GAMBLING

NBA Referee Admits to Betting on Games Veteran pro basketball referee Tim Donaghy pleaded guilty in August 2007 to charges that he bet on National Basketball Association games, including games that Donaghy officiated. Donaghy's actions were part of a conspiracy where he received payments for providing tips about teams on which his coconspirators should place bets. As of April 2008, Donaghy still awaited his sentence.

The NBA employs 60 referees to work preseason, regular season, and playoff games. The referees are prohibited under league rules from betting on NBA games or from providing information to others that would assist in making bets on NBA games. The league creates master release schedules that establish the officiating crews for upcoming games. However, the league does not publicly release the identities of the referee for a particular game. NBA referees are prohibited from disclosing which games they are scheduled to work. In fact, the referees may not engage in other outside employment without league permission.

Donaghy began his service as an NBA referee in 1994 and served in that capacity for 13 seasons. Donaghy was one of the officials during an infamous 2004 game between the Indiana Pacers and the Detroit Pistons, when Pacer players began fighting with Detroit fans. Between 2005 and 2007, Donaghy served as a referee for 131 regular season games as well as 20 playoff games.

Around 2003, he began to place bets on NBA games, including those that he officiated.

In December 2006, he began to provide inside information about NBA players, referees, and coaches to a professional gambler named James Battista. Battista attended the same high school in Springfield, Pennsylvania as Donaghy. According to allegations, Donaghy provided information to supplement his income. He received $2,000 if his information was correct and Battista won his bets. However, if Battista lost, Donaghy received nothing. After a certain period of time, Battista increased his payment for information leading to winning bets to $5,000.

The Federal Bureau of Investigation traced hundreds of telephone calls from Donaghy

States Continue to Look to Gambling to Solve Budget Woes

Lawmakers in many states began the new year in 2008 faced with significant budgetary problems. The housing market in many areas had stalled, resulting in lower home sales and reduced housing prices. This reduction caused a drop in other purchases, such as appliances, carpeting, and related home improvement items. States that rely improvement items. States that rely heavily on sales taxes suffered due to the reduced sales. Officials in a number of states, including Florida, were left scrambling to find ways to bridge the gaps between spending and revenue.

When budget crunches hit, When budget crunches hit, states have looked more and more to gambling to provide a boost in revenue to solve their problems. While lotteries and other forms of gambling have existed in American since long before the founding of the country, the legalization of the various forms of gaming, including permanent, land-based casinos in major cities, is a relatively new phenomenon. When a state is faced with a budget crunch, pro-gaming politicians will argue that their state needs a privately-run casino to keep gamblers from spending money in other states. Others, often anti-tax advocates, will say that legalizing gambling is sensible way to generate new state revenues without raising taxes.

After most states had outlawed lotteries by the turn of the 20th century, the lotteries began to see a resurgence in the 1960s and 1970s. In the 1950s and early 1960s, the New Hampshire state legislature considered a number of bills that would allow the state to run a sweepstakes, which was the forerunner to the modern state lottery. The state finally approved this legislation in 1963, and during that year, the state appointed its first sweepstakes commission. during that year, the state appointed its first sweepstakes commission. Supporters touted the promise that the sweepstakes would bring to schools, for revenues from the lottery would fund education. Even today, the New Hampshire Lottery Commission website “Since the inception of the New Lottery Commission website notes, “Since the inception of the New Hampshire Lottery in 1964, more than $930 million has gone to aid education, making the children of New Hampshire the biggest winners of all.”

Other states began to follow suit, with many states approving their state lotteries in the 1980s. In nearly every case, the legislators and/or voters approved the lottery systems with the understanding that the revenues would be used to bolster state education funds. The state of Florida provides an example that was similar in many states. In 1986, the Florida state legislature allocated 62 percent of its annual budget to education. With pro-lottery supporters stressing that lottery funds could be used to enhance education without raising taxes, the state approved a lottery in 1987, and the lottery went into effect in 1988.

Unfortunately, the allocation of the revenues from the Florida lottery also provides a representative example of how funds from these revenues have been expended. The percentage of the Florida budget dedicated to education has dropped steadily since 1988, and lottery money has been used more to maintain schools rather than to enhance education. In fact, when schools experienced an increase in enrollment but the state saw lottery sales flatten, spending-per-student in the state dropped below the levels from prior to 1988, and the state routinely ranks in the bottom ten percent nationally in per-pupil spending. According to Randy Bobbitt, author of Lottery Wars, “If the lottery has bad sales one year, schools lose out.”

As states continued to approve lotteries, American Indian tribes began to promote development of casinos on Indian lands. In 1987, the U.S. Supreme Court opened the door to Indian gaming when it ruled in California v. Cabazon Band of Mission Indians, 476 U.S. 1168, 106 S. Ct. 2888, 90 L. Ed. 2d 975, that where a state allows a form of gambling, a tribe in that state may also engage in that form of gambling. The following year, Congress approved the Indian Gaming Regulatory Act, 25 U.S.C. §§2701 et seq. , which provides that a tribe may have casinos if the tribes negotiate a compact with their respective states. These compacts generally dictate the percentage of gaming revenues that the tribes must share with the states. By the mid-1990s, revenues from Indian gaming were estimated to be between $6 billion and $8 billion. The success of these ventures led more Indian tribes in more states to negotiate for more casinos. In 2008, the National Indian Gaming Commission, a federal agency charged with regulating Indian gaming, indicates that there are 360 Indian gaming facilities in the United States operated by 220 tribes.

As the Indian tribes experienced their success, lawmakers were tempted to expand gambling to bring in greater revenues. In the 1990s, a number of Midwestern and Southern states that were hit with hard economic times approved the development of riverboat gambling. Because of popular opposition to these casinos, early regulations had strict limitations on the number of hours these riverboats could be open, and some states had limitations on losses. However, as competition became more intense, states that feared losing revenues began to lift these restrictions. By the 2000s, a few states allowed the casinos to move from the riverboats to the land on the river-fronts. As of 2008, eleven states permit casinos, and more are considering allowing casinos.

In Florida, Governor Charlie Crist response to the budget crisis led him to begin negotiation with the Seminole Indian Tribe to allow state-sanctioned casinos on the tribe's lands. According to Crist, “There are some other opportunities we're looking toward to help us with the budget challenges we have today. We're negotiating with the tribe. I want to be open-minded, and I want us to be innovative.” Critics, however, were quick to pounce on Crist for his decision making. One editorial in the Palm Beach Post noted, “Uh oh. One little financial thirst, and Gov. Crist is already reaching for the gambling Kool-Aid.” In November 2007, Crist signed an agreement with the tribe that permitted it to have Las Vegas-style slot machines, baccarat and blackjack at its casinos. In return the state would receive a share of the increased revenues. However, in July 2008 the Florida Supreme Court ruled the agreement illegal, finding that Gov. Crist did not have the authority to make such a deal.

Opponents of state-sponsored gaming, including critics in Florida, have stressed that casinos often fail to bring in promised revenues and can increase costs due to higher rates of crime, bankruptcy, and mental illness. Researchers at Baylor University and the University of Georgia estimated that casinos in the United States cost states about $40 billion thanks to additional law enforcement and prison space. Professor Earl Grinols of Baylor notes, “If it was just harmless entertainment, it wouldn't be a public policy question.” However, Grinols' research suggests that casinos have a 3.1-to-1 cost-to-benefit ratio, meaning that the cost of a casino to society is roughly three times the benefit.

Moreover, some data suggests that though states may bring in revenues from gambling, the casinos often cause other forms of revenue to decrease. Those who spend their money at casinos spend less money elsewhere, and so sales taxes can decrease. Gambling critics stress that when a state allows casinos to open, it typically means that the state will become dependent on the gambling, because the casinos will likely make non-gambling businesses suffer. And due to this dependency, lawmakers may become more inclined to allow expansion of gambling thanks to promises of even more revenues.

In 2007, Kansas went further than most other states when the state legislature approved a bill that allows the state to own casinos and allows counties in the state to vote whether casinos should be allowed. Supporters touted the increased revenue opportunities, which could be used to fund education, transportation, and other state-sponsored projects. Although some areas such as Sedgwick County (which contains Wichita) rejected casinos, others have approved the casinos and have begun to consider bids for casino projects from developers willing to pay hundreds of millions of dollars for the construction of these facilities.

With more states considering proposals to allow expanded gambling in their states, the debate is far from over. And while some state and local leaders are starting to become more skeptical about the economic benefits of the casinos, many depressed areas have become hard-pressed to find better alternatives.

to Battista's messenger, who was a man named Thomas Martino. The phone records indicated a pattern of phone calls that occurred just prior to games, and officials were able to correspond these calls with bets that were made. The FBI's investigation also showed that Battista made cash payments to Donaghy when the information led to winning bets. Commentators noted that the betting may not have affected which team won or lost games where Donaghy was involved, but the FBI concluded that Donaghy “compromised [his] objectivity as a referee because of [his] personal financial interest in the outcome of NBA games.”

The FBI first revealed its investigation in Donaghy in July 2007. As news of the investigation leaked, researchers immediately began to review tapes of games that involved Donaghy to determine whether he had made calls that could have influenced the outcome of games. Although no conclusive evidence arose, the investigation called into question whether fans could trust that NBA games were not compromised. For example, in one game in February 2007 between the Miami Heat and the New York Knicks, the Knicks shot 39 free throws compared to eight by the Heat. The Knicks were favored in the game by 4½ points and won the game by six.

NBA commissioner David Stern pledged to help in the investigation in any way possible. Stern said, “We would like to assure our fans that no amount of effort, time or personnel is being spared to assist in this investigation, to bring to justice an individual who has betrayed the most sacred trust in professional sports, and to take necessary steps to protect against this ever happening again.”

Stern later called the situation the worst he had experienced as NBA commissioner. He expressed concern that Donaghy could have provided information to others that could have compromised games in which Donaghy was not involved. “Not only aren't [referees] permitted to either gamble or provide information to people,” said Stern. “They may not even provide other than to their immediate family the details of their travel schedules or the games they are going to work.”

The federal government charged Donaghy on two counts, including conspiracy to commit wire fraud and conspiracy to transmit wagering information. With regard to the wire fraud charge, the government relied on a rather arcane legal theory known as an “intangible right of honest services.” This concept means that the NBA had a right to honesty and integrity for the work of its officials and that Donaghy had conspired to violate this right. The second charge related to Donaghy's acts of transferring gambling information across state lines, which violates federal law.

On August 15, 2007, Donaghy pleaded guilty to the charges. Standing before Judge Carol Bagley Amon of the U.S. District Court for the Eastern District of New York, Donaghy admitted that his actions affected the games that he officiated. “By having this nonpublic information, I was in a unique position to predict the outcome of NBA games,” said Donaghy. He was released on a cash bond of $250,000 but faced a maximum of 25 years in prison and fines of more than $500,000.

Donaghy was originally schedule to be sentenced in January 2008, but his sentencing was postponed. He has reportedly been cooperating with investigators who are tracking gamblers. In April 2008, both Battista and Martino pleaded guilty to gambling charges. Martino could face 18 months in prison, while Battista could face 16.