Coin-Ops to Casinos: Where Americans Gamble

Real Stakes: Understanding US Money-Based Gaming

[Note: This is part of a larger paper that is being developed. Let’s call this Draft #3+]

They call you lady luck, but there is room for doubt

At times you have a very un-lady like way of running out.

         Luck be a Lady from Guys and Dolls

For generations, Americans have held a love affair with games of chance and skill. From the early days of coin-operated arcade machines to the sprawling casinos of Las Vegas, gambling has woven itself into the fabric of American society. But beyond the arcade flashing lights and slot machine jingles lies a complex reality – the world of money-based gaming.

Gambling in the United States cuts across a wide spectrum of venues and activities, from penny-pushing machines, bingo halls, and cash raffles to online betting sites and physical casinos. Americans gamble over a trillion dollars every year for recreational entertainment, adrenaline rushes, and a chance at a big payday. Americans today have many options to make a wager. Legalized options include card rooms, video gaming machines at your local bar and convenience shop to the over 1000 commercial and Indian casinos across the USA. Additionally, 40 states have legalized online gambling of some form including sports betting, casino games, online poker, and card rooms. Beyond the legislated legalized gaming are skill-based gaming and sweepstakes gambling, some of which has been the target of controversy as it may not be illegal though it may lack regulation, control, and some state gaming taxes.

The many faces of “Gambling” appear across the USA. I recently did some research on the subject and decided to publish what is hopefully an unbiased article on the subject. Lets dive in.

Gambling in America

According to The National Council on Problem Gambling (NCPG), approximately 85% of U.S. adults have gambled at least once in their lives; 60% in the past year. Some form of legalized gambling is available in 48 states plus the District of Columbia. Legalized gambling includes lotteries, commercial casinos, native American casinos, pari-mutuel wagering, and charitable gambling. The two states without any legislative legalized gambling are Hawaii and Utah. Though even Hawaii has voted on legalization recently.

The term “Gambling” takes on many forms. Nevada and New Jersey define gambling as “risking something of value for a return or risking something of value upon the outcome of a contest, game, gaming scheme or gaming device when the return or outcome is based upon an element of chance” or “staking or risking something of value upon the outcome of a contest of chance or a future contingent event not under the control or influence of the person taking the stake.”

In most definitions, gambling requires risking value in a wager for a return based on a chance outcome not controlled by the parties involved in the wager.

Poker has been a part of this debate for years. When online poker caught the attention of the federal government, a debate about it being a game of skill vs chance erupted. The definition continues to be debated today and varies from state to state. California recognizes poker as skill and card rooms operate throughout the state. Private poker clubs operate in Texas with memberships and no rake of the games though there is no law making this legal or illegal in the state. It is a gray area with no skill or chance definition.

Even where no form of gambling is legislated, forms that many consider gambling may still be legal for certain wagering such as skill-based events and some other types of games not legislated to be illegal. Additionally with many illegal options available, Americans have proven that nothing will hold them back from making their play at a winning bet.

Multi-Trillion Dollar industry

Many joke that the Las Vegas strip was not built by the winners of the casino games, but by every losing bet or wager. Though few grasp the enormity of the gaming industry in Vegas or the USA. Gambling in the USA is a multi-trillion dollar industry. Before diving in, let’s review some of the industry terminology.

Gaming revenue is measured in total amounts bet called the handle. This is analogous to gross or total sales. The amount the casino keeps after paying out winners is the gross profit or Gross Gaming Revenue (GGR). Casinos give bonuses, free credits, comps, and other incentives which when deducted from the GGR is called the Net Gaming Revenue (NGR). The NGR is the number many regulated casinos pay their gaming taxes on.

Regulated gaming is tracked and reported in regulated jurisdictions such as Nevada as it’s a source of tax revenue. Reports from jurisdictions provide some insight into revenues. Indian gaming is also reported with information available from the National Indian Gaming Commission and other sources.

Unregulated gambling revenues in the USA are estimated by organizations such as the American Gaming Association (AGA), H2 Gambling Capital, and the National Council on Problem Gambling (NCPG). Since the numbers are not publicly known, these organizations estimate the numbers and their estimates can vary widely. Refer to their specific sites for their numbers. For general purposes, we will review rough order-of-magnitude and average numbers to understand what is at stake.

Total commercial gaming revenue (GGR) in legalized venues in the United States is around $75 billion and growing every year. That doesn’t include Indian casinos which are around $40 billion. The growth of online gambling has contributed to these numbers in recent years growing beyond 10% and approaching 20% of the total revenue.

Gaming GGRs are growing fast exceeding $100 billion in regulated gaming. Casinos keep about 10% to 15% of the total wagered as GGR or gross profit. Gamblers wager about $1 Trillion for the casinos to make their $100 billion in GGR. And that is only the amounts from reported regulated gambling.

Other gaming revenue includes bets on skill-based games, gaming in areas where it is unlicensed or unregulated, and illegal bets from the corner bookie to offshore betting houses. There is no way to know the exact amounts these add up to. Conservative estimates put the total amount wagered on these at over $1 trillion yearly though even higher numbers have been referenced. This staggering figure underscores the vastness of the shadow gambling economy.

Americans are wagering for rewards on devices from claw machines to craps. Whether on legal or illegal, regulated or unregulated, or licensed or unlicensed, Americans are looking for, and finding where to place their next bet.

Games Americans Gamble On

For where these bets get placed, let’s look at a general overview of the types of games available.

Here is just a brief excerpt of the wide variety of events and games Americans bet on. The list could be many times this size and the stakes on each of these vary widely, from pennies to over a million dollars per bet.

Arcade Betting Games

Arm wrestling tournaments

Awards Show

Baccarat

Backgammon

Bar Trivia Competitions

Bingo

Blackjack

Bowling

Bridge Tournaments

Car Racing

Charity Raffles

Chess Tournaments

Coin-Op Amusements

Craps

Daily Fantasy Leagues

Darts

Dog Racing

Dominoes tournaments

Esports

Fantasy Sports

Fishing Derbies

Golf

Horse Racing

Jai Alai

Keno

Lottery

Online Casinos

Pai Gow Poker

Poker

Pool (Billiards)

Roulette

Rummy

Scratch Cards

Slot Machines

‘Social’ Casino Games

Spades Tournaments

Sports

Sports pools @work

Stock Market

Sweepstakes Cafes

 

 

At the beginning of the article was quoted a song from the famed musical “Guys and Dolls”. That musical shows the vibrant world of Illegal New York City gambling in the 1940s and 1950s. While featuring dice games it also shows us a character of Sky Masterson who is famous for his willingness to bet on anything. While only a fictional character, there is much to be revealed about Americans view of gambling in this musical.

Is it legal?

I recently compared whether gambling was legal to Schrödinger’s cat. Schrödinger’s cat is a thought experiment about quantum physics posed by Erwin Schrödinger posing that a cat in a box is simultaneously both alive and dead. Until the box is opened, the state of the cat is unknown. And as with the cat, there are still areas where the rule of law has not defined as gambling or specified if certain wagering is legal. Thus, the state is unknown. We will continue to see legislation and court cases to further define this. One thought to keep in mind is that in the USA, activities are legal until a law or court defines it otherwise.

Many variations of real money gaming exist in the USA. Ultimately, legality is for the legislature and the courts with gambling generally falling into 3 areas.

  1. Legal as legislated or ruled by a court   [     LEGAL LEGISLATED          ]
  2. Legal as it is not legislated to be illegal [     LEGAL UN-LEGISLATED    ]
  3. Illegal as legislated or ruled by a court   [     ILLEGAL LEGISLATED     ]

There is no 4th option of illegal as unlegislated as generally, if there is no law against it, then it is legal and #2 would apply. Note there are some laws that restrict gambling that are not specific to gambling. When determining if law exists to restrict, a search expands to money transfer, money accounts, and some fraud-based laws. This is where the gray areas begin.

Some legislatures and licensed gaming entities call Unlegislated gambling the “gray” market. While a descriptive term and one we will reference, this does not mean that it falls into the Illegal category. It’s undefined which has some uneasiness to it and waits for further definition.

Legislated Legal

Most states have legislation about gambling whether it be solely for charity or all-encompassing for all types of wagers and gambling. Typical laws specify a jurisdiction such as a state, county, city, or Indian reservation. Legislation also typically involves licensing and regulation which we will address later.

Legislated Illegal

Some states like Utah and Alabama have gambling restricted in their state constitutions. Many states address it with statues and revised code. New bills get introduced every year that address gambling in some form moving it into the legislated legal or illegal buckets.

Unlegislated Legal

This is the most controversial category and one that continues to be adjudicated in multiple states. Many games have started here including Skill based, Sweepstakes, and Daily Fantasy Sports. Forms of these are now legislated legal or illegal by several states.

It’s Legislated!

Legislation exists at the federal, state, and municipal level. At the federal level, the laws address interstate activities and activities deemed illegal by the states. Here are the major federal legislations that apply to gambling in the USA.

The Federal Wire Act 1961 (FWA)

Prohibits the transmission of bets or wagers across state lines. However, legal interpretation has been debated and litigated. In 2011, the DOJ’s Office of Legal Counsel reversed a 2002 position stating that the Wire Act applies only to sports betting. This position was again reversed in 2018, with the DOJ declaring that the Act’s prohibitions are not limited to sports gambling and apply to any form of gambling. The 5th Circuit Court of Appeals ruled in 2020 that the Wire Act only applies to sports betting, contradicting the DOJ’s interpretation. Various legal cases are still working through the courts today and the full status of the FWA will not likely be resolved without intervention by Congress or the Supreme Court.

 

Interstate Transportation of Wagering Paraphernalia Act 1961 (ITWPA)

Also known as the “Wire Wager Act,” is a federal law enacted in 1961 to prohibit the interstate transportation of wagering paraphernalia, such as betting slips, records, or devices, used for illegal gambling activities. The law’s primary aim is to curb the spread of organized crime and gambling across state lines.

Organized Crime Control Act of 1970 (Illegal Gambling Business Act – IGBA)

Established 18 U.S. Code § 1955 which prohibits illegal gambling businesses in the USA. Title 18, Section 1955 prohibits illegal gambling operations. Specifically, it makes it a federal crime to conduct, finance, manage, supervise, or direct an “illegal gambling business” across state or national borders. It does not apply to state authorized gambling, tribal gambling, or certain social/charitable gaming as allowed by the states. An illegal gambling business is defined very broadly by the IGBA as an operation violating state or local gambling laws AND meeting one of two thresholds:

  1. Five or more people working together conducting the gambling operation.
  2. Gross revenue exceeding $2,000 in a single day.

A specific point of Section 1955 is that to apply, gambling must first violate a state or local gambling law. This adds to enforcement but does not address what is or is not illegal gambling which is a state-by-state determination.

Indian Gaming Regulatory Act 1988 (IGRA)

Created legal framework for tribal gaming and a three-tiered classification system for legal gaming activities, with Class I games being traditional forms of Indian gaming, Class II games being bingo and certain card games, and Class III games being all other forms of gaming, including casino games. The IGRA established the National Indian Gaming Commission (NIGC) to oversee and regulate tribal gaming activities. What started as a way for Self-Determination for tribal nations has grown into a $40+ billion industry and in aggregate a major employer in the USA.

Professional and Amateur Sports Protection Act 1992 (PASPA)

PASPA, also known as the Bradley Act, was aimed at protecting the integrity of sports by prohibiting states from sponsoring, operating, advertising, promoting, licensing, or authorizing sports gambling. Nevada, Oregon, Delaware, and Montana were exempted to varying extents. PASPA was overturned by the Supreme Court on May 14, 2018, opening the way for state-by-state legalization and regulation of online and on-land sports betting. At the end of 2023, over 30 states have some form of legalized sports betting.

Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA)

Prohibits any person engaged in the business of betting or wagering from knowingly accepting payments in connection with the participation of another person in unlawful Internet gambling. The UIGEA also requires certain payment systems to establish policies and procedures that are reasonably designed to identify, block, and prevent restricted transactions. UIGEA is targeted at financial institutions and gaming operators. Restricted transactions are only those that are legislated illegal by a federal or state act. Bank of America and Fidelity National are financial institutions that have had complaints and settled. Operators that have been targeted include Full Tilt Poker, PokerStars, and Betfair.

State laws

We would increase the size of this article exponentially with all the state laws. Nevada and New Jersey are known for the original legalized gambling with Las Vegas and Atlantic City as gambling destinations. Some states such as Delaware and Montana have had limited forms of legalized gambling for many years. Today almost every state has some form of legalized gambling except Utah and Hawaii. And even in those states, the debate around skill-based gaming and some charitable gaming continues.

Compliance: Regulated vs Unregulated

Once a game is grouped into legal or illegal, we step into the regulated vs unregulated determination.

Games that fall under gaming legislation must comply with regulatory standards established by state or local regulatory bodies. Each U.S. state and tribe with gaming includes a department that is the designated oversight body for enacting and upholding gaming integrity. These organized entities establish and enforce rules that regulated gaming vendors and venues must follow to conduct legal gambling activities.

A fundamental standard imposed through gaming legislation is that each game provides a genuinely fair and transparent chance of winning. Not all games do either by design or by error. For example, I reviewed a game that covertly changed odds based on recent wins and losses. After notable payouts, it secretly reduced player odds temporarily to lower short-term rewards. And during dry spells lacking payouts, it secretly boosted odds for a period to increase wins. While payouts appeared evenly distributed over time, the odds fluctuations disadvantaged players by lacking consistency in their true chances. This also ensured no hot streaks occurred causing losses to the casino. Changing odds or pay tables during game play is not allowed in regulated jurisdictions. When regulated, individual game odds, rules, and payout structures undergo scrutiny and testing to identify and prevent the possibility of internal manipulation or deceit that could prey on players.

This scrutiny and testing also verifies that no errors in software code or hardware issues affect the player. 3rd party, independent test lab verification is required in most jurisdictions.

In addition to protecting game fairness, regulations outline basic gameplay and financial expectations related to purchases, bets, wins, losses, and payouts involved with gambling transactions. For example, gameplay regulations ensure that if a player exchanges cash on hand for four credits applicable to a specific game, that game must in turn allow the full utilization of those purchased credits. Regulations also cover monitoring for financial accountability and technical compliance across a gaming operation. There are many Anti-Money Laundering (AML) and Counter Terrorist Financing (CTF) laws and regulations they assist in enforcing.

Legislative oversight and mandatory standards exist because, historically, some games and organizations have not always upheld ethical operations in the absence of monitoring and enforcement. Errors in game rules and technical design issues can also affect fairness. State gaming regulations aim to foster integrity, transparency, and stability in gaming ecosystems through their compliance efforts.

There are Independent Testing Labs (ITLs) such as BMM and GLI that will review games, game rules, hardware, software, and anything that may affect the outcome of the game. Reports are issued against the regulations of a specific jurisdiction as to whether a game passes or fails compliance. As each gaming jurisdiction has its own set of standards, what passes for one jurisdiction may not pass for another. And indeed, some jurisdiction rules are contrary forcing vendors to have different rules and games for different jurisdictions.

In the realm of legal, unregulated games, the principles of fairness and honesty may prevail even without formal oversight. The integrity or fairness of these games often becomes self-evident over time. New players may need to take a caveat lusor (“let the player beware”) stance though over time, it will become self-evident players if the game is fair or the operator has integrity.

Venue reputations hinge on the perception of their games’ fairness; therefore, operators inherently understand that deceitful practices can quickly tarnish their standing. Although new and casual players may not immediately recognize unfairness in games, seasoned players—the cornerstone clientele who contribute most to the business’s revenue—have a keen sense for when a game does not offer genuine chances of winning. These players, through their continued patronage or lack thereof, may effectively regulate a market over time.

Games perceived as unfair are naturally eschewed, losing their place in the market swiftly. This natural selection in the gaming world operates beyond the bounds of regulatory frameworks. There is a tradeoff here that the reduced government and individual responsibility groups argue and ultimately is a political decision to be made by each city, state, and tribal administration.

Regulated

Unregulated

Regulated gaming is almost always found in legal-legislated jurisdictions. The form of regulation is in the law or statute though it typically requires the games and gaming devices be tested by a lab to prove their integrity and are fair and honest to the player.

Almost all regulated gaming is licensed and includes some form of gaming tax and responsible gaming policy

Unregulated gaming has no restrictions or fairness certification for the games. The fairness is vouched for by the venue or site hosting the games.

Almost all unregulated gaming does not require a license and has no gaming tax.

Most unregulated gaming also does not support responsible gaming policies

Tax vs Untaxed

Another issue to be reviewed is the argument of taxed vs untaxed. Gaming tax is the method jurisdictions use to support the regulation and oversite of the games and operators. Gaming tax also pays for responsible gaming which helps prevent gambling addiction and supports recovery for affected individuals.

[add responsible gaming section?]

“Taxed” vs “Untaxed” is not as clear cut as most US companies pay taxes in the form of state corporation taxes, business license taxes, sales & use tax, and income tax. Taxes are a valid issue for debate though outside the scope of this article.

Though we will outline that there are foreign entities that allow Americans to gamble online with their sites. These entities are outside US borders and typically pay no US tax. This form of online gaming falls into the illegal bucket though as mentioned. There are issues with these sites advertising on US websites and soliciting players. And as stated before, Americans will look anywhere for their next wager, deal, or spin.

Take a chance on me [cue ABBA song here]

Games of Chance are gambling, and Games of Skill are not. Well, we wish it was that simple.

We all love to dream of being #1 at a sport or competition. However, we all can’t play golf like Tiger, basketball like Jordan, or football like Tom. Skill based sports like poker have top notch athletes like Johnny Moss or Phil Hellmuth. Pursuing the types of skills these gentlemen have may not win you huge fortunes though it could make you better than the person next to you. In head-to-head skill-based betting, this is what’s at stake, being faster or better than your opponent(s). Competing directly against another person based on skills for a personal wager is legal in many states. Though some have created house-backed skill gaming where you are playing against a pre-defined set of skills bringing the gambling question into a gray area in many jurisdictions.

True skill-based gaming is based on a skill a person possesses. While there could be an element of chance, in general, the skill will determine the outcome.

Many games have a clear line between chance and skill though in some games its left to a gray area. Controversy begins here and exists in this gray area.

CHANCE

SKILL

Chance based gaming where the player has a random chance to win.

A slot machine with a random number generator is a good example.

Skill based is where a type of skill the player exhibits predominately influences the outcome.

Chess or Poker is a good example

While individual state laws define skill vs chance, there is a widely accepted “Dominant Element Test” to determine whether a game is predominantly skill-based or based on chance. This test evaluates whether skill or chance has a greater influence on the outcome of the game. If skill is the dominant factor, the game may be considered skill-based. If chance predominates, it may be classified as a game of chance, and games of chance are always considered gambling.

 

A “skilled game” must involve the player exercising some action or knowledge that resembles a skill they have. These games range from the claw machines that you maneuver to pick up a prize to some games that closely resemble slot machines you see in casinos. The difference in these “slot machines” is they add one or more skill elements that the player must exercise in addition to spinning wheels.

The extent of the skill being exhibited is subjective in many cases and falls into a gray area of the law. The machines that host these games are sometimes called “Gray Machines” or if online, “Gray Gaming Sites”.

Skill-based games have been banned and made illegal in several states making the difference between skill and chance not applicable. In many states, Skill-based games are neither legalized nor banned under some state laws. It is here that active debate and litigation continues.

SUMMARY

“We Don’t Play Around, It’s A Bet, Lay It Down”

The Notorious B.I.G. 

Gambling in America has a long and complex history, intertwined with changing attitudes, technologies, and laws. From penny slots to poker tournaments, the landscape of gambling has grown vast and varied, encompassing legal outlets like casinos and online platforms alongside gray areas like skill-based games and illegal betting. The legal landscape remains a patchwork of regulations, a dynamic arena where lawmakers and courts continue to delineate the boundaries of legality. Despite the thrill of potential payouts, concerns about fairness, regulation, and responsible play demand attention. As the lines between skill and chance blur, navigating the world of American gambling requires thoughtful analysis and informed choices by both players and policymakers.

Today, legal gambling generates over $100 billion in annual revenue, with Americans wagering over $1 trillion each year across regulated, unregulated, and illegal games of chance and skill. While Sports Betting and Daily Fantasy Sports have prompted many states to address these specifically, the legal status of some games remain unclear in many states. Debate in many states continues around making gambling legal, skill versus chance, licensing and taxation, and the social impacts of gaming.

As Americans pursue the jackpot at the end of the rainbow, it’s clear that gambling is more than a mere pastime—it’s a cultural phenomenon, a barometer of change, reflecting our evolving attitudes towards luck, skill, and the pursuit of happiness. The future promises further expansion, as technological advancements and legislative shifts pave new pathways to play. And so, the American gambler stands at the crossroads of tradition and innovation, law, and liberty—ever ready to place the next bet.

By Mark Munger

Draft 20240123

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