When I was growing up in the 1950s and 60s all forms of gambling were illegal in this country (except in Nevada) and had been as long as anyone then alive could remember. My grandfather, who was born in 1890, talked about what life was like at the turn of the century and although in some respects the country was very different then the illegality of all gambling was exactly the same.
When I recently read a book in which it was mentioned in passing how this situation came about I was surprised. Before reading about the history of this I would have guessed that the banning of gambling had a basis in Puritan morality, similar to the prohibition of alcohol. When I solicited my Facebook friends for their guesses when and why gambling had become illegal my sister-in-law also assumed that banning gambling had been similar to the prohibition of alcohol -- she guessed it must have come about after women's suffrage and as a result of a campaign to prevent men with wives and children from gambling away money needed by their families. My nephew guessed, again like Prohibition, the ban had arisen primarily as a result of anti-immigrant xenophobia.
It turns out that the national ban on all forms of legal gambling from 1892 to 1965 had arisen in order to stop bribes to and corruption of elected official by the legal state lottery of Louisiana which had so corrupted the state government that national legislation was needed to end it. By this time most other states had already made lotteries and other forms of gambling illegal and these local bans had come about in various contexts and motivated by various concerns besides corruption, including morality, efforts to protect wives and children, anti-immigrant feelings, etc. (although since this was the 19th century these bans were passed without the votes of women). But there is little debate among historians about the basis of the national ban being the need to protect our democratic governments from the corrupting influences of legal gambling revenues.
According to Roger Dunstan in "Gambling in California"
Following a long national tradition, the South turned to lotteries to generate revenue to rebuild the war-ravaged region. The Louisiana lottery was the most notable because of its unseemly end. In 1868, the Louisiana Lottery Company was authorized and granted a 25-year charter. A carpetbagger criminal syndicate from New York bribed the Legislature into passing the lottery law and establishing the syndicate as the sole lottery provider. The Louisiana Lottery was an interstate venture with over 90% of the company's revenue coming from outside Louisiana. This lottery was a prolific money maker. Attempts to repeal the 25-year charter were defeated with assistance of bribes to legislators.
... The Louisiana Lottery survived until Congress enacted a prohibition against moving lottery tickets across state lines by any method. This act led to the abolition of the Louisiana Lottery in 1895. When the lottery was disbanded, it was discovered that promoters had made huge sums of ill-gotten gains. The Legislature was riven with accusations of bribery. By the end of the century, thirty-five states, including California, had in their constitutions prohibitions against lotteries and no state permitted the operation of lotteries.
An article titled "19th Century Gambling as it Flourished in America" at www.macauonnet.com agrees:
In 1868, Louisiana established a lottery that lasted for twenty-five years amid recurring scandals. Anti-lottery sentiment developed again in the waning decades of the nineteenth century, fueled to a significant degree by the scandals surrounding the Louisiana lottery.
"Gambling politics: state government and the business of betting" by Patrick Alan Pierce and Donald E. Miller tells the same story, with some additional detail:
The Louisiana lottery, with its history of bribery, graft, corruption, and dishonesty, represets a fitting end to a storied history of the American lottery, an institution which for years was the backbone of economic development of a new nation. ...Given the lottery's support by Louisiana politicians and citizens, only federal government intervention could stop the corrupt operation of the Louisiana lottery. A series of antilottery laws accomplished this goal. These antilottery laws included an 1827 law that prohibited postmasters from acting as lottery agents, an 1868 act that banned lottery materials from the mails but had no enforcement provisions, and an 1890 act that added enforcement provisions. The final necessary and most effective act, in 1892, prohibited interstate transportation of lottery materials. With its market essentially restricted to the state of Lousiana, the lottery eventually died three years later. Fallout from the scandals of this lottery as well as national public opinion on gambling were so negative that by the turn of the century no states permitted the operation of lotteries.
Those who do not remember the past are condemned to repeat it. Are our state legislatures today less susceptible to being corrupted by legal gambling industry money than their 19th Century counterparts? I know of no reason to suppose that they are. The only difference between now and then is that in 1890 the newspapers in New York and Chicago which were publishing articles alerting the country to corruption in Louisiana were not owned by corporations receiving gambling profits. Perhaps the only reason we are not reading stories about the corrupting influence of legal gambling today is that the small number of large corporations which control most of the media also have a financial interest in gambling remaining legal.