'Gangsters to Governors' is a nuanced history of American gambling

12 February 2018

By Clare Fitzgerald

Covering gambling news on the day-to-day, I sometimes feel like the industry doesn't change nearly fast enough. It's been almost seven years since Black Friday, and only three U.S. states — Nevada, New Jersey and Delaware — offer regulated online poker. (Soon to be four, thanks to Pennsylvania, but not soon enough.) Some states, like California, seem to bang their head against the same wall every year and get nowhere. And of course, we're all biting our nails waiting to see what the Supreme Court decides about PASPA, and when they'll get around to deciding if legalized sports betting could actually become reality in the U.S.

But, despite all of the above, it's actually quite a rapidly changing industry. It's worth it, every now and again, to look back at how we got where we are and appreciate just how much batty stuff has happened over the course of gambling's establishment as a legitimate entertainment industry.

Enter David Clary's Gangsters to Governors: The New Bosses of Gambling in America, which was published in October from Rutgers University Press. Clocking in at about 250 pages (plus a lot of notes), this new history of American gambling focuses first on how gaming fell under the control of crime syndicates, and then on how the state drove those elements out, turning control of the industry over to "clean" private corporations, Indian nations and the states themselves. Clary also provides a nuanced, even-handed analysis of the pros and cons of states' use of gaming revenues to balance their budgets.

Gangsters to Governors has an excellent hook, kicking off with an eminently readable prologue titled "Bad Bet: New Jersey and the Revel Atlantic City Fiasco." The Revel fiasco is a case study in modern legalized gaming at its worst: It overpromised and underdelivered, showing that entire states are just as likely as individual people to fall for wishful thinking about "silver bullets" that will revitalize decaying cities, fund social services without raising taxes, and provide thousands of jobs soaking up the disposable income of America's middle class. Add in Superstorm Sandy, which struck the New Jersey coastline just six months after the $2.4 billion Revel opened its doors, and several cameos by once-popular former Governor Chris Christie, who just left office with an approval rating of 15%, and you have a prologue that does a very good job of getting the reader wondering, How did we end up in this state of affairs? Why did we legalize gambling anyway? Why isn't it working?

If you already know a little gambling history, or you like watching movies, you probably know that the short answer to the second question is "the Mafia." Part One of the book, "Dens of Thieves: Government Muscles Out the Mob" gives us fuller answers. There's a chapter dedicated to horse racing, which covers the careers of 19th-century thugs like John Morrissey, bare-knuckle boxer and founder of Saratoga Race Course, and how developments in communications technology allowed organized crime syndicates to build business empires on the "race wire." Another chapter is dedicated to the sordid, colorful history of lotteries and their accompanying scams, including the epic rise and fall of the Louisiana State Lottery Company, a legal but deeply corrupt swindle whose misbehavior eventually prompted Congress to ban interstate transport of lottery tickets.

These are followed by four chapters about Nevada, from its humble beginning as a saloon-riddled silver mining territory to its current status as a business-friendly tourism hub. Gambling was legalized in Nevada in 1869, just five years after it became a state — but this wasn’t really the beginning of the Nevada we know, because it was banned again in 1909. When the ban was lifted during the Great Depression — along with the establishment of Nevada’s “quickie divorce” rules — Nevada’s gambling tourism industry was born, with a county- and city-based regulatory framework that would prove completely inadequate to contain the influence of organized crime.

Reno was supposed to be the big gambling hub in the state, so the development of Las Vegas happened sort of by accident. Reno did see the earliest proper casinos in the region: It drew the attention of the carnival barker Pappy Smith, the first in a long line of incredibly colorful personalities that would make their mark on Nevada’s casino industry. After Smith, Clary introduces us to a bunch of other weirdos with such familiar names as Bill Harrah, Howard Hughes and Benny Binion. We also meet lesser-known figures like Billy Wilkerson, the Hollywood hotshot who started building the Flamingo Las Vegas in order to control his gambling addiction (spoiler: it didn’t work), and who eventually ended up losing control of the project to Bugsy Siegel and the Chicago mob.

One major thread in the succumbing of Las Vegas to almost total mob control was the disreputability of gambling as an institution, even though it was legal. Banks wouldn’t make loans to regular development companies, forcing luxury-loving entrepreneurs with dreams of casino moguldom to find other sources of financing for their projects. The Mafias were conveniently poised to offer it, having become wealthy and powerful during the Prohibition years and having intelligently diversified their business interests following Prohibition’s repeal. Several Las Vegas resort projects were financed by the pension fund of the International Brotherhood of Teamsters, the postwar U.S.’s most powerful labor union — and one with a long history of corruption and Mafia infiltration. Now, I am a big nerd, and I like reading about financial shenanigans that other people may find a bit dense and bloodless, but I can assure you that Clary hits a pretty good balance between combing through decades-old financial data and telling fun-for-normal-people stories about mobsters and their misbehavior.

Anyway, Jimmy Hoffa spent a bunch of the union workers’ pension money building casinos, which seems to also be where a lot of workers’ pension money goes after it gets paid out to them. Eventually, the federal government noticed. In the early ‘50s, Senator Estes Kefauver (D – Tennessee) formed a Special Committee to look into the influence of organized crime in interstate commerce. The Kefauver Committee hearings were apparently the first big set of salacious Senate committee hearings to happen since television became popular, and everyone watched them, learning about the widespread influence of organized crime in American life in the process. It was like a dress rehearsal for Watergate. FBI Director J. Edgar Hoover was not happy. In the late ‘50s, the McClellan Committee did basically the same thing all over again, this time starring Attorney General Robert Kennedy. J. Edgar Hoover wasn’t happy this time around either. Despite the information uncovered by these two committees, it would take well into the ‘60s for Las Vegas to even start prying itself loose from the iron grip of the mob.

Howard Hughes was the first big corporate guy to take over a Las Vegas casino, which he did by working quite closely with the same Mafia figures that were running everything. They might not have been so quick to let Hughes buy up so much land in Vegas if they knew that he would kick off an era of respectable corporate investment and they’d eventually get forced out by legitimate business tycoons like Kirk Kirkorian and Sheldon Adelson.

Not that the legitimate guys are any less colorful than their Mafioso predecessors. Hughes might take the prize for being the most eccentric of the new generation of casino titans, being a hypochondriac and a compulsive property-buyer, but the rest of them aren’t exactly quietly businesslike professionals either. (One of the things that’s already out of date in this recently published book is the glowing profile of Steve Wynn, which read perfectly fine up until two weeks ago and is suddenly very awkward.)

It’s a little odd that the government’s efforts to clean up Mafia control of the city are, in this telling at least, given skimpy coverage compared to the small tweak in financing laws that allowed the corporate guys to take a better stab at grabbing market share from the criminal enterprises. (If you’re interested specifically in the federal government’s operation to root out corruption in the Nevada Gaming Control Board, which did exist, I recommend Hit Me!: Fighting the Las Vegas Mob by the Numbers.) Clary does do an excellent job of showcasing how much the switch from Mafia-dominated Vegas to corporate-dominated Vegas wasn’t as much of a clean break as the respectable businessmen would like you to think it is.

This brings us to Part Two of the book, “All In: The New Masters of Gambling.” I was initially worried that this part would be boring compared to the first half, since there are no mobsters in it, and mobsters are as a rule more interesting than everybody else. But I needn’t have feared; it turns out that state legislatures, Indian nations and the internet are all more than capable of being aggressively dysfunctional and filled with colorful characters.

There’s a chapter on Atlantic City, basically providing the background to the book’s prologue, which is thus: Atlantic City did good for a couple years during Prohibition (because of… mobsters, as usual), and has been a slow-motion trainwreck ever since. Now-president Donald Trump’s tenure as the world’s most inept casino operator is barely a speedbump — or perhaps more properly, a pothole — in Atlantic City’s long and winding road off a financial cliff.

Atlantic City’s extremely brief boom period as the only legal gambling spot on the East Coast inspired a bunch of other states to expand gambling, and it also inspired long-impoverished Native American nations to claim the newly expanding industry for themselves as a form of economic development. The first tribe to really take on a state government for the right to operate a casino was the reconstituted Mashantucket Pequot tribe, whose reservation had at one point dwindled down to a population of one. Upon that one resident’s death, her relatives moved to claim the land before the tribe was declared nonexistent, and one enterprising grandson started the chain of events that would eventually result in Foxwoods Resort Casino. Today, the once enormously profitable Foxwoods is facing many of the same pressures as other commercial and Indian casinos alike: market saturation, the aftereffects of the Great Recession, and constant regulatory changes that precipitate endless runs of lawsuits. For Indian nations, the complexities involved with their semi-sovereign statuses lead to lengthy negotiations with state and federal governments and regulatory agencies, which never seem to be settled to anyone’s satisfaction for any great length of time.

On top of the years of Indian and commercial gaming expansion — and the accompanying volatile influx of revenues to the states, mirroring the legalization of lotteries decades before — an entirely new form of gambling popped up in the early years of the 21st century: online gaming, an untaxed, unregulated, dubiously legal form of gambling run almost entirely by small offshore companies outside the U.S., but which attracted huge numbers of U.S. players. The phrase Clary uses to describe the U.S. federal government's approach to handling online gaming is “deeply conflicted,” which is more nuanced than the term most often employed around the Casino City offices, “stupid.”

The chapter on online gaming, not surprisingly, is focused mostly on poker, and especially online poker’s effect on live poker throughout the Moneymaker boom. Clary deftly illustrates the roots of the federal government’s nonsensically hostile attitude to online poker, which he traces to the crime-controlled horse racing business of almost a century earlier that he outlined in earlier chapters, in addition to documenting the efforts of influential anti-online-gambling activists like Sheldon Adelson. He also chronicles the efforts of more online-gambling-friendly politicians such as Assistant Attorney General Virginia Seitz, who authored the 2011 reinterpretation of the Wire Act, and Nevada Governor Brian Sandoval to chart a more reasonable course.

There is one form of gambling that is legal in even fewer states than online poker: sports betting. The last full chapter of the book is, by necessity, the most chaotic, but it does a pretty good job of disambiguating the tangled mess of legal constructs that define the U.S. sports betting scene: legal bookmaking in Nevada, the media reach of which extends far beyond the borders of the state; the multi-billion-dollar illegal sports betting market, a pot of money that could rival lottery revenues if states decide they want a piece of it; the spectacular rise and fall of daily fantasy sports; Quicken Loans’ data mining operation disguised as a free-to-enter NCAA bracket back in 2014. The unmistakable takeaway from this chapter is that, despite all the headaches and the overly rosy revenue projections that have plagued every other form of gambling legalization, the current state of sports betting prohibition is deeply dysfunctional and cannot be sustained for long.

But legal gambling, too, has its dysfunctions. Clary’s epilogue is dedicated to exploring problem gambling, and whether the industry is doing enough to combat it. The existence of problem gambling is something anti-gambling advocates have traditionally used to oppose gambling legalization; the rejoinder to this is that banning gambling doesn’t stop it, and driving gambling underground and into the arms of criminal operators isn’t going to get anybody any help. But with casinos no longer hidden away and states dependent on the revenue they bring in, Clary insists it’s necessary to ask the awkward questions: Does openly having more casinos around make it harder for problem gamblers to avoid gambling? Are states incentivized to exploit problem gamblers rather than get them help, in order to keep revenues coming in? Is it unethical for state-run gambling operations, such as lotteries, to advertise to drive up revenues—or to target advertisements at poorer residents? How much of a responsibility do casinos themselves have to identify and fight problem gambling? How much responsibility do state gaming control boards have? State legislatures?

Clary’s argument is that states have become addicted to the revenue from legal gambling, even when that revenue isn’t as much as projected, and that this addiction causes new problems that states need to solve. He doesn’t argue that gambling shouldn’t be legal — then we’d just go back to having the old problems with organized crime and lack of consumer protections. But using gambling revenue in lieu of taxes to fund public services means that it is now in states’ best interest to encourage residents to lose money — and to lose a lot of it.

It’s a convincing argument, and without getting into the question of whether taxation is theft or the price we pay for civilization, it’s undeniable that gambling addiction exists and tax-paying addiction probably doesn’t. It’s up to citizens to hold the gaming industry and state legislatures accountable for protecting the vulnerable and to demand transparent, ethical regulations for further legalization efforts.

Deeply researched, easily readable and highly engaging, Gangsters to Governors is an excellent read for fans of gambling and of American business and political history.