It has been more than four decades since states first began putting numbers runners out of business by starting their own legal lotteries, which now yield them about $18 billion a year. Now several states are thinking about trying to plug budget gaps by profiting again from the optimism of their residents — by legalizing, licensing and taxing Internet gambling.
Nevada and the District of Columbia have already taken steps to authorize online poker, and state officials in Iowa have been studying the issue closely. Lawmakers in New Jersey and California are redoubling their efforts to legalize it, bolstered by a recent Department of Justice decision that reversed the federal government’s long-held opposition to many forms of Internet gambling. Gov. Chris Christie of New Jersey spoke this month of making his state an "epicenter" of the online gambling industry.
But as desperate as states are for new revenue, after four years of often-painful austerity, there are questions about just how big a jackpot they can expect from online gambling. The state of Iowa released a study last month that found that legalizing online poker might net the state between $3 million and $13 million a year, far less than private companies had estimated. The American Gaming Association, a casino industry trade group, has estimated that legalizing online poker would net roughly $2 billion a year in new tax revenue, a fraction of what states get from their lotteries.
Supporters of legalizing online poker in California estimate that it would net the state between $100 million and $250 million a year — a tidy sum, to be sure, but still only enough to put a small dent in the $9.2 billion budget shortfall California faces.
Still, advocates of online poker in California say that the state should not throw away a winning hand just because the pot is not big enough to solve all of its problems.
"Two hundred and fifty million dollars buys you a lot of teachers," said State Sen. Lou Correa, a lawmaker from Orange County who sponsored one of the bills seeking to legalize online poker in California, which he thinks could net the state more than the estimates show. "Half a billion dollars buys you even more teachers. When we’re cutting social services to the poorest in our state, it buys you a lot of social services. The budget deficit is tremendous, but you take $500 million here, $500 million there, and pretty soon you’re talking serious money."
One reason that the yields are not expected to be huge is that many states are considering legalizing only online poker, which they argue involves more skill and less chance than other forms of gambling. Since poker pits players against one another — unlike, say, roulette or slot machines, which pit players against casinos that have the odds stacked in their favor — online poker sites make their money by taking a small percentage, or "rake," from each pot. States could make money by taxing the rake and by selling licenses to run the sites.
Supporters of online gambling say that the current estimates may undercount how many people would play poker online. Many of the forecasts are based on how many people have played on illegal websites in the past. But placing bets on illegal websites requires a leap of faith — that the electronic cards are shuffled fairly, that other players cannot see your hand and that the website will pay you if you win. Legal, well-regulated websites, supporters say, would attract more players.
In fact, the proposal to legalize online poker in Iowa is more about protecting consumers than about raising money, said State Sen. Jeff Danielson, a Democrat from the Cedar Falls, Iowa, area who is drafting a bill.
"We are not doing this to expand our state budget," he said. "Our purpose is to make sure every Iowan who wants to play poker has a fair game, has protections, and, if they win, is able to retain those earning in a fair and safe way."
Iowa has studied the potential impact of online poker on public health.
"Given the ease, convenience, and constant availability of online gambling, it is speculated that legal Internet gambling could exacerbate problems for an unknown number of Iowans with, or at-risk of developing, gambling problems," a report commissioned by the state found.
Most states are looking to legalize online gambling only within their own borders — so that both the gamblers and the computers that process their bets would be in the state. But Danielson said that he believed that the recent Justice Department opinion — which was issued this fall in response to questions by New York and Illinois about whether the Wire Act of 1961 prevented them from selling lottery tickets online — could pave the way for Iowa to join other states in a bigger online poker game.
Some states are looking to legalize other forms of online gambling — which could yield them much more money. The District of Columbia has authorized a plan to offer not only poker online but also blackjack and bingo. And New Jersey lawmakers last year passed a bill — which was vetoed by Christie — that would have legalized all sorts of casino gambling on the Internet.
Christie vetoed the bill in part over concerns that it would undermine his administration’s efforts to prop up Atlantic City, whose gambling revenue has suffered as neighboring states have opened casinos. In his veto message, he noted that "nothing contained in the legislation would prohibit commercial establishments outside Atlantic City such as nightclubs, bars, restaurants, cafes and amusement parks from offering Internet gambling opportunities."
But earlier this month Christie said that "given the Justice Department’s go-ahead," the state should move forward with its plans.
"I think New Jersey should be in that business, I think we should be an epicenter for that business, but I want to do it right," he said.
Analysts expect states to act quickly. I. Nelson Rose, a professor at Whittier Law School who writes a blog called Gambling and the Law, predicted that states would move faster to approve Internet gambling than they did to establish lotteries, which are now run in 43 states.
"The speed of the Internet is more like dog years," he said. "It is not going to take four decades. It won’t even take one decade."