The Louisiana Lottery: The Company That Got America's Lotteries Banned for 70 Years

Once a month in the 1880s, a hall at the corner of St. Charles Avenue and Union Street in New Orleans filled up. On the stage stood a hollow wheel about five feet across, made of two glass discs. Inside were 100,000 small rubber tubes, each holding a rolled slip of paper with a number on it. Beside the wheel sat two men everyone in the room knew: P. G. T. Beauregard, the Confederate general whose attack on Fort Sumter in April 1861 started the Civil War, and Jubal Early, another Confederate general.

Two boys - from the city's asylum for the blind, according to the historian John Kendall - drew at the same moment: one a tube from the big wheel of ticket numbers, the other a tube from a smaller wheel of prize amounts. An announcer read out both. When it was over, the generals sealed the tubes in sacks and locked them in a vault only they had the combination to. The whole thing took hours.

This was the Louisiana State Lottery Company, one of the biggest lotteries the United States had ever seen. It sold its tickets by mail across the country and made Louisiana the home of a national gambling business. In the end it brought down not only itself but lotteries across America - for 70 years.

The charter dates from 1868, when Louisiana was broke after the Civil War. Behind the company stood Charles T. Howard, previously an agent for a Kentucky lottery, and the businessman John A. Morris. They got a 25-year monopoly and paid $40,000 a year for it - according to Kendall, as an annuity to New Orleans' Charity Hospital.

The generals were a business model. Kendall, who published a history of New Orleans in 1922, credits the idea to M. A. Dauphin, an Austrian doctor who rebuilt the lottery on European lines: the game, he understood, lived on customers trusting the draw. By Kendall's account each general got $30,000 a year for about two days' work a month; other accounts give lower sums. It worked. The company's $100 shares, Kendall writes, rose from $35 in 1879 to $1,200 in 1890.

Politically, the company defended itself with money. In 1879 the legislature repealed the charter, by two votes in the senate. A federal judge then ruled the charter was a contract the state couldn't break on its own, and that same year a constitutional convention wrote it into Louisiana's constitution. Alongside it came a date that looked like a compromise: from 1 January 1895, all lotteries in the state would be banned.

On the side, the company ran the policy game in New Orleans, a numbers bet with two drawings a day. Kendall counts more than a hundred policy shops in the city; a good spot four feet square could change hands for as much as $5,000. The policy takings, Kendall writes, covered all the costs of the big lottery. What the monthly drawings brought in from across the country was, after prizes, pure profit.

The real business lay outside Louisiana. The company said 93 percent of its revenue came from other states. Kendall gives monthly sales of up to $85,000 in Chicago alone, and around $50,000 in Boston. After New Orleans, according to the Encyclopedia of Louisiana, nowhere sold more tickets than Washington, D.C.

In 1890, three years before the charter ran out, the company moved to secure its future. John A. Morris offered the state $500,000 a year for another 25 years, then $1 million. When a rival bid $1.25 million, the senate raised the offer to match. The legislature passed the constitutional amendment. Governor Francis T. Nicholls, who had lost his left arm in the war, vetoed it: he would not let one of his hands degrade what the other had been lost defending - the honour of his state.

In April 1891 Louisiana's supreme court ruled that a constitutional amendment didn't need the governor's signature at all, and put it on the ballot. By then, though, Washington had stepped in. On 29 July 1890 President Benjamin Harrison sent a message to Congress. The capital, he wrote, had become a sub-headquarters of the Louisiana lottery, whose agents probably used the mails more than any legitimate business there, and the people of every state were being "debauched and defrauded". He asked for the mails to be purged of everything connected with the business.

He got it quickly. From 19 September 1890 the US Post Office could no longer carry tickets, lottery advertising or newspapers that ran lottery ads. That cut the distribution network; according to the Encyclopedia of Louisiana, the company's income fell by 90 percent. When two newspapermen in New Orleans and Mobile were arrested for mailing papers carrying lottery ads, their case went to the Supreme Court. On 1 February 1892 the justices upheld the law: Congress could decide what its mail would carry.

The election of April 1892 became a vote on the lottery. The anti-lottery candidate Murphy J. Foster - who had led the fight against the charter in the senate - won with 79,388 votes; his opponent Samuel D. McEnery, backed by the lottery camp, got 47,037. After losing in the Supreme Court the company had asked for its amendment to be withdrawn, and at the polls it failed. At the end of 1893 the charter ran out.

It wasn't over. In February 1894 The New York Times warned that this "money-eating devil fish" was looking for a new place to fix its tentacles, in Florida or Honduras. It was Honduras. In 1895 the company moved its legal home there and called itself the Honduras National Lottery. The drawings now took place in Central America; the customers stayed in the United States.

That same year, Congress banned carrying lottery tickets from one state to another, mail or no mail. The company believed the law was unconstitutional and kept shipping tickets through express companies. Only in 1903, in Champion v. Ames, did the Supreme Court rule five to four that Congress could ban that too - in a case about tickets for a supposedly Paraguayan lottery sent by Wells Fargo from Texas to California. Justice John Marshall Harlan wrote that common forms of gambling were "comparatively innocuous" next to "the widespread pestilence of lotteries", which entered every home and preyed on the hard-earned money of the poor. Is the lottery a tax on the poor?

After that, the lottery went underground. Kendall describes tickets printed at an innocent-looking print shop in Wilmington, Delaware, carried as personal baggage to New York and Washington, and passed on from there to agents across the states, with the prize lists printed in Mobile, Alabama. The system came apart during a strike, when printers tipped off the authorities about their employer. In June 1907 federal agents raided the Mobile plant. The defendants pleaded guilty, the maximum fines were imposed, and the print shops were closed. The last tickets still carried the name of a president of the old New Orleans company.