February/March 1994 | Volume 45, Issue 1
Running the long-lived Louisiana Lottery was as certain a moneymaker as owning the mint
The Victorians regarded their times, quite correctly, as a great age of reform. They abolished slavery. They spread public education throughout the country. They began the march down the road to women’s rights.
But there is one great nineteenthcentury reform that, uniquely, is being rapidly and wholly reversed at the end of the twentieth: the crusade against gambling. Legal gambling was nearly extinguished in this country before the First World War. But in 1992 Americans paid about thirty billion dollars to gambling concerns for the privilege of betting, more than was spent on movie tickets, recorded music, amusement parks, and books combined.
Casinos, not legal even in Nevada until 1931, are now found in New Jersey and, thanks to a quirk in federal law, on a rapidly growing number of Indian reservations as well. New York City has been running a string of bookie joints (decorously called off-track betting parlors) for more than twenty years.
The reason the states are once again permitting, indeed encouraging, gambling is simple enough: money. Legal gambling produces huge revenue streams for the state governments with very little public resistance. There is no such thing as a popular tax, but citizens by the million stand in line for the privilege of feeding silver dollars into a slot machine.
But while casinos are more and more common, the most ubiquitous form of legal gambling by far is the lotteries now run by more than thirty states. New York’s, to give just one example, is the state’s fourth-largest source of revenue.
Lotteries have a long American history. Indeed, they helped found this country. In 1612 the proprietors of the Virginia Company, desperate for a means of raising capital for their fledgling enterprise in Jamestown, petitioned King James I for permission to run a lottery. It was successful and so respectable that two of the eight prizes were won by church parishes.
Many of the colleges and universities founded in the American colonies, including Yale and Princeton, were originally funded in part by lotteries. Soon states were chartering permanent lotteries in order to take a cut of the proceeds. In 1833 the city of Philadelphia, with a population of fewer than a hundred thousand, had more than two hundred lottery offices.
But there was always a big problem with lotteries. Alexander Hamilton, perhaps not surprisingly, laid down the vital principles for a successful one. The first was simplicity. There must be few “obstacles between hope and gratification,” he wrote. The other was that the tickets had to be cheap. “Every body, almost, can and will be willing to hazard a trifling sum for the chance of considerable gain.”
The same is true of casinos and horse racing, of course. But in those instances the winning bets are paid off seconds or minutes after they are made. Lotteries in the nineteenth century, however, often sold tickets for months before a drawing, and vast pools of money accumulated. It is human nature that when there is a lot of money lying around with uncertain ownership, it is likely to be stolen. The first American lotteries were often very corrupt.
As early as 1812 Massachusetts authorized a lottery to raise $16,000 to repair Plymouth Beach. Nine years later, although 111,800 tickets had been sold and $886,439 had been raised, only $9,876 had been turned over to repair the beach. The rest had just melted away, like a wave on the sand.
As a result, beginning in the 1830s, as the Industrial Revolution began transferring power to a new, morally prim and proper middle class—the Victorians—statechartered lotteries began to disappear. By the start of the Civil War, only Kentucky and Missouri still had legal ones in operation.
Then, shortly after the war ended and while Louisiana was still under federal control, the state legislature established a new lottery. It was, as one writer described it, “born in iniquity.”
The Louisiana State Lottery Company was a private corporation. It was required to make an annual forty-thousand-dollar payment to the Charity Hospital of New Orleans but was not otherwise taxed by the state. It was the brainchild of two men, neither of them even native Louisianians. Charles T. Howard was born in Baltimore and originally went to New Orleans in 1852 as the agent for the Alabama lottery. His partner was John A. Morris from New York. The Morris family is one of New York’s oldest. Its large landholdings, called Morrisania, gave a part of the Bronx its name and the family its original fortune. One of the clan, Gouverneur Morris, played a very important role in the creation of the Constitution. (Vastly enriched by the Louisiana Lottery, the family is still prominent in New York and has the distinction of owning the oldest registered racing silks in America.) John Morris went south after graduating from Harvard, and he married the daughter of a state judge, one of the few of the antebellum aristocracy to remain wealthy after the war.
He used his political connections to create one of the great cash cows in American history. Just consider. The average state lottery today pays out about forty-five dollars in prizes for every one hundred it takes in. It spends a few percentage points more on administration and pockets the rest. A profit margin reaching 50 percent of gross revenue is nice work if you can get it. John A. Morris and Charles Howard got it.
At its peak the Louisiana Lottery paid out about three million dollars a year in prizes to ticket holders. How much was paid to its owners is not known, but estimates range from three to five million dollars a year all the way up to thirteen million dollars a year, perhaps ten times that sum in today’s money and all, of course, taxfree. The lottery routinely reported dividends in excess of 100 percent of invested capital, and it is highly likely that vast unreported dividends were paid out as well.
Because by this time it was the only legal lottery in the country, it was soon operating in most other states. In New Orleans the lottery hired a theater to hold the drawings and provided a free concert. It hired the Confederate generals P. G. T. Beauregard and Jubal Early to supervise the picking of the winners, playing them each the then princely salary of ten thousand dollars a year just to sit on the stage and watch the tickets be drawn.
Naturally there were persistent attempts to close down the lottery. The same social forces that had ended lotteries in all the other states were also at work in Louisiana. But Morris and Howard, needless to say, were not about to let that happen if they could avoid it. They had a powerful weapon right at hand: money, and lots of it.
They used it to buy good public relations. Besides the forty thousand dollars they gave to the Charity Hospital every year, they contributed generously to many other worthy causes. Whenever there was a disaster, such as a flood or an epidemic, the lottery was always right there with a big check.
The other effective use that the lottery made of its vast income was bribing public officials. In its first nine years the lottery is reputed to have spent three hundred thousand dollars to make sure that it had friends in high places. In 1879 it needed them, and it used them in an awesome display of raw political clout.
The antilottery governor had caught the company napping and got a bill revoking its charter through the legislature that year. To redeem the situation, lobbyists descended in droves. When the smoke cleared, the legislature had called a constitutional convention, an action that did not require the governor’s signature. At the convention the lottery managed to have a guarantee of its twenty-five-year charter placed in the new state constitution.
When the charter came up for renewal, the lottery spared no expense to see that it won the fight. One state senator, J. Fisher Smith, had made a career out of opposing the lottery but voted to extend its charter. Shortly after, he collapsed and died. He was found to be carrying eighteen thousand dollars in cash in his money belt.
Another legislator, J. M. McCann, couldn’t be bought, but one certainly can’t accuse the lottery of failing to try. McCann said that he found money in his hat every time he picked it up and that money was dropped from upper-story windows as he walked the streets of Baton Rouge. One day at lunch he found twenty thousand dollars under his plate, but was unmoved. The charter extension passed.
Finally, in 1890, it was the federal government, responding to a rising tide of public revulsion, that brought the Louisiana Lottery down. President Harrison asked Congress to forbid the use of the mails for lotteries, a statute still on the books. It was a crushing blow. The Postmaster General estimated that the Washington, D.C., office of the lottery alone sent out fifty thousand letters a month and that 45 percent of the mail volume in New Orleans was lottery mail.
Even its days of operating in Louisiana were then numbered. The charter extension was actually an amendment to the state constitution. It passed a well-bribed legislature, but the people rejected it resoundingly, 157,422 to 4,225. The company, already a shadow of its former self, moved to Honduras in 1894 and in 1907 expired unlamented, except, one supposes, by the Morris and Howard families.
There wouldn’t be another state lottery until New Hampshire established the first modern one in 1964.