Marketplace Special Series: Underground Economy


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November 14, 2001 Gambling Ain't What it Used to Be RealAudio Americans place more than $60 billion a year in legal bets. But for most of the 20th century, much of that market was served by underground operators -- bookies, number runners and the mob. For decades after prohibition's repeal, the cash cow of America's underground economy was illegal gambling. But as Marketplace's Stephen Henn reports, in the fourth part of our series on the "Underground Economy," the illegal gambling industry has taken a huge hit in recent years -- not because of increased law enforcement, but because of stiff legal competition from the state. Tony -- who asked that his real name not be used -- doesn't always relish his role. Tony: "It's like getting hit over the head with a bat." He is the gentleman bookie -- always polite, friendly, and prompt. Tony: "The whole thing is that you have to pay people. If you don't pay people, you’re finished -- you get a bad name and then you are done." Looking like someone off the set of the Sopranos -- sporting a pompadour haircut and a fat gold pinky ring -- Tony offers his clients something more than prompt payments. Customers who place bets on ball games with him get extra thrill knowing they are betting against the mob. But Tony's says times have changed. Tony: "It is not like years ago -- you don't break anybody's legs anymore. You gotta be crazy, the trouble -- it's not worth the headache." Tony runs an illegal sports betting operation in the greater New York area. When he started in the illegal gambling business 40 years ago, his business was much, much bigger. Tony: "I used to work in a club. I used to take numbers, horses, and sports and card games. I never went home. I used to stay up all weekend. We'd have a card game here a card game over there -- we would cut every pot. Plus, we had the numbers, the horse and the sports back then." For decades, clubs like the one Tony described were illegal, even in New York, where they flourished. Customers could spend a few hours and leave the contents of their wallets behind. But over the years, Tony -- and many of his colleagues -- have been out-gunned by two competitors with a lot more muscle and very deep pockets: the city and state of New York. Busts of uptown numbers parlors like this one -- recorded in the ‘80s by WNYC’s Andy Lancet -- played only a small part in pushing the mob out of the industry. The real killer was the legal competition. Tony: "The numbers -- a lot of people aren't around with 'em because it's all day, all night, you know, and the lottery sort a' whacked it out a lot. The lottery - the whole world plays it. Everybody plays the lottery." New York State first started muscling in on the mob's gaming business in the late ‘60s and the early ‘70s. First opening lotteries, then off-track betting parlors, or O.T.B. And in 1980, introducing a daily pick 3-lotto game, which competed directly with the popular, but still illegal, numbers racket. Today New York State earns more than $3.5 billion a year from its lottery. New York City rakes in more than one billion dollars annually from O.T.B. Two generations ago, all that business and more belonged to the mob. Just ask Bill, a longtime gambler who now places his bets with the city of New York. Bill: "I'm playing the double right now. I'm trying to play the double and I got five minutes to get the double in." Henn: "Do you ever buy insurance or policy?" Bill: "You mean illegally - illegal policy?...Oh yeah, I grew up on that." In the 1920s, ‘30s and ‘40s, policy, also known as the numbers racket, was a multi-million- dollar-a-year operation. Denny Farrel, now a state assemblyman from Harlem, grew up watching the racket work. Farrel: "It was part of the life, it was a social thing -- playing the numbers. There was a Brooklyn day number and a New York evening number." The game's pretty simple - gamblers pick three numbers, if their pick matches the last three digits of the racing handle - which is the total amount bet at a local track - their number pays off at six hundred to one. But because odds of winning are one in 1000 -the racket is enormously profitable. And, according to Farrell, battles to control the business in New York's most lucrative neighborhoods became common. Farrel: "My father had a factory on 149th Street and a little war broke out there, on Amsterdam Ave." One war between Dutch Shultz, and Harlem's own Madame St. Clair and her body guard, Bumpy Johnson, became a legend. The story provided the backdrop for Francis Ford Coppala's “Cotton Club,” and the plot for the movie "Hoodlum." Farrel: "We romanticize them, but they were bad guys. They did not do what they did without having the ability to hurt you." But that's not why New York State moved into the numbers business in 1980. Politicians were looking for the same thing the gangsters were always after -- money. The argument was, "We'd use it for education." But then debate over whether or not New York should start its own numbers game, took an unexpected turn with unusual lobbyists. In the spring of 1980, close to 1,000 number-runners drove to Albany, protesting the creation of the new state game. Farrel: "There was pressure. I remember the guys were coming up and lobbying, and they were street guys. It was interesting lobbying." But in the end, the legislation creating a New York state daily numbers game passed easily. In less than 10 years, it was bringing in more than a $500,000 a year -- leaving guys like Tony behind in the dust and waxing philosophical. Tony: "Sure they got it all now -- and they are doing great with it. But people don't realize they are taking all of their money, and they tax you on top of it. But they said we were the bad guys when they caught us. And what did we do wrong -- we paid the people." In New York, I'm Stephen Henn for Marketplace. Back to the main Underground Economy page...