by a generally law-abiding populace. Powerful machine politicians skillfully exploited the sentiments of different sections of the public. Generally, rural areas were intolerant of gambling. Urban areas, characterized by a new mix of peoples and religions, were tolerant. A movement to legalize gambling in Chicago, San Francisco, New Orleans, New York, or any other city in the late 19th century would have been roundly defeated, not only because of the underlying social and moral taboos still attached to the activity, but because it would have meant a possible end to the lucrative pipeline of payoffs to police and lawmakers.

The level of public tolerance toward all forms of gambling peaked in the 19th century. Various antigambling reform groups were active around the country at the turn of the century. In the early 1900's the constant harassment of gamblers by police during a fairly sustained reform movement in Chicago forced many gambling houses and policy and bookmaking operations to close. Those that remained operated more discreetly. Elsewhere, reformers succeeded in closing down racetracks in many States. By 1915, only seven States continued to allow racing. The reform momentum was relatively short lived, however. Ultimately the demand for gambling services succeeded in outstripping the reformers' ability to reform. But for the reformers there was a consolation prize in another area of public morals: the 18th amendment to the Constitution, which prohibited the manufacture, sale, and distribution of alcoholic beverages.

The Prohibition Era and Afterwards

Although gambling syndicates existed before 1920, it was during the prohibition era that the criminal underworld acquired a tight organizational structure.“ Much of the credit for this accomplishment has been assigned to Arnold Rothstein, a New York gambler born in 1882.

Basically, he transformed the world of crime from an anarchic into an authoritarian state. He gathered the loose, single strands of crime and wove them into a tapestry. He took the various elements that were needed to change crime from petty larceny into big business and fused them. The end result was a machine that runs smoothly today.

Rothstein is also noted for having invented the intercity layoff system that insured bookmakers against heavy losses and thus provided the foundation for a nationwide gambling apparatus.

After Rothstein came a parade of underworld figures whose lives and exploits have been extensively documented in film and literature. From the profits of their bootlegging and gambling endeavors, figures such as Al Capone, Frank Costello, Bugsy Siegal, and Dutch Schultz built powerful criminal organizations that still exist today. Organized crime leaders today are less ostentatious than their predecessors. They have not abandoned the use of violence, and in fact rely heavily on the threat of violence to accomplish their goals. But they are generally

more discreet in their numerous business dealings, more eager to avoid publicity, and considerably less blatant in their relationship to city and State politics. Local politicians no longer turn out en masse for gangland funerals. Responsible for these changes are stronger State and Federal laws and enforcement efforts and a citizenry less tolerant of overt gangland transgressions than in the past. Revelations produced by the Kefauver investigation in 1950 and the McClellan hearings in 1963-642 focused national attention on the outrageous criminal activities of the underworld and stimulated more vigorous attempts at reform.

These efforts had some success. They resulted in the passage of a series of Federal laws (see chapter 2) which proved effective in eliminating illegal slot machines from stores and restaurants across the country and in closing illegal casinos, including those that were operating in resort areas such as Newport and Covington, Kentucky, and Hot Springs, Arkansas, and on Florida's Gold Coast, and in eliminating the walk-in bookie joints that existed in many cities. With the illegal casino and slot machine business virtually eliminated, many former gambling operators transferred their base of operations to Las Vegas (see chapter 5). Vestiges of the illegal casino business can be found in the form of floating card and dice games, generally played on the streets or in small dingy quarters with participants periodically moving from place to place to avoid apprehension. Finally, the new Federal statutes were successful in combating large interstate layoff operations, most of which were operated by organized crime.

Organized Crime

Central to virtually every discussion of illegal gambling is the phrase "organized crime." This term has historically been defined, redefined, and utilized either to defend ur reject numerous positions espoused by legislators, prosecutors, and other members of the legal community. The Commission has solicited, through research as well as testimony from various witnesses, definitions of the term and its utilization relative to gambling violations. The Commission recognizes that there are as many different definitions of organized crime as there are reasons to define it. The most recent definition provided by the FBI is as follows:

Organized crime is the sum aggregate of the more lucrative continuing types of racketeering activity involving some sort of formalized structure and generally requiring graft or corruption to conduct its operations without interference.

The Commission finds this definition much too broad for the purposes of this Report. A numbers game operated in Harlem and providing payoffs to the police might well fall within the FBI's definition, and yet not be the type of illegal gambling business the Commission feels to be properly within the scope of the routine enforcement activities of Federal agencies. Another method of defining

organized crime hinges on the nature of the crime being committed. By that definition, a gambling business that requires several people working together to commit the crime is therefore an “organized" crime.

In 1967, the President's Commission on Law Enforcement and Administration of Justice suggested that the use of violence and corruption regularly by a group seeking to achieve criminal ends should mark the point at which crime is called "organized crime." Since that time, other definitions of “organized criminal ventures," "organized crime enterprises," and "organized crime syndicates" have been put forth by law enforcement officials, study groups, members of the judiciary, and legal scholars.

This Commission rejects the concept of categorization based on the offense committed, as well as the correlative concept which lumps together any members of the criminal subculture bearing a semblance of organization. The Commission believes that members of Congress, as well as the vast majority of the American public, view the meaning of organized crime in the traditional sense; i.e., the national syndicate of Sicilian origin, providing many types of illegal services and having international ties, known generally as the Mafia or La Cosa Nostra. Law enforcement agencies and other authorities have, over the years, greatly expanded this definition, perhaps necessarily, for their purposes. However, the Commission

believes that it is not helpful to use this expanded concept when discussing illegal gambling and therefore adopts the traditional definition. Should policymakers employ the broadened concept, it would, of course then be necessary to review this Report with an eye toward a different application.

The following discussion of organized crime and its involvement with illegal gambling should be read in light of the above definition.

The Commission held hearings in various cities throughout the United States which elicited testimony from law enforcement officials, defense attorneys, and,

Early Development11

when possible, persons convicted of or involved in illegal gambling. This testimony made it apparent that there is no uniformity of traditional organized crime control over illegal gambling throughout the country; in some cities such control exists, but not in others. Even where organized crime is a factor, the extent of its involvement varies.

In areas where there is no control by traditional -organized crime "families," gambling may nonetheless be "syndicated." In any particular city or region, a criminal cartel or syndicate may control a particular type of illegal gambling; to the extent that such an organization follows a pattern of continual activity assisted by systematic corruption of government, the Commission does not suggest it be precluded from the prohibitory aspects of Federal legislation aimed at traditional organized crime or from carefully selected enforcement activities.

The Commission believes that such gambling cartels pose as great a threat to society as ineir traditiona. organized crime counterparts but do not lend themselves to the same type of identification and investigation. Beyond these two types of organizations involved in illegal gambling, the Commission specifically rejects the notion that traditional organized crime controls all illegal gambling or that all illegal gambling provides revenues for other illegal activities.

The Commission also acknowledges the existence of independent, nonsyndicated gambling violators who would not be covered by the above discussion. It believes that these individuals present a much less serious threat to society because their criminal activity generally is limited to gambling and is not accompanied by corruption and the use of violence. Consistent with its recommendations in chapter 2 regarding selectivity of prosecution, the Commission urges that such independent gambling operators receive minimal attention from Federal law enforcement authorities. Adoption of this policy would free additional resources for use against organized crime and syndicated gambling.

The forerunner of modern numbers gambling was a game called "policy." Policy originated as a sideline for the 18th century London lottery houses and was introduced in America late in the 18th century as an adjunct to lotteries. While lotteries were used as fundraisers for governments and charities, policy was operated as a sideline for the profit of the lottery company alone.

By the time of the Civil War, most State lotteries had been outlawed, and policy, which had never been legal, began to develop independently. Like many of the earlier lotteries, policy was based on drawing numbers (from 1 to 78). Normally, 12 numbers were drawn, and players bet that from 1 to 4 numbers of their choosing would be

among the 12 drawn. Even before the Civil War there were hundreds of policy shops in New York City, and the game eloped its peculiar argot and mystique. Dream books were widely sold, designed to enable the customer to choose his number for the day based on the dreams he had the night before. Because policy fed on numerous small bets, it was especially popular among the poor. Blacks had a reputation as particularly avid fans.

Policy was the first form of gambling to become syndicated. Early policy operations were coordinated by backers who financed local policy shops. Because bettors chose their own numbers, it was always possible that a small-time policy operator might on any particular day have more bets on winning numbers than he was able to pay off. As early as the Civil War, a group of politicians, gamblers, and businessmen in New York City put together

a $1 million fund to back the policy shops of the city, provide protection, and gain control of the Kentucky lotteries from whose daily drawings the winning numbers were determined. The syndicate soon collapsed because of internal bickering, but syndicate control remained the norm. By 1900, a single policy operation in Chicago would have over 100 policy writers at stores, saloons, and barbershops to collect the bets and bring them twice daily to the headquarters, where the winning numbers were drawn from a wheel. The bets were small, but when a single syndicate pooled the bets of thousands of players, the profits for the backers could be substantial. And the policy runners or writers, operating on commission, could be assured of a steady income.

Two factors reshaped the structure of policy gambling in the 1920's.

The first was the introduction of numbers as a rival gambling game that appealed to the same players. In the new game, a player bet on a number between 1 and 999. There was, of course, one chance in 999 of winning, while the numbers syndicates usually paid off at a rate between 400 to 1 and 650 to 1. At first the winning number was based on a figure published each day: for instance, the last three digits of the total stocks traded on the New York Stock Exchange. By the 1930's, however, the number was determined in a complex way from the results of three races at a designated racetrack-that system still is in use today. Apparently numbers was first played in New York City in the early 1920's. Because West Indian blacks predominated among the early entrepreneurs in Harlem, it is possible that they introduced the game. By the end of the 1920's, numbers had replaced policy in New York and Philadelphia. In Detroit, although numbers was clearly growing, both games continued through the 1930's. In Chicago, by contrast, numbers never gained a foothold, so that policy continues to dominate there even now.

A second, more important development was the rise of black-controlled numbers or policy syndicates in the 1920's. This in turn was linked to the growth in major northern cities of ghettos dominated by blacks and the subsequent development of local black political organizations, with precinct captains and ward leaders capable of organizing voting and exerting political influence. Black entrepreneurs neaded policy or nummers syndicates to service customers in the ghettos, and there was often a considerable overlap between local political organizations and gambling syndicates.

In some cities black policy and numbers operators eventually were forced-through coercion or financial necessity-to form alliances with ex-bootleggers, while in other areas policy and numbers continued under black control. In Philadelphia, even before prohibition had ended, two bootlegging groups had become the kingpins of numbers gambling. Ultimate control over numbers was fought out in the mid-1930's among groups of ex-bootleggers. In New York in the early 1930's, the important numbers operations of Harlem generally fell under the control of bootlegger Dutch Schultz. But elsewhere in the city the pattern was more diverse and the influence of bootleggers less clear. In Detroit and

Chicago, on the contrary, numbers or policy developed strong roots in the black community and powerful political protection. Not until the post-World War II period did independent policy operations in Chicago-black and white-finally fall under the influence of ex-bootleggers. In all cities, when bootleggers or ex-bootleggers became involved in numbers or policy, the mechanism was established through a partnership. The original operators or their associates continued as managers and partners. The bootleggers, on the other hand, often provided a variety of services in return for a share of the profits. These services included political protection, financial backing, regulation of competition, and legal representation in case of arrest.

Numbers Gambling Today

Numbers gambling began in the cities and today remains a uniquely urban phenomenon. The game is known by various names, including policy, mutuel, and bolita, but its basic principles remain constant.

The structure of numbers gambling that developed following prohibition is basically intact today, with some numbers rings operating independently and others under the control of, or in alliance with, organized crime. Numbers has always been one of the most visible forms of illegal gambling because so many individuals are involved in its daily operation. A prerequisite to the continued success of this type of gambling is police protection: Numbers has often been cited as a prime source of police corruption."?

MECHANICS OF THE GAME." On the basis of superstitious beliefs, hunches, dreams, or other criteria, a person selects a number to wager on. The most popular game uses a 3-digit system in which the bettor may choose from 1,000 possible numbers, including "000." Players also can wager on 1 or 2 of the 3-digit numbers. This is called single or double action, and the payoffs are reduced accordingly.

The wager is then placed with a numbers writer, runner, or seller-all terms for the person who accepts numbers wagers directly from bettors. Many writers work in the numbers business as a sideline. their primary emolovment may be in restaurants, factories, stores, gas stations, or any other place that affords contact with the public. Writers are paid a percentage-generally 15 percent to 30 percent-of the gross volume of the wagers they accept. Frequently they also are tipped by winning bettors. Writers are, more often than not, the single largest bettors in the numbers game, using their percentage (i.e., the bank's money) as the basis for their wagering. Wagers collected by the writer go to a pickup man, who forwards them to the next level in the hierarchy, the bank. This is the central headquarters or processing office; there, the winning number and number of winners are determined, wagers are tallied and recorded, and, where necessary, decisions are made regarding layoff on heavily played numbers and other matters. In the larger operations, wagers may be carried

from the pickup man to another intermediary,
the controller, who has certain decisionmaking
responsibilities. In any event, the top level of business
is always the bank.

Payoffs on the three-digit system are 600 to 1; this is where vigorish, or profit to the operators, is derived. The payment for the winning wager, or "hit,” is made at a rate far lower than the risk assumed by the player (i.e. 999-1). While this would appear to leave about 40 percent in gross profit to the operator, it must be remembered that the administrative expenses incurred in the operation of a numbers business are substantial. The profit margin after expenses ranges from 7 percent to 10 percent of gross wagers.

Payment to winners may either be made directly by the writer and deducted from the amount he must pay the bank, or be made to the writer by the bank after he has turned in his tally. The bank usually settles its accounts with the writers on a weekly basis.

In a 2-digit system (policy), there are two basic variations, one utilizing 100 numbers and the other 78 numbers. In both versions the payoffs are 60 to 1. There are many different types of wagers that can be placed, involving combinations of numbers, parlays, etc., but these differ widely from one region of the country to the other. There are also varying sources for the winning number but, generally, the most popular are those that can be readily verified by the players. Consequently, the data from the financial pages, parimutuel handle figures, and racetrack payoffs are most often used in combinations to provide the winning daily number. Some games utilize a policy wheel, and the winning digit is determined by a drawing, akin to a lottery. Others utilize some physical activity, such as rolling numbered balls toward a designated spot, to arrive at the number.

PROFILE OF THE NUMBERS PLAYER. Data produced by the National Gambling Commission's survey of gambling habits and attitudes (see chapter 4) revealed that the Northeast accounts for the greatest proportion of numbers playing-with participation by 8 percent of the adult population compared to 3 percent for the Nation as a whole. Numbers is popularly thought to be a game

played exclusively by the poor and by blacks; however, the survey shows that this is not the case. Although a far greater proportion of nonwhites play numbers than whites. Italians and Spanish-speaking groups also are overrepresented. Numbers playing shows a general increase with income up to $15,000, although not so sharp an increase as is found among casino bettors. Virtually all numbers players live within 25 miles of the Nation's 25 largest cities.

Numbers is popularly thought of as a community institution, and the survey lends some support to this perception. Most numbers bettors (about 60 percent) personally know the individual who takes their bets and pays them off. Despite numbers' reputation for dishonesty, most players are confident that they will be paid if they win. Many-21 percent-say they would continue to play the illegal game in addition to playing a legal game if one were legalized, and some-17 percent-say they would play only the illegal game if a legal game were introduced.

Regarding present legal numbers games, only one major factor emerged as necessary to attract current illegal players: the exemption of winnings from income tax. Telephone service and payoffs comparable to the illegal game were also mentioned as desirable features.

The majority of Americans are opposed to iegalizing numbers games: Only 22 percent overall favor it, the least support for any form of illegal gambling covered in the survey. Numbers players favor legalization more often (69 percent) than nonplayers, and there is some tendency for residents of lottery States to favor legalization more often than nonlottery State residents (30 percent vs. 16 percent). Consistent with this opposition, most bettors feel some negative societal consequence would accompany legalization; however, they see legal numbers as an effective means of depriving organized crime of its revenue. Further, bettors and nonbettors alike anticipate that a legal game would be substantially more honest than the current illegal games.

Numbers is not available to a great many Americans, and therefore many are not sufficiently informed about the subject to make informed judgments. A major reason people gave for not playing was "don't know about it"—a more frequent response here than for any other game.

Development of Bookmaking

Horse books came into prominence in the 1870's. Bookmakers were initially licensed by tracks to accept wagers at a particular track facility and paid the tracks a daily fee (usually $100) for that privilege.

Once established at the track, bookmakers began to open off-track betting parlors in the cities to accommodate players who could not attend the tracks. It was about this time that bookies became syndicated; the growth of their business created a need for financial support, improved last-minute information, and sophisticated methods of

communication. It was through syndication that "wirerooms" became possible; these establishments provided bettors with a place where they could listen to up-to-the-minute changes, the actual running of races, announcement of the winners, and the payoff prices. Western Union facilities were used to wire information from the tracks to the wirerooms, which were equipped with telegraph tickers and, later, telephones. Antigambling sentiment forced the withdrawal of Western Union from its part in the operation, but its spot was quickly filled by privately owned wire services that soon established monopolies over racetrack and sports information services. One of the most successful wire service operators was

Mont Tennes, a Chicago bookmaker. After Tennes came Moe Annenberg, who in the 1930's succeeded in establishing a complete monopoly over all racing and sports information. Annenberg used his monopoly to extract maximum profits from the bookmakers who were his customers. He not only charged high prices for information supplied by the national wire but eventually sent the information by code. The code could be deciphered only by purchasing the daily wall sheets published by his companies. Following the indictment in 1939 of Annenberg and his associates for tax evasion, organized crime figures began to take over the crucial wire services business. Associates of the old Capone gang in Chicago gained control of information service in that area. Elsewhere in the country, other ex-bootleggers began muscling in on this aspect of the business. Organized crime also gained a foothold in the bookmaking business by taking control of certain layoff operations.

Wire services and bookmaking parlors remained virtually untouched by law enforcement until the 1950's, when new Federal legislation succeeded in closing the parlors and forcing bookmakers to operate more clandestinely. This legislation, coupled with post-Kefauver prosecutions involving nonpayment of Federal excise and wagering stamp taxes, further augmented the Federal effort against this type of gambling and underscored the prevailing sentiment-which persists today-that the States by themselves are unable to deal adequately with the gambling problem due to a lack of money and manpower and the pervasiveness of gambling-related corruption in some local police departments.

HORSE BOOKMAKING TODAY. The basic information needed by both bookmaker and player is derived from a "scratch sheet," which provides such facts as jockeys, post positions, times of races, probable odds, and handicappers' picks. Winning bets placed through a bookmaker are paid at the same payoff as at the track, with the bookmaker's profit deriving from that portion which, at the track, would go for expenses and taxes. As a rule, a horse bookmaker can gross 15 percent of his wagers and can net approximately 11 percent. As in sports betting, layoff facilities are utilized by a bookie who receives an excess of wagers on one horse. Depending on the odds, layoffs are made at the track itself, in the form of a large wager on the bookie's favored horse; this not only enables the bookmaker to use track winnings for making payoffs but reduces the amount of the track's potential payoff. (See chapter 5 on Parimutuel Wagering and Off-Track Betting for a discussion of the survey data regarding illegal horse bookmaking.)

SPORTS BOOKMAKING. In terms of gross volume of betting, sports wagering is today the number one form of illegal gambling in the United States. Sports bets, whether placed with a bookie or between social acquaintances, are most often placed on football, baseball, basketball, and hockey games, and, less frequently, on events such as prizefighting and golf. Sports bookmaking originated as a sideline; many horserace bookmakers accepted wagers on sporting events as a courtesy to their wealthy customers. It was not until radio and television began bringing sports

contests to millions of Americans that this type of wagering began to dominate. Today, there are many sports bookmakers who accept horserace wagers only as a courtesy to their best customers.

The sports bookmaker has been defined as a "broker, bringing together money on both sides of a sports contest, hopefully in such a manner that the losers' money will be more than sufficient to cover payments to winners."14 This balance is achieved through the handicapping process, and use of the "line" or point spread. The beginning line is quoted in whole figures, and indicates the actual expected difference in points scored between the teams. Half-points are utilized to move the line based on the amounts of money being wagered. The line itself consists of a number of points either subtracted from the favorite's anticipated score or added to the underdog's anticipated score. For example, if the Miami Dolphins are favored to win over the Baltimore Colts by one touchdown, the line is quoted as “Miami 6." Consequently, a wager on Miami would be a winning wager only if Miami won by seven or more points (i.e., the "6" is subtracted from Miami's final score).

During football season, the "early line" is posted every Tuesday in the legal sports books in Nevada; it is received shortly thereafter by illegal bookmakers who of necessity maintain interstate communications for this purpose. The line continues to fluctuate up until the beginning of the game, reflecting not only updated information about conditions pertinent to the team (i.e., weather conditions, player injuries, etc.) but also reflecting the status of the "action," or the bets placed. In fact, a major sports bookmaker will only move the line in response to the movement of money.

In order to balance his books, a bookmaker must make use of two methods: line changes and "layoffs." Line changes operate as follows: If a preponderance of wagers is being placed on Miami at 6, the line can be moved to 62, thereby attracting more wagers to the opposing team. A bookmaker must move cautiously when changing a line, however, to avoid being "middled"—a situation wherein he would have to pay off both sides, since bets made with different point spreads would both have to be honored.

Laying off wagers is another method by which a bookmaker can achieve a balanced book. If Bookie A has an overabundance of wagers on one team, he can lay off by calling another bookmaker and placing the excess wager with Bookie B. Prior to the passage of Federal statutes prohibiting interstate wagering, layoff bookmaking was conducted to a large degree across State lines and, although those statutes served to break up most of the large interstate layoff businesses, many interstate telephone calls are still made for layoff purposes through increasingly devious methods in violation of Federal laws.

Some additional terminology utilized in sports wagering includes "off the board" and "in the circle." The former indicates that no wagers are being accepted on the particular spurts comest, the latter incans wägétɔ dié iû be accepted with caution. These terms are generally utilized when there is a lack of information about critical