The Legal History of American Gambling, Part 1
April 17, 2026
In some ways it is easy to talk about the development of commercial gambling in America. For starters, one need not be shy to mention the monetary incentives at play. Clearly casinos must make their business profitable within the confines of their specific permissions to operate laid down by government. These permissions ground the various battles for and against laws that either hurt or help their bottom line. R&D heavily focuses on the projected impact of this or that legislation on the different factions within the gambling industry. For example, much research was once devoted to the impact of iGaming’s legalization on the traditional casinos (cannibalization, competition, or the casino’s last hope?). Government, for its part, is concerned about the level of economic development that gambling legislation could bring (jobs, tourism, infrastructure, etc.), and the potential for tax revenue from the schemes authorized by said legislation. To sum up, the history of commercial gambling is a simple story of its legislation and the moneyed interests behind that. We will get to that in a moment, but one might consider the more obscure elements of the story, which concern the broader societal impact of legal gambling.
A journalist for the Atlantic referred to Chesterton’s fence when considering these obscure consequences of legalization. The thought goes:
"Two people encounter a fence erected across a road. One of them demands that it be torn down; the wiser of the two responds that they should find out why it was put there in the first place before deciding on a course of action."
Strikingly, America followed that hasty, even base instinct of “tearing down the fence,” and the gambling industry’s meteoric rise for the past 50 years followed. In 1978, just two cities, Atlantic City and Las Vegas, had casinos. Since then, over 1000 casinos have sprung up in 44 of the United States, 32 states have permitted online sports betting anywhere within their borders, and trading in online prediction markets is permitted in all 50 states to people 18 and up. In the spirit of Chesterton’s fence, one may ask: has America prohibited gambling for most of its history, for a good reason?
In 1978 no explicit federal law prohibited states from authorizing the building of casinos and regulating the practice of gambling. It was just that at that time, Nevada and New Jersey were the only places willing to try funding their governments through this scheme. At the time, other states thought it wise to fund themselves by more reliable means. Financial analysts claim to, “find that the best predictors of U.S. casino revenues are projected gross domestic product (GDP) and personal consumption expenditures (PCE).” In other words, casinos are fighting for a piece of the limited gambler pie, whose size tends to ebb and flow with the economy as a whole. Ironically, while the wisdom of seeking a more reliable means of funding was heeded, the few cities where gambling was allowed prospered heavily. Attracting all the gamblers looking for live gaming on their respective coasts, Atlantic City and Nevada turned huge profits by attracting gamblers from the neighboring states: a major reason for the deep association between hotels and casinos in our mind. In turn, these states saw overflowing budgets with revenue from licensing fees and gaming taxes. Atlantic City’s revenues went up each year without exception, peaking in 2006.
Around this time, neighboring states began envying New Jersey’s success. As a journalist in the New Yorker put it:
"[In 2006], the first casino in Pennsylvania opened. The state had long been a lucrative market for Atlantic City, which lies just sixty miles southeast of the Pennsylvania border. For decades, Pennsylvania’s leaders had watched with frustration as residents drove across the state line to wager an estimated billion dollars or more a year, contributing millions in tax dollars annually to New Jersey. Finally, in 2004, Pennsylvania authorized fourteen casino licenses (twelve have so far been awarded) in locations concentrated along the state’s eastern and western borders. By the end of 2007, the first full year Pennsylvania casinos were in operation, they had taken in a billion dollars and paid four hundred and seventy-three million dollars in taxes to the state. Atlantic City, meanwhile, experienced its first-ever decline, a drop of nearly six per cent."
Here enters what that same article calls the oversaturation of the casino industry. As more competitors bite into that limited pie of gamblers, the casino’s struggle for survival becomes more aggravated. And more did. From that point Indian casinos and other states followed New Jersey’s and Pennsylvania’s lead. One may remember that prior to the introduction of a commercial gambling industry, the activity was managed by the organized crime syndicates. The criminal gangs were well aware of the threats that oversaturation presented to their business and protected their territory with, often, brutal force. Those operating a gambling scheme that was unauthorized by the gang in power would pay the highest price.
In the next part, we will discuss the problem of oversaturation in the commercial gambling industry in more detail and draw out its link to the rapid spread of online gambling. See you then!
By Yanis Azzou, Library Assistant
