic impact of commercialized gambling is similar to throwing your money on the street so that someone else can pick it up — it’s redistributing wealth without creating it.
The casino lobby feeds on the job insecurity of Americans because people, whether gambling or seeking employment, have fewer viable ways to make good money.
By relying on slot machines and other forms of gambling as its primary revenue source, a casino may employ some citizens but it doesn’t produce economic growth.
Any activity the state puts money into will stimulate the economy. Government can stimulate the economy with good things, things that help people build wealth.
We are told one of the primary rationales for state-sanctioned casinos is to “create jobs” but facts show that casinos leave behind far more gambling addicts than jobs. According to the most recent numbers made available by the Illinois Gambling Board, the total enrollment of citizens in the state’s voluntary Self-Exclusion Program was 11,119 and the total number of full and part-time casino jobs was 7,137 – almost 35% higher. Thousands more gambling addicts have banned themselves from the state’s casinos because their lives have been ruined than there are people who work inside the state’s casinos.
But that figure is literally the tip of the iceberg. The actual amount of gambling addicts created by state-sanctioned casinos is far greater than the number of citizens who have self-excluded. That’s because only about 10% of people experiencing problems with gambling seek help from problem gambling services- 90% never even come forward for help.
State-sanctioned casinos also create unfairness for other businesses. When casino lobbyists call for a “limited number of casinos” to be allowed into a state, what they are really doing is attempting to rig the system to hand out special privileges to a few powerful political insiders at the expense of everyone else. Government, in this case, is not merely permitting private, consensual behavior. It is granting monopolies and awarding regulatory advantages to favored firms.
What makes commercialized gambling different than every other business, including those involving vices like alcohol and tobacco, is gambling is a big con game based on financial fraud and exploitation. Citizens are conned into thinking they can win money on games that are designed, in the end, to get them fleeced.
If you pay for a beer or a glass of wine, that’s what you receive in return. In commercialized gambling, what you receive is a financial exchange offering the lure that you might win money. But this financial exchange is mathematically rigged against you so inevitably you will lose your money in the end, especially if you keep gambling.
Slot machines, lottery tickets, and other commercialized gambling games are forms of fraud, similar to loan-sharking, false advertising and price-gouging. Gambling operators use these games to prey upon the inevitable failure of citizens and separate them from their money. And they make you feel good about losing it.
The criminalization of for-profit lotteries and casino-style gambling was successfully practiced for a large portion of American history. This does not mean illegal gambling was absent from society, but public institutions did their best to contain it. They did not incentivize citizens to lose their money gambling.
And all of the non-gamblers are being ripped off because they’re footing the bill for the public budget problems and the lower standard of living that government-sanctioned gambling leaves behind.
Government-sanctioned gambling is THE signature issue of anti-reform politicians from both political parties across the United States.
Instead of providing solutions to their state’s problems, these politicians placed the interests of powerful corporate gambling operators over the interests of ordinary citizens.
They passed the buck on difficult fiscal choices by promoting the biggest public budget gimmick there is: government-sponsored gambling.
But just as importantly, it is also political reformers from both parties who are the ones calling for predatory gambling to be phased out.
This explains why Stop Predatory Gambling is one of the most diverse organizations in the United States, one in which progressives work side-by-side with conservatives to improve the common good.
Government-sanctioned gambling should provoke the libertarian Right for a number of reasons:
- Government, in this case, is not merely permitting private, consensual behavior. It is granting monopolies and awarding regulatory advantages to favored firms.
- States sometimes conduct casino border wars, positioning new facilities to poach revenue from their neighbors. This has little to do with limited government. It is the active, predatory state.
- State-sanctioned gambling is used as a tax and a revenue source for the civil government. Fundamentally, if a believer in limited government is true to their beliefs, they should oppose state-sanctioned gambling for this reason alone.
- What about the costs to regulate gambling- whether it be casinos or lotteries? Not only are we talking about more government spending, but the actual size of the civil government must grow significantly in order to operate its gambling program. These costs are added public expenditures which limited government advocates declare themselves to be against.
- The two-thirds of the public who almost never gamble are being forced to foot the bill for the lower standard of living and budget deficits that state-sanctioned gambling leaves behind. (See FAQ above “Have state lotteries and regional casinos improved the financial condition of states?”)
Early American lotteries:
- Were public-spirited and progressive, unlike current state lotteries.
- A typical colonial lottery was instituted to finance specific public works projects, such as bridges or roads, and participation was seen more as a charitable contribution (like today’s raffle) than a form of gambling.
Present-day lotteries:
- Have become a permanent revenue source for the states, and in the process, turned citizens into permanent habitual gamblers.
- Their operations are contracted out to professional gambling firms
- Their economic burden is regressive rather than progressive
- Their customers are largely indifferent to their objectives
- Political approval for modern lotteries was secured by promising to earmark funds for things like education and care for the elderly yet the actual use of lottery revenues has rarely, if ever, been so constrained.
See the first question above “What is Predatory Gambling?” to differentiate between social gambling (things like office pools for the Super Bowl, NCAA March Madness brackets, or make casual wagers on the golf course with their friends) versus predatory gambling.
There are three primary reasons that people participate in commercialized gambling. The most common is to try to get money for doing nothing, often driven by desperation. The second is to pursue an emotional escape from life’s problems. The third is a craving for the intense buzz or high that “the action” of gambling can create.
Those who are financially desperate look to government-sanctioned gambling as a way to improve their lives and help them escape their financial condition. It’s become a Hail Mary investment strategy, one that dooms them to inevitable failure.