Cutting The Wire

Gaming Prohibition And The Internet

David G. Schwartz

• Publisher: University of Nevada Press
• Year: 2005
• ISBN:
  9780874176537
• Topic: History
• Subtopic: World History
• Index: History

The story of the Wire Act and how Robert Kennedy's crusade against the Mob is creating a new generation of Internet gaming outlaws. Gambling has been part of American life since long before the existence of the nation, but Americans have always been ambivalent about it. What David Schwartz calls the "pell-mell history of legal gaming in the United States" is a testament to our paradoxical desire both to gamble and to control gambling. It is in this context that Schwartz examines the history of the Wire Act, passed in 1961 as part of Attorney General Robert F. Kennedy's crusade against organized crime and given new life in recent efforts to control Internet gambling. Cutting the Wire presents the story of how this law first developed, how it helped fight a war against organized crime, and how it is being used today. The Wire Act achieved new significance with the development of the Internet in the early 1990s and the growing popularity of online wagering through offshore facilities. The United States government has invoked the Wire Act in a vain effort to control gambling within its borders, at a time when online sports betting is soaring in popularity. By placing the Wire Act into the larger context of Americans' continuing ambivalence about gambling, Schwartz has produced a provocative analysis of a national habit and the vexing predicaments that derive from it. In America today, 48 of 50 states currently permit some kind of legal gambling. Schwartz's historical unraveling of the Wire Act exposes the illogic of an outdated law intended to stifle organized crime being used to set national policy on Internet gaming. Cutting the Wire carefully dissects two centuries of American attempts to balance public interest with the technology of gambling. Available in hardcover and paperback.

1

Legal Vices and Illicit Diversions

For more than two centuries, Americans have vacillated between their desires to permit and to control gaming, creating an erratic record of legalized gaming initiatives and a distasteful legacy of illegal gaming and corruption.

No matter where races are held in the land, the transmission by telegraph and telephone of race-track news makes betting possible here. As a result, gambling in poolrooms and by means of handbooks is practically as active in winter as during the summer, when our own tracks are open. Betting on horses, as it is conducted here, is one of the worst forms of gambling. It is impossible to beat the game. The jails, the poorhouses are crowded with men who have tried it.

When Russia stopped the traffic in vodka there were those who predicted that the Empire would fall. Instead the Nation has been infinitely enriched, mentally, morally, and physically. Race-track gambling, that hopeless chase of the golden will-o'-the-wisp, is sapping American manhood, destroying countless homes, wrecking countless lives. It is not improving the breed of horses, and it is playing havoc with the breed of men.

— New York Globe editorial, February 24, 1916

AMERICANS HAVE NEVER QUITE AGREED on what to do about gaming. They inherited a legislative indecision about gaming along with the rest of the corpus of English law. “The common law and the early English statutes on gambling were not consistent,” wrote a New York judge as he surveyed gaming law in 1950. “Toleration and prohibitions of gambling went hand in hand.”¹ Gaming conducted in a private house might not be criminal, but the same game played in a public place might be prosecuted as a breach of the peace or as corrupting to public morals. Often, authorities considered cheating at gambling, rather than gaming itself, to be a criminal act. Though the liberal attitude expressed in early common law gave way to statutory restrictions on gaming, an essential tension remained: Gaming, if not completely legal, was never completely illegal either.

A gaming casino is legal in Nevada, legal in Illinois if it has one of the ten permitted licenses and is waterborne, and illegal under any circumstances in Tennessee. Betting on horses is legal in New York on track and at OTB shops, legal in Nevada sportsbooks unaffiliated with any track, and illegal in Mississippi. What makes a gaming operator an honest living in one state will get him imprisoned in another one. Furthermore, gaming statutes are notoriously unstable; legislators constantly experiment with new forms of legalized gaming, often rejecting them in the face of mounting public dissatisfaction. What was illegal in 1934 may have become legal in 1935, but there was no guarantee that it would remain legal in 1936.

Legal uncertainty about gaming often translated into government support of various schemes of legalized (and taxed) gaming. Never shy about experimenting with licensing and taxing a supposed vice to enrich the public coffers, Americans have not been exactly resolute in their determination to harness gaming for the public benefit either. But because that same public rarely paused in its zeal for betting, gaming continued. Now officially illegal, it contributed no revenue to the state and operated under a presumed cloak of secrecy. Over the decades illegal gambling grew by leaps and bounds, while legal gambling sputtered forward.

Gambling Prohibition: Is There a Rhyme or Reason?

Americans have gambled for a very long time. Many times, they had no problem with keeping gaming ostensibly illegal, but at other times they resolved to legalize, regulate, and tax gaming. Surprisingly, these efforts most often proved transitory, ending in scandal, failure, and recriminalization. The Wire Act is best seen in the context of these cycles of legalization and criminalization. This law did not come hurtling down to Earth from the inky reaches of space; it was the end result of ten years of serious congressional discussion and drew upon more than a century's worth of anti-gaming legislation on the state level and seventy years' worth of hesitant federal anti-gaming efforts. Without understanding the legal backdrop of gaming in the United States, it is impossible to fix exactly the motives of the Wire Act's authors and the law's intended consequences.

The standard framework for viewing American flirtations with legalized gaming has been the “three waves” model, which, according to gaming law expert I. Nelson Rose, suggests that the United States has seen three major waves of gaming legalization.² The first wave, beginning “during the colonial period,” ended before the Civil War. The second wave started with the Civil War (or more accurately, with Reconstruction), as the devastated South turned to lotteries for quick revenues. This wave ended with the disgrace of the Louisiana lottery in the 1890s and resulted in “imposition of stiff federal laws and state constitutional restrictions” against legal gaming. A third wave, which started in 1964 with the first state lottery of the twentieth century, the New Hampshire Sweepstakes, continues today.³

But this framework has limitations. The legal status of the lottery divorced from other laws against gaming and, indeed, the social, cultural, and economic context of the law itself do not really explain why Americans have turned toward, then away from, legal gaming. Rather than a neat series of three longitudinal waves, the American experience with gaming has been characterized by pragmatic experimentation as citizens sought to balance a desire for social control and a lingering distrust of gamblers with the need to channel gaming to benefit society. As befits a federal system, this experimentation took place primarily on the state and even county levels, rendering attempts to construct national interpretations of gaming legislation nearly inconsequential.

A model in which large waves regularly sweep the landscape, leaving uniform change in their wake, hardly describes the pell-mell history of legal gaming in the United States. Instead, we might be better off thinking of legal gaming as a weather system. Rain in Washington tonight does not mean that Philadelphians are grabbing their umbrellas, to say nothing of citizens of Phoenix. Local forces, such as topography, interact with larger global ones, such as the Gulf Stream, to produce understandable, though not always predictable, patterns. Similarly, legal gaming schemes owed much to big-picture national developments, such as the fluctuations of economic fortune, but they manifested themselves in ways unique to their local environments. This model is not as tidy as wave theory, which is itself vaguely rooted in the cyclical nature of the economy (not the law), but it helps us to better understand what actually happened.

Or perhaps it is best to say that there is no simple framework for understanding why gambling is legal at some times in some places and illegal in others. Historians still cannot (or perhaps should not) give pat explanations for the fall of the Roman Empire, the disappearance of the civilization that built Mohenjo-daro, or countless other phenomena. Perhaps it's only natural that Americans, as people living in an imperfect world and working with imperfect information, have experimented with legal gaming with no eye for the big picture and no real master plan.

Betting in a New World

Gambling in America is older than the nation itself. The first inhabitants of North America wagered avidly, and the “American culture of chance” that developed with the American nation ultimately, according to historian Jackson Lears, fused African, Native American, and European Catholic traditions with a dominant British-American-Protestant culture of control that ostensibly disapproved of frivolities like games of chance but never quite eradicated them.⁴ The records of the earliest European trappers, colonists, and missionaries in what would become the United States are so rife with descriptions of Indian rituals that intertwined gambling and divination that gaming could be labeled a nearly universal element in Native American cultures. Even before European settlement, North America witnessed much gambling, all of it public and legal.

The Anglo-American forebears of the Republic did not embrace gaming as unapologetically, but as gaming was an essential part of life in the mother country, it was certainly widespread from the earliest days of British North America. The first expeditions to the New World, financed by stock companies, were themselves a form of wagering. Perhaps a subscriber's ship might land safely and its crew discover gold, or land amenable to exploitation, yielding a pretty dividend; perhaps it would capsize in a storm before even sighting land, meaning a total loss. The stock subscriber stood to gain profit or suffer loss depending on the outcome of an event ultimately beyond his control—the very definition of gambling.

Those who crossed the Atlantic in search of a new life or simply to extract as much as possible from the New World before returning to the Old were gamblers too, whether they were dauntless adventurers or God-fearing men and women in search of religious and civic utopia. The element of risk inherent in any such enterprise that asks its participants to abandon the lives they know for an unknown future means that all those who chose to seek a fortune in the new land were wagering on a better tomorrow.

So when historian John Findlay labels Americans a “people of chance,” he is quite accurate. The earliest British gambles on “plantations” in America in the 1570s and 1580s ended in failure, so risk shadowed the settlers of the early seventeenth century, who gambled that they could somehow succeed where all others had failed. Notably, the joint stock company charged with the settlement of Virginia helped to defray its debts by running a lottery in England. After running the lottery (and settlements in the Chesapeake Bay) from 1612 to 1621, the Virginia Company remained in the red. Its subscribers must have known the frustration of the gambler who, as she walks away from her slot machine, sees the next gambler at the same machine hit the big jackpot; after the company was dissolved and Virginia declared a crown colony, the discovery that tobacco could be raised and sold profitably made the enterprise a lucrative one.⁵

Of the two earliest permanent British settlements, the Virginia plantations and the Massachusetts Bay Colony, the tidewater cavaliers of Jamestown and its environs have secured a reputation as the more notorious gamblers. But there was nothing peculiar to the Chesapeake that transformed industrious Englishmen into dissolute plungers. Instead, it must be remembered, the colonization of America took place during the “seventeenth-century explosion” of English gaming. Hand in glove with the growth of international trade, the rise of a cash and credit economy, and the development of a probabilistic, rationalist mind-set came an upswing in the popularity of gaming. As sociologist Gerda Reith argues in The Age of Chance, this eruption of gaming took three primary forms: speculation in chancy economic ventures, betting between individuals, and gambling at games of chance.⁶ All of these were found, to one degree or another, in every American colony.

Though the Calvinist Puritans of Massachusetts Bay, fervid believers in predestination and sober industriousness, sanctimoniously abhorred gambling, playing games nonetheless took root, particularly as the colony continued its declension from the theocratic republic of the “city on a hill” to the bustling commercial nexus of New England, home to fishermen, mechanics, and merchants. Yet the desire to stamp out gaming remained, as can be judged from the fact that, for Harvard graduate students in the late seventeenth century, wagering was, fiscally, the ultimate sin; if caught playing cards they could be fined 5 shillings, the highest penalty (drunkenness, at 3 shillings, and profaning the Lord's name, at 1.6 shillings, were comparatively mild offenses).⁷

Colonial antigambling laws were more often aimed at guarding against idleness or the “nuisances” associated with gaming than the activity itself. The first antigambling law passed in the colonies, a 1646 Massachusetts edict, was directed not against those who profited from gambling but rather against “houses of entertainment,” which were defined as places allowing shuffleboard and bowling, for within these places “much precious time is spent unprofitably, and much waste of beer and wine occasioned.”⁸ Where laws did exist against gaming, they usually prohibited not the activity itself but rather the excesses involved in public tavern gaming, a milieu described as wasteful and dissolute.⁹ In the South, early statutes addressed cheating, fighting, and economic dislocation caused by large-scale gaming losses, and laws against gaming were irregular, “patch-quilt affairs, with specific evils being subject to prohibition as they arose.”¹⁰

So gambling thrived in the British North American colonies. Since most of the betting took place among private citizens, it usually escaped the attentions of the law and the scythe of historical harvest, and its true reach can only be speculated. Thus we do not know much about how frequently colonists gambled on horses or cards—merely that they did so often enough to occasion laws that addressed the nuisances caused by gaming but rarely gaming itself. Another, very public, form of gambling was well documented, however—lotteries. Lotteries endorsed by the monarch had been legal in England since the medieval era. In the final years of the seventeenth century, lotteries fell under parliamentary control and were used, beginning in 1694, as tools to raise revenue.¹¹ The American colonies retained such lotteries.

By the time of the Revolution, gaming was well entrenched. If not always legal, gaming as a generic activity was rarely criminal. So it is really not surprising to read that the Continental Congress authorized a lottery to pay the expenses of the resistance effort, or that George Washington himself gambled, despite his proclamation that his officers and soldiers should forswear gambling, the “cause of evil” and “many a brave and gallant officer's ruin,” for working and training. Even Thomas Jefferson patiently endured the swings of fortune as he played backgammon, cards, and lotto while writing the Declaration of Independence.¹² When he was close to death, and his estate appeared unable to settle his debts, he received a charter from the Virginia legislature to sell his real estate via a lottery to satisfy his creditors; the lottery was canceled after Jefferson died, but it shows the propriety of the lottery as a legitimate fiscal tool.¹³ The founding fathers looked out on a new nation that undeniably liked to test its luck.

Wolf Traps and Serpents

Gaming, predictably, soon became an inextricable part of the “new order of the ages” of the American nation. The new regime inherited the ambiguous legislation of the colonial period, with lotteries given state sanction, some elements of public gaming disallowed, and private gaming usually left alone. But as the nation grew economically, and gaming both increased and changed its nature, citizens began to demand stronger antigambling laws. The Market Revolution of the early nineteenth century saw the growth of a domestic market in the United States based on manufacturing, not just exports; in many previously inaccessible parts of the continent, farmers were drawn into the commercial economy—instead of raising food for subsistence, they grew it for the markets. With this new market came banks and capitalism, as well as increased speculation in land and businesses. This chancy wagering on business, so akin to outright gambling, made some rich but ruined others. Andrew Jackson's legendary rage against the Bank of the United States, for example, can be traced to his own failed land investments, an early, brutal introduction to the new world of commercial speculation.¹⁴

As Americans traveled more and had more currency in their pockets, they naturally had occasion to gamble more often. This situation facilitated the development of professional gamblers, men who made their livings solely from the profits of their gaming. Games of cards and dice were no longer social diversions and now took a decidedly economic cast, with definite winners and losers. By the 1820s, even previously sacrosanct lotteries began to attract negative attention, as professional lottery corporations emerged to manage increasingly lucrative contests, displacing the disinterested, public-minded citizens who had previously run lotteries as a public service. Unlike the part-time managers they replaced, these lottery professionals had no special ties to the community and were usually more interested in maximizing their personal enrichment than in increasing the monies left for the charity or project in question. Such promoters transformed the lottery from a civic exercise in voluntary contribution to a strictly moneymaking proposition.¹⁵ Lotteries, no longer contributing meaningfully to the public good, became viewed as yet another monopoly that preyed upon industrious citizens.

Such a shift in public perceptions augured a slow doom for lotteries. States (starting with Massachusetts in 1833) began abolishing them.¹⁶ While certain particularly noisome incidents of fraud, embezzlement, and suicide sparked the turn against lotteries in the 1830s, it is no coincidence that during these same years, Andrew Jackson waged his war against the Bank of the United States and, in general, privilege and monopoly came under attack.¹⁷ The turn against legal lotteries was not the isolated response of citizens to the excesses of lottery promoters but part of a general mistrust of speculation and special charters. In addition, these years saw the religious revival of the Second Great Awakening, which inspired some citizens to disdain recreations such as gambling and embrace temperance and slow, steady self-improvement. The end of legal lotteries s...