to achieve legitimacy through association with unions and business enterprises.

The coin-operated machine industry in this country is of great importance. In speaking of this industry we are prone to focus on jukeboxes, and there are, indeed, an integral part of the industry, with more than half a million currently in commercial operation today.

There has been no valid estimate made of the enormous profits reaped in controlled areas by these machines for their owners, operators, and distributors. There has, however, been in recent years a trend toward selling more and more goods and services through machines, and these, too, have been targets for racketeer control.

The revenue from these machines which sell goods and services, exclusive of pinball machines and other amusement devices, reaches a figure of some $2 billion a year in this country.

The stakes, therefore, in achieving control of this industry are very high, indeed. It may be asked what makes the coin-operated machine industry such an attractive target for underworld figures?

First, the lucrative nature of the business itself; second, the fact that much of the business is conducted in cash and presents an excellent opportunity for the concealment and use of illicitly received revenues from other enterprises such as gambling, prostitution, and the sale of narcotics; and third, the very nature of the business which makes establishments in which these machines are most commonly placed subject to outside pressures.

In attempting to achieve control over the industry, racketeers have found it necessary to insure what they like to call stability. But stability' however, in their parlance, has come to mean monopoly. This stranglehold on the industry has been attempted through collusion between employers and associations with labor unions, some of which have been created for the sole purpose of acting as an enforcement area. The businessman who tries to oppose this combination frequently finds an organized drive started against the establishments with which he does business.

The ease with which some of these unions were created-not only locals, but entire internationals-the self-appointment of officers and organizers and the purposes to which these unions have been put, is of keen interest to this committee, because their obvious purpose has no relation to the legitimate labor objectives, and it should be pointed out that many segments of the labor movement itself have actively fought this type of union operation.

I understand that the International Union of Electrical Workers and several other internationals, have taken action against this kind of local union and its operations.

But among the witnesses that we shall have today will be racket figures from various parts of the country who have shown an interest in the coin-operated machine industry. That these underworld figures do come from widely scattered areas is no accident, because there is virtually no area in the United States in which they have not at least made an effort to gain a foothold in this industry.

In the subsequent days of our hearings, which we expect to last about 3 or 4 weeks, we will go back and analyze the problems of individual areas.

Of interest is the fact that while many of the faces will be different, the basic underlying methods of operation will be greatly similar. Senator Church, do you have any statement to make?

Senator CHURCH. I have no statement at this time, Mr. Chairman. The CHAIRMAN. All right, Mr. Kennedy, call the first witness. Mr. KENNEDY. Mr. Arthur Kaplan of the committee staff, Mr. Chairman.

The CHAIRMAN. Will you be sworn?

You do solemnly swear that the evidence you shall give before this Senate select committee shall be the truth, the whole truth, and nothing but the truth, so help you God?

Mr. KAPLAN. I do.

TESTIMONY OF ARTHUR G. KAPLAN—Resumed

The CHAIRMAN. State your name and your present employment. Mr. KAPLAN. Yes, sir. Arthur Kaplan, a member of the staff of this committee, sir.

The CHAIRMAN. How long have you been a member of the staff?
Mr. KAPLAN. Since May of 1957, sir.

The CHAIRMAN. All right, Mr. Kennedy, you may proceed.

Mr. KENNEDY. Mr. Kaplan, you are an attorney?

Mr. KAPLAN. Yes, sir.

Mr. KENNEDY. And a member of the bar in New York and Oregon? Mr. KAPLAN. Yes, sir.

Mr. KENNEDY. As well as the Federal courts; is that right?

Mr. KAPLAN. That is right.

Mr. KENNEDY. From the period of 1952 to the early part of this year, have you spent the majority of your time studying the coinoperated machine business in the United States?

Mr. KAPLAN. Yes, sir; I have, with various Government agencies and in different parts of the country.

Mr. KENNEDY. What other Government agencies have you been with?

Mr. KAPLAN. The Federal Trade Commission, the State of Oregon attorney general's office, and this committee, and the Internal Revenue Service.

Mr. KENNEDY. How many different cities have you gone to, to make a study of this industry?

Mr. KAPLAN. Personally I have gone to at least a dozen and a half, possibly more.

Mr. KENNEDY. Now, could you tell the committee whether we have found an unusually large number of underworld figures in this industry?

Mr. KAPLAN. Yes, sir. One of the very significant characteristics of the entire industry is the permeation of racket figures in it. No matter where you go, you are almost certain to find that leading operators in various areas are hoodlums, and they are people with racket connections and they are people with police records.

This is not true about the majority of the operators in each area, but it would be true in many, many places about the leading people in the area, or the people having the so-called "cream" of the business.

The CHAIRMAN. I think we ought to state right from the outset that we do not condemn this as a business, as an enterprise, and that it is legitimate, and particularly vending machines are a legitimate way of selling merchandise. There is no condemnation of the thing of itself. It is only in those areas where hoodlums and racketeers and disreputable characters have infiltrated and taken over and dominate and control it.

Mr. KAPLAN. This is exactly true, and one of the big problems we find is that in many of the metropolitan areas, reputable businessmen who have been in the industry for many many years are just throwing up their hands and getting out, because they cannot do business on the terms they have to to compete with people who have hoodlum connections.

The CHIRMAN. I just wanted to bear that in mind throughout, that there are a lot of good people and honest people and it is a legitimate business in many areas and so conducted that there is nothing wrong about the business itself. But it has become an attractive enterprise for hoodlums and racketeers to infiltrate, and in many areas they have succeeded in doing that.

Mr. KAPLAN. Yes, sir.

Mr. KENNEDY. Now, Mr. Kaplan, what are the four major categories of coin-operated machines?

Mr. KAPLAN. The industry breaks down pretty well into the arcade and amusement devices, some of which are right here. This might also include some of the gambling devices along with the amusement. There is the jukebox business which is a large segment of the industry and furnishes a service, and the merchandise vending, which furnishes goods and services and ranges from cigarettes to charcoal, and to ice, and to almost any number of things which go through machines today. In effect, it is a very significant aspect of the business and of the economy now and potentially because it represents automation that is coming in the retailing of goods and services.

I think for this reason also that exponent of the business has become increasingly attractive to the more enlightened racketeers who know a good thing, and they are rapidly going in.

Mr. KENNEDY. Actually, and there are also, of course, gambling devices per se?

Mr. KAPLAN. Yes, sir.

Mr. KENNEDY. You have gambling devices and amusement machines and jukeboxes and then the automatic merchandisers of goods and services?

Mr. KAPLAN. Yes, sir.

Mr. KENNEDY. Is this a major industry in the United States?

Mr. KAPLAN. Well, it certainly is in terms of the amounts of money that are concerned.

For example, in jukeboxes alone, you have well over half a million jukeboxes on location, and with conservative estimates we believe that something like over $300 million a year goes through their slots. In the merchandising vending field, you have at the retail value of the items, well over $2 billion worth of goods going through those machines during the past year.

Mr. KENNEDY. And as far as the gambling devices, of course that is several billions of dollars, is it?

Mr. KAPLAN. It is several billions of dollars, and some of the figures we get are astronomical, but it is so hard to verify because of the element of person involved.

The CHAIRMAN. As I understand, the $2 billion applies to just the vending machines?

Mr. KAPLAN. That is just the actual merchandise.

The CHAIRMAN. What the merchandising machines handle.

Mr. KAPLAN. Yes, sir.

The CHAIRMAN. I wanted to get that in the record.

Mr. KAPLAN. Yes, sir.

Mr. KENNEDY. And we will have some testimony shortly on the amusement devices as to what the income generally throughout the United States is on that?

Mr. KAPLAN. Yes, sir.

Mr. KENNEDY. Do we find that there are connections often between those who manufacture the jukeboxes and the manufacturer of pinball machines or some of these other kinds of operations, and could you tell us a little bit about that?

Mr. KAPLAN. There is an interrelationship of product by many of the manufacturers. You find jukebox manufacturers are making cigarette machines, and portable washers and various other things, and a major jukebox manufacturer is today allied with one of the major vending machine manufacturers, and vending machine operating companies. You find that the amusement manufacturing companies make a great variety of products, which will also include gambling equipment.

Mr. KENNEDY. Do you have some specifics on the latter?
Mr. KAPLAN. Well, specific companies, you mean?

Mr. KENNEDY. Well, specific situations where we have found that a company that is manufacturing some of these amusement devices also goes into the gambling equipment?

Mr. KAPLAN. Yes. The Bally Manufacturing Co. manufactures various kinds of amusement devices, and also manufactures gambling equipment.

Mr. KENNEDY. What is the first company?

Mr. KAPLAN. B-a-l-l-y.

Mr. KENNEDY. Where is that company?

Mr. KAPLAN. That is located in Chicago.

Mr. KENNEDY. What is the second company?

Mr. KAPLAN. The Lyon Manufacturing Co. And the third was the O. D. Jennings Co.

Mr. KENNEDY. What does O. D. Jennings Co. manufacture?

Mr. KAPLAN. They manufacture various kinds of amusement devices and arcade equipment and also gambling equipment.

Mr. KENNEDY. And the transformation from an amusement device to gambling equipment then is very easy; is that correct?

Mr. KAPLAN. Well, it is easy both at the manufacturing level and at the operating level, and indeed we find at the operating level it is very clearly used as a cover for gambling operations.

Mr. KENNEDY. Now, do we find that not only is there an infiltration of gangsters and hoodlums into some areas of this business, but also the fact that there is often a very close relationship between so-called unions and employers in some areas of the country?

Mr. KAPLAN. Yes; that is a very close relationship.

Mr. KENNEDY. Now, Mr. Chairman, we have some charts here which will explain the terminology that we are going to be using during the next 3 or 4 weeks, and I think it would be well to get it clarified right at the beginning.

The second point that we would like to make with these charts is the relationship that the union has with the manufacturers, and with the distributors, so that we can get that. That is what we are going to be dealing with during the period of the next 3 or 4 weeks.

So, Mr. Kaplan, will you explain the various charts that we have, showing the manufacturer and the distributor and the operator, and then the location? These are the four basic elements with which we have had to deal; is that right?

Mr. KAPLAN. Yes, sir.

Mr. KENNEDY. The manufacturer, the distributor, the operator, and the location?

Mr. KAPLAN. Yes, sir.

The CHAIRMAN. Identify the chart. What do you term it?

Mr. KAPLAN. Yes, sir. We term this chart an outline of the structure of distribution in the entire coin machine industry. It is common to all the different components we just mentioned, such as arcade equipment, amusement equipment, vending machines, jukeboxes.

It shows how the machine gets from its initial manufacturer to the point where you or I would put a nickel into it, or a dime, or whatever, to get the product.

The CHAIRMAN. Did you prepare the chart, or was it prepared under your supervision?

Mr. KAPLAN. Yes, sir. It was prepared under my supervision.
The CHAIRMAN. That chart may be made exhibit No. 4.

(Chart referred to was marked "Exhibit No. 4" for reference and will be found in the appendix on p. 16925.)

Mr. KENNEDY. Mr. Kaplan, first getting into the manufacturers, what are some of the manufacturers?

Mr. KAPLAN. Well, I will just detail some of the manufacturers of amusement devices. In the jukebox field, for example, we have Rockola, Seeburg, AMI, United.

Mr. KENNEDY. They would fill the top list?

Mr. KAPLAN. That is correct. These would be manufacturers up here [indicating]. For purposes of simplification, these lines, the result of the rest of that distribution pattern would be equally the same for each of these persons, but in order not to have a crisscross we concentrated on manufacturers.

The CHAIRMAN. In other words, the lines from B to the distributors indicated are the same lines to apply to A, B, C, D, and E, to other distributors?

Mr. KAPLAN. Yes, sir. Each manufacturer would have a distributor in each of these different cities.

Mr. KENNEDY. This is a chart which would be applicable not only for the distribution of jukeboxes, but also of pinball machines? Mr. KAPLAN. Yes, sir.

Mr. KENNEDY. That is, in this kind of an operation. Go on to the next.

The manufacturer makes a machine. Now explain how he gets it to the distributor and what the distributor does.