Ok, here's "one of the guys on the board" who's gonna go into it in more detail:
A "racket" is any illegal enterprise, or even a legal one that makes easy money. The name derives from the early part of the last century, when small-time gangsters, to show that they had "arrived," threw themselves parties at which local business people, politicos and subordinate gang members were supposed to show up and pay X amount of dollars per plate, buy pages in a tribute journal, etc. These affairs often were noisy and rowdy, hence they made a "racket." The name stuck to any shady undertaking. A very good depiction of a "racket" dinner is found about halfway through the Edward G. Robinson classic, "Little Caeser," after he supplants Sam Vettore to become boss of the Club Palermo gang.