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|It’s fall, and an American’s fancy lightly turns to thoughts of betting on the N.F.L. It is, of course, illegal to bet on sports in the U.S., unless you’re in Nevada, but in the past five years many Americans have started using the Internet to bet with bookmakers in countries that permit sports betting. This has turned online sports betting into a huge industry; last year, Americans placed an estimated six billion dollars in online bets. But two months ago F.B.I. agents arrested David Carruthers, the C.E.O. of the British bookmaker Betonsports.com, while he was changing planes in Texas, and, after he was charged with racketeering, conspiracy, and fraud, the company announced that it would no longer do business with American bettors. Two weeks ago, police arrested the chairman of another British bookmaker, Sportingbet.com, when he touched down in New York. And in July the House of Representatives passed a bill explicitly banning online gambling and prohibiting American banks from sending their customers’ money to bookmakers. Suddenly, the local candy-store bookie is starting to look a lot better.
The members of Congress behind the House bill framed it as a sensible response to a “mushrooming epidemic” of underage gambling and a burgeoning “national-security problem” (since some Internet bookies are allegedly terrorist fronts). But it’s really just the latest chapter in America’s love-hate relationship with gambling. Americans have been avid gamblers from the start—Jamestown itself was funded via a lottery, and the nineteenth century saw a boom in gambling on cards and horses—but a powerful puritanical streak has led to periodic clampdowns. Lotteries, though legal in all thirteen colonies, had become illegal by the end of the nineteenth century, only to be resurrected in the nineteen-sixties. Similarly, at the start of the twentieth century Progressive politicians, decrying betting as a “source of misery and vice,” shut down nearly every racetrack in the nation. But, two decades later, states desperate for revenue reopened the tracks, and found a huge audience. And today, while sports betting may be illegal, the laws are typically underenforced. The daily point spreads printed in most newspapers testify to the ubiquity of gambling, and, vociferously as the N.F.L. and the N.C.A.A. oppose gambling, they also owe a great deal of their popularity to it.
Such schizophrenic thinking has become institutionalized, so that, even as Americans are prevented from getting a bet down on the Giants-Cowboys game, they’re encouraged to play blackjack and buy lottery tickets. Forty-eight of the fifty states now have some form of gambling. Thirty-eight states have lotteries, which yielded sixteen billion dollars in revenue for state governments last year. There are nearly nine hundred casinos, which generate five billion dollars a year in tax revenue. In South Dakota, taxes on gambling account for nearly fifteen per cent of the state’s revenue, while Connecticut gets close to four hundred million dollars a year from the slot machines at the Foxwoods and Mohegan Sun casinos. And not all sports betting is unacceptable: the House bill includes an exception for the $15-billion racetrack-betting industry.
Incoherent public policy is nothing new in Washington, of course. But our crazy-quilt approach to gambling leads to a raft of perverse consequences. In the first place, it means that the worst forms of gambling—from an economic perspective—are legal in most of the country, while a better form is outlawed. Lotteries and most casino games are games of pure chance; the house has an ineradicable advantage and, over time, the inevitable outcome is that gamblers lose. Mathematically speaking, as the saying goes, no one wins the lottery. Sports betting, by contrast, involves skill, and it is possible, although very difficult, to consistently win money on it. Sports bettors are closer to stock or commodities buyers than to people who buy lottery tickets. How much difference is there, after all, between betting on the future price of wheat (an activity banned in some states in the nineteenth century) and betting on the performance of a baseball team?
Furthermore, the ban on online betting is hindering the development of new markets that could predict far more important outcomes than that of the N.B.A. finals. In the past few years, a host of prediction markets, as they’re usually called, have appeared online, offering people the chance to speculate on subjects ranging from the box-office performance of Hollywood films to the outcome of Presidential elections and the spread of bird flu. These markets’ forecasts have proved remarkably accurate—just as bettors collectively do an exceptionally good job of predicting sports results. (In 2004, for instance, Tradesports, a Dublin-based prediction market, called thirty-three out of thirty-four races in the Senate correctly, and called all fifty states correctly in the results for the electoral college.) But in the U.S. these markets have to use play money, because using real money would constitute gambling. The online gambling ban prevents these markets from getting bigger and more accurate.
That might seem an acceptable cost if the war on Internet betting looked set to accomplish its goals. Instead, it’s likely to make the problems it was designed to solve worse. Online bookmakers have been portrayed as shady operators, but the biggest of them are far more transparent and easy to regulate than illegal bookies, many of whom have ties to organized crime. David Carruthers, before he was arrested, had been actively calling for the regulation of his industry. Congress may think that driving bettors back underground can curb underage gambling and money laundering, but don’t bet on it.