    [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
                                     ______

                             U.S. GOVERNMENT PUBLISHING OFFICE

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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:]

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        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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