Frank J. Fahrenkopf, Jr., President and CEO of the American Gaming Association
Thank you Chair Bono Mack, Ranking Member Butterfield and the subcommittee members for the opportunity to provide testimony on behalf of the American Gaming Association (AGA). Allow me a brief introduction of our organization. The AGA represents the commercial casino-entertainment industry by addressing federal legislative and regulatory issues affecting its members, their employees and customers.
The commercial casino industry operates in 22 states, directly employs nearly 400,000 men and women and is responsible for an additional 475,000 jobs through the additional economic activity we generate across the country. In total, our industry accounted for about $114 billion in consumer spending last year – nearly one percent of the entire $14.5 trillion U.S. Gross Domestic Product.
Clearly, our industry is squarely in the mainstream of the U.S. economy.
Today, of course, we’re here to talk about online poker. I know this is the second of two hearings this subcommittee has held on the topic. At the last hearing, you asked whether licensing and regulation of online poker is a safe bet. Our industry believes it is.
The risky bet would be to leave unchanged current law that leaves consumers, minors and those with gambling problems vulnerable to unregulated offshore companies.
As you may know, the AGA has not always taken this position. For much of the time since online gaming was first introduced, AGA members were not convinced that online poker could be regulated to protect Americans against fraud, money laundering and other illegal activities, or to prevent minors from gambling online and protect problem gamblers.
New technology and new processes have changed that. We live in a digital world where people can purchase everything from groceries to automobiles online. These e-commerce companies have developed new technology and processes to help them facilitate sales, protect customers and, in some cases, prevent minors from purchasing their products. The same types of technological and process advancements are being used in countries such as Great Britain, France, and Italy and in provinces of Canada to effectively regulate and oversee Internet gambling.
Because of those changes, the AGA now supports federal legislation that will allow states to license and regulate online poker. We believe the best approach to making that happen is to modernize and strengthen the Wire Act of 1961 with conforming amendments to the Unlawful Internet Gambling Enforcement Act (UIEGA) that would unambiguously eliminate illegal internet gambling.
We support this for online poker only because poker is a game that vast numbers of Americans have historically played and that millions of Americans still play. It is also a game of skill, unlike other forms of Internet gambling, and it is played between or among individuals, whereas in other forms of Internet gambling the customer is playing against the “house.”
The AGA asks only that any legislative proposal establish federal guidelines so there will be consistent regulations for online poker in all states. Without a federal overlay, there will be a patchwork quilt of rules and regulations that will prove confusing for customers and difficult for law enforcement to manage.
Additionally, the AGA has a long-standing policy of putting any gaming legislative proposal through three tests: 1) The legislation must not create competitive advantages or disadvantages between and among legal commercial casinos, Native American casinos, state lotteries and pari-mutuel wagering operations; 2) No form of gaming that currently is legal shall be made illegal; and 3) The legislation must respect fundamental states’ rights in an appropriate manner. Any online poker legislation must pass these three tests to gain AGA support.
The fact is practically every adult in the country has played poker at one time or another, and today the preferred venue for millions of poker players is the Internet.
There is urgency to this issue, because each day millions of U.S. consumers are playing online at risk. Last year, in the United States, an estimated 10 million to 15 million people bet billions of dollars online, even though it is illegal for companies to offer real-money Internet gambling in the U.S. Americans will continue to bet online as long as there are sites they can access, and we can expect that there will always be sites they can access as long as there are billions of dollars to be made.
Even the indictments of executives from several online poker companies last April did not stop Internet gambling. Offshore operators will continue to develop new techniques to circumvent the barriers we put in place. The volume may fluctuate with each closed website and set of indictments, but demand will prevail in the end.
And it’s likely that online gaming operators who fill this void will be even less regulated and less trustworthy than their predecessors, which will only hurt American consumers.
Put simply, the current environment puts American online players at risk. It is practically impossible to ensure that children are not gambling online and that the online gaming companies are acting responsibly towards those who cannot gamble responsibly. These companies, by illegally operating in the U.S., are flouting our laws; they are doing it where law enforcement cannot reach them and where, in many cases, there is little to no regulatory oversight.
Consumers could be saved from this risk if Congress enacts federal legislation to modernize and strengthen the Wire Act of 1961 with conforming amendments to the Unlawful Internet Gambling Enforcement Act to unambiguously eliminate illegal internet gambling. Such legislation should allow states that wanted to could license and regulate online poker to do so, following federal guidelines. And it should create a level playing field so that all segments of the gaming industry have an opportunity to participate.
We know U.S.-licensed gaming companies, following time-tested gaming regulations, would provide safe, honest, responsible sites for the use of the men and women who want to play online poker. A strengthened UIGEA also would protect Americans from unscrupulous operators and would have the added advantage of bringing the jobs and revenues associated with this billion-dollar industry back to the United States.
The creation of the infrastructure to support a licensed and regulated online poker industry would create an estimated 10,000 high-tech jobs and generate $2 billion in tax revenue, primarily at the state level, every year.
To realize these benefits will require action by Congress, beginning with this committee. The AGA does not support any specific legislation, but there are certain provisions that any change should include:
- Each state should have the right to determine whether online poker should be legalized within their jurisdictions and who should be allowed to operate the sites.
- Due to the interstate nature of Internet transactions, federal guidelines should be established that states must follow to ensure a consistent regulatory and legal framework.
- U.S. law enforcement should be provided with the ability to go after illegal operators and successfully prosecute them.
In addition, online poker companies licensed in the U.S. should adhere to the same stringent level of regulation that governs brick-and-mortar casinos in this country. Our companies have a strong history of regulatory compliance. The regulations we follow are time-proven and if online poker companies are required to comply with them, it would ensure American consumers are playing in a fair and secure environment provided by a responsible operator.
The AGA introduced a Code of Conduct for U.S. Licensed Online Poker Companies that incorporates the key elements of the successful regulations followed by U.S. casinos. To be licensed, companies should agree to:
- Submit to extensive background investigations of the company and key personnel
- Ensure proper ID of every U.S. online poker player
- Submit to regular testing and auditing of online poker software
- Implement effective player exclusion processes
- Incorporate effective responsible gaming protections
- Implement effective anti-money-laundering procedures
Legislation that incorporates the provisions above and the elements of the Code of Conduct would effectively protect U.S. consumers and state licensing and regulating would eliminate illegal websites operated by offshore companies. Fortunately, new technology and processes can address those concerns. This can be accomplished through:
- A rigorous registration process;
- Technology-assisted fraud and collusion monitoring;
- Anti-money-laundering technology and processes; and,
- Promotion of responsible gaming by providing players the ability to manage their game play in real time.
Let’s take a look at these safeguards.
Registration processes and advanced technology very similar to those used by companies such as Major League Baseball, CBS and Apple would allow the online poker company to:
- determine where the player is located,
- determine whether the Social Security number used is valid and is actually the player’s own, which would prevent underage gambling,
- and find out if the player has any sanctions by state, federal or international governments.
Geo-location will be a key to ensuring an online poker player is abiding by the laws of the state in which he or she resides and is not playing online in a state where it is not permitted. The first step in this process is verifying the customer’s location during the initial player sign-up or registration. In those cases where there are discrepancies in information or it is determined the player resides in a location where online poker is illegal, the player’s registration would be rejected, and they would be unable to open an account.
The second step in the geo-location process takes place every time a customer logs on to an existing account. Each time he or she attempts to sign in, geo-location technology would be applied to determine the IP address of their internet connection, thus determining exactly where the computer is located. Additional tools can ensure an Internet connection is not attempting to mask its location, and in some cases, real-time verification techniques can be employed when there is any ambiguity about the location.
The same database service providers that assist with geo-location processes also allow operators to verify the age of online players. This can be accomplished by confirming personal information, such as previous addresses or cars registered, through a series of challenge questions the player must answer correctly in order to log on. Additional age verification steps can also include a confirmation letter with a personal identification number sent to the address listed on government-issued identification. The PIN would then have to be entered on the operator’s site to enable the account.
Preventing cheating, whether by humans or software programs, is made easy through the use of fraud and collusion monitoring technology, coupled with reporting of suspicious play by other players.
For example, operators have tremendous technological tools with which to effectively address the use of bots, or computer programs that automatically play poker hands based on a certain algorithm that the cheater believes provides them with an advantage.
Bots typically cannot match the unique traits of human players, and monitoring their mouse and cursor movements on the screen is an operator’s first line of defense. Once identified as a potential bot, the player is subjected to a CAPTCHA challenge during which they must re-type a series of distorted letters and numbers on the screen in order to verify they are a human player. Further, operators can also apply subtle pixel changes to the player’s screen that will cause a bot program to freeze up and thereby allow the operator to identify the cheater and seize the account.
Technology coupled with strong regulation also can prevent money laundering online. Efforts to launder money are detected through a number of reports and checks used exclusively by the gaming industry, as well as other processes that are common in financial institutions. Player verification, operator monitoring, the recording of all transactions and other activities combined with strict compliance with federal anti-money laundering laws make a well-regulated online poker site highly unattractive to launderers.
Technology also allows players to manage their gambling in real time by doing things such as designating a set amount of money or time they can spend on the site, asking for a cooling off period and, if they feel they have lost control of their gambling, choosing to self-exclude.
With these processes and the technology that supports them in place, patrons could play poker online in a safe, honest place. Law enforcement would be helped by operators’ ability to quickly identify possible fraud and other criminal activities. And, the public could be confident that operators are taking bets only from jurisdictions where it is legal, keeping minors from gambling and providing assistance to problem gamblers.
Eighty-five countries have legalized online gaming, and the technology and processes described above are being used in many of them, including Western Europe and Canada, where years of experience are proof positive that the risks formerly thought to be a companion to online poker can be effectively managed.
Before concluding this testimony, I would like to take the opportunity to address in more detail the question of the impact of online poker on problem gambling.
It is settled science that at any given time that about 1 percent of the U.S. adult population are pathological gamblers, a figure that has not changed despite the dramatic expansion of gambling opportunities during the last 35 years. In fact, the most recent (2008) national prevalence study found a lifetime rate of pathological gambling of 0.6 percent.
Researchers also have found no evidence that online gambling is more likely to cause gambling problems. In fact, a major British study found no increase in the rate of pathological gambling between 1999 and 2007, even though Internet gambling became widely available during that period. Similar results emerged in a study of Swedish gamblers.
More recently, in a 2010 article in Addiction Research and Theory, Dr. Howard J. Shaffer, director of the Division on Addictions and associate professor of psychiatry at Harvard Medical School, and his colleagues offered a comprehensive look at the research conducted to date, including summaries of their own investigations of the gambling patterns of customers of bwin.party, one of Europe’s largest Internet gambling companies.
Professor Shaffer and his colleagues have pioneered new methods for studying Internet gambling by virtue of their access to the actual wagering transactions of 40,000 online gamblers, including every keystroke of every person who subscribes to the bwin.party website. These data, which reflect actual gambling patterns, provide “objective detailed information about betting behavior and the conditions under which gamblers place wagers.”
The analysis of the bwin.party data has produced more than 10 peer-reviewed publications that contradict the notion that Internet gambling breeds excessive and problematic gambling. (A summary of the findings along with full copies of the studies mentioned above have been included with this submission.)
Although the prevalence of pathological gambling is low, and even though there is no evidence that Internet gambling would change that pattern, it is still important that online poker companies should implement responsible gaming programs just as brick-and-mortar casinos do.
By requiring licensed websites to include social responsibility protections, legalization of online poker would actually improve efforts to assist pathological gamblers. Today, without any U.S. regulation, there are no uniform requirements for player protection tools at gambling websites. Indeed, many foreign jurisdictions require no such tools, so gambling operators located in those jurisdictions often do not provide them. In addition, states can designate a portion of Internet gambling tax revenues and license fees to be directed to research about pathological gambling, as well as to treatment and to public education on the subject. For these reasons, the report by Shaffer et al. concluded that “regulators should be able to design sufficient protections to prevent any significant growth in problem gambling that results from legalization.”
In conclusion, states should be allowed to license and regulate online poker following federal guidelines. Such action would protect U.S. consumers, keep children from gambling on the Internet, and provide the tools law enforcement needs to shut down illegal online operators. It would also create new high-tech jobs and tax revenue at a time when both are sorely needed.
Thank you for your time and consideration.