6 May 2014
Practice Group(s):
Betting & Gaming
Global Government
Solutions
Pennsylvania Holds Its First Ever Legislative
Hearing on Internet Gaming
By Anthony R. Holtzman and Linda J. Shorey
Pennsylvania legislators are beginning to explore a topic that, for them, was previously
uncharted territory: the possibility of legalizing Internet gaming. In April 2013,
Representative Tina Davis introduced a bill (HR 1235) that would empower the Pennsylvania
Gaming Control Board to authorize licensed Pennsylvania casino operators to offer certain
games on the Internet. Additionally, in December 2013, the Pennsylvania Senate adopted a
resolution (SR 273) that directed the Legislative Budget and Finance Committee to issue a
report that addresses, among other things, “the potential impact of online gaming on the
gaming industry, including the impact online gaming may have on the [state’s] tax revenues
and employment at the [state’s] casinos.” On May 1, 2014, with these points as a backdrop,
the Pennsylvania House Democratic Policy Committee—which includes Representative
Davis—held Pennsylvania’s first ever legislative hearing on Internet gaming.
The hearing featured 14 witnesses who were divided into four panels: (1) policy and
regulatory issues, (2) social impact issues, (3) technology and consumer protection issues,
and (4) gaming industry issues.
Policy and Regulatory Issues
The hearing began with the panel on policy and regulatory issues. The first witness was
Kevin O’Toole, the Executive Director of the Pennsylvania Gaming Control Board. Mr.
O’Toole explained that Board members have reviewed the Internet gaming laws of other
jurisdictions, met with Internet gaming regulators of other jurisdictions, and attended several
Internet gaming conferences. The Board, he said, believes that if Pennsylvania legalizes
Internet gaming, only licensed casino operators should be permitted to offer Internet gaming
opportunities in the state. The Board also believes that it should be the entity that regulates
this activity.
After Mr. O’Toole finished his remarks, James Kilsby, a Managing Director for
GamblingCompliance, outlined some of the key policy issues that arise when a state decides
to legalize Internet gaming. He noted that the state must decide, among other things, who
should be licensed to operate gaming websites, who should regulate the licensed operators,
which types of games should be authorized, how licensure “suitability” determinations should
be made, and what the tax rate should be for Internet gaming revenue.
Mr. Kilsby was followed by Geoffrey Dixon, the Head of Insights for Commercial Intelligence.
Mr. Dixon described the results of a survey that his company conducted of people who had
recently participated in legalized Internet gaming activities in New Jersey. Mr. Dixon noted
that 65 percent of the survey respondents had participated in “unregulated” Internet gaming
activities before participating in the legalized ones, 21 percent made their first visit to a landbased casino after participating in the legalized activities, and 70 percent believed that, after
Pennsylvania Holds Its First Ever Legislative Hearing on Internet Gaming
participating in the legalized activities, they visited land-based casinos just as often as
beforehand.
Social Impact Issues
The second panel addressed social impact issues. The first witness was Patty Aftab, the
Founder and Executive Director of Wired Safely. Ms. Aftab said that Internet gaming
implicates important social concerns, including underage gambling, identity theft, “scamming”
of senior citizens, fraud, and money laundering. She emphasized that, since people will
participate in Internet gaming regardless of whether it is regulated, “the only way to get
[consumer] protection” is to “have the government step in.”
The next witness was Jim Pappas, Executive Director of the Council on Compulsive
Gambling of Pennsylvania. He said that Pennsylvania lawmakers should review other
states’ statutes that authorize Internet gaming to see how those statutes address “problem
gamblers.” He also noted that his organization supports “New Jersey’s approach,” which
involves allocating some Internet gaming-related tax revenue directly to the Council on
Compulsive Gambling of New Jersey.
Mr. Pappas was followed by Keith Whyte, the Executive Director of the National Council on
Compulsive Gambling. Mr. Whyte suggested that Internet gaming can foster gambling
addiction because of the “fast pace of play,” the use of credit cards to pay for wagers, and
“24-hour access” to gaming websites. He said that, if Pennsylvania passes legislation that
legalizes Internet gaming, the legislation should bolster the state’s approach to treating
gambling addiction and contain robust standards for preventing “problem gambling” issues
from arising in the first place.
Technology and Consumer Protection Issues
The third panel addressed technology and consumer protection issues. Leading off was
Peter Murray, Head of Gaming and Consumer Services for GB Group. Mr. Murray said that,
in the Internet context, verifying someone’s identity involves gathering and assessing various
pieces of information, including the person’s name, address, date of birth, e-mail address,
and telephone number, along with information embedded in social media websites, creditreporting websites, passports, identification cards, and computing devices. These data
points, he explained, need to be “combined and cross-referenced” in order to be effective as
a means of identity verification.
The next witness was Doug Lewin, Executive Vice President for Strategic Partnerships and
Development at Optimal Payments. Mr. Lewin explained that, in order to accept online
wagering payments, website operators need to enter into contracts with companies that
provide automated clearing house services, pre-paid cards, or credit cards to wagerers. In
the United States, he said, many banks do not wish to make the effort (or spend the money)
to make distinctions between legal and illegal Internet gaming payments and, therefore,
simply block all of those payments.
The last witness on the panel was Lindsay Kininmonth, an Operations Manager at
GeoComply. She discussed geolocation technology as it relates to Internet gaming. She
explained that the technology is premised on “triangulation” of Wi-Fi signals, cell phone
towers, and GPS signals. It also, she said, involves the use of “spoofing detection
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Pennsylvania Holds Its First Ever Legislative Hearing on Internet Gaming
technology,” which is designed to prevent people from spoofing the physical locations of their
computing devices.
Gaming Industry Issues
The final panel addressed gaming industry issues. The first witness was David Satz, Senior
Vice President of Government Relations and Development for Caesars Entertainment Corp.
Mr. Satz explained that Caesars supports state-level authorization of Internet poker activities.
Those activities, he said, do not cannibalize revenues for land-based casinos, but instead
encourage people to visit land-based casinos by creating enthusiasm for poker. He said
that, similarly, operators of authorized Internet poker websites can “cross-market” land-based
casinos by featuring advertisements for those casinos on the websites (and vice versa).
Mr. Satz was followed by Bob Green, Chairman of Parx Casino and Racing. Mr. Green
emphasized that Parx Casino agrees with the Gaming Control Board that if Pennsylvania
legalizes Internet gaming, only “existing casino operators” should be permitted to offer
Internet gaming opportunities in the state. Under this framework, Mr. Green said, the state’s
gaming regulators would already “know who they’re dealing with.”
The next witnesses were Schott Bohrer and Manu Gambhir, the Managing Partners of Thrive
Gaming. They stressed that the technology exists to “effectively regulate” Internet gaming.
Additionally, they estimated that, if Pennsylvania legalizes Internet gaming, it would enable
the state to receive $400 to $500 million of new tax revenue per year.
The final witness of the day was John Pappas, Executive Director of the Poker Players
Alliance. Mr. Pappas noted that the Poker Players Alliance has 25,000 activists in
Pennsylvania, advocates for “sensible regulation” of Internet poker activities, and believes
that, if Pennsylvania and other states do not legalize Internet gaming, it will only benefit the
“illegal” gaming websites.
Conclusion
While the witnesses discussed a wide variety of topics, some of the most prominent themes
that emerged were that (1) there are numerous “unregulated” gaming websites, many of
which are currently accepting online wagers from Pennsylvania residents, (2) it is possible
for a state government to effectively regulate and tax Internet gaming, (3) Internet gaming is
already being regulated in jurisdictions other than Pennsylvania (such as New Jersey,
Delaware, Nevada, and Europe), and (4) the technology exists to ensure that underage and
“problem” gamblers do not participate in Internet gaming activities.
During the hearing, members of the House Democratic Policy Committee posed a number of
questions to the witnesses. Their questions revealed that, at this point, they have only a
basic understanding of the legal, practical, and technical issues associated with Internet
gaming. They and other Pennsylvania legislators will need to continue to educate
themselves about these issues as they decide whether to support legislation that would
legalize Internet gaming. They will have an opportunity to do so at a public hearing on May
7, 2014, where the Legislative Budget and Finance Committee’s report on Internet gaming
(mentioned at the outset of this alert) is scheduled to be announced.
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Pennsylvania Holds Its First Ever Legislative Hearing on Internet Gaming
Authors:
Anthony R. Holtzman
anthony.holtzman@klgates.com
+1.717.231.4570
Linda J. Shorey
linda.shorey@klgates.com
+1.717.231.4510
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