[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]








                       THE STATE OF ONLINE GAMING

=======================================================================

                                HEARING

                               BEFORE THE

           SUBCOMMITTEE ON COMMERCE, MANUFACTURING, AND TRADE

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           DECEMBER 10, 2013

                               __________

                           Serial No. 113-107


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]





      Printed for the use of the Committee on Energy and Commerce
                        energycommerce.house.gov
                                 ______

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                    COMMITTEE ON ENERGY AND COMMERCE

                          FRED UPTON, Michigan
                                 Chairman
RALPH M. HALL, Texas                 HENRY A. WAXMAN, California
JOE BARTON, Texas                      Ranking Member
  Chairman Emeritus                  JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky                 Chairman Emeritus
JOHN SHIMKUS, Illinois               FRANK PALLONE, Jr., New Jersey
JOSEPH R. PITTS, Pennsylvania        BOBBY L. RUSH, Illinois
GREG WALDEN, Oregon                  ANNA G. ESHOO, California
LEE TERRY, Nebraska                  ELIOT L. ENGEL, New York
MIKE ROGERS, Michigan                GENE GREEN, Texas
TIM MURPHY, Pennsylvania             DIANA DeGETTE, Colorado
MICHAEL C. BURGESS, Texas            LOIS CAPPS, California
MARSHA BLACKBURN, Tennessee          MICHAEL F. DOYLE, Pennsylvania
  Vice Chairman                      JANICE D. SCHAKOWSKY, Illinois
PHIL GINGREY, Georgia                JIM MATHESON, Utah
STEVE SCALISE, Louisiana             G.K. BUTTERFIELD, North Carolina
ROBERT E. LATTA, Ohio                JOHN BARROW, Georgia
CATHY McMORRIS RODGERS, Washington   DORIS O. MATSUI, California
GREGG HARPER, Mississippi            DONNA M. CHRISTENSEN, Virgin 
LEONARD LANCE, New Jersey                Islands
BILL CASSIDY, Louisiana              KATHY CASTOR, Florida
BRETT GUTHRIE, Kentucky              JOHN P. SARBANES, Maryland
PETE OLSON, Texas                    JERRY McNERNEY, California
DAVID B. McKINLEY, West Virginia     BRUCE L. BRALEY, Iowa
CORY GARDNER, Colorado               PETER WELCH, Vermont
MIKE POMPEO, Kansas                  BEN RAY LUJAN, New Mexico
ADAM KINZINGER, Illinois             PAUL TONKO, New York
H. MORGAN GRIFFITH, Virginia         JOHN A. YARMUTH, Kentucky
GUS M. BILIRAKIS, Florida
BILL JOHNSON, Missouri
BILLY LONG, Missouri
RENEE L. ELLMERS, North Carolina

           Subcommittee on Commerce, Manufacturing, and Trade

                          LEE TERRY, Nebraska
                                 Chairman
                                     JANICE D. SCHAKOWSKY, Illinois
LEONARD LANCE, New Jersey              Ranking Member
  Vice Chairman                      JOHN P. SARBANES, Maryland
MARSHA BLACKBURN, Tennessee          JERRY McNERNEY, California
GREGG HARPER, Mississippi            PETER WELCH, Vermont
BRETT GUTHRIE, Kentucky              JOHN D. DINGELL, Michigan
PETE OLSON, Texas                    BOBBY L. RUSH, Illinois
DAVID B. McKINLEY, West Virginia     JIM MATHESON, Utah
MIKE POMPEO, Kansas                  JOHN BARROW, Georgia
ADAM KINZINGER, Illinois             DONNA M. CHRISTENSEN, Virgin 
GUS M. BILIRAKIS, Florida                Islands
BILL JOHNSON, Missouri               HENRY A. WAXMAN, California, ex 
BILLY LONG, Missouri                     officio
JOE BARTON, Texas
FRED UPTON, Michigan, ex officio













  
                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Lee Terry, a Representative in Congress from the State of 
  Nebraska, opening statement....................................     1
    Prepared statement...........................................     2
Hon. Janice D. Schakowsky, a Representative in Congress from the 
  State of Illinois, opening statement...........................     4
Hon. Joe Barton, a Representative in Congress from the State of 
  Texas, prepared statement......................................     5

                               Witnesses

Geoff Freeman, President and CEO, American Gaming Association....     7
    Prepared statement...........................................     9
Andrew Abboud, Vice President, Government Relations and Community 
  Development, Las Vegas Sands Corporation.......................    19
    Prepared statement...........................................    21
John Pappas, Executive Director, Poker Players Alliance..........    25
    Prepared statement...........................................    27
Les Bernal, National Director, Stop Predatory Gambling...........    39
    Prepared statement...........................................    41
Rachel Volberg, Ph.D., Associate Professor, School of Public 
  Health and Health Services, University of Massachusetts Amherst    56
    Prepared statement...........................................    58
Kurt Eggert, Professor of Law, Dale E. Fowler School of Law, 
  Chapman University.............................................    78
    Prepared statement...........................................    80

                           Submitted material

Statement of the National Indian Gaming Association, submitted by 
  Mr. Terry......................................................   124
Statement of the National Association of Convenience Stores, 
  submitted by Mr. Terry.........................................   130
Statement of Jim Thackston, independent software engineer, 
  submitted by Mr. Terry.........................................   153
Correspondence between the late Honorable C.W. Bill Young of 
  Florida and the FBI............................................   167

 
                       THE STATE OF ONLINE GAMING

                              ----------                              


                       TUESDAY, DECEMBER 10, 2013

                  House of Representatives,
Subcommittee on Commerce, Manufacturing, and Trade,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 12:36 p.m., in 
room 2123 of the Rayburn House Office Building, Hon. Lee Terry 
(chairman of the subcommittee) presiding.
    Members present: Representatives Terry, Lance, Blackburn, 
Harper, McKinley, Bilirakis, Johnson, Barton, Schakowsky, 
McNerney, Welch, and Barrow.
    Staff present: Charlotte Baker, Press Secretary; Kirby 
Howard, Legislative Clerk; Nick Magallanes, Policy Coordinator, 
Commerce, Manufacturing, and Trade; Gib Mullan, Chief Counsel, 
Commerce, Manufacturing, and Trade; Shannon Weinberg Taylor, 
Counsel, Commerce, Manufacturing, and Trade; Michelle Ash, 
Democratic Chief Consumer Protection Counsel; and Will Wallace, 
Democratic Professional Staff Member.

   OPENING STATEMENT OF HON. LEE TERRY, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF NEBRASKA

    Mr. Terry. Jan is on her way. I am sorry, Ranking Member 
Schakowsky is on her way and said it was all right to go ahead 
and start. Before I start my opening statement I want to 
introduce and thank our witnesses for being here, and so I will 
go down the list of our witnesses. Mr. Freeman, Geoff Freeman, 
is President and Chief Executive Officer, American Gaming 
Association. Then Mr. Andrew Abboud, Vice President of 
Government Affairs and Community Development at Las Vegas Sands 
Corporation; John Pappas, Executive Director of Poker Players 
Alliance; Les Bernal, National Director, Stop Predatory 
Gambling; Kurt Eggert, Professor of Law, Dale Fowler School of 
Law, Chapman University; and then Rachel Volberg, Ph.D., I got 
you two switched, Associate Professor, School of Public Health 
and Health Sciences at the University of Massachusetts Amherst. 
And I appreciate you all being here today. In Nebraska, we 
wouldn't even consider cancelling a hearing for this little, 
brief flurry that they have here in D.C., or Chicago. So we are 
forging ahead, and I appreciate the fact that all of our 
witnesses stayed true. And of course, you guys probably got 
here before all the panic ensued anyway. But we appreciate you 
sticking tight with us.
    So we will start. Good morning, and welcome all the people 
here in attendance today. We will be reviewing H.R. 2666, the 
Internet Poker Freedom Act sponsored by my colleague on the 
committee, Mr. Joe Barton. This legislation addresses a timely 
issue, the legality of online gaming, specifically pertaining 
to Internet poker.
    Today's hearing title aptly describes why we are here, and 
I am very interested in the state of online gaming in the 
United States and think the issue is ripe for Congress to 
conduct oversight of this matter. Several different factors 
have led to an environment in the United States where the 
status of online gaming is murky, at best. One, a recent DOJ 
opinion that reinterpreted the Wire Act opened the door for 
online gaming, except for sports betting, to be hosted on an 
intrastate basis. This has led to a patchwork of state laws 
with seven states moving to outlaw online gaming while others 
have authorized it in different forms, the most expansive being 
so far New Jersey, which has authorized multiple forms of 
Internet gambling, and of course, Nevada is moving in that same 
direction.
    In addition to the patchwork of state laws, a multi-
national patchwork exists as well. According to a white paper 
by the American Gaming Association, over 85 countries have 
chosen to legalize Internet gaming to some extent. While the 
United States has not explicitly legalized it, our citizens 
still account for about 15 percent of the global revenues to 
the roughly 2,700 Web sites which host online gaming. This 
means that Americans are patronizing these offshore Web sites 
to the tune of over a billion dollars a year, and as if that is 
not confusing enough, as we will hear today, the American 
gaming industry also does not seem to be in agreement on a 
clear path forward for the future of online gaming 
domestically.
    The issues are very concerning to me. While unfettered 
online gaming here in the United States is surely not the 
ideal, absent a clear mandate from Congress, we risk exposing 
our constituents to an environment of a race to the bottom, 
which could present itself. It is my hope that hearings such as 
this one will shed light on what logical steps Congress can 
take to address this growing dilemma. While I understand and 
agree that Congress should not trample on the rights of states, 
I believe it is critical that we gain an understanding for the 
integrity of the different state standards, how this affects 
the citizens of other states and what the role of the Federal 
Government should be in the future of domestic online gaming.
    I am pleased to say that we will be hearing from a balanced 
panel of experts today, and I stress balanced because in 
planning this hearing I want to make sure that we heard from as 
many sides of this debate in all of its nuances as possible.
    And I would like to again thank all of our witnesses for 
being here and yield the last 2 minutes to Mr. Lance.
    [The prepared statement of Mr. Terry follows:]

                  Prepared statement of Hon. Lee Terry

    Welcome to today's hearing--the last hearing of 2013 for 
the Commerce, Manufacturing, and Trade Subcommittee. We have 
had a tremendously productive year on the subcommittee having 
held hearings investigating and learning about diverse areas 
such as:
     The nation's manufacturing sector;
     Issues affecting global trade, such as the EU-US 
trade deal (TTIP) and global intellectual property challenges;
     The Federal Trade Commission on the eve of its 
100th anniversary; and
     Several pieces of legislation, ranging from bills 
dealing with foreign direct investment, to others that address 
race horse doping and today--online gaming.
    Today, we will be reviewing H.R. 2666--The Internet Poker 
Freedom Act, sponsored by my colleague on the committee, Mr. 
Joe Barton. This legislation addresses a timely issue--the 
legality of online gaming, specifically pertaining to Internet 
poker.
    Today's hearing title aptly describes why we are here. I am 
very interested in the state of online gaming in the United 
States and think the issue is ripe for Congress to conduct 
oversight of the matter. Several different factors have led to 
an environment in the U.S. where the status of online gaming is 
murky, at best:
     A recent DOJ opinion that reinterpreted the Wire 
Act opened the door for online gaming (except sports betting) 
to be hosted on an intrastate basis. This has led to a 
patchwork of state laws--with seven states moving to outlaw 
online gaming while others have authorized it in different 
forms--the most expansive so far being New Jersey, which has 
authorized multiple forms of Internet gaming.
     In addition to a patchwork of state laws, a multi-
national patchwork exists as well. According to a white paper 
by the American Gaming Association, over 85 countries have 
chosen to legalize Internet gaming to some extent. While the 
U.S. has not explicitly legalized it, our citizens still 
accounted for around 15 percent of the global revenues to the 
roughly 2,700 Web sites which host online gaming. This means 
that Americans are patronizing these offshore Web sites to the 
tune of over a billion dollars every year, and in many ways 
putting themselves at grave risk.
     And as if that was not confusing enough, as we 
will hear today, the American gaming industry also does not 
seem to be in agreement on a clear path forward for the future 
of online gaming domestically.
    These issues are very concerning to me. While unfettered 
online gaming here in the U.S. is surely not the ideal, absent 
a clear mandate from Congress, we risk exposing our 
constituents to an environment where a ``race to the bottom'' 
could present itself. It is my hope that hearings such as this 
one will shed light on what logical steps Congress can take to 
address this growing dilemma. While I understand and agree that 
Congress should not trample on the rights of the states, I 
believe it is critical that we gain an understanding for the 
integrity of the different state standards; how this affects 
the citizens of other states; and what the role of the federal 
government should be in the future of domestic online gaming.
    I am pleased to say that we will be hearing from a balanced 
panel of experts today--I stress ``balanced'' because in 
planning this hearing I wanted to make sure that we heard from 
as many sides of the debate as possible.
    I would like to thank all of our witnesses for taking the 
time to travel to Washington this week and look forward to 
hearing your testimonies.

    Mr. Lance. Thank you, Mr. Chairman. The legal gaming 
industry is a multi-billion dollar operation with significant 
economic impact in the State of New Jersey, which I represent 
here in Congress, and of course, in the United States.
    According to the American Gaming Association, commercial 
casino operator's reported revenue of $37.3 billionin 2012. In 
New Jersey, revenue from legal gaming in 2012 topped $3 
billion.
    In recent years the development of mobile technology and 
the Justice Department's 2011 legal interpretation of the Wire 
Act have opened the door for states to operate Internet gaming 
within their borders. In November, New Jersey became the third 
state to operate Internet gaming, joining Nevada and Delaware.
    Online gaming in New Jersey allows consumers who are 
present within the State to have access to the same games of 
skill and chance that are offered in Atlantic City's casinos. 
Online gaming has the potential to provide much-needed revenue 
to Atlantic City and to the State of New Jersey's budget. A 
report in our largest newspaper, the Newark Star Ledger, states 
that Internet gambling is expected to produce hundreds of 
millions, if not billions, of dollars in revenue annually. 
Since 1978 when gambling began in Atlantic City the gaming 
industry has been an important part of New Jersey's economy, 
and Internet gaming has the potential to reinvigorate the 
State's industry and secure its financial solvency in the 
future.
    At this hearing we will also examine legislation introduced 
by my friend and colleague, Representative Barton of Texas, the 
Internet Poker Freedom Act of 2013. This legislation would 
establish a program for the licensing of Internet poker by 
states and federally-recognized Indian tribes.
    I look forward to examining this legislation and the 
hearing and testimony from the panel on the state of online 
gaming. Thank you, Mr. Chairman.
    Mr. Terry. Thank you, Mr. Vice Chairman. I now recognize 
the Ranking----
    Ms. Schakowsky. Do you want to ask unanimous----
    Mr. Terry. Oh, yes. Thank you. Ask unanimous consent to 
allow Mr. Heck from the greater Las Vegas area to join us on 
the panel today. Hearing none, so ordered. I now recognize the 
gentlelady from Chicago, the ranking member of the 
subcommittee, for her 5 minutes.

       OPENING STATEMENT OF HON. JANICE D. SCHAKOWSKY, A 
     REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

    Ms. Schakowsky. Thank you, Mr. Chairman. I look around. I 
see there are no weather wimps in this room, and I welcome all 
of you. I know us Midwesterners, this is nothing. We don't get 
it.
    But anyway, I am very happy that you are here to give your 
testimony. This is an important issue that has a significant 
following, and I look forward to hear from our witnesses and 
gaining from all of your perspectives.
    The issue of online gambling is incredibly complex and is 
certainly deserving of our attention. It also is becoming 
increasingly important as last month New Jersey joined Nevada 
and Delaware as the only States to offer real money, online 
casino games. Most states are considering or many states are 
considering similar action, possibly including my home State of 
Illinois.
    I understand that some amount of gambling is already 
occurring online. Establishing a stronger federal role might 
improve oversight, reduce illegal operations, and provide new 
revenues at the federal or state level. However, I do have some 
serious concerns about expanding online gambling. Studies show 
that low income workers, minorities, retirees suffer 
disproportionately from problem gambling. It is important that 
if online wagering expands, protections are in place to prevent 
the exploitation of vulnerable populations. That should include 
limitations on using lines of credit rather than real assets to 
bet. The government should not be in the business of increasing 
the number of people struggling with gambling addiction.
    As a lifelong consumer advocate, I also think it is 
critical if federal legislation is to expand online gambling it 
does so with consumer protections as a top priority. Safeguards 
must be in place to ensure that consumer data is well 
protected. That can be accomplished in part by ensuring that 
standards are in place to limit the unnecessary collection of 
consumer information. Consumers must be adequately informed of 
the data being collected about them and the policies regarding 
the handling of that data. In any legislation to expand online 
gambling, high standards of privacy must be maintained for 
those who choose to engage or not to engage in online gambling. 
Information about frequent betters or those who have self-
identified as problem gamblers to limit their access to online 
gambling must not be shared or sold without the consent of that 
individual. Individual consent should not be wrapped up in a 
complex privacy agreement but should be clear and transparent 
to the user. If an expansion of online gambling is allowed, 
those who choose to play should also have confidence that the 
game they are playing is operated with integrity.
    Is it bots?
    Mr. Terry. Bots.
    Ms. Schakowsky. I don't even know what that is. Bots, 
collusion, and other unfair practices must be kept away from 
any gambling Web sites created to maintain fairness for 
players. I thought maybe that is bets or bats or whatever.
    Again, I appreciate the varied perspectives of our 
witnesses, and I look forward to hearing from them today about 
the current state of online gambling, where we go from here and 
how any future actions can address the many consumer protection 
concerns that I have raised. And I yield back, Mr. Chairman, 
and I think--let us see, Mr. Welch, I asked the others. Are you 
interested in the remaining time?
    Mr. Welch. You spoke for me.
    Ms. Schakowsky. I spoke for him. Thank you. I yield back 
for all of us.
    Mr. Terry. All right. Mr. Barton, you are now recognized 
for 5 minutes.

   OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Barton. Thank you, Mr. Chairman. To my good friend, Jan 
Schakowsky, a bot is a computer program that uses artificial 
intelligence and pre-programmed instructions to play not just 
poker or games of chance but all kinds of things on the 
Internet. And it is there. They are not good things, in my 
opinion. So that is what a bot is.
    I want to welcome some former members out in the audience. 
Jon Porter of Nevada, and the former Chairman of the Ag 
Committee, from California I think, Richard Pombo is out there, 
and so we welcome him back to Congress.
    I want to tell the committee, Mr. Chairman, that God must 
be for this bill because I got up this morning at 4:00 in 
Ennis, Texas, outside of Dallas and braved icy roads and 20-
degree temperatures to get to DFW airport when my good friends 
at American Airlines left exactly on time and God put a 200-
mile-an-hour tailwind behind the plane and I got here an hour 
early. So that tells me that God is for this bill. That is my 
opinion.
    Well, Mr. Chairman, I first want to thank you for holding 
this hearing and Chairman Upton and Ms. Schakowsky and Mr. 
Waxman for agreeing to do it. I want to thank our witnesses. 
This is a serious issue, and it has a lot of ramifications for 
the country.
    When I first got elected 30 years ago, there was no such 
thing as the Internet. You could actually still send a 
telegram. And I talked about flying up here on American 
Airlines this morning. Members of Congress still got two paid, 
roundtrip train tickets to their district. OK? The world was 
completely different. If you wanted to make a bank deposit, you 
had to literally go to the bank. If you wanted to see a doctor, 
you had to literally go to a doctor's office. Everything had to 
be done in person.
    Well, now we have the Internet and iPhones and iPads and 
apps and all these things. Just about the only thing you can't 
do anymore on the Internet is play poker, and that is changing. 
As Ms. Schakowsky has pointed out, lots of states are beginning 
to allow intrastate poker and/or other games of chance. Only 2 
states in the Union don't allow within their borders some form 
of gaming, 2 out of 50.
    So I think the time has come to recognize that in the 
Internet age we need to regulate and set a level playing field 
for those of us who would like to play poker online. And I want 
to emphasize that the Internet Poker Freedom Act, H.R. 2666, is 
a poker-only bill. And for my good friends on the Republican 
side of the aisle, it is a states' rights, user-friendly bill. 
It is an opt-out. We start out saying all 50 states are going 
to allow poker to be played, but if a state doesn't want to do 
it, it just takes the governor of a state to write a letter 
maybe even on the back of a postcard, send it to the Secretary 
of Commerce, and that state will not allow Internet poker 
within its boundaries.
    H.R. 2666 has been developed in openness and transparency. 
It is a refined product of a similar bill that I introduced in 
the last two Congresses. I think it is a good work product. I 
think it would work. I think it would provide fairness and all 
the things that several of the other members who have talked 
about this this morning support. It is not a perfect bill, and 
obviously the purpose of this hearing will be to see where it 
needs to be improved. There are some that talk about the 
problems of addiction and gambling to excess. We have taken 
every recommendation in the bill from the advocates who want to 
try to prevent such bad behavior.
    So Mr. Chairman, I look forward to the hearing. I do 
appreciate you holding it. And I will point out that in the 
last Congress a similar hearing in this subcommittee was the 
most-watched hearing of the entire Energy and Commerce 
Committee in terms of people watching it over the Internet. So 
I am sure we are going to have a lot of people watching this 
today.
    Mr. Terry. Yes, I think we will, especially since we are 
the only hearing.
    Mr. Barton. That is a tribute to your leadership, Mr. 
Chairman.
    Mr. Terry. Timing. But Joe, under your states' rights, I 
will have to ask you at some point in time after the hearing if 
it is all right then if a governor could ban Texas Hold'em and 
just allow Omaha.
    Mr. Barton. We will talk, Mr. Chairman.
    Mr. Terry. Thank you.
    Mr. Barton. If that is the only problem we----
    Mr. Terry. Yes, good point. All right. So our Vegas routine 
is now completed, and now off to business with our witnesses 
here.
    Some of you have been here before, and you know how it 
works. You have 5 minutes to give us your statement. There is a 
little light down there. Green means go, yellow means start 
wrapping it up, red means I am going to start tapping the gavel 
and go onto the next. And then at the end of Mr. Eggert's 
testimony, we will open it up to the questions, of which each 
member will have 5 minutes.
    So with that, Mr. Freeman, thank you all again for being 
here, and you are recognized for 5 minutes.

STATEMENTS OF GEOFF FREEMAN, PRESIDENT AND CEO, AMERICAN GAMING 
    ASSOCIATION; ANDREW ABBOUD, VICE PRESIDENT, GOVERNMENT 
     RELATIONS AND COMMUNITY DEVELOPMENT, LAS VEGAS SANDS 
  CORPORATION; JOHN PAPPAS, EXECUTIVE DIRECTOR, POKER PLAYERS 
    ALLIANCE; LES BERNAL, NATIONAL DIRECTOR, STOP PREDATORY 
GAMBLING; RACHEL VOLBERG, PH.D., ASSOCIATE PROFESSOR, SCHOOL OF 
PUBLIC HEALTH AND HEALTH SERVICES, UNIVERSITY OF MASSACHUSETTS 
  AMHERST; AND KURT EGGERT, PROFESSOR OF LAW, DALE E. FOWLER 
               SCHOOL OF LAW, CHAPMAN UNIVERSITY

                   STATEMENT OF GEOFF FREEMAN

    Mr. Freeman. Thank you, Chairman Terry, and Ranking Member 
Schakowsky and members of the subcommittee. It is great to come 
back before the committee again. I did this several times while 
with the U.S. Travel Association and appreciate the opportunity 
to work with you.
    This hearing couldn't be more timely. Three states have 
already kicked off their versions of online gaming, New Jersey, 
Nevada and Delaware. The demand to play is high, and your 
attention is critical.
    I would like to start by joining the almighty and thanking 
Congressman Barton for his leadership on this issue and 
pragmatic efforts to create a regulated gaming environment. 
That is certainly what we need more of.
    There are three points that I would like to make to 
committee today. The first is that the experience of the past 
several years has yielded one crystal clear conclusion and that 
conclusion is the prohibition of online gaming has not and will 
not work. Until this year, online gaming, poker or otherwise, 
has been illegal in every corner of the country, and the 
Justice Department has led an aggressive crackdown on offshore 
operators. The result? Last year Americans spent nearly $3 
billion on illegal offshore gaming sites constituting nearly 10 
percent of the entire worldwide online gaming market.
    In other words, recent prohibition attempts have only 
created a thriving black market. This should come as no 
surprise to a country where sports betting takes place just 
about everywhere despite an ostensibly blanket government 
prohibition. In fact, it is fair to argue that prohibition has 
given shady offshore operators the best ally they could 
imagine. Legitimate operators, such as my members, respect the 
law, have licenses at stake and stay out of the American 
market. Illegal operators disobey the law and often disregard 
their own customers. Make no mistake, online gaming is here to 
stay. The government cannot put the Internet back into the 
bottle. The question is, are we going to regulate online gaming 
or allow the black market to continue to thrive?
    My second point is the demand for online gaming will only 
continue to grow. The world over, the Internet is changing how 
we live our lives and it is certainly changing the face of 
business. Some companies get on the first wave of that change 
and thrive in the marketplace. Other companies, like 
Blockbuster or Hollywood Video for example, refuse to adapt to 
the needs of their customers and are left in innovation's wake.
    Just 2 weeks ago, in the very first week that online gaming 
was offered legally in New Jersey, more than 50,000 people 
signed up. Last week Juniper Research estimated that 100 
million will conduct gambling on mobile devices by 2018. The 
demand is extraordinary and certainly not going away.
    With this demand and the blossoming black market, my final 
point is that there is an important role for the Federal 
Government. Congress should provide a uniform set of 
protections for consumers while respecting states' rights to 
choose what is in their best interests. The AGA supports a 
strong regulatory regime that insists on player identification, 
age verification, transparent records of all transactions, 
geolocation, aggressive tools for responsible gaming and help 
for those with gambling disorders. New technologies are proven 
to detect the vulnerable and those who may wish to do us harm. 
And it is worth noting that as an industry, we are completely 
aligned on the need to protect vulnerable populations, even as 
we may disagree on the best means of doing so.
    The United Kingdom, France, Italy, Spain, Denmark, Belgium, 
Sweden, Finland, Australia, Japan, Hong Kong, and Canada, just 
to name a few, have all considered the serious issues brought 
before you today, and all have chosen to pursue a regulated 
market. Consumers are protected, national security concerns are 
addressed and economic development is realized.
    In conclusion, let me say that Americans will always 
gamble, offline, online or in whatever form is invented in the 
coming years, and as countless studies show, more than 95 
percent will do so in a responsible manner. We believe the best 
protection for consumers and for our country is strong and 
effective regulation that respects states' rights. We look 
forward to working with you and others in Congress to build the 
type of regulatory framework that is important here.
    Thank you for inviting me, and I look forward to your 
questions.
    [The prepared statement of Mr. Freeman follows:]
    
    
   [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 
    
    
    Mr. Terry. Thank you. And now Mr. Andy Abboud, you are 
recognized for 5 minutes.

                   STATEMENT OF ANDREW ABBOUD

    Mr. Abboud. Thank you, Congressman Terry, Madam Ranking 
Member. I have to say it is an honor for me. This is my first 
time testifying before Congress and have a unique opportunity 
to testify before two hometown congressmen, one being my Husker 
friend here, Congressman Lee Terry, and my congressman in Las 
Vegas, Congressman Joe Heck. Thank you for allowing us to be 
here today.
    I have three simple points as well. I am the Senior Vice 
President for the Las Vegas Sands Corp. in Las Vegas, Nevada. 
We are the world's largest gaming company in the world by 
market cap. We have three simple points. Internet gambling 
takes gambling too far. We would like Congress to restore the 
Wire Act, and we would implore Congress to shut down the 
illegal gaming sites that are out there today.
    Simply, a lot of people say it can't be done. Congress did 
it by shutting down 1,200 online pharmacies that were black 
market pharmacies. It can be done, it needs to be done. There 
are no provisions in place to do that.
    The thought of every single one of these becoming a casino 
should concern all of you. You go into states like Florida 
where we are negotiating for an opportunity to spend $3 to $4 
billion on an integrated resort creating tens of thousands of 
jobs. And not a casino-centric mentality which is what the 
industry has moved away from. But you have to negotiate each 
gaming position. Can you do 2,000 machines? Can you do 100 
tables? And you have to figure out how you blend into the 
marketplace so you don't saturate the market, so you don't 
injure the existing infrastructure, so there is just not too 
much of it.
    And now, for whatever reason, they want to turn every 
single one of these into a casino with unlimited access, 
unlimited provisions. Congressman Terry, I am pretty sure that 
I have known your family from the beginning. Your father 
delivered the news on Channel 7 when I was growing up, and I 
know that you and I probably never saw our parents' credit 
card, let alone did we touch it. But the world has changed. 
Children have 100 percent access to credit cards. They buy 
their apps with it, they buy their iTunes with it. And I don't 
want to speak to the integrity or the intelligence of anyone 
here on this committee and their ability to understand 
technology, but if they legalize it, it is going to be the kids 
that teach their parents how to get on.
    There is a point when it goes too far. Simply because we 
can, doesn't mean we should. December 2011 was not the day that 
the Internet became safe. It is the day the Wire Act was 
overturned. And rather than my industry rushing to make the 
marketplace more safe, it has become a rush to the marketplace, 
without any provisions. The Internet, bots, netbots, all those 
things, Congresswoman, are more prevalent than ever. The 
Internet is more dangerous than ever.
    But I have a lot of respect for Geoff Freeman and for the 
American Gaming Association, and I have tremendous respect of 
our competitors on the strip. We just happen to disagree on 
this issue.
    But I also have a lot of respect for Frank Fahrnekopf, who 
was Geoff's predecessor, and I want to read a letter he put in 
Gaming Compliance in just February of 2012. ``Finally, it is 
important to remember what the DOJ decision really is. It is an 
opinion of the current Justice Department, not the law of the 
land as determined by the Supreme Court or any other court 
decision. The opinion is counter to that of four prior 
administrations that considered this matter, and when President 
Obama ultimately leaves office, the DOJ serves under the next 
president to reverse this opinion. Near the end of last year I 
had the opportunity to testify on behalf of the commercial 
gaming industry before the U.S. House Committee on Energy and 
Commerce, Subcommittee on Commerce, Manufacturing, and Trade. I 
told Congress that without a federal framework on online 
gaming, there will be a patchwork quilt of rules and 
regulations that while aimed at protecting consumers could have 
the opposite effect by confusing customers and making it 
difficult for law enforcement to manage. I believe that still 
in the DOJ's opinion and its implication reinforce my 
concerns.''
    Members of the committee, the thought of a 50-state 
solution is scary. We are imploring on Congress to act, to 
restore the Wire Act, to conduct a study, if it shows that the 
Internet can eventually be safe. But it is time to stop. Don't 
make a race to the bottom of the marketplace. Restore the Wire 
Act and protect American consumers. Thank you, and I look 
forward to your questions.
    [The prepared statement of Mr. Abboud follows:]
    
    
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    Mr. Terry. Thank you. Mr. Pappas, you are now recognized 
for 5 minutes.

                    STATEMENT OF JOHN PAPPAS

    Mr. Pappas. Thank you. Chairman Terry, Ranking Member 
Schakowsky, and distinguished members of this committee, I 
would like to thank you for holding this hearing and for 
allowing me to testify.
    I have the great honor of serving as Executive Director of 
the Poker Players Alliance, an organization of 1.2 million 
American poker enthusiasts. Poker players are passionate about 
the freedom to play this game, and I have little doubt that 
every member of this subcommittee has heard from poker 
activists in their home states urging Congress to enact a 
sensible federal policy that licenses and regulates Internet 
poker.
    It is my hope that the committee will respond by taking up 
legislation introduced by Congressman Joe Barton, H.R. 2666, 
the Internet Poker Freedom Act. The PPA stands in strong 
support of Congressman Barton's bill, and I congratulate the 
Chairman Emeritus for his leadership on this issue, and the 
poker player community thanks God that you are on our side.
    The Internet Poker Freedom Act focuses on corralling the 
current unregulated marketplace and turning it into a system 
that is safe to consumes and accountable to regulators and our 
government. The bill mandates technologies to protect consumers 
from fraud, eliminate underage access and mitigate problem 
gambling. Mr. Barton's bill does not force any state to 
participate in the federal system, and it allows states to 
implement their own online gaming regulations. This is 
especially important given that three states, Nevada, Delaware 
and New Jersey, have authorized and are regulating Internet 
poker and Internet gaming today.
    While the PPA would prefer the passage of a federal 
Internet poker bill, we strongly support the rights of states 
to pursue Internet gaming opportunities in the absence of a 
federal law.
    The adoption of regulated Internet gaming in the United 
States means the policymakers can no longer consider regulated 
Internet gaming as a theoretical. It is not a theory, it is a 
reality, and it is here today. Not only can we reference the 
current U.S. regulated market, we also have the benefit from 
learning from Europe where it has been regulated for more than 
10 years. Of course, there are those who advocate for a ban on 
Internet poker and Internet gaming. This misguided approach 
would only serve to harm the most vulnerable populations that 
regulation properly protects.
    I would like to take a moment to provide the subcommittee 
with information on how a combination of regulation and 
technology can meet these challenges. Due to time constraints, 
I urge you to review my submitted testimony for a more in-depth 
review of these facts.
    With respect to underage access, gaming site operators are 
required to implement state-of-the art age verification 
software before being licensed and before accounts are opened 
and bets are settled. Failure to undertake rigorous age 
verification would result in the loss of a license and the 
closure of a business. While the U.S. market is still very new, 
it is notable that in Nevada, which began accepting Internet 
poker play in April of this year, there has not been a single 
reported incident of underage access.
    Another important matter is to ensure we are appropriately 
addressing problem gambling. Comprehensive research on the 
issue concludes that online gaming operators have effective and 
sophisticated tools to prevent and combat problem gaming. Most 
regulated online gaming markets require their licensees to 
employ these technologies to monitor their players and combat 
against problem gaming abuse.
    Finally, opponents of Internet gaming have claimed that the 
activity is vulnerable to fraud and criminality. Let me say 
that prohibition will just play into the hands of the criminal 
element just as it did in the 1920s when alcohol was banned. It 
is far better for the players' financial fate if the safety and 
security of their Internet gaming transactions are in the hands 
of the U.S. banking system and responsible, regulated American 
gaming corporations.
    Again, I ask that you refer to my submitted testimony for 
greater details on these issues, and I welcome the opportunity 
to discuss them further in the Q&A portion of this hearing. In 
closing, it might be useful to focus on the questions that are 
not before the committee right now. First, this committee is 
not deciding whether Americans will gamble on the Internet. 
Millions of them do so today, and except in a few states where 
the activity is licensed, they are playing on offshore sites 
with uneven regulation at best.
    Second, the committee need not ask if Internet gaming can 
be successfully regulated. It is successfully regulated today 
in European jurisdictions, and here in the United States, 
online casino and poker games are regulated in three states and 
online lottery and horse bets are successfully regulated in 
dozens more. The question before this committee is who, if 
anyone, will provide U.S. players with a safe and well-
regulated place to play poker on the Internet. We continue to 
urge Congress to enact the Barton bill and thus accomplish this 
federally. At a minimum, we urge Congress to do nothing to 
prevent the states from licensing and regulating Internet 
poker.
    Once again, Mr. Chairman, members of the committee, I thank 
you for the opportunity to testify, and I look forward to 
answering your questions.
    [The prepared statement of Mr. Pappas follows:]
    
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    Mr. Terry. Thank you. Mr. Bernal, you are now recognized 
for 5 minutes.

                    STATEMENT OF LES BERNAL

    Mr. Bernal. Good afternoon. My name is Les Bernal. I am the 
National Director for Stop Predatory Gambling, and our mission 
is to end government sponsorship and promotion of gambling. I 
appreciate the invitation to be here today.
    As you consider Internet gambling, I ask you to imagine 
yourself sitting down with your kids, your grandchildren, your 
nieces and nephews, in front of a video game, and encouraging 
them to put their money into it, to play it over and over 
again, but you knew they could never win, yet you kept 
encouraging them to do it.
    You would never do that, but for the last 40 years in 
American life, that is exactly what government has been doing 
by sponsoring and promoting casinos and state lotteries. The 
more citizens put their money into these games, the more money 
they are going to lose. Government in this case is not merely 
permitting private, consensual behavior. This is a public 
policy. This is a government program that actively sponsors 
gambling and promotes it by granting monopolies and awarding 
regulatory advantages to favored firms.
    Government-sponsored gambling is a public policy that has 
failed, and it has failed because, one, it has transformed 
gambling from a private and local activity into the public 
voice of American government such that ever-increasing appeals 
to gamble and ever-expanding opportunities to gamble now 
constitute the main ways that our government communicates with 
us on a daily basis.
    Government-sponsored gambling has also failed because it 
has failed to deliver on its promises to fund education, to 
lower taxes, to pay for needed public services. Just look at 
the evidence from your own states.
    But thirdly, most importantly of all, government-sponsored 
gambling has failed because it has contributed to patterns of 
inequality in America, increasing the divide in our country 
between the haves and the have-nots. Now, there are many forces 
currently contributing to the rise of inequality such as 
globalization and technological change that cannot be directly 
controlled by public policy. But government-sponsored gambling 
is a public policy and it exists only because policymakers want 
it to exist.
    So whether it is Internet gambling or other forms of 
government-sponsored gambling, this is a public policy that is 
based on cheating and exploiting citizens. The best example is 
slot machines. The machine is mathematically designed that you 
will lose your money the longer you play it. From the get-go, 
the more you play, the more you lose, and the big money in 
Internet gambling is in online slots which make up the 65 to 80 
percent of all gambling traffic. And you should know that in 
the brick-and-mortar business, 75 percent of that money they 
make is coming from slots. It is all about slot machines. And 
there are countless stories about how government-sponsored 
slots are cheating and exploiting citizens, but I am going to 
share just one. In 2004, New York Times reporter Gary Rivlin 
toured the headquarters of International Gaming Technology, 
known as IGT. They are America's biggest maker of electronic 
slot machines, and today they design the leading platform for 
Internet gaming.
    Rivlin, the New York Times reporter, tells a story of his 
visit to the IGT building. ``Most of the time most of the 
people I met inside IGT told me they never played slot machines 
on their own time. Even one corporate PR staff couldn't resist 
shaking her head in disbelief as she described scenes of people 
lining up to play a new machine. 'It was unbelievable to me,' 
she told me. And when I asked one IGT artist if he ever plays, 
he acted as if I insulted him. 'Slots are for losers,' he spat 
and then coming to his senses begged me to consider that an 
off-the-record comment to a New York Times reporter.''
    ``Slots are for losers,'' he said, and many of these losers 
are your constituents. In government's partnership with 
gambling, there is one kind of loser who is the most lucrative 
of all, the problem gambler. We refer these people as the 
expendable Americans because everyone else is going to benefit 
from the public dollars that come in from people's gambling 
losses, but this money, we have read it, millions of America is 
expendable, the addicts.
    Gambling operators spend millions of dollars on public 
relations and research to create the public impression they are 
not exploiting citizens. Yet, despite all this money, there are 
two questions they never answer, and maybe we will get that at 
this hearing today. The first one is how much gambling revenue 
comes from problem gamblers? And the second question is, what 
percentage of gambling revenue comes from people who follow 
``responsible gambling codes of conduct''? We hear that a lot, 
responsible gambling. How much of the revenues come from people 
who actually practice that?
    So on the last page of my written testimony, there are 11 
different studies, 11 different independent studies that show 
40 to 60 percent of their profits, gambling profits, come from 
problem gamblers. That list was compiled as part of a recent 
report entitled Why Casinos Matter written by the Institute for 
American Values.
    The second question, gamblers who manage to follow 
responsible gambling codes of conduct, they contribute a mere 4 
percent of gambling revenues.
    So in closing, government's partnership with gambling has 
failed. The evidence is all around us that it has been a failed 
experiment, and sponsoring Internet gambling would be the 
biggest failure of them all. Just like we wouldn't encourage 
our own kids or grandchildren to put their money into a video 
game they would never win, it is time our government stopped 
cheating and exploiting our own citizens by sponsoring 
gambling.
    [The prepared statement of Mr. Bernal follows:]
    
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    Mr. Terry. Thank you. Dr. Volberg? You are recognized for 5 
minutes.

                  STATEMENT OF RACHEL VOLBERG

    Ms. Volberg. Thank you, Chairman Terry, Ranking Member 
Schakowsky, and members of the subcommittee. I would like to 
thank you for inviting me to testify this morning. My remarks 
today will focus on the likelihood of an increase in problem 
gambling in the wake of the introduction of online gambling, in 
possible changes in those most vulnerable to developing 
problems and on additional measures that could be adopted to 
protect consumers and minimize harm.
    The bill before you, H.R. 2666, provides for federal 
oversight of states and tribes that would issue licenses for 
online poker. H.R. 2666 includes several laudatory requirements 
for addressing problem gambling and responsible gambling 
including provision for a federally managed self-exclusion 
program. H.R. 2666 requires states and tribes to adopt 
practices that the Federal Government recommends to protect 
consumers and amends the Public Health Service Act to give 
SAMHSA authority to address gambling addiction.
    While these are welcomed improvements over an earlier 
version, I remain concerned that while H.R. 2666 authorizes 
SAMHSA to establish and implement programs for the 
identification, prevention and treatment of problem gambling, 
there is no specific mention of research or any provision to 
assure that research on online gambling and its impacts will be 
undertaken.
    There is substantial research internationally showing that 
problem gambling rates are three to four times higher among 
online gamblers compared to those who gamble but not online. It 
is quite likely that there will be an increase in problem 
gambling prevalence in the United States as online gambling 
participation increases and as inexperienced players encounter 
difficulties controlling their involvement.
    Although these new problem gamblers may eventually overcome 
the difficulties related to their gambling, most of the 
financial, psychological, social, work, school, and legal harms 
associated with problem gambling cannot be undone.
    Problem gambling is not distributed evenly throughout the 
population, and some groups are more vulnerable than others. 
Generally speaking, males, adolescents, some racial and ethnic 
groups and people with low income an education have the highest 
rates of problem gambling. However, in some countries, rates of 
online gambling participation are higher among women and older 
adults compared with more traditional forms of gambling, and 
these new groups of gamblers may be particularly vulnerable to 
developing problems going forward.
    Understanding who is vulnerable has relevance to both 
gambling policy and the development of effective interventions. 
Beyond likely increases in prevalence, risk profiles may also 
change, and it would be important to be prepared to address the 
needs of new groups of problem gamblers as these emerge in an 
online environment.
    Constructing public policy and developing effective 
interventions requires empirical evidence which in turn 
requires research. Internationally, research serves an 
increasingly critical role in informing gambling policy and 
regulation. However, the roughly $3 million that is spent 
annually on gambling research in the United States means that 
we know very little about how gambling in our country can be 
most safely provided.
    My own experience suggests that redressing this issue 
requires enshrining both consumer protection and the role of 
research in legislation that permits new forms of gambling. 
Most such legislation emphasizes revenue generation, and 
mention is rarely made of consumer protections.
    That is why I am particularly proud of the legislation that 
was passed 2 years ago in my home State of Massachusetts. The 
Expanded Gaming Act makes it clear that the intention of the 
statute is to provide the greatest possible economic benefits 
while reducing to the maximum the potentially negative 
consequences of introducing casino gambling to the 
Commonwealth. The effort to reduce negative consequences 
includes establishment of a public health trust fund from which 
5 percent of the tax revenues generated annually by the three 
new casinos will be distributed for problem gambling research, 
prevention, and treatment.
    Thank you for the opportunity to testify, and I look 
forward to answering your questions.
    [The prepared statement of Ms. Volberg follows:]
    
    
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    Mr. Terry. Well, thank you, Dr. Volberg. Mr. Eggert, you 
are now recognized for your 5 minutes.

                    STATEMENT OF KURT EGGERT

    Mr. Eggert. Thank you, Mr. Chairman, and madam ranking 
member and members of the committee. I appreciate you inviting 
me back. I was here 2 years ago at a similar hearing and 
testified similarly. I talk about consumer protection and 
gambling, and gambling is a consumer industry which means that 
consumer protection should be hard-wired into every aspect of 
its regulation. And so I would like to talk about what I 
consider three very important aspects of consumer protection 
that should be considered in legalizing Internet gambling.
    Number one is that gamblers should always be provided with 
all of the information that they need in order to make good 
decisions about whether, when, where and how to gamble. They 
should be given the information they need to be good shoppers. 
It used to be that we looked down on gamblers and treated them 
as like lesser, you know, almost evil people. And now they are 
just consumers. It is like buying a car, and if you are buying 
a car, you get to have information about gas mileage. In the 
same way, if you are buying gambling, you should get all the 
information you need.
    A crucial piece of information for slot machines is the 
hold percentage. Every slot machine is designed to have a 
specific hold percentage which is the amount that the casino on 
average keeps of the bet, returning the rest in winnings. Why 
don't we get to know that every time we use a slot machine? 
That is basic information that every consumer should have any 
time they play a slot machine, either on the Internet or in 
land-based casinos.
    It is especially important for Internet slots because you 
are not in a casino. You haven't picked the slot machine based 
on the staff or the ambiance or the floor shows. You are just 
sitting in front of your computer, and so if you are looking to 
decide where to play, the hold percentage of the slot machine 
should be paramount. And so any Internet slot machine should 
tell you as you shop and as you gamble what hold percentage you 
are facing.
    The second rule of consumer protection Internet gambling 
concerns bots, poker bots. What these are are consumer software 
programs designed to play poker, and I think it is important 
that players shouldn't lose money to poker bots that can play 
better than they can, unless they want to. If you choose to say 
I want to go against the best bot in the world, then more power 
to you. But you should get to know that that is what you are 
doing.
    Now, there was a poker bot ring in Sweden in the last year 
that, as far as I can tell from the news, won like a million 
dollars or more in just a couple months. If bots are strong 
enough and good enough to do that, they are a significant 
threat and we have to address that problem. Bot-makers are 
getting better all the time. There is a bot playing Limit Texas 
Hold'em that, according to the New York Times, can beat most 
people in the world. There is a new company that says they 
designed a neural network bot that can play No Limit Texas 
Hold'em as well as most people.
    And so as computers get better, as neural networks get 
better, making bots is going to get easier and easier. And the 
day will come where some kid in their garage with a high-
powered computer can make a bot that can defeat most human 
players. It will be a challenge to stop that, and if we can't 
stop that, we have to give players some defense so that they 
know if they are playing a bot or if they are playing somebody 
who plays abnormally well like a bot might, so what I would 
recommend is we would have ratings for poker players so that 
you can tell when you are facing a much, much better player 
that may well be a bot.
    A third important aspect of consumer protection is giving 
players the power to self-exclude and to limit their play, 
either by the day, week or month by how long they play or how 
much they bet and give them this kind of protection so that 
they can control their betting. It is a consumer industry. 
Consumers should be empowered to make good decisions. And so 
the industry should give them the tools they need to make good 
decisions.
    In my testimony I talk a lot about what the different 
states have done and what Congressman Barton's bill has done, 
and I would be happy to answer questions about that further. 
But again, I thank you for allowing me to testify.
    [The prepared statement of Mr. Eggert follows:]
    
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    Mr. Terry. Well, thank you for your return performance, 
sticking with kind of a show theme. Thank you all for your 
testimony, and now it is time to begin our questions. And my 
first one, because you are a law professor, I want to ask you 
this question----
    Mr. Eggert. Guilty as charged.
    Mr. Terry. This is a DOJ opinion about the Wire Act. People 
tell me it is the law. Can you work us through as quickly as 
you can as a law professor, is that the law?
    Mr. Eggert. Well, the law is what the courts and the people 
enforcing the law say it is to some extent. I think that is----
    Mr. Terry. Good point.
    Mr. Eggert. I think it is a valid interpretation of the 
law. The DOJ's position, I think you can make a strong argument 
that it is the correct one. And so it isn't the law itself but 
it is not a horrible misinterpretation of the law.
    Mr. Terry. What happens if New Jersey or Nevada or Texas 
goes forward and there is a new administration next year or I 
mean in a couple years or there will be and the DOJ goes back 
to the previous four administrations' interpretations of the 
Wire Act?
    Mr. Eggert. Then you would have an interesting battle 
between the states, which I think at that point would be loath 
to give up their flourishing Internet industry, and they and 
the DOJ would have to fight it out in the courts. And 
ultimately the courts would determine who was correct.
    Mr. Terry. And that would be a ripe one for the Supreme 
Court to probably take up on a fast track.
    Mr. Eggert. I would think so.
    Mr. Terry. Yes, legally, it is just very interesting, and 
as a former lawyer, those are the type of issues that kind of 
get my attention but also as a father they get my attention, 
and probably starting at about 8, my kids became pretty savvy 
shoppers with my credit card online. In fact, it is to the 
point where I just say you go to the Web site and do it 
yourself.
    Ms. Schakowsky. Add to cart.
    Mr. Terry. Add to cart. Yes, on Dad's credit card which 
they think is theirs. And in fact, they at least for their 
lacrosse equipment, does that all the time. My card is already 
in there. And so they go get their new set of lacrosse gloves 
or pads or whatever, and then the next day I open up my email 
and see the receipt and call them and say what the heck did you 
do?
    But Mr. Abboud and then to Mr. Pappas as well, how do we 
prevent the children who, as Mr. Abboud said and when you said 
that it hit right at home, how do we really know if a minor is 
playing, if they are using Dad's credit card or Mom's and how 
do we prevent that? Mr. Abboud first.
    Mr. Abboud. Don't legalize it and----
    Mr. Terry. OK. Mr. Pappas?
    Mr. Abboud [continuing]. Shut down the illegal operators 
that are here that are operating today. You can get into a 
long, technological discussion about whether you can or can't 
prevent minors from getting involved, and I think some people 
believe you can, some people believe you can't. I have seen the 
technological demonstrations. I think they are a barrier to 
market. I think by the time someone has to go through all of 
that, they will find that if you don't shut down the illegal 
sites, that is where they will end up.
    But also when you speak to children I think with respect to 
Congressman Barton whom I have tremendous respect for, and for 
Mr. Pappas to my left, I think their intentions about poker are 
very clear. But I don't think that is the intent of the 
legalization of online gaming. I think that the unclear nature 
of what the Wire Act means was hopefully Congress would take 
action. And I think that using the poker analogy, for the 
industry to go state by state, particularly in Nevada, to try 
to scare Congress into acting, was probably the worst bluff in 
the history of poker.
    In Nevada, almost shamefully, they rushed it through the 
legislature with an emergency declaration, passed unanimously 
by both houses. We need to pass this poker bill now. We need to 
set the precedent. It is just poker. It is just poker. It is 
just poker. Nine months later it turns out it wasn't just 
poker. They have the ability without the act of the legislature 
to do full online gaming because it wasn't sustainable. Poker 
is not a sustainable market. It is fine if people want to play 
poker online. If it is safe they can probably do it. But it is 
about this. It is about slot machines geared toward children, 
Marvel comics, Iron Man, kiddie slots. You know, this stuff is 
not what we are about. That is where the industry is going to 
go, and unless you----
    Mr. Terry. All right. Let me----
    Mr. Abboud [continuing]. Shut down those illegal sites and 
unless we restore the Wire Act----
    Mr. Terry. I want to save some time----
    Mr. Abboud [continuing]. We keep----
    Mr. Terry [continuing]. For Mr. Pappas on that. And by the 
way, when I got on one of my iPads, they did download an app 
for slots. I deleted it, but they weren't gambling but it was 
just a regular app. Mr. Pappas.
    Mr. Pappas. I appreciate the opportunity to respond, and I 
think it is important that we recognize that age verification 
technology exists, not only in Internet gaming but in all forms 
of e-commerce that are age restricted. When you talked about 
your children buying lacrosse products, those aren't age-
restricted products. Therefore, there wasn't an age-
verification system in place for them to make that purchase. If 
a person wants to make a deposit on an Internet gaming Web 
site, they would have to go through tremendous and rigorous 
levels in order to be able to make that deposit, proving that 
they are not only who they are, saying who they are, this is 
Jon Pappas depositing, but that Jon Pappas is actually 21 years 
of age.
    And as I mentioned in my testimony, underage access in 
Nevada where this has been going on since April is zero. There 
has not been one reported incident of underage access in the 
State of Nevada and further----
    Mr. Terry. How do you know, though?
    Mr. Pappas [continuing]. Looking at the European----
    Mr. Terry. That is one of the questions I have is how do 
you know, though?
    Mr. Pappas. Because regulators actively seek to try to get 
on the sites themselves, and if there was a parent or a child 
was able to access a site and I would suspect if they lost 
money on that site, the parent would have to report that to the 
authorities, to the regulators as well as to the credit 
agencies, and they would either get a refund for the money. 
None of that has been recorded. And if you look at the European 
experience which has been going on for a decade, in 2011, the 
European Children's Charities Coalition on Internet Safety 
notified the European Commission that since 2007 they have not 
been made aware of a single instance where a child has beaten 
the system and gotten online to gamble.
    The fact is age verification is here. It is working very 
effectively today. I welcome any way that we can improve it to 
ensure that children don't have access to these sites because I 
think that is extremely important. But I will say that it has 
been working very effectively already.
    Mr. Terry. Thank you. My time is up. Now the ranking member 
of the committee, you are recognized for 5 minutes for your 
questions.
    Ms. Schakowsky. Well, first of all, let me congratulate the 
panel, every one of you. I found myself nodding as the 
arguments are compelling.
    But Mr. Abboud, you gave very passionate testimony I think, 
but I just want to mention this that the Venetian Casino is 
owned and operated by Sands and Mr. Sheldon Adelson, and there 
is actually promotion of mobile casino wagering. A direct quote 
from the Venetian, ``Is there anything you can't do on a smart 
phone or tablet nowadays? Mobile casino gaming is available to 
you on property during your stay, and you can even play from 
your room.'' That is one quote, and the other is they also 
promote on their Web site a mobile sports betting app for smart 
phones, tablets and PCs, and they tout that the app ``allows 
you to wager anywhere in Nevada'' which is not a far cry from 
anywhere in the United States.
    So I just want to say that--feels to me a little 
hypocritical. But having said that, I wanted to ask about, Mr. 
Eggert, the consumer protections. Do you feel that it is 
possible to make sure that the consumer protections are built 
into legislation sufficiently to protect people from the 
potential abuses of online gambling?
    Mr. Eggert. I think that there are good consumer protection 
devices that can be built in. I am not sure if you can ever 
have a perfect system. I think the problem of poker bots is 
going to be a difficult one, and I don't know that there is a 
good consumer protection solution to bots. But I think for slot 
machines, we can certainly have better protection than we have 
in almost any place in the country, specifically better 
information about hold percentages, and I think you can also 
design good methods for people to control their gambling that 
should be hard-wired into it.
    So we can do a lot better, but I don't think you can have a 
perfect system.
    Ms. Schakowsky. I also wanted to ask, was it Mr. Abboud 
talking about its public policy? Were you the one that was 
talking about how now we have turned gambling into--no, that 
was you, well, here is the thing. I was in the state 
legislature. We were often sold the lottery and other kinds of 
gambling revenue as helping our schools and in Illinois 
supposedly for education. I know that for a time it really 
displaced money that would ordinarily go for the general 
revenue funds to education. I think that was corrected now in 
Illinois. But what is the history of that and do these 
revenues, which are significant, actually help us to fund the 
needed priorities for our governments?
    Mr. Bernal. Sure. So without question the answer to that is 
it has failed to produce the revenues that they have promised. 
No one can name a state in this country, whether it is from 
Georgia to Washington State, where people have said, in Georgia 
they are going to fund scholarships through their lottery, and 
then in the end what you see happening is low-income people 
losing money to pay for middle-class kids to go to college. And 
now that revenue hasn't sustained itself. So now they are going 
to turn to slot machines in Georgia.
    Ms. Schakowsky. So have there actually been studies that 
would show us?
    Mr. Bernal. Oh, yes.
    Ms. Schakowsky. Do you have studies----
    Mr. Bernal. The Rockefeller Institute in Albany. SUNY 
University up in Albany has done a great study, more so than 
any other entity out there, has done a great breakdown of the 
fact that gambling is not a sustainable revenue source from a 
governmental standpoint.
    Ms. Schakowsky. OK. And Dr. Volberg, Mr. Bernal also cited 
some studies about the amount of revenue that comes from 
problem gamblers. Is there a way, do you think, that would 
actually work that could address that problem?
    Ms. Volberg. Yes, the----
    Mr. Terry. Microphone.
    Ms. Volberg. Oh, sorry. The issue of the proportion of 
revenues that come from problem gamblers has been a contentious 
one, and Mr. Bernal's testimony lists quite a number of 
different studies that have been done. But the challenge is 
that the ratios are different in different jurisdictions. So 
the industry's approach to trying to address the issue of how 
much they depend on problem gamblers has been to try to expand 
the pool of people who gamble occasionally so that you have 
more people who are contributing to the pot, if you will. But I 
think in the end, the industry is going to be dependent to a 
significant degree on people who spent more than many of us 
think they should on their gambling involvement.
    Ms. Schakowsky. If I could make just one more comment, in 
Illinois the lottery manager was just directed to expand the 
promotion beyond low-income people to people who have more 
revenue. Thank you.
    Mr. Terry. The chair recognizes the Full Committee Vice 
Chair, Ms. Blackburn.
    Mrs. Blackburn. Thank you, Mr. Chairman, and as a point I 
think just kind of a reality touch point to this hearing, Mr. 
Barton, who we all dearly love, got off on a little bit of a 
tangent when he did his opening statement this morning and said 
he thinks that God is in favor of his online poker bill because 
his flight got in early and, you know, he thinks he had angel 
wings to help get him here.
    But I would encourage the gentleman from Texas to remember 
he only need look at the number of his bill, 2666, to remember 
that the devil is in the details, so just as a point of careful 
guidance and instruction.
    Mr. Barton. At least you were listening to me.
    Mrs. Blackburn. Mr. Barton, I am always listening. We women 
do that very well. Woo, yes. OK. Back to the questioning. 
Aren't you all glad you came? We are glad you came because I 
don't know if it is Mr. Eggert, the botnet that is out there 
spamming our Twitter accounts or what, but indeed they are very 
active and we fully realize that.
    Some of you may be aware that Congressman Welch and I are 
co-chairs of a privacy working group, and Ms. Schakowsky is a 
part of this. And I have to tell you, it is a bipartisan group. 
It is a part of this committee. We are enjoying the education 
that we are getting on privacy issues and concerns from our 
constituents, and we are learning a lot. And one of the things 
that we have really taken note of is how incredibly complex the 
expectations of privacy are from constituents and from 
different participants in the industry. And we are seeking to 
work through this in our working group sessions.
    So Mr. Freeman and Mr. Pappas, I want to come to you, Mr. 
Freeman, let us start with you. What are the expectations a 
consumer will have of privacy for their participation and their 
information if they log onto one of the sites? First you, and 
Mr. Pappas, if you will follow him?
    Mr. Freeman. Thank you, Congresswoman. I think many were 
expecting Andy and I to have the fireworks today, so I am 
thrilled to see you and Mr. Barton taking the stage. When it 
comes to privacy, that is obviously an area that we value 
significantly. Consumer protection, a topic that has been a 
primary issue here today, should be an issue, and it is an 
issue we believe in very passionately. The only way to address 
privacy, the only way to address consumer protection, is 
through effective regulation. The black market is the one area 
where these issues won't be addressed.
    With online gaming, all of this is voluntary. People are 
going on, they are providing the information themselves. They 
are choosing to enter that information in there, and through 
the regulatory bodies, the protection of that information is 
assured. That is what makes this situation unique in that 
sense, that one, people are choosing to do this in a voluntary 
manner, and two, the regulators are assuring that this 
information is protected.
    Mrs. Blackburn. OK.
    Mr. Pappas. First, let me start by saying that the messages 
you have been receiving via Twitter and Facebook I assure you 
are from real people who live and reside in your district and 
care passionately about their right to play online. Secondly, 
the issues of privacy and data security for Internet gaming are 
no different than they would be for any other e-commerce 
company, be it Amazon or Facebook. We believe that licensed 
entities would have to require all of the same privacy and data 
security laws that every other American company must apply. You 
know, today we have a situation where American consumers, 
except for those in the three states where it is authorized, 
are playing on offshore sites and they are not subject to any 
U.S. law or regulation. So we are asking for a federal law or 
state laws that ensure that the sites are authorized, regulated 
and that those sites are adhering to all the strong data 
privacy laws that this Congress or states come up with.
    Mrs. Blackburn. OK, thank you. Mr. Chairman, I have got two 
other questions I am going to submit because of time. One 
pertains to Mr. Abboud's testimony and the November 13 FBI 
Crimes Division letter, and then the other pertains to the 2009 
British hacker, Ashley Mitchell, when he was posing as an 
administrator for Zynga poker games. With that I yield back.
    Mr. Terry. Thank you. Now recognized for 5 minutes, the 
gentleman from Vermont.
    Mr. Welch. Thank you very much. Folks are going to gamble. 
They like to do it, and any way they can, they will. And there 
obviously are legitimate reasons and then there are some folks 
that get overwhelmed by it just like with any other kind of 
activity. So anything that we do has to include some 
protections. You have been trying to do that in Las Vegas as I 
understand it.
    But I want to direct these questions to Professor Volberg 
and Professor Eggert. How do we ensure that minimizing the harm 
is baked in as a priority from the start and not simply laid on 
afterwards, after the fact, and the harm is done? I mean, if we 
get at it from the beginning with some sensible plan, that has 
in my view more prospect for being successful in helping more 
people. If you could----
    Mr. Eggert. I think that the way you do that is you plan it 
before you legalize the Internet gambling. It should be 
something that should be written into the regulations from day 
one. I think there is a lot of room. I am with Dr. Volberg on 
this, a lot of research to see what helps with problem 
gamblers. But as far as consumer protection, it is pretty 
straightforward what information people need and want in order 
to gamble, and they should be provided that.
    One of my concerns about the state-by-state approach is 
that I am worried that it will be a race to the bottom with 
states with weak protections will win out over states with 
stronger protections, and any federal program has to take that 
into account and prevent it from happening.
    Mr. Welch. OK. Dr. Volberg?
    Ms. Volberg. I guess I would echo Professor Eggert's 
remarks. I think you do have to start, even before the 
regulations, you have to bake the language into the legislation 
that says this is not just about raising revenues or paying for 
other programs. This is about consumer protection and making 
sure that what we put in place is going to work.
    Mr. Welch. OK. Thank you. Mr. Freeman and Mr. Pappas, you 
are advocates for this. What are your views on having as part 
of any authorization, A, consumer protections, and B, some help 
to problem gamblers. We can start with you, Mr. Freeman. Go 
ahead.
    Mr. Freeman. It is not often an industry comes before you 
asking for regulation. That is what the gaming industry is 
doing today, asking for some very specific points around age 
verification, around consumer protection, and around duties of 
responsible gaming. The way to do that is obviously through 
regulation.
    To the previous point that was made, the way our industry 
behaves, being regulated in Nevada and Mississippi and 
countless states around the country, we are actually held to 
the highest standard because any state in which we do business 
can punish us for what we do in another market. So we actually 
have a race to the top in that sense, and it has worked for an 
extended period of time for our industry.
    Mr. Welch. All right. Mr. Pappas?
    Mr. Pappas. Most definitely. I mean, I represent a 
consumer-driven organization, so consumer protection is 
paramount to our concern, and that is why we believe a 
regulated market is going to far better protect consumers than 
a prohibition or even the status quo.
    So we believe that regulation, that lawmakers should 
require that regulators implement best-of-breed technologies 
and that it gives the companies the flexibility to innovate and 
be all of the potential problems that have been raised, and I 
think that that is the best way to proceed, with lawmakers 
setting the standards, regulators enforcing those standards and 
companies innovating and making them even better.
    Mr. Welch. OK. And Mr. Abboud, you raised some legitimate 
concerns I think that are on the minds, obviously, of lawmakers 
in the states and also here. I mean, is it your view that there 
really are no protections that could be part of any authorizing 
legislation that would get the job done so it is better not to 
do it at all?
    Mr. Abboud. Well, as I said, when the Wire Act was 
overturned, that is not the day that the Internet became safe. 
And it is an issue that we study. It is an issue that we study 
every day. But we don't feel that the technology there is to 
safeguard consumers to the extent----
    Mr. Welch. Well, let me ask this. If the technology were 
there, then would you have a different point of view?
    Mr. Abboud. I don't think this is a market that we would 
ever go into. We just think that turning every device into a 
casino takes gambling too far.
    Mr. Welch. So what would be the proper limit, as you see 
it?
    Mr. Abboud. None. We talked about the European model. We 
have something in the United States that they don't have, 
billions and billions of dollars of brick-and-mortar casinos 
that generate jobs, that generate a lot of livelihoods for a 
lot of people across the country, based on shows, conventions, 
trade shows, all those types of things. Europe doesn't have 
that. Simply because Europe stepped forward and pandered to the 
lowest common denominator is not something our industry should 
follow.
    Mr. Welch. OK. Thank you. I yield back.
    Mr. Terry. Thank you, Mr. Welch. I now recognize the vice 
chairman of the subcommittee, Mr. Lance, for 5 minutes.
    Mr. Lance. Thank you very much, Mr. Chairman, and I think 
this is a very important panel, and I respect everyone who is 
on the panel. I hope to participate in the hearing for its full 
length. I do have a Health Subcommittee as well, but I 
certainly am deeply interested in the views of everyone on the 
panel.
    To Mr. Pappas, you have stated in your testimony that the 
bill does not force any state to participate in an intrastate 
Internet poker system, and equally as important it allows 
states to implement their own online gaming regulations. As you 
are aware, New Jersey has begun Internet gambling. Would this 
legislation in your view in any way preempt what New Jersey is 
currently doing?
    Mr. Pappas. Mr. Barton's bill, H.R. 2666, would not in any 
way restrict the ability of Nevada or any other state to 
provide----
    Mr. Terry. I think your microphone is off.
    Mr. Pappas. Oh. You are right. I am sorry. Mr. Barton's 
bill would not restrict in any way the ability of New Jersey or 
any other state to provide house-banked casino games, lottery 
tickets or any other games other than poker. However, with 
poker it would require that the state would have to become an 
authorized federal body, authorized by the Federal Government 
to continue to do that. Given that New Jersey is known for 
being one of the most robust gaming regulations in the 
country----
    Mr. Lance. And heavily regulated.
    Mr. Pappas. And heavily regulated, that they would easily 
meet if not exceed whatever standards the Federal Government 
sets aside.
    Mr. Lance. Thank you. And then to Mr. Freeman and Mr. 
Abboud, regarding the DOJ opinion as it concerns the Wire Act, 
I know you reach a different conclusion ultimately, but is it 
the view of both of you that there needs to be statutory 
legislation in this regard as opposed merely to an opinion from 
the current DOJ? First Mr. Freeman and then Mr. Abboud.
    Mr. Freeman. It is our opinion that the online gaming 
environment would be better with Congress' putting in place 
some minimum thresholds in the areas that I discussed of age 
verification, of geolocation and others. Without that, states 
are moving forward. They are putting in place as your state is 
doing very comprehensive regulations. I think they are showing 
an ability to regulate this market effectively.
    Mr. Lance. Thank you. Mr. Abboud?
    Mr. Abboud. Well, as I stated previously, we think that the 
Wire Act being overturned can be overturned at any moment by 
any administration. The states that are going forward are doing 
so with great risk as are my follow industry members are going 
forward with great risk. So that is why I am here today asking 
for the Wire Act to be restored so that we can take away that 
ambiguity.
    Mr. Lance. And you would restore it in such a way that this 
would not be permitted?
    Mr. Abboud. Correct.
    Mr. Lance. And Mr. Freeman, you would modify it to permit 
it with certain federal regulations?
    Mr. Freeman. Again, putting in place those minimum 
standards. In the absence of that, or even with the changes 
that are recommended, people are going to continue to game. As 
we mentioned before, in 2012 nearly $3 billion was spent. 
Fixing the Wire Act does nothing to change the desire that has 
been referenced.
    Mr. Lance. I tend to agree with that, and certainly I 
believe in New Jersey we have tried to be responsible. And let 
me repeat that I believe that New Jersey regulation is strict, 
and we have had a generation of experience in this regard. But 
I certainly respect both of your points of view on this issue.
    Mr. Pappas, regarding Congressman Barton's legislation, 
would it in any way prevent New Jersey from offering games of 
chance such as blackjack or slots?
    Mr. Pappas. No, sir, it would not restrict the ability for 
any house-banked games. Poker would be the only place where New 
Jersey would have to consult with the federal law.
    Mr. Lance. And from your perspective, that consultation 
would be relatively easy and seamless and it is likely that New 
Jersey could continue to do what it is currently doing?
    Mr. Pappas. That would be our hope. As an organization, we 
fought very hard for the New Jersey law and we support that 
law. We also support Mr. Barton's law, and we hope that they 
can work together.
    Mr. Lance. Thank you. Let me say that from my perspective, 
the governor of New Jersey, my close friend Governor Christie, 
and the legislature of New Jersey and those who administer our 
laws in New Jersey try to work in a comprehensive fashion and 
we try to work with all of those who are interested in this 
issue including all of those on this panel, and I want to thank 
the panel. And Mr. Abboud, you certainly represent a very great 
corporation in this country, Sands, and I deeply respect that. 
Thank you, Mr. Chairman.
    Mr. Terry. Thank you, Mr. Lance. And now the Chairman 
Emeritus for the Full Committee, Mr. Joe Barton. You are 
recognized.
    Mr. Barton. Well, thank you, Mr. Chairman. Let me start 
out. I was being somewhat flippant when I talked about God 
being for this bill. Obviously, God doesn't care a fig one way 
or the other about our bill, but I will say as a practicing 
Christian that God does give men and women free will, and I 
think we ought to have a law that reflects free will in this 
issue.
    I did not say in my opening statement but we do have some 
representatives of the Indian casinos and the Indian Gaming 
Association in the room. And they were invited to present 
testimony and to be a part of the panel. And it is a voluntary 
basis. So they were invited, and they chose not to. But 
obviously Indian gaming is a huge part of this issue since 
almost as much and perhaps more people play in Indian casinos 
than in non-Indian casinos.
    Mr. Freeman, in your testimony you gave the list of things 
that you said federal legislation should include or accomplish. 
In listening to you I believe that my bill, H.R. 2666, hits all 
those points. Do you agree with that?
    Mr. Freeman. Mr. Barton, your bill certainly hits those 
points and others. There are points we would certainly like to 
see added to that, and I am happy to discuss those with you.
    Mr. Barton. OK. And Mr. Abboud, I am glad that you are here 
and you represent the Sands Corporation. The first hotel casino 
that I stayed in as a young man when I went to Las Vegas for 
the first time was the old Sands, and just last year I held a 
political fundraising event at the Venetian which I believe is 
a property of the current Sands Corporation. And so I have 
great respect for the company that you represent.
    Ms. Schakowsky pointed out in her questioning some 
advertising material. I would like to put that up on the board, 
up on the screen, that Cantor Gaming, which is a vendor of the 
Sands and does the Venetian, has on that particular slide right 
there.
    [Slide shown.]
    Mr. Barton. ``Is there anything you can't do on a smart 
phone or tablet nowadays. Mobile casino gaming is available to 
you on property during your stay. You can even play from your 
room.'' And then the next one, which is again at the Venetian. 
It talks about their sports book, that you can wager from 
anywhere in Nevada. Now, I want to be fair on the first slide 
about the gaming. It does not allow you to play poker from your 
room for some reason. You can do slots or roulette or Wheel of 
Fortune or whatever. I would like to hear your comments on this 
because what you are advertising here, as Ms. Schakowsky 
pointed out, is the same thing that we are talking about in my 
bill for poker only. It is just a matter of how wide the 
geography is or the wireless connection.
    Mr. Abboud. Well, that is why we are here today, and I 
appreciate the opportunity to respond to what Congressman 
Schakowsky said because it is all about human interaction, 
right? Congressman, all of you, have the right to eyeball me 
and determine whether or not I am telling the truth, and you 
can hold me accountable. It doesn't happen with a lot of online 
gaming opportunities, does it?
    And it is also about the location. That is a very 
controlled environment in a regulated state, in a regulated 
casino, that can only be done within the four walls of our 
building. You have to go up to Congress Terry, if he works at 
the cage, to fill out the application, have an eyeball-to-
eyeball experience, make sure you aren't on the self-exclusion 
list, make sure that we don't think you have had too much to 
drink, a whole series----
    Mr. Barton. I don't want you to filibuster the last 30 
seconds. What your company is advertising here, except for the 
geography, is the same thing that my bill does, and my bill is 
poker only. Poker only. Now, I have never met a professional 
roulette player. I have never met a professional slots player. 
But there are lots of professional poker players because it is 
a game of skill. Now, if we are the final table here, Mr. Long, 
myself, Mr. Harper, Mr. Terry, Ms. Schakowsky, I have got a 
high probability I can tell you which one of us comes out the 
winner at the final table because I have played with Billy 
Long, and I think he probably beats me. Now, I have never 
played with Jan, so I don't know. She may be a sleeper. But 
poker is a game of skill, and all my bill does is allow free 
will at the state level if the governor allows it for people 
who want to play poker online. And I again appreciate Mr. Terry 
for his holding this hearing, and I am going to stay and hear 
the other questions. And maybe, if given an opportunity, I 
would like a second round for myself, if that is----
    Mr. Terry. The gentlelady from Illinois and I will discuss 
that. Mr. Harper, you are recognized for 5 minutes.
    Mr. Harper. Thank you, Mr. Chairman, and I thank each of 
you for being here on what is a very important topic and one 
that has created a little bit of a division, OK? Quite a 
divide. But you know, we have of course legal gambling in the 
State of Mississippi. It is a big industry, on average about 
$2.2 billion worth of revenue a year or spent on gambling in 
Mississippi versus maybe, what, $10 billion a year on average 
in Nevada perhaps? But it is a tourism-driven business. The 
brick-and-mortar issues very important there, and it is a 
destination so that what you see is not just a casino but you 
see restaurants, golf courses, water parks, I mean other things 
that are there that draw that. This brings none of that. And my 
concern, I guess my overriding concern I have is if we address 
this issue and we do what Mr. Barton proposes or what others 
may propose, is how are we doing anything to address what is 
the underlying problem or the background problem of offshore 
and out-of-country illegal sites? We are not addressing that. 
And certainly if we restore the Wire Act and give it some 
teeth, perhaps we can do it. But it would seem to me that this 
bill, the problem that I have, one of the problems I have with 
it is if we make it legal and then states can opt out, it would 
seem to me if you were going to go that route, the better thing 
would be to make it illegal and let the state legislatures opt 
in, at least might give some better safeguards, not that I am 
proposing that, but I am just saying versus what we are seeing 
here.
    So my concern I guess is, and I will start with you if I 
can, Mr. Abboud, what in your view would it take for the United 
States to be able to efficiently and effectively regulate 
Internet gambling and control the offshore illegal sites? Do we 
have the ability to do that if we were to have the will to do 
that?
    Mr. Abboud. Thank you, Congressman. I think that we do. 
Government is doing it with online pharmacies today. They shut 
down 1,200 illegal online pharmacies. To say that we can't do 
it is not a plausible answer. And I think when it comes to the 
safety of the industry and the integrity of it, it is the FBI 
that has testified before Congress and sent letters saying that 
there is no guarantee that you can prevent youth from gambling.
    And with all due respect to Congressman Barton, I am a big 
fan of his. When you all are playing poker together around a 
table, you can't show each other your cards. You can't collude 
against each other because it is human interaction. I don't 
know what happens online. No one has proven to me that you 
can't collude against each other.
    This is in its infancy, in its infancy. And it is a rush to 
market, as I said before, because the Wire Act was overturned. 
That is not the day the Internet became safe. It is not a safe 
place for a lot of different transactions. And I said before, 
this is a play to the youth of America, and this is going to be 
our Joe Camel moment. And if we do not behave responsibly and 
protect ourselves against what could prey on youth and other 
people, it could very well be the demise of our industry. And 
to go forward would be irresponsible.
    Mr. Harper. Wouldn't it seem that the best place to start 
then is let us go ahead and do everything we can within our 
power from a technological standpoint to shut down the illegal 
sites?
    Mr. Abboud. Absolutely. And there has not been enough 
discussion but that I think everyone on this panel is in 
agreement to shut down the illegal sites. And it is essential. 
If that is all that came out of this whole process, we would 
all be a lot better off. But we haven't done anything, and the 
industry, including my company and everyone on this panel and 
including the no-casino people, have not done enough to push 
for that effort.
    Mr. Harper. And if you don't address that, of course if you 
make it legal across the board and there is going to be 
additional regulatory burden and responsibilities and costs 
which would seem to be something that the players would incur, 
would that not then naturally drive them to the cheaper site in 
their views?
    Mr. Abboud. Well, I think----
    Mr. Harper. If you haven't stopped the offshore illegal 
sites.
    Mr. Abboud. Thank you. I think if it was to be legalized 
today and we don't shut off the illegal operators, I think that 
the industry as it exists today is at an unfair advantage 
because they will be operating in the regulated environment. 
There is nothing that is going to prevent the illegal operator 
for what we call giving away the market, giving away the house, 
adding more incentives, making it easier to get online. They 
will go down to the bottom, and it will be easier to go to the 
illegal sites unless we shut them down, unless it is a complete 
uniform shutdown of Internet gaming.
    Mr. Harper. I thank each of you for being here. My time is 
expired and yield.
    Mr. Terry. Thank you. And now the gentleman from Ohio, Mr. 
Johnson, is recognized.
    Mr. Johnson. I thank you, Mr. Chairman. You know, I believe 
strongly that states' rights plays a predominant role in the 
decisions that we will make about gaming. I think the state 
governors, the legislatures, the people of the states are in a 
better position to be able to decide what they want than 
regulators here in Washington, D.C. But I also understand, 
being an IT geek myself, that the Internet has opened the door 
to a different kind of technology that has to be looked at and 
evaluated.
    Mr. Freeman, let us start with you. The AGA has changed its 
position on Internet gaming over the years. What is its current 
position on Internet poker and online gaming? Do you want a 
federal law or do you want the states to be in charge of that?
    Mr. Freeman. The AGA's position was adopted in 2010, and 
that is the current position of the organization. We support a 
Federal Government role here in regulating this. We support a 
poker solution at the federal level, and we support the ability 
of states to opt-in as to whether or not they choose to want to 
offer that game.
    In the absence of federal action, states have moved forward 
with this. We have begun to see states like New Jersey do this 
in a very effective manner, along with Nevada and Delaware. And 
it is true, the industry is increasingly interested in what New 
Jersey is doing because they are proving they can do it 
effectively. And that is of great interest to us.
    Mr. Johnson. Yes. You know, my concern from a technological 
perspective is to say we are going to regulate it is one thing. 
To do it effectively and protect the innocent--I do believe 
that gambling is an enticement to some who would see a 
potential quick fix to a financial problem. I understand that. 
I also understand though that we don't outlaw prescription 
drugs because some people fall victim to addictions to 
prescription drugs. It is all about the choice, and I firmly 
believe that the American people have the ability to make those 
kinds of decisions.
    My concern is how the technology, how protections would be 
put in place to protect minors, to protect children, to protect 
the situation that our chairman talked about where his kid uses 
his credit card and goes out a couple hundred thousand dollars 
away without him knowing about it, because we know today that 
minors, young people, others that should not get to certain 
restricted adult sites and other sites are able to do so 
because again, being an IT geek myself, I know that there is no 
perfect security.
    So those of you that are proponents, you can just sound off 
one at a time if you want to. How do you propose to make sure 
that our innocent young people aren't the ones, and maybe 
people like my chairman who wind up with a couple of hundred 
thousand dollar gambling debt that he didn't know was going to 
be on his credit card, to fall victim?
    Mr. Pappas. If I can respond first, and thank you for the 
question, I think it is very important that we look at these 
issues and that we see how regulation can solve them. Again, we 
are not talking about a theoretical, can this be regulated. 
This is being regulated today in three states, and it has been 
regulated in European jurisdictions for over 10 years. Ten 
years. This is not in its infancy. This is a mature industry 
that has dealt with these issues for over a decade and 
responded to them accordingly.
    With respect to underage access, I have already mentioned 
to you that there has not been a single reported incident of 
underage access because of these tight age-verification 
technologies that are available. It is not simply going on and 
clicking here. I am 18 or I am 21, let me gamble. You have to 
go through multi-layer age verification to not only prove that 
you are who you say you are but that you are of the approved 
age. So it is certainly not like any other form of e-commerce 
that is not age restricted. This is very restrictive.
    In terms of problem gambling, there are very specific ways 
to address it, and I would argue, and this may blow people's 
minds, I would argue that it is easier to protect problem 
gamblers online than it is in the brick-and-mortar casino. I 
could walk into the Venetian tomorrow with $1,000 in my pocket, 
play roulette, play craps and play poker and walk out and not a 
single person knows I was in the casino and I lost $1,000. 
Online it is impossible. They know every moment you are on the 
site. They know every game you are playing, every wager you are 
making, every win you are making, every loss you are making. It 
is tracked and recorded in real time, and regulators recognize 
that that wealth of data is gold in terms of properly 
regulating and ensuring that it is not abused.
    Mr. Johnson. I appreciate your passion, and my time has run 
out. I would simply point out we have got a prime example with 
HealthCare.gov. Regulated does not necessarily equal secure.
    Mr. Terry. Thank you, Mr. Johnson. At this time I recognize 
Mr. Long from Missouri.
    Mr. Long. Thank you, Mr. Chairman, and Mr. Johnson, with 
your comments about the chairman, I am going to miss you on 
this subcommittee.
    Mr. Terry. Oh, and by the----
    Mr. Long. I want one of those credit cards where you get 
$100,000 on there or whatever that is.
    Mr. Terry. To clarify for the record, he was not gambling. 
He was buying lacrosse stuff and iTunes.
    Mr. Long. Mr. Abboud, I got a question for you. 
Unfortunately during these hearings, we can now go back and 
pull the transcript immediately, so I thought I heard you 
saying, correct me if I am wrong, but when you were talking to 
Mr. Terry early on, I think he did the first questioning after 
you all gave your openings. I thought I understand you to say 
that you are OK if poker is legalized on the Internet as long 
as it is not expanded to include all forms of gambling.
    Mr. Abboud. No, we are, for the record, we are opposed to 
all forms of Internet gaming.
    Mr. Long. OK. I will have to go back and listen to that 
because that is what I thought I heard. Mr. Eggert, as far as 
these poker bots are concerned, these are computer programs 
that they operate how? Is this the people running the site has 
someone playing against you or is this someone in their 
apartment that hooks up to a computer and acts like they are a 
living, breathing person playing a living, breathing person in 
another state or another country or how do they work?
    Mr. Eggert. They can be both types. There have been poker 
sites that have used bots to stimulate games so that there are 
more people to sit down at a game.
    Mr. Long. Kind of like a shell in a casino then?
    Mr. Eggert. Right.
    Mr. Long. OK.
    Mr. Eggert. And you know there they should be telling 
people it is a bot, but they haven't always done that. But the 
bots that are of most concern are not from the site, are ones 
that people have designed. They are running on their home 
computers so it looks like they are playing, but actually the 
decisions they are making, whether to bet or raise or fold are 
being made by the computer software and not by a human.
    Mr. Long. OK. And Mr. Freeman, for you, a few years ago, I 
think back 10 years ago, there was a guy whose name was 
Moneymaker, believe it or not, that won the world series of 
poker which he had gotten in on what they call a satellite. He 
played 40 bucks or something to play a tournament, ended up 
winning 6 or 7 million, whatever it was.
    So that really put jet fuel into the whole Internet poker 
thing which it thrived for several years until the Black Friday 
shutdown. But during the course of that there were some very 
high-profile cheating scandals where the operators of these 
sites were actually looking at your cards, at the other people 
they were playing cards, and with the skill of the poker 
players, I think 60 Minutes did a special on that. If this 
legislation goes through, how can people be assured that that 
type of activity does not continue or starts in again I guess?
    Mr. Freeman. Yes, Congressman, I think you speak to exactly 
the market we all want to prevent. In those days with companies 
based in Costa Rica and elsewhere around the world, where we 
didn't have the protections, we didn't have the regulations 
built in, there were a lot of scary things that took place. 
What we are talking about is a regulated environment with 
licensed companies. It was a real reason that licensed 
companies don't want to see underage people online. There is a 
real reason licensed companies don't want to see cheating take 
place. That is because they can lose their license, not just of 
their online facility but their brick-and-mortar facility in 
which it has already been mentioned they have invested billions 
of dollars. You have a moral and a business incentive for the 
industry to do this in the most proper, regulated, and 
effective manner, and that is what will assure, rather than the 
black market, that is what will assure that consumers are 
protected.
    Mr. Long. I know with your American Gaming Association that 
you represent several members that I assume they all have 
brick-and-mortar facilities, do they not?
    Mr. Freeman. Everyone within our association on the 
operator's side has a brick-and-mortar facility. We also have 
all the leading manufacturers in the industry as well.
    Mr. Long. And I know you can't say into the future, but as 
your best guess, if this legislation did pass and people were 
authorized to open up online poker only casinos, let us say, do 
you visualize that being an MGM, a Caesars, a Sands, a Wynn? 
Will it be the operators that are out there now in the brick-
and-mortar marketplaces or will it be smaller operators?
    Mr. Freeman. Yes, I think that goes back to Congressman 
Harper's point before. How do we protect the brick-and-mortar 
investments that have taken place in Mississippi and Missouri 
and elsewhere? You already have these facilities standing. How 
do we make sure that they thrive? We allow them to tap into the 
new market. If we don't allow them to tap into the new market, 
we can assure that they go the way of Borders and Blockbuster 
and others if they can't adapt, if they can't keep up with 
innovation.
    Mr. Long. Yes, but my question is do you think they will be 
the only ones that would----
    Mr. Freeman. I think it is up to states to determine how 
they want to structure this. In New Jersey they have structured 
it in such a way where the brick-and-mortar facilities are the 
only ones that can offer it.
    Mr. Long. One quick question because I don't have time to 
go to someone else so I will ask you. Nevada apparently has 
online poker now, New Jersey is going forward and Delaware I 
believe were the three. But let us say that they all three had 
it tomorrow. Can those people in Nevada own--do you have to be 
a resident of those states, number one, to play when you are 
physically in those states? And can you play if you are in 
Nevada and New Jersey has it now, let us say, could someone in 
Nevada play against someone in New Jersey or do Jersey people 
all play against Jersey people and Nevada against Nevada or 
Delaware?
    Mr. Terry. The gentleman's time is over, but I will give 
you 10 seconds----
    Mr. Freeman. Thank you.
    Mr. Terry [continuing]. To order.
    Mr. Freeman. I also have two points.
    Mr. Terry. To answer.
    Mr. Freeman. One, you don't have to be a resident of the 
state. You have to be within the boundaries of the state as 
identified by geolocation companies, number one. Number two, on 
your point about can these states work together. They probably 
can. They have not reached agreements to date, but that option 
is there for New Jersey, Delaware and Nevada to begin to work 
together.
    Mr. Long. OK. Thank you.
    Mr. Terry. Thank you, and that concludes time for 
questions. I do have a unanimous consent request to include the 
following items for the record, one, statement of the National 
Indian Gaming Association; number two, statement of Lyle 
Beckwith on behalf of the National Association of Convenience 
Stores; number three, statement of Mr. Thackston.
    Voice. Yes.
    Mr. Terry. Independent software engineer. Number four, 
exchange of correspondence between the late Mr. C.W. Bill Young 
of Florida and the FBI. Hearing no objections, so ordered.
    [The information appears at the conclusion of the hearing.]
    Mr. Terry. And the next item of business is that we have, 
we as the members, have the right to submit questions to you, 
written questions. We will hopefully have those done within the 
next couple weeks, and I would appreciate about 14 business 
days. We don't hold you to an exact standard, but appreciate if 
you would get written questions from the members, from this 
committee, that you, within about 14 days, have them back to 
us. I would appreciate that.
    And I just want to thank all of our witnesses for being 
here. This was a good discussion. Sometimes we made it a little 
light, but this is an extremely important issue. I will make 
this comment. When Mr. Barton first introduced this bill, a lot 
of us thought it was pretty way out there. But with this 
decision by the Justice Department, it makes it a very relevant 
question and one that we have to deal with.
    Mr. Barton. Would the gentleman yield a moment?
    Mr. Terry. Absolutely.
    Mr. Barton. Well, my first bill that I introduced in this 
committee was to repeal the Natural Gas Policy Act of wellhead 
pricing on natural gas, and that was at that time way out there 
because John Dingell was chairman.
    Mr. Terry. Good point.
    Mr. Barton. That happened. About 5 or 6 years ago I started 
an effort and held a hearing on the BCS, and everybody thought 
that was crazy. Well, thankfully this is the last year of the 
BCS, and we are going to a modified playoff. So Mr. Chairman, 
the time is coming for this bill.
    Mr. Terry. We have always thought of you on the cutting 
edge.
    Mr. Barton. So time is on our side. Thank you, again 
chairman for holding the hearing.
    Mr. Terry. Well, thank you. And so again, I thank all of 
our witnesses, and we are adjourned.
    [Whereupon, at 2:18 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
    
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