soldier with rifle american civil warTHE HORSEMAN
John J. Ryan©


THE HORSEMAN©


John J. "Bald Jack" Ryan

Original Text By Joe Ryan

 


Part Two

Betting on horserace is a practice almost as old as man. There was never a time in America that it was against the law for you to sit in the grandstands of a country fair and bet with your neighbor whether Gold Heels will win his race against the field. The common law allowed it and the statutes didn't prohibit the practice; though, if you won the bet and the loser welched, the law allowed you no remedy. But, if you were to step down from the stands and walk around back of the bleachers and call out your bet to the passing crowd, the law will take a much different view of you—at least as of  the 1900s this was so. Because men find betting on the outcome of a horserace a practice they can't resist, and because the legislators of the times were all men, the line at that time, between what was legal and illegal, was blurred.

The constitutions of most states expressly prohibited the legislatures authorizing poolselling, bookmaking, or any form of gambling within the state. The constitutions generally required that the legislatures pass appropriate laws to prevent such from happening. But, since no one will waste their time sitting in the grandstand of a fairground, just to watch horses run around a track, some legislatures began a legal dance around the constitutional prohibition.


For example, in 1895, the New York State Legislature, with the ostensible, if not actual, purpose of complying with its state constitution's command, passed an act containing several sections on the subject of betting on horse races. One section allowed for the incorporation of associations for the improvement of the breed of horses—a worthy-sounding public policy—and another to establish a racing commission. The Act provided that such associations "shall have the power to hold race meetings and that they may contribute purses or stakes to be contested for, which only the owners of the horses in the race can collect." Another section of the Act declared that all racing between horses for any bet, stake, or prize, "except as is allowed by this act, or by special laws, is a public nuisance and any one so betting is guilty of a misdemeanor."  Another section then provided the exception to the State Constitution's command—"No Gambling Allowed Here."

The section read: "Any person who, upon any race course authorized by this act, shall make, directly or indirectly, any bet on the result of a horse race taking place upon said race course, shall forfeit the value of the money so bet, to be recovered in a civil action by the person with whom such bet is made. This penalty is exclusive of all other penalties prescribed by law for the acts in this section specified."

When the constitutionality of this latter section of the Act was tested in the courts, in 1897, it was found to pass muster, because, as the learned judges put it: "The most that can be said is, that when the legislature passed this section of the statute, its effect was to reduce the then existing penalty or punishment for that particular offense (i.e., betting at a race track authorized by the Act to operate). The authority to prescribe the punishment for the offenses mentioned in that provision of the Constitution is expressly conferred upon the legislature, which necessarily included a delegation of the power and authority to increase or decrease the punishment for offenses of that character."

See the trick? The State Constitution prohibits gambling but it also delegates the power to punish the offense of gambling to the legislature. So, if you violate the Constitution's command and, in fact, gamble, you suffer the "punishment" of risking a civil suit by the loser to recover the value of the bet.

In 1903, this legislative scheme to go round the constitution was tested a second time, by one Stedeker who was convicted of keeping a pool room for betting away from the race track. He appealed his conviction under the act, by complaining he was being denied equal protection of the laws, as keeping the room would have been legal, if he had kept it at the race track; well not, legal per se, but the degree of punishment is different.

The New York Court of Appeal disagreed with Stedeker's characterization that the difference in degree of punishment amounted to a denial of equal protection of the laws, because the Act was intended as a "remedial" one, not a "penal" one. Therefore there is nothing to compare in terms of unequal application of the laws to the bookie operating away from the track vs the book who is. Oh, the nuances of the law are so wonderful!

"The statute," the judges said, "relates only to the subject of betting and not to the establishment of a house of gambling which is the offense Stedeker is charged with. The statutes do not authorize gambling on race courses. The constitution forbids that. They simply punish the gambling on race courses with a mere civil liability, while the same gambling under other circumstances or at other places than the race track are made a felony."

Stedeker would have fared better, had his pool room been in Missouri. In 1895, the Missouri legislature passed a law to "prohibit bookmaking at any place other than upon the premises of regular race courses."

"Any person who keeps a room within this state, for the purpose of betting, the bet to be made or to take place within or without this state, shall be guilty of a misdemeanor. Provided that nothing in this act shall be construed to make it unlawful for any person to make a bet on the premises of a regular race course on which such contest is had."

 

Betting in a Pool Room

Hearing Stedeker's appeal from his conviction under this statute, the Missouri Supreme Court would have ruled, as it did in the case of  State v Walsh, in 1896, that the subject legislative act is a special law that takes the class of bookmakers and divides them into two groups, one class of which can operate on race courses and is immune to punishment, while the other class, operating away from race courses, is punished—"doomed" as the court put it, for doing the very same thing. Declaring the law unconstitutional, the Missouri Supreme Court based its conclusion on the idea that it is beyond the power of the legislature to enact a law for the punishment of crime all over the state, and then make that same criminal act non-punishable if perpetrated in certain favored localities.

Of course, the Missouri Legislature wasted little time thumbing its nose at the Supreme Court's rebuke: in 1899, it passed the "Breeders' Law:" the new act provided, unlike the old, for the licensing of bookmakers who could use their license to engage in betting activities upon the grounds of race courses operated by associations, the purpose of which is "to encourage and promote the improvement of stock, particularly running horses, by races between horses for purses." The fees paid into the State Treasury, by virtue of this law, went for a public purpose; i.e., to finance the State Fair at Sedalia.

When a test of this law reached the Missouri Supreme Court, in 1906—the law having already been repealed in 1905—the court refused to declare it unconstitutional, because "the state having received money from that source, it will not now be permitted to say that the law under which the license fees were collected was invalid and of no effect."

This, then, was the legal landscape Jack Ryan settled into, in the fall of 1902, when—just eight months after Mike Kinney shot him—he returned to St. Louis, to milk thousands of St. Louisians of their dollars.

Perhaps inspired by Jacob Herzig's demonstration of the power of Madison Avenue advertising, perhaps not, Jack took the business of betting on horses to a radical new level, along with a fellow traveler; and, within hardly eight weeks,—from the start to the finish—he walked away from St. Louis with eight hundred thousand dollars in cash.

 

Advertisement Appearing in the St. Louis Post-Dispatch, August 1902

Where Jack was, between December 1901, when he was shot in St. Louis, and his reappearance in the city in early September 1902, the record found so far does not say. But, given the set up of his game, the suspicion looms large that he was on the East Coast, working with the Considines to finalize his plan.

Jack did have a competitor in the promotion of the plan—a man who used the alias "E.J. Arnold." In 1902, Arnold appears to have arrived in St. Louis from Hot Springs, Arkansas where he operated a pool room, a little before Jack did. He became connected with P.J. Carmody, Jack's old associate in the 1901 effort to open a race track on Union Ave.  By the time Jack returned to St. Louis, Carmody was operating the Kinlock race course and, with Arnold as the big man in the betting ring, he was putting on a meeting that lasted to the end of November. During this time, Arnold—as was Jack—was advertising a business model in newspapers across the country, distinctly different from that of Maxim & Gay. Arnold and Jack offered the public the opportunity, not to get a race tip for a price from a tout but to deposit money into their hands which they would use, on the depositor's behalf, to bet on horse races—the bet to be based on their professional opinions—with the depositor being guaranteed a weekly dividend on five percent on her investment.

Atlanta Constitution, August 31, 1902

Atlanta Constitution, August 31, 1902

St. Louis Offices of Arnold & Ryan, 1902-03

Of course, the use of the United States Mail was crucial to the success of both men's operations of raking in the dough from the suckers. The advertisements in the newspapers attracted inquiries from investors, and they received in return, through the mails, certain "pamphlets and literature" which formed the legal basis for Arnold's and Ryan's offers to accept money for use in their speculative enterprises; when, after receiving these and reading the terms they contained, if the investor delivered money, to Ryan, for example, the investor had, in legal effect, accepted Ryan's offer and a bilateral contract came into existence and was binding on both.

Of course, too, fame and reputation were important in sealing the deal between the managers of the investors' money and the investors. Here, it seems fair to say, though Arnold may have had a head start in the field, Ryan had the edge when it came to reputation, or did he? Better known, not only in St. Louis but nationally too, Ryan's reputation was decidedly mixed; it depended upon who was vouching for it.

E. J. Arnold's Public Reputation

February 12, 1903

August 12, 1902

August 28, 1902 

October 12, 1902

November 7, 1902

Jack Ryan's Public Reputation 

Cincinnati Enquirer, December 21, 1901 

Atlanta Constitution, December 23, 1901

The Washington Post, December 25, 1901

Los Angeles Times, December 22, 1901

The Racing Form News, November 1902

(Describing winter condition of New Orleans track)

Not surprisingly, soon after they began operations, investigators employed by the United States Postal Department began nosing around Arnold and Ryan. On October 9, 1902, Postal Detective Fulton reported to Washington that he had questioned Ryan at his St. Louis office and had examined the "literature" Ryan was sending through the mails in response to public inquiries. As Fulton's report describes it,

"Upon receipt of an inquiry for particulars Ryan mails a form letter which quotes the advertised guarantee of five percent weekly, or two hundred and sixty percent annually. This is not contingent upon the amount of winnings, but is a fixed rate. Bookmaking alone is alleged to be the source of earnings. In the same mail, a booklet is forwarded, together with a subscription form and a return envelope.

 

The booklet portrays Ryan as having been a successful turf man (true), stable owner (true), breeder and bookmaker for years (true). The booklet restates the offer and suggests that withdrawal of subscriptions would be granted at any time.

 

The booklet states, further, that Ryan does not place the investors' money on horses, but he takes bets of others and plays the field against favorites. (Huh?)  Ryan has no horses. A bookmaking "block" is maintained at the St. Louis tracks, occupied every afternoon by officers of Ryan's company, and it is the company's intention to maintain "blocks" at Latonia, Ky and at New Orleans during the winter.

 

The Ryan Company maintains as its books and records, bookmaking sheets, a check register, a racing manual, percentage sheets, entry cards, and clippings of racing summaries from the Racing Form News.

 

Upon receipt of the investor's executed subscription, a certificate of deposit is issued, guaranteeing five percent, payable weekly. At present Ryan has 720 subscribers who have taken stock in the company since July 1, 1902 to the amount of $25,000. Three fourths of this amount has been subscribed since September 1. This with the company's capital of $30,000 makes $52,000 to be accounted for.

 

The Ryan Company employs a lady clerk, two stenographers, and an office girl; printing expense is about $25 per week, postage about $20. The rent is $10.00 per week. But the Company has now removed itself into spacious and elegantly furnished quarters, at 4th & Locust, at a rental cost of $30.00 per week.

 

We were blocked in an essential feature of the investigation by being complete information as to the assets and liabilities of the company. We examined the racing results on October 6 & 7. The Ryan Company won five of six races on the 6th, netting the company $3,320. We were shown bank deposit slips, showing a deposit of $30,000, and a roll of money Ryan was carrying amounting to $3,500. We could get no separation of the items, and were refused information as to the amount that had been checked out against these deposits for that period, so the deposits were of no value. In declining to give us evidence as to where the $57,000, in cash, was deposited, Ryan said it would give away the secret earnings of the company.

 

When asking why he solicited subscriptions when, according to his statement, $15,000 would be sufficient to run the bookmaking business, he stated that he wanted $50,000 to operate a breeding farm in Maryland and $50,000 to play eastern races.

 

From the information received that Ryan had recently failed in the saloon business (read in the taking over of the 5th Ward), and his lack of financial responsibility, we could assume he has no cash other than what he showed us. It would follow, therefore, that the payment of dividends is dependent upon the receipts from subsequent subscriptions, especially when bets are lost by the firm on races.

 

If bets are not dependent on new business, why should new investments be solicited when it takes less than $10,000 to play the books, and Ryan & Company have amongst them a supposed capital stock of $30,000?

 

Given the fact that the Ryan Company is guaranteeing a 1490 per cent dividend on investments, which cannot be made in this kind of business, or under any ordinary rules of business, that in cases of heavy losses they depend upon contributions from new business as a source of existence, and that the operation of the scheme will result in fraud, if it has not already done so, we recommend that this report be referred to the Assistant Attorney for the Post Office Department, to consider citing Ryan to appear and show cause why a fraud order should not be issued against it."

 

At the same time Postal Detective Fulton's reported landed in Washington, a similar report on E.J. Arnold & Co. hit the desk. The essence of Fulton's report of Arnold demonstrates that Arnold gets the credit for being the first to take the game big.

Arnold's Way Ahead of Ryan in November 1902

Both Arnold and Ryan appeared at Washington to show cause before the Post Office Department's Assistant Attorney General why a fraud order should not be issued. Arnold appears to have been the first, and, after presenting his case to Assistant Attorney General, J.N. Tyner, he walked away with a letter signed by Tyner, which stated E.J. Arnold & Co. was free to continue to use the mails.

How did Arnold accomplish this feat? He paid a bribe to a sitting United States Senator, one Joseph Burton of Kansas. As is the usual case, Burton had suffered financial reverses gambling on his own account; and to recover, he interceded on Arnold's behalf for a fee. The consequence was the receipt from Tyner of a "no fraud" letter which Arnold happily enclosed as an exhibit in his package of materials to inquiring investors.

Kansas Senator Joseph Burton

Senator Burton was convicted of accepting money in exchange for influence, in 1904. This conviction was reversed by the United States Supreme Court on a technicality. Burton was retried on lesser charges and again convicted, a verdict the Supreme Court upheld, in 1906. Burton was expelled from the Senate at that point and spent six months in the Ironton, Missouri, county jail. When he left the jail, in 1907, a crowd of Kansas politicians was on hand to escort him back to Abilene. He died in 1923.

Riding into Washington on Arnold's coat tails, Ryan appears in the office of Asst. Attorney General Tyner to make his case for a "no fraud" order. Tyner, however, is absent, apparently because of an illness, and he has assigned his "law clerk," one George A. Christiancy to act in his place as "Asst. Atty. Gen." With Ryan is a crowd of lawyers, one of which is the son of a sitting U.S. District Court Judge. Another is a lawyer from Indiana named Johns, who apparently is a pal of D.V. Miller, the "Second Asst. Atty Gen." Ryan, dressed in the loudest fashion of the day, carries into the conference room a satchel of cash to show his company is flush, and his explanation of how his business legitimately makes money seems so plausible, given his sweet Irish talk, that Christiancy recommends to Tyner that since Arnold has walked out with a "no fraud" order, why should not Ryan? Christiancy was encouraged in this it seems, by Sec. Asst Atty Gen. Miller who may or may not have taken a bribe from Johns. Although there is confusion in the record about this, Tyner appears to have nodded his head and told Christiancy to sign Ryan's "no fraud" letter for him.

Back to St. Louis both bookies go to gather more lambs. Jack, of course, realizes by now how well Arnold has been doing and he decides to get his game quick up to Arnold's level.

Jack Reorganizes His Business Model

The Components of Jack's Business Enterprise, Nov-Dec 1902

I

Jack gets control of the Newport Ky Race Course

Location of Ryan's Tuxedo Poolroom and Newport Race Track

(Across Ohio River from Cincinnati, at "Wilder's" behind Covington, KY.)

The Racing Form News, November 1902

II

Jack Buys a 146 acre Maryland Horse Farm

What Jack did with the Town Point farm he used as his base in the operation of the Iron Hill outlaw track, in the late 90s, the record does not say; presumably, the property was sold and the proceeds of sale divided between Jack, the Considines, and Sullivan. Leaving Washington with his "no fraud" letter, Jack went directly to Elkton, MD., and purchased the new farm from the estate of William Singerly, a recently deceased prominent social register Philadelphian.

Washington Post, November 16, 1902

Baltimore Sun, Nov 8, 1902

(Deppeler manages Ryan's St. Louis office)

Jack's New Elkton Horse Farm

III

Jack Opens The Tuxedo Pool Room

Location of Jack's Tuxedo Poolroom, Newport Ky.

IV

Jack's Redesigns His Advertising Pitch

Atlantic Constitution, Nov. 23, 1902

Detroit Free Press, Nov. 23, 1902

Of course, a glowing endorsement of Jack from the St. Louis Post-Dispatch certainly can be helpful. This is the newspaper that in less than eight weeks will, in chagrin, begin calling Jack, "Baldy."

St. Louis Post-Dispatch, Nov 23, 1902

Not as an afterthought, but well planned with attorney advice, Jack also changed the terms of the contract the subscriber (depositor? investor? stockholder?) executed when placing her money in Jack's possession: she will receive as before five percent dividend weekly on her investment, Jack's revised "literature" stated; but she must give Jack thirty days notice of her intent to withdraw her principal before he must produce it. The revised literature spelled out, too, that the contractual undertaking between the parties—Jack and the subscriber—involved the risk of loss of the principal through the ordinary course of the business of "cooperative bookmaking." As with any capital investment in a business, the investor's liability for loss is limited to the amount of the investor's contribution to capital.

How all this shakes out in terms of law is a puzzle, indeed. The first obvious problem is to identify who the subscriber is contracting with, that is, handing her money to. Is it the John J. Ryan Cooperative Investment Co.? J.J. Ryan & Co.? John J. Ryan? Or some combination thereof. For the investor of the times, the answer depends upon discovering whether the John J. Ryan Cooperative Investment Co. is actually incorporated in some state, or is merely a dba for Jack. Presumably, Jack's "literature," which the record has not yet disclosed," provides some hint what the situation is.

The second problem for the investor is understanding how the business enterprise the subscriber is investing in, is legal. Given the existence of the Missouri Breeders' Law, Jack's bookmaking activities conducted at St. Louis race tracks—St. Louis Fairgrounds, Delmar, and Kinlock—were legal operations of bookmaking. Because the Tuxedo Pool Room was not located in Missouri, its activities were beyond the scope of Missouri law. But, being located in Covington, Ky, it's operations came within the scope of Kentucky law and, in 1903, Kentucky statute labeled such operations a public nuisance and, hence, they were illegal. However, Jack had placed the pool room in an unincorporated area of Kenyon County called in those days Tuxedo Gardens, between Covington and Newport which the police authorities had traditionally winked at as an open district—a view that continued with little interruption into the 1980s.

A third problem was understanding what assets were owned by the entity that the subscriber had invested in: was the property on which the "Queen City Race Course" was located, an asset? Was the Elkton horse farm an asset? Was the alleged string of thoroughbreds an asset?

Compounding the muddle these problems create, was the problem of understanding how in the world the subscriber expected Jack's business model—in the long run—to both pay the weekly dividends the contract required and eventually pay back the subscriber's principal. The flip side of the issue, of course, is to understand how much money a bookmaking operation of the times ordinarily might make.

Bookmakers of the times ordinarily operated their business with a $10,000 capital investment. Additional capital would be necessary, however, if the bookmaker were to make side bets. Assuming a bookmaking operation for a twenty week racing season, the average bookmaker's net profit for the season would be about $11,000. Of course, if side bets are engaged in, there is no way of knowing whether your profits will be zero or a million for the season, as the outcome is purely a matter of chance. In Jack's case the subscriber might include in her calculation of the likelihood she will get her principal back, the fact that Jack has the Elkton farm and it is supposedly is stocked with a string of thoroughbred race horses. These horses can be entered in races which, if won, will produce substantial purses to add to the income of the business. But will net profit from a percentage book, from side bets, and from purses produce enough income—after the deduction of expenses—to perpetually pay five percent dividends on investment weekly, much less maintain the aggregate capital invested? Those in the racing game certainly knew the answer.

Cincinnati Enquirer, Jan 2, 1903

St. Louis Post-Dispatch, Jan 15, 1903

The Racing Form News, February 11, 1903

Missouri Legislative Committee Arrives in St. Louis, Feb. 14, 1903

In ten weeks—from early December 1902 to early February 1903—Jack Ryan collected two million dollars from the lambs; most St. Louis women but much came in from other cities through the mails. He probably would have collected more for a few more weeks at least, had not E.J. Arnold suffered a run on his business that apparently wiped out his capital. Unlike Ryan, Arnold's "contract" with his subscribers recognized their right to remove their principal from the business upon demand; and, with the St. Louis tracks closed for the winter season, and the bad press accumulating against him, St. Louisians mobbed Arnold's offices in early February, clamoring for their money back. His clerks made payouts until the cash in the vault was gone and Arnold disappeared.

St. Louis Post-Dispatch, Feb 4, 1903

As this was happening to Arnold, Jack maintained a stout public presence, insisting that everything was all right, that business was booming. Nonetheless, subscribers descended upon his store at 4th & Locust demanding their principal be returned, but Jack's clerks pointed their attention to the fine print in the "contract," and, with a happy face, continued to honor dividend calls right down to February 16th, when Jack was arrested.

St. Louis Post-Dispatch, Feb. 16, 1903

End of Part Two
Part One