XII. Outlook and Options

It is difficult to forecast what will happen with gambling in California. After years of an almost unbroken string of growing gambling participation and opportunities, two events have intervened to bring the trend to a halt.

• A court case that severely cut back lottery games and threatened to drastically limit Indian casino gaming.
• A moratorium on cardclub expansion.

Added to this is the possible creation of a gaming commission to regulate cardrooms. What effect that might have on the industry is difficult to say.

Another emerging development that may have an impact on California is:

• Federal legislation that would establish a study commission to look at all aspects of gambling.

Gambling may be changing radically for other reasons. Minnesota announced a joint plan to allow gambling at home. Massachusetts also tried a one-year experiment with a telephone lottery system. There is considerable discussion of at home betting on the Internet.¹ Reportedly current Internet gaming operations are quite profitable.² Although illegal in the United States, they are legal in their offshore havens, typically in the Caribbean. If the casinos are outside of the United States it is difficult to prohibit or regulate play. For right now the volume of play is limited because of problems of legality, security and trust.

Nevertheless, there are some successful examples. There is a lottery based in Liechtenstein that is on the World Wide Web. Tickets are purchased with credit cards. It is one example of many that include betting on racing and casino games. Because of the ease of setting up a site the number may grow to thousands soon. In some sense, it is merely an outgrowth of an already existing in-home gambling market through the telephone and cable television. In the United States, it is limited to some off-track betting. Because of the rigorous requirements, it is small.

As gambling seems to find new areas for its growth, airlines have weighed in. British Air is putting gaming machines on their international flights from London to non-U.S. destinations. It is banned on all flights that originate or end at a U.S. destination. The FAA did a study and found that if gambling was offered on foreign carriers only it could be a $500 million market.

Although the extent and types of gambling in and around California may be changing, it is clear that gambling has already made a major presence in the state. Following is a list of options for the state to consider adopting to deal with some of the impacts and issues raised by gambling. These are only options and not recommendations. The California Research Bureau does not develop recommendations, merely options for policy makers.

Options

Research Options

Although this paper covers a lot of material, it is evident that there are many things that are unknown about the impacts of gambling, especially as they relate to California. Major issues related to gambling that need more research include pathological and problem gambling, underage gambling, economic impacts, public finance, and crime. Other states are in a similar situation and have tried to resolve the problem in various ways.

• New Jersey, Oregon, and Maryland have set up Commissions charged with studying the entire issue and making recommendations to the Governor. A commission such as those would not necessarily have to look at whether or not to expand gaming, but attempt to identify the impacts and how best to deal with them. Minnesota has an Advisory Council on Gambling. Its charge is to study the conduct of all forms of gambling in Minnesota and advise the governor and legislature on all aspects of state policy on gambling.

• Michigan had a blue ribbon commission that was entitled, "The Governor's Blue Ribbon Commission on Michigan Gaming." The commission was asked to assess the issue of expanded gaming. The Commission recommended expanding limited gaming. Their logic was that the state was already having to bear the social costs without any of the benefits. The Governor did not agree with their recommendation.

• Since there is a cardroom moratorium in California, such research could look at the arguments over the appropriate policy once the moratorium ends.

• The state could encourage federal studies which address areas of research needs. Such action would be particularly timely given the federal legislation that sets up a research commission.

• The state could conduct a study that discerns the number of pathological gamblers within the state. Many other states with gaming have conducted such studies.

• The Oregon Commission specifically recommended additional research. It was clear to the commission that very little was known about the costs of gambling. In the words of one of the members:

"Right now, we in Oregon do not know if we have created a monster. Nor do we know the real cost of state-run gambling, social and economic. But we do know we are going to pay the price."³

Regulatory Options

This paper discusses the regulatory regimens in different states. There are marked differences between states. At one extreme are Utah and Hawaii, where no gambling is legal. At the other extreme is Nevada, where casino gambling is allowed at many locations throughout the state, but of course still subject to state and local regulation.

• Both examples are options for California. California could remove many of the restrictions on gambling in California or increase the restrictions on gambling.

Most states with as much gambling as California have a greater state regulatory presence, including a gaming commission of some kind. California could increase regulation of gambling several different ways.

• Establish a gaming commission to oversee all types of gambling. The jurisdiction could be as broad as cardrooms, charity gaming, and the lottery. The lottery is already state-operated and regulated. One option would be to establish a separate regulatory body to oversee the operations. The commission could also negotiate to gain some oversight of Indian gaming. Another option would be to limit the commission to cardrooms.

• Such a state gaming commission could preempt or share jurisdiction with the existing regulators of charitable gaming and cardrooms, primarily local governments.

Publicly-traded companies are subject to requirements of both federal law and the listing stock exchange. These requirements for audits can eliminate some of the criminal activity that can occur in connection with gambling establishments. Also, these companies have greater access to funding from banks and other mainstream business sources.

• Eliminate any restrictions on the number of cardrooms that publicly-traded companies can own and operate.

In some sense, California law is less strict than Nevada's. Nevada prohibits all gambling unless specifically authorized. California law allows gambling except when prohibited. As a result, the prohibitions contained in California law can be ineffective as new variants of the prohibited activity are developed. Twenty-one is outlawed, but the game of 22 can be played.

• Make all gambling illegal in California unless specifically authorized. The point is not to prohibit more types of gambling, but to make it easier to enact a prohibition of particular activities. This can also allow for standardization of games which can facilitate enforcement and regulation.

Pathological Gambling

Pathological gambling is a serious medical condition that with the proper intervention can lead to recovery for the individual.

• Ensure that there is available a continuum of services that people with gambling problems can take advantage of.

• Require that all gaming establishments post a 1-800 number for gamblers to call for assistance with gambling problems. The number could also be printed on the back of all lottery tickets. The province of Nova Scotia requires an information sticker on all gaming machines.

• Require all Internet information supplied by gambling interests have a direct link to a site that provides information and help for pathological gambling. If this could not be required of private interests, the state sites, such as for the lottery could have such information. The Florida regulatory agency has this feature. The Minnesota State Lottery has a site that contains information to help individuals make choices about whether or not to gamble, help set guidelines for healthy gambling, and talk with someone about gambling problems.

• Institute public education and awareness programs about problem gambling in schools and elsewhere. Part of the motivation for these programs is that problem gamblers are harder to spot than drug addicts or alcoholics. Other states support such programs.

• Fund treatment programs and/or education for mental health professionals. Iowa, New York, and Texas have supported treatment as does New York. Illinois is spending state funds to train gambling addiction counselors.

• Examine whether unclaimed lottery prizes or a fee on current gambling activities could fund pathological gambling programs.

There is disagreement over how best to help the pathological gambler. There are examples of public policies that have been adopted in other areas.

• Fund pathological gambling treatment programs to allow treatment on demand. This suggests a larger government role, but that may not be the case. If the treatment is successful, then those who use the program could end up paying back the money that goes for funding the program.

• Allow gamblers to sign a pledge that requires a casino to refuse entrance. Options could include play limits, rather than complete banning. Illinois and Missouri have such programs in their casinos.

• Gaming establishments may be more supportive of self exclusion programs if their liability is limited. That is, their liability if they make a mistake and allow an excluded gambler entrance to their premises. Conversely this could reduce the effectiveness of such limitations.

• Ban severe problem gamblers from entering gaming establishments.

• Ban advertising of gambling, including the state lottery. There is a significant chance that such a ban would not be constitutional.

• Ban credit card machines in casinos and gambling establishments. Other similar options would be to require ATMs to take deposits so winnings can be put safely away to discourage further gambling. Another option would be to establish limits on withdrawals from ATMs at gaming facilities.

• Ban gaming establishments from cashing checks, or at least government checks.

• Gaming establishments could follow the lead of Harrah's Casino and establish in-house programs to give services to employees and their families if they suffer from compulsive gambling behavior.

• Gaming establishment employees could be trained to recognize compulsive players, to intervene to stop compulsive play, and to direct players to help services. Such training could be expanded for everyone who sells gambling products, including lottery tickets.

• Require closing of gaming establishments for a few hours during a day to break up binges. This is roughly analogous to requiring bars and liquor stores to not sell during certain hours. The rationale behind the option is that a pathological gambler would be forced by the closing to examine his or her behavior.

• Require checks written by gambling patrons to be deposited as soon as possible. Check writing can be a form of lending if the check is not quickly processed.

• Ensure an adequate budget in the Department of Corrections for treating incarcerated pathological gamblers. The State of Wisconsin spends $500,000 for counseling inmates on gambling problems.⁴

• Don't allow sales of liquor where gambling occurs. This option could apply even to the lottery. In Texas, bars cannot sell lottery tickets.

• Require compulsive gambling education in high schools.

• Ensure that public assistance cannot be accessed at gambling venues through ATMs.

In California, gambling debts cannot be enforced by the courts. There is disagreement over whether this is wise public policy that protects the pathological gambler or poor public policy that encourages loan-sharking.

• Allow gambling debts to be collected.

Economic Development

Gambling facilities are often used to promote economic development.

• Earmark gaming revenues for economic development areas such as enterprise zones. Such a policy would ensure that the money is targeted to those areas that need it.

• Just as Indian casinos have been used for economic development for the tribes, casinos could be allowed in other economically depressed areas.

• Making the minimum age for gambling 21 or older for all kinds of gambling within the state.
• Ensure that there are effective penalties for underage gamblers and the establishments that sell to them, including those that sell lottery tickets.

• Ensure that exclusions lists of known undesirables, petty thieves, and card cheats are shared between jurisdictions.

Indian Gaming

This has been a rapidly growing area without significant state involvement. Some states have increased their say over Indian gaming through state-tribal compacts. The compacts have been agreed to in part because of widespread concern that Indian gambling is not adequately regulated, although tribal leaders disagree.

• Enter into compacts and ensure Indian tribes address such issues as minimum gambling ages and revenue sharing.

• Prohibit sales of alcohol where there is gambling.

• Enter into a compact with Indian tribes to provide for a state regulatory role in Indian gaming.

• Petition the federal government to improve regulation of Indian gaming, including compilation and release of industry statistics.

• Negotiate voluntary revenue sharing agreements with Nevada. In that Nevada may be less than excited about sharing money, negotiations would probably have to be backed with the threat of casino legalization in California. One option would be to allow intercept casinos within a specific geographic zone, such as within 30 miles of the Nevada border and within 30 miles of a Nevada casino.
• Withhold lottery prizes for more than child support and delinquent taxes. Other states will withhold prizes for compliance with a judicial order or any moneys owed to city, county, state or federal governments.

Lottery Advertising

There is controversy over how lotteries advertise. Critics charge that the advertisements are misleading, suggesting that the lottery is an easy path to riches and promotes a society that believes that you can get something for nothing. Some states have tried to regulate the content of advertisements, the most recent being New York which makes its advertisements portray winners more honestly. It should be pointed out that advertising does help sales which in turn provides funds for California public education.

• Require the California State Lottery to advertise more typical winners than people who win millions.

• Require lottery ads, like those for prizes, show the odds of winning the advertised prize. Wisconsin requires the odds to be shown.

• Prohibit lottery advertising altogether.

• Limit lottery advertising to that which doesn't induce people to play. Wisconsin doesn't run promotional adds, but limits ads to those that are purely informational about how to play the games and what the top prize happens to be.

Recent court cases and Attorney General opinions have sharply reduced the ability of the lottery to raise money.

• Allow the lottery to run banked games and slot machines.

• Allow the lottery to open a casino with profits earmarked for the same worthy cause as presently supported by the California State Lottery.

• Allow private lotteries.

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