Round Two: Congress Talks Online Poker Again

Joe Barton poker bill congress hearing

Joe Barton poker bill congress hearingJust three weeks after its first look at the prospect of legalizing online poker within the United States, the House Energy & Commerce Committee’s Subcommittee on Commerce, Manufacturing and Trade held another hearing last Friday on a bill proposed by committee member Rep. Joe Barton (R-TX) to create a federal framework for bringing poker to the people. And just like I did three weeks ago, I watched it so you don’t have to.

Chariman Rep. Mary Bono-Mack (R-CA) kicked the hearing off with an opening statement that appeared to be at least partially lifted from her opening statement at the first hearing, minus a few bad poker puns.  Rep. G.K. Butterfield (D-NC) thought there was serious money to be made and a lot of well-paid, high-tech jobs that the industry could bring to the US but wanted to make sure problem gamblers were properly taken care of. The bill’s sponsor, Rep. Barton, reiterated that his bill would only legalize poker, which is a game of skill; he also noted that UIGEA only bans processing transactions, not poker, and that it is unenforceable in its current form. Then Rep. Charlie Bass (R-NH) finished the opening statements by expressing concern that online poker could cut into the market served by lotteries and thus inadvertantly cut off the social programs supported by those lotteries.

The committee then heard opening statements from its first panel, consisting of Rep. Barney Frank (D-MA), Rep. Frank Wolf (R-VA), and Rep. John Campbell (R-CA). Rep. Frank told the committee that it is not the federal government’s role to prevent adult Americans from spending their own money as they wish in a form of recreation that they enjoy, that the internet should be free of restrictions that we don’t place on activities in other spheres of modern life, and that UIGEA is a burden on the financial industry. Rep. Wolf told the committee that gambling is harmful and addictive and makes people kill themselves, and that online gambling is the same as crack cocaine, and that gambling leads to political corruption; he got himself so worked up by the end of his statement that he was stumbling over his own words. Rep. Campbell told the committee that he doesn’t gamble but tens of millions of Americans do, and that the experiment with Prohibition in the 1920s proved that you can’t keep people from doing something they already want to do just by passing a law against it; he said the four reasons to pass a bill regulating online gambling are Personal Freedom, Consumer Protection, Jobs, and Tax Revenue.

– Rep. Barton asked Rep. Wolf if he was aware that his bill only related to poker, which is a game of skill. Rep. Wolf took the opportunity to begin citing statistics about the evils of gambling again before finally admitting he doesn’t have an opinion on whether poker itself is good or bad. Rep. Barton then said that problem gamblers represent less than two percent of people who gamble overall, making them an issue “but not an overwhelming one.”

– Rep. Butterfield asked Rep. Frank why his bill would have the Commerce Department oversee online gambling, while the Barton bill would have Treasury perform that duty. Rep. Frank explained that it didn’t matter to him who oversaw it; he only inserted that language as a political maneuver to get his bill heard by another committee since Rep. Spencer Bacchus, the chairman of the House Financial Services Committee where Rep. Frank is a member, has authority over Treasury and is staunchly anti-gambling.

The committee took a brief recess before returning to hear opening statements from its second panel. Mark Lipparelli, the head of the Nevada Gaming Control Board, told the committee that Americans are gambling online despite the current legal climate, that regulators in other countries aren’t as rigorous as American regulators, and that online gaming provides detailed transaction-level information which can help monitor problem gamblers more easily than brick-and-mortar gaming. Charles McIntyre, the head of the New Hampshire Lottery Commission, told the committee that the proper place for decisions about gambling is on the state level, and the he is concerned that expanding the types of gambling available could hurt the lottery’s ability to contribute expected revenues to education in the state. Frank Fahrenkopf, the head of the American Gaming Association, told the committee that the best way to create a regulatory system in the US would be to amend the 1961 Wire Act and the 2006 UIGEA, and that any bill should pass a threefold test: it should not “create any competitive advantages or disadvantages” among differing interests, that it should not ban any form of gaming that is currently legal, and that it should respect fundamental states’ rights. He also said AGA changed its stance on online gaming because it thinks modern technology can solve all its concerns. Dr. Rachel Volberg, a sociologist with NORC at the University of Chicago, told the committee that most online poker players tend to be well-educated young men, that problem gambling rates tend to come down over time even if accessibility increases, and that the Barton bill should include additional self-exclusion requirements and new funding for problem gambling treatment programs.

– Rep. Bono-Mack asked Mr. Fahrenkopf if he supported states’ right to opt out of a federal system, which he did because of the 10th Amendment. She then asked Dr. Volberg how to prevent minors and problem gamblers from going to offshore operators even if Congress legalizes online gambling. Dr. Volberg said she’s really mostly an expert on exclusion programs. Rep. Bono-Mack asked Mr. Lipparelli to describe how Nevada regulates Indian gaming within its borders, which he did in 11 seconds. She then asked Mr. Fahrenkopf whether services to treat problem gamblers should be paid for by operators, the state through taxes, or both. He said either way can be effective, but there is a question of what adequate treatment is so most of the money should go to research to figure out how to effectively spend money on treating the problem.

– Rep. Butterfield noted that differences in the Barton and Frank bills with regards to their approach to preventing online gambling by minors. He asked Dr. Volberg if a federal-level solution would be better than leaving it to the states, which she did; he also asked whether the federal government should place restrictions on advertising online gambling to minors, and she agreed that it should.

– Rep. Barton asked Dr. Volberg to tell him more about the demographics of online poker players; she told him about an eCOGRA study finding that online poker players were men between 18 and 24 with high levels of education and income, contrasted with online casino gamblers who tended to be older women with low levels of education and income. Rep. Barton then asked Mark Lipparelli whether online poker would help or hurt B&M casinos. Mr. Lipparelli said that in the NGCB’s experience, if there’s any impact it’s already felt in operations. Rep. Barton asked Fahrenkopf whether Indian issues can be handled fairly so the tribes’ concerns can be addressed. Fahrenkopf said he believes in the sovereignty of tribes and that nobody should be given an advantage over anybody else.

Rep. Edoplhus Towns (D-NY) asked Mr. McIntyre if online poker could make up for lottery shortfalls; Mr. McIntyre said that most lottery players are aged 35-60, which is where most poker players will be in 15-20 years, so he is concerned that lottery revenues will fall off in the future. Rep. Towns asked Mr. Lipparelli if states are best positioned to handle gambling regulation, and he said the NGCB supports a model with a national framework to harmonize regulation from state to state. Rep. Towns then asked Mr. Fahrenkopf whether UIGEA has actually prevented people from gambling online, to which Fahrenkopf managed to respond without laughing. He said online gambling revenues actually rose after passage of UIGEA, which is why it needs to be amended to define what illegal online gambling is. Rep. Towns then asked how he would know he wasn’t playing against a bot online, and Mr. Fahrenkopf told him that software exists to allow poker sites to monitor the games and detect bots; he also pointed out that most bots are discovered by human players. Mr Lipparelli agreed that systems for tracking bots are very robust.

– Rep. Bass asked if bots were illegal. Mr. Lipparelli said it depends on how you define “bot” – using a basic strategy aid would probably not be illegal, while using a program to play your hands for you would be illegal. They couldn’t figure out whether the Barton bill addressed bots. Rep. Bass then asked the entire panel why state lottery commissions shouldn’t be allowed to run online poker within their states. Mr. Fahrenkopf reiterated that nobody should be given preferential treatment, but said he wasn’t against lotteries running online poker if the states so decided. Mr. McIntyre said he thought the NH Lottery could run poker quite well, as the provincial lottery commissions in Canada have done.

Rep. Gregg Harper (R-MS) asked Mr. McIntyre how much money was spent on the sale of lottery ticket in New Hampshire over the last 50 years. Mr. McIntyre said it was hard to characterize because a bit part of the money goes back to the players through prizes. Rep. Harper asked if the NH Lottery allowed internet sales of lottery tickets; Mr. McIntyre said that 0.4 percent of tickets are sold online through a “subscription” service. Rep. Harper felt that offering online gambling would harm the local Indian tribe’s casino in his district. Mr. Fahrenkopf said that the AGA studied the issue and found that online poker doesn’t affect destination gambling. Rep. Harper said a broader bill would affect destination gambling, but Fahrenkopf said the demographics of casino-goers and online players meant that online gambling would probably be a new profit center rather than cannibalizing existing business. Rep. Harper asked what regulating online gambling in the US would do to prevent offshore operators from continuing their business, and whether we shouldn’t develop a system to block all payments to them before regulating online gambling here. Mr. Fahrenkopf said the market would take care of some of the problem by people choosing to play with familiar brands, and that strengthening UIGEA would help American banks to do exactly what the Congressman had proposed.

Rep. Leonard Lance (R-NJ) asked Mr. McIntyre whether a requirement for the use of third-party testing firms should be put into the bill. Mr. McIntyre said that was an excellent idea. Mr. Lipparelli agreed. Rep. Lance said he was concerned online poker would be competition for state lotteries. Mr. Lipparelli said that any cannibalization is already happening with the money going to offshore operators. Mr. McIntyre said he believed there was a finite amount of gambling money out there. Mr. Fahrenkopf said the state legislatures could protect the state lotteries, with which Rep. Lance agreed.

Rep. Brett Guthrie (R-KY) asked Mr. Fahrenkopf and Dr. Volberg to explain the studies they had both quoted in their opening statements that came to very different conclusions about the prevalence of “psychological gambling” among online players. Mr. Fahrenkopf said that the Harvard study he used for his numbers on “pathological gambling” looked at 40,000 online gamblers, while some of the studies Dr. Volberg quoted had surveyed fewer than 200 gamblers. Dr. Volberg said that this forum wasn’t a great place to get into the minutiae of such surveys, but that problem gambling rates among internet gamblers are high compared to other gamblers. She said that internet gamblers were 10 times more likely to have a problem than people who don’t gamble online, which Rep. Guthrie thought was because the internet allows people “anonymy” in their actions. Dr. Volberg said she thought the “anonymity” and ease of access contributed to these higher rates.

Rep. Bill Cassidy (R-LA) asked Mr. Fahrenkopf how $2 billion in tax revenue would be generated if Dr. Volberg’s figure of $4 billion being gambled online were true. Mr. Fahrenkopf pointed out that it’s hard to estimate tax revenues from a currently unregulated industry because we don’t have specific figures. Rep. Cassidy was concerned that overtaxing a legal online gambling industry would drive players back to the offshore sites. Mr. Fahrenkopf said that’s what happened in the UK, where the taxes are punitively high and operators moved offshore. Dr. Volberg told Rep. Cassidy that only 25 to 40 percent of domestic players in regulated and taxed overseas markets chose to play exclusively on the legal sites, while the rest played on either offshore or on a mixture of domestic and offshore. Mr. Fahrenkopf reiterated his desire to strengthen UIGEA to help prevent that. Rep. Cassidy then spent the rest of his time trying to reconcile online gambling prevalence rates among his two witnesses.

Rep. Pete Olson (R-TX) gave a rundown of how the Texas legislature heard nine separate bills this year to legalize poker, and he read an email from one of his constituents pointing out the myriad flaws in UIGEA. He then asked Mr. Fahrenkopf if the AGA is against banning the use of credit cards for online gambling transactions, which Mr. Fahrenkopf said doesn’t really make a difference to him.

And with that, the Chairman wrapped up this latest hearing on Rep. Barton’s bill to legalize and regulate online poker. There was a lot less drama, a lot less moral grandstanding, and a lot less confusion over side issues than in the first hearing. If anything was made clear, it’s that there is a long, long way to go before this government is prepared to regulate online poker within the US. That doesn’t mean they won’t jump in head-first – that’s how UIGEA came into existence, after all – but if reason prevails there will be many more hearings on the issue before any bill comes to a vote in Congress.