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       1      BEFORE THE NEW YORK STATE SENATE
              STANDING COMMITTEE ON RACING, GAMING, AND WAGERING
       2      ----------------------------------------------------

       3                         PUBLIC HEARING

       4             TO DISCUSS THE FUTURE OF ONLINE POKER

       5                        IN NEW YORK STATE

       6      ----------------------------------------------------

       7
                               Legislative Office Building
       8                       Van Buren Hearing Room A - 2nd Floor
                               Albany, New York 12247
       9
                               September 9, 2015
      10                       1:00 p.m. to 4:00 p.m.

      11

      12
              PRESIDING:
      13
                 Senator John J. Bonacic
      14         Chair

      15

      16      PRESENT:

      17         Senator Joseph A. Griffo

      18         Senator Kathleen A. Marchione

      19

      20

      21

      22

      23

      24

      25







                                                                   2
       1
              SPEAKERS:                               PAGE  QUESTIONS
       2
              John A. Pappas                             4      11
       3      Executive Director
              Poker Players Alliance
       4
              James Featherstonhaugh                    19      28
       5      President
              New York Gaming Association
       6
              Michael Pollock                           19      28
       7      Managing Director
              Spectrum Gaming
       8
              John McManus                              38      44
       9      Executive VP and General Counsel
              Denise Miller
      10      Senior Vice President of
                   Government Affairs
      11      MGM Resorts International

      12      David Satz                                46      53
              Senior VP of Government Relations &
      13           Development
              Caesars Entertainment Group
      14
              Thomas Ballance                           55      62
      15      President
              Borgata Hotel, Casino, and Spa,
      16           Atlantic City

      17      Kevin Cochran                             69      78
              Senior Legal Analyst
      18      Gambling Compliance

      19      Richard Schwartz                          80      88
              President
      20      Rush Street Interactive

      21                            ---oOo---

      22

      23

      24

      25







                                                                   3
       1             SENATOR BONACIC:  I am Senator John Bonacic,

       2      and I chair the Senate Racing, Gaming, and Wagering

       3      Committee.

       4             I'm joined by Senator Marchione and

       5      Senator Griffo.

       6             The purpose of the hearing is to discuss the

       7      future of online poker in New York State.

       8             We have seven distinguished speakers.

       9             And I would like to ask if either

      10      member/colleague would like to make any preliminary

      11      remarks, if you're so inclined.

      12             Kathy?

      13             SENATOR MARCIONE:  I would just like to thank

      14      you, Chairman, for holding this hearing so we can

      15      learn more about online poker, if the state of

      16      New York is going to become involved in it; the pros

      17      and the cons, and what might be good for us, and

      18      what might be good for business.

      19             I am starting to get people e-mailing me

      20      about this topic.

      21             So, thank you so much for setting up the

      22      hearing, and I'm looking forward to hearing from our

      23      speakers.

      24             Thank you, Kathy.

      25             And I know both my colleagues have other







                                                                   4
       1      events, so I don't know if they'll be able to join

       2      us, so I'm just letting the speakers know.

       3             We're going to accept written testimony up to

       4      September 30th of this month, if anyone wants to

       5      weigh in that were not able to make it today.

       6             Okay.  Our first speaker is John Pappas.

       7      He's the executive director of Poker Players

       8      Alliance.

       9             Now, Senator DeFrancisco is a colleague of

      10      mine.  You may not know him.  But, he chairs our

      11      Ways and Means, and he puts a five-minute limit on

      12      people speaking, and they give written testimony.

      13             So he says, You don't have to read what you

      14      gave us.  Maybe you'd like to summarize, and, that

      15      way, we can maybe interact with what you're saying,

      16      and we can leave time for questions and answers.

      17             It's just a suggestion.  You do it any way

      18      you want, but I'm just throwing it out there.

      19             JOHN A. PAPPAS:  I've provided 12 pages of

      20      testimony in small print, that is footnoted

      21      throughout.  So I assure you, I will not be reading

      22      from that testimony.

      23                  [Laughter.]

      24             SENATOR BONACIC:  Okay, John.

      25             JOHN A. PAPPAS:  I have an abridged version







                                                                   5
       1      in front of me.

       2             SENATOR BONACIC:  Okay.  Very good.

       3             JOHN A. PAPPAS:  Chairman Bonacic, and

       4      distinguished members of the Committee, thank you

       5      for holding this hearing.

       6             My name is John Pappas, and I have the great

       7      honor of serving as the executive director of the

       8      Poker Players Alliance, an organization of

       9      1.2 million American poker enthusiasts.  In the

      10      state of New York, we boast nearly 40,000 PPA

      11      activists.

      12             These individuals enjoy playing poker in

      13      their homes, in charitable games, at tribal casinos

      14      and, soon, they will test their skills at

      15      state-licensed casinos, but we currently cannot play

      16      this great game of skill in a legal and regulated

      17      market in New York.

      18             I am pleased to serve as a resource to this

      19      Committee, to help you to better understand how

      20      Internet poker is being regulated, and why

      21      regulation is the best way for the New York

      22      Legislature to protect consumers.

      23             As an organization, the PPA has been at the

      24      forefront of advocating for sensible state and

      25      federal policies to regulate Internet poker.







                                                                   6
       1             It is my hope that New York will respond,

       2      like New Jersey did, by creating a law that

       3      establishes consumer protections and accountability.

       4             At this time, I would like to thank the

       5      Chairman for his leadership on this issue, and for

       6      introducing S5302, a bill that would establish a

       7      regulatory framework for Internet poker in the

       8      Empire State.

       9             Any effort to regulate Internet poker should

      10      not be viewed as an expansion of gambling in

      11      New York; but, rather, as an opportunity to better

      12      protect consumers.

      13             Today, citizens of this state have access to

      14      online poker, online casino games, and online sports

      15      betting, but they play on foreign sites, none of

      16      which are properly licensed or regulated by this

      17      government.

      18             This reality is all too real for New Yorkers

      19      who played on a site called "Lock Poker" which

      20      abruptly shut its doors in April of this year,

      21      taking with it millions in player deposits.

      22             Sadly, because of the lack of regulatory

      23      oversight, there is nothing the affected customers

      24      can do to get their money back and hold this rogue

      25      website accountable.







                                                                   7
       1             This is why we need to corral the current

       2      unregulated marketplace and turn it into a system

       3      that is safe for consumers and accountable to the

       4      regulators and our government.

       5             Establishing a regulatory regime for online

       6      poker in New York should focus on an open and

       7      competitive market that fosters innovation and keeps

       8      consumer interests at the forefront.

       9             Because of the popularity of poker in

      10      New York, we would expect a robust market that could

      11      support multiple operators; however, it is vitally

      12      important for New York to establish a system that

      13      will allow for it to share players with other

      14      regulated jurisdictions.

      15             In poker, a critical mass of online players,

      16      often referred to as "liquidity," is not only key to

      17      enhancing the consumer experience, but for

      18      maximizing the profitability of the operator and

      19      ensuring the State receives its desired tax

      20      revenues.

      21             Others testifying today will be able to

      22      provide with you more detail about the potential tax

      23      revenue from Internet poker.

      24             As a player organization, we focus on

      25      consumer protections rather than revenue.







                                                                   8
       1             With that said, regulation will bring new

       2      revenue without raising taxes, revenue that the

       3      State is not receiving today under the current

       4      unregulated poker market.

       5             The adoption of regulated Internet gaming in

       6      the U.S. means New York policymakers can no longer

       7      consider regulated Internet poker as a theoretical.

       8             It is not a theory, it is reality.

       9             It is a reality across Europe, and it is a

      10      reality right here in the U.S.  In these

      11      jurisdictions, regulated operators are accountable

      12      to the players, regulators, and law enforcement, and

      13      they are continually reviewed to ensure they are

      14      meeting and exceeding the prescribed technical

      15      safeguards.

      16             Of course, there are those who will advocate

      17      for a ban on Internet poker and Internet gaming.  In

      18      fact, some in the U.S. Congress are seeking to

      19      advance legislation that would cut the legs out from

      20      under this Committee and deny New York the ability

      21      to responsibly regulate Internet poker.

      22             We oppose this federal legislation, and

      23      I thank the members of this Committee who have

      24      publicly opposed this foolhardy prohibition.

      25             I would like to take a moment to address some







                                                                   9
       1      of the concerns that have been raised about Internet

       2      gaming and its impact on society.

       3             Due to time constraints, I encourage you to

       4      reference my submitted testimony for more in-depth

       5      discussion of these issues.

       6             With respect to underage access, gaming-site

       7      operators are required to implement state-of-the-art

       8      age-verification software before being licensed.

       9             Failure to undertake rigorous age

      10      verification could result in the loss of the license

      11      and the closure of their business.

      12             It is notable that in the three states --

      13      New Jersey, Delaware, and Nevada -- that offer

      14      regulated online poker and casino games, there is

      15      not been a single reported incident of underage

      16      access.

      17             Another important matter is to ensure that we

      18      are appropriately addressing problem gambling.

      19             Comprehensive research on the issue concludes

      20      that online-gaming operators have effective and

      21      sophisticated tools to prevent and combat problem

      22      gaming, including a key report from the University

      23      of Buffalo Research Institute on Addiction that

      24      proves that online gaming does not increase the

      25      social risks and damages of problem gambling.







                                                                   10
       1             A common argument made by proponents of the

       2      federal ban on Internet gambling is that states

       3      could not possibly limit the activity to people

       4      within their own states.

       5             But the truth of the matter is, that states

       6      are already doing this effectively.

       7             There are multiple technology companies who

       8      are licensed in these jurisdictions, dedicated to

       9      developing geolocation systems that stay ahead of

      10      someone trying to thwart the system.

      11             If New York chooses to regulate Internet

      12      poker, it should require best-of-breed technologies

      13      to ensure the location of the gamblers and limit it

      14      to those eligible to play in the state.

      15             Again, I ask for you to refer to my submitted

      16      testimony for greater details on these issues, and

      17      welcome more on the Q&A.

      18             In closing, however, it might be useful for

      19      this Committee to focus on questions that are not

      20      before them right now.

      21             First, this Committee is not deciding whether

      22      New York citizens will gamble on the Internet.

      23             Today, thousands of them already gamble on

      24      offshore sites that provide absolutely no local

      25      oversight or protection.







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       1             Second, this Committee need not ask the

       2      question of whether Internet poker can be

       3      successfully regulated.

       4             Today, the successfully -- excuse me.

       5             Today, it is successfully regulated in many

       6      European jurisdictions and in the United States.

       7             As I see it, the question before this

       8      Committee is, whether New York players will be

       9      provided with a safe and well-regulated place to

      10      play poker on the Internet.

      11             Once again, Mr. Chairman, and members of

      12      the Committee, I thank you for the opportunity to

      13      testify on behalf of my members and your

      14      constituents, and I will be pleased to answer any

      15      questions that you may have.

      16             SENATOR BONACIC:  Okay.

      17             Senator Marchione, do you have any questions?

      18             SENATOR MARCIONE:  I just have one.

      19             I mean, you're talking about regulating poker

      20      online that can come from anywheres in the world.

      21             How do you regulate the Internet?

      22             JOHN A. PAPPAS:  Well, and as I said, it's

      23      been done effectively in multiple jurisdictions.

      24             And what we're seeking to do is, create a

      25      marketplace here that is accountable to the State







                                                                   12
       1      and to the players in this state.

       2             You are correct, there are offshore operators

       3      that will try to prey on players throughout the

       4      country.

       5             The best defense against an offshore industry

       6      is a regulated instate industry.

       7             As a New York consumer, I would much rather

       8      play on a site that has the backing and support of

       9      the state government than an offshore fly-by-night

      10      company like Lock Poker, that took their money, but

      11      then never returned that money.

      12             Players are seeking, they are asking, for you

      13      guys to act to ensure that they are properly

      14      protected, because it is accessible to them.  But

      15      they want to be able to play on sites that have the

      16      accountability that they don't have today in

      17      New York.

      18             SENATOR MARCIONE:  So what do you do; set up

      19      an account?  Is that how it's done?

      20             JOHN A. PAPPAS:  An individual, so, the

      21      process would be this:

      22             You guys would pass a law, the Governor would

      23      sign a law.

      24             We don't need to go into how that happens.

      25             But, the -- then the regulators would







                                                                   13
       1      determine who would be a licensed operator in the

       2      state.  Those licensed operators would have to prove

       3      to the regulators that they have all of the

       4      technical safeguards, including AML (anti-money

       5      laundering), consumer protections to prevent

       6      underaged access, identity verification,

       7      geolocation...all of that.

       8             SENATOR MARCIONE:  I wasn't actually talking

       9      about the people who set the sites.  I was talking

      10      about the people who play on the sites.

      11             JOHN A. PAPPAS:  Right.

      12             And then an individual would then -- once

      13      those sites are licensed, an individual would sign

      14      up, would go onto the site, would have to provide

      15      detailed information about themselves, including

      16      credit card information or debit card information,

      17      to prove that they are of the certain age that is

      18      required to prove that they are residing at that

      19      moment within the state, and then they would be able

      20      to make a deposit onto the site, and be able to play

      21      poker.

      22             SENATOR BONACIC:  Okay.

      23             JOHN A. PAPPAS:  Thank you.

      24             SENATOR BONACIC:  Senator Griffo?

      25             SENATOR GRIFFO:  Yeah, just a couple of quick







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       1      questions.

       2             First of all is, you boast about 40,000,

       3      I think you said, members here in New York State.

       4             What is the benefit of membership in your

       5      alliance?  What is --

       6             JOHN A. PAPPAS:  Well, they get

       7      representation, and a voice in the legislative

       8      system, not only here in New York, but all

       9      throughout the country.

      10             We accept donations from our members; and

      11      some generously donate, and some simply accept the

      12      fact that the PPA is out there fighting for their

      13      interests.

      14             SENATOR GRIFFO:  And by "fighting for their

      15      interests," what do you mean?  Just -- not just in

      16      Internet gaming, but in other aspects?

      17             JOHN A. PAPPAS:  All aspects of poker.

      18             In fact, we've been involved in some

      19      high-profile legal cases here in New York that had

      20      nothing to do with the Internet.

      21             We focus on poker, generally.

      22             Obviously, today we're talking about Internet

      23      poker, so I'm focusing my remarks there.

      24             SENATOR GRIFFO:  And when you speak about,

      25      one of the things that you emphasized consistently,







                                                                   15
       1      was the importance of protecting the participant.

       2             What do you consider some of the greatest

       3      concerns that you want to protect against for a

       4      participant?  What's the greatest fear that you

       5      would have?

       6             JOHN A. PAPPAS:  Well, first and foremost,

       7      the safety and security of the game that they're

       8      actually playing.

       9             We want adult New Yorkers who want to play

      10      poker online to be -- have the comfort of being able

      11      to deposit money onto a site, and know when they

      12      want to take that money off, that they will get that

      13      money.

      14             As I mentioned, an example of Lock Poker.

      15             And there are numerous examples, aside from

      16      just Lock Poker, where sites were unable or did not

      17      return money to the players, and were not held

      18      accountable because they were based overseas.

      19             So that's -- for the player, that's our first

      20      concern.

      21             Of course, we're also are concerned about

      22      vulnerable populations.

      23             We want to make sure that children don't have

      24      access to the sites.

      25             We want to make sure that people that have







                                                                   16
       1      problem gambling aren't exploited, and are

       2      identified and treated.

       3             We want to make sure that the games are safe

       4      and secure to meet all the anti-money-laundering

       5      standards.

       6             And all of this is being done already.  This

       7      is not theoretical for New York.

       8             New York can take comfort in the fact that

       9      other states and other jurisdictions are doing this

      10      and doing it very effectively.

      11             SENATOR GRIFFO:  Okay.

      12             Thank you, Chairman.

      13             SENATOR BONACIC:  Real quick.

      14             We've authorized three casinos in the state

      15      of New York.  We, the people, have voted for it.  We

      16      have nine racinos.

      17             You've talked about addiction.

      18             You've talked about consumer protection.

      19             The threshold of identifying addiction on the

      20      Internet, as opposed to a mortar-and-brick

      21      location -- racino, casino -- are they different or

      22      are they the same?

      23             JOHN A. PAPPAS:  I would actually argue that,

      24      online, the ability to detect a problem gambler is

      25      much easier than in a brick-and-mortar setting.







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       1             And that may seem strange, but let me

       2      explain, if --

       3             SENATOR BONACIC:  Yeah, elaborate if you

       4      would.

       5             JOHN A. PAPPAS:  So, the online game, the

       6      beauty of it is, and a regulator will tell you this,

       7      is that you're able to track every activity that a

       8      player does on a site.

       9             I can walk into a brick-and-mortar casino

      10      with a $1,000 in my pocket, spend $500 playing

      11      craps, 250 playing poker, and 250 on the slot

      12      machines, walk out, and nobody knows I was there.

      13      Nobody knows what games I played.  Nobody knows

      14      anything about me.

      15             Online that is impossible.

      16             As soon as you've logged into the site, they

      17      know that you're there, they know exactly the games

      18      you've played, and they know exactly how much you

      19      spent.

      20             Now, if people are spending in a way that

      21      exhibits signs of a problem gambler, the site could

      22      have the responsibility of notifying that player.

      23             Hey, you are exhibiting signs of a problem

      24      gambler.  Here are some places you can go to seek

      25      treatment.







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       1             They could have mandatory cooling-off

       2      periods.

       3             Things like that.

       4             That's not possible in a brick-and-mortar

       5      establishment.

       6             I'm not saying that brick-and-mortar

       7      establishments aren't responsible in trying to

       8      identify people who are exceeding their limits.

       9             It's, just, there's no perfect record like

      10      there is online.

      11             There is a perfect record of people's

      12      gambling behaviors online.

      13             And even the National Council on Problem

      14      Gambling, which is the largest, most reputable

      15      national advocacy organization for problem gamblers,

      16      recommends regulation of the Internet gaming because

      17      of this, because they recognize that the ability to

      18      identify and treat problem gamblers through the

      19      Internet is far greater than in the brick-and-mortar

      20      study.

      21             SENATOR BONACIC:  This is a hard question.

      22      I don't know if there -- if you can answer it, but,

      23      is there a ratio of the amount of people that play

      24      online poker, gaming, as opposed to those that get

      25      addicted?







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       1             Is it 1 in 300?

       2             Is it 1 in 500?

       3             Is it -- it's a hard question.  I don't know

       4      if -- can it be ascertainable?

       5             JOHN A. PAPPAS:  It has been.  And,

       6      unfortunately, I don't have all the data in front of

       7      me.

       8             Some of the -- my references in my full

       9      testimony cite studies that look at this exact

      10      issue.

      11             And the answer is, is that there is not a

      12      discernible increase, or any increase, in problem

      13      gambling if it's available to people online.

      14             SENATOR BONACIC:  Okay.

      15             Thank you very much, Mr. Pappas.

      16             Does anyone else have any other questions?

      17             Thank you very much for coming and testifying

      18      today.

      19             JOHN A. PAPPAS:  Thank you very much for

      20      having me.

      21             SENATOR BONACIC:  Our next speaker is

      22      James Featherstonhaugh, president of the New York

      23      Gaming Association.

      24             And he came with all of his consultants, and

      25      professionals.







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       1             Very good, Jim.

       2             JAMES FEATHERSTONHAUGH:  I came with my own

       3      expert, least we need him, which we will.

       4             SENATOR BONACIC:  Thank you all, gentlemen,

       5      for coming today.  We appreciate it.

       6             JAMES FEATHERSTONHAUGH:  Mr. Chairman,

       7      thank you, and thank you for convening this hearing,

       8      which I think is both timely and important, as the

       9      question of Internet poker, and, more broadly, the

      10      question of Internet gaming, comes into the

      11      public-policy arena where it needs to be addressed

      12      by folks like yourselves.

      13             I also think it's important, in looking at

      14      Internet poker, to understand that there is a

      15      separation, or there is -- there is no separation,

      16      where you can take one small thing.

      17             Your bill, for example, approves two specific

      18      kinds of poker that could be offered, based on a

      19      skill set, and was, obviously, carefully and

      20      thoughtfully drafted to address some of the

      21      questions you were speaking to the last speaker

      22      about.

      23             But I think, when you look at that topic, you

      24      have to look more broadly at it in order to be able

      25      to fully understand the public-policy implications.







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       1             Matt, can you...

       2             We did a little PowerPoint, just because Matt

       3      knows how to do them.

       4             There they are, up on the screen.

       5             I'm going to speak briefly to some things

       6      that you probably already know, but, frankly, I want

       7      to remind you of them as the underpinnings of

       8      Mr. Pappas's comments, and they are important.

       9             Right now, the nine racetrack casinos have a

      10      $3 billion impact -- economic impact on the state of

      11      New York.

      12             That impact will be increased when the

      13      three new casinos become fully licensed, fully

      14      built, and operational.

      15             You will then have 12 brick-and-mortar

      16      facilities here in New York State that are having a

      17      large, repetitive, and important economic impact on

      18      the state.

      19             In the case of the racetrack casinos, or

      20      "racinos," that the major portion of the money that

      21      goes to the state.

      22             And the state, as I've said before this

      23      Committee before, I'm really comfortable when I talk

      24      about the racino industry because we're partners.

      25      And I recognize you're the senior partner.







                                                                   22
       1             We contributed $864 million to education last

       2      year.  And we've contributed more than 5 1/2 billion

       3      since the first racino opened back in 2004.

       4             We support 30,000 jobs.

       5             Again, those numbers are going to go up when

       6      the three new brick-and-mortar casinos are licensed,

       7      built, and operational in New York.

       8             Those are all benefits that you, our partner,

       9      needs to be aware of, and be sensitive to

      10      protecting, as gaming is expanded.

      11             I know Senator Marchione has a particular

      12      interest in the money that goes to racing and

      13      breeding in the state, and that is not an

      14      insignificant number at all.

      15             Again, since we've opened, that has been

      16      $1.3 billion that goes to the state.

      17             And quite separate and apart from the numbers

      18      I've shown you that we contribute to the economy,

      19      the racing and breeding industry, as I'm sure you

      20      all remember from the report they put out last year,

      21      the racing and breeding industry in New York is

      22      a $4.2 billion industry itself, and, it's an

      23      industry that is of particular importance to

      24      Upstate New York.

      25             All of that doesn't just happen.







                                                                   23
       1             It happens because the operators of these

       2      facilities, both the current ones and the ones that

       3      will be coming on, invest in New York State.

       4             We spend money in New York State.

       5             Since we started, NYGA members have invested

       6      over $1 1/2 billion.

       7             I know that Senator Marchione frequently

       8      drives by a hotel project in Saratoga, New York,

       9      where $34 million is currently being spent, where

      10      hundreds of people are currently being employed, and

      11      where hundreds more will be employed in the days

      12      ahead.

      13             And we also contribute significantly to local

      14      governments.

      15             Now, with that as a background, that economic

      16      picture as a background, I'd like to ask

      17      Michael Pollock, managing director of

      18      Spectrum Gaming, an organization about which I know

      19      you're all familiar, and most, if not all, of the

      20      people in the room are familiar, who has studied

      21      this issue of online gaming more broadly across the

      22      country.

      23             And at our request, has looked specifically

      24      at New York, to tell you what his conclusions are.

      25             MICHAEL POLLOCK:  Thank you; and,







                                                                   24
       1      Mr. Chairman, Senator Marchione, Senator Griffo.

       2             Spectrum has been out front of the policy

       3      debate on online gaming for many years, and before

       4      it was offered legally in the U.S.  And I have

       5      personally testified before legislative committees,

       6      such as this one, in California, Louisiana,

       7      New Jersey, Pennsylvania, and before the U.S. Senate

       8      Indian Affairs Committee.

       9             And over that time, our message has been

      10      consistent and unwavering.

      11             We suggested online gaming should be

      12      conducted solely by licensed brick-and-mortar

      13      facilities operating within the boundaries of the

      14      state of New York as the best means of advancing

      15      public policy.

      16             Land-based operators, by their very nature,

      17      are better positioned to advance public policy on a

      18      variety of key fronts, including employment, tourism

      19      promotion, purchases of goods and services, and the

      20      all-important capital investment.

      21             And with that in mind, the critical question,

      22      as we see it, is:  How do you measure the impacts of

      23      online gaming, and its ability to achieve these

      24      public-policy goals?

      25             I respectfully suggest, you don't measure --







                                                                   25
       1      you do not measure it by the total amount wagered

       2      online or by the state's share of that revenue.

       3             As was noted in an earlier slide, New York's

       4      existing gaming operators have a $3 billion annual

       5      economic impact on the state of New York.

       6             Economic impact, in our view, is the most

       7      relevant measure as to how gaming advances public

       8      policy.

       9             One of our core premises that we've developed

      10      over the years, quite simply, is that technology

      11      changes, human nature does not.

      12             Effectively, online players in New York, as

      13      they -- as elsewhere, will still seek a social

      14      experience.

      15             New York needs to ensure that such

      16      experiences take place in New York.

      17             And online gaming should not be viewed, nor

      18      should it be positioned, as a substitute for

      19      land-based gaming.

      20             Rather, online gaming offers, effectively, a

      21      cost-effective means for New York operators to reach

      22      and market to new customers; reaching them with

      23      messages at a time when they're earning points and

      24      are receptive to such messages.

      25             And to advance public policy in New York, we







                                                                   26
       1      suggest the message should be:  Visit a New York

       2      property.

       3             Why is this important from the standpoint of

       4      gaming operators?

       5             Like their counterparts elsewhere, gaming

       6      operators in New York are facing an aging customer

       7      base, and need to leverage this potential means of

       8      attracting younger and broader demographics.

       9             Now, interestingly, at this point, because we

      10      do have online gaming in three states, I can say

      11      this is not guesswork -- neither guesswork nor

      12      wishful thinking, the experience in New Jersey and

      13      elsewhere has demonstrated that most online players

      14      have never visited a land-based casino.

      15             That creates an enormous marketing

      16      opportunity.

      17             One of the things that I found particularly

      18      astounding, and you'll probably hear more about this

      19      later, is that online-gaming operators report that

      20      as many as 85 percent of online gamblers had not

      21      previously visited a casino.

      22             Converting them to land-based customers, even

      23      in small numbers, will not be automatic, but

      24      I submit, it can be achieved.

      25             Now, outside of the land-based industry, and







                                                                   27
       1      any number of entities could, theoretically, seek

       2      licenses, and the potential field is broad.  It

       3      could range from technology and social-gaming

       4      providers, to commercial operators, in other states.

       5             And while many of them are licensable, they

       6      are not as well-positioned to advance public policy

       7      in New York.

       8             As we've seen in other states, the land-based

       9      licensees offer a high degree of confidence to

      10      certain critical areas.

      11             They've already been licensed thoroughly,

      12      scrutinized, and vetted.  They are major employers.

      13      They are experienced gaming operators, able to

      14      ensure the integrity and security of the games.

      15      And, they are accustomed to and sensitive to

      16      responsible gaming policies, as developed in

      17      New York.

      18             In closing:

      19             We examined some of the broad policy goals

      20      behind the Upstate New York Gaming Economic

      21      Development Act of 2013.

      22             Interestingly, those policy goals -- to keep

      23      gaming revenue in New York, to provide jobs and

      24      economic development for Upstate New York, to

      25      safeguard the horse racing and breeding industries,







                                                                   28
       1      ensure the regulation of game security, and promote

       2      tourism to upstate venues -- those goals remain

       3      relevant today.

       4             And we suggest, respectfully, that the

       5      existing operators are best positioned to achieve

       6      those goals.

       7             And with that, I thank you.

       8             SENATOR BONACIC:  Okay.

       9             Senator Griffo?

      10             SENATOR GRIFFO:  Two quick things.

      11             On the economic-impact statement, how do you

      12      derive that?  What statistical information do you

      13      use when you talk about the $3 billion?

      14             Are you looking at just the jobs created?

      15             Are you looking at -- what factors are going

      16      into that?

      17             I know there are a number of manners in which

      18      economic-impact statements are put together.

      19             JAMES FEATHERSTONHAUGH:  As a matter of fact,

      20      Senator, you have asked that question to exactly the

      21      right people, because the economic-impact study that

      22      we used at arriving at that was also done by our

      23      consultants.

      24             It was done in the ordinary way.  They looked

      25      at the direct and indirect impact of all of the







                                                                   29
       1      goods, services, taxes, salaries, income taxes...the

       2      entire way.

       3             And I will be more than happy to see that a

       4      copy of that study, which I think we circulated last

       5      year, is forwarded to you again.  It's thoroughly

       6      done.

       7             SENATOR GRIFFO:  The goals that you outlined

       8      just recently, as far as what was put forth in the

       9      gaming amendments that were put before the public,

      10      was really to, obviously, generate a lot of the

      11      activity that you discussed, from employment and

      12      tourism.

      13             Do you envision in any way, that if you go

      14      into online activity, that will diminish any other

      15      aspect of the gaming industry, particularly when you

      16      look at racing?

      17             We know that there have been some issues.

      18             I know that there was a great season in

      19      Saratoga this year.

      20             But, there were some concerns in some of the

      21      other tracks, about a diminished interest in

      22      activity.

      23             By proposing some new element to gaming, such

      24      as this, would that cause some potential problems in

      25      those other areas where they're still struggling, or







                                                                   30
       1      will they complement one another?

       2             JAMES FEATHERSTONHAUGH:  We think that nobody

       3      knows the answer to that question, which is why one

       4      of the things we would advise the Committee, is to

       5      move slowly and carefully.

       6             We know, for example, now, that online

       7      horse-race betting is a consistently growing portion

       8      of the market.  I mean, you can bet on the races.

       9             In fact, I was looking over one person's

      10      shoulder.

      11             So I'd be willing to bet there are people

      12      placing bets at tracks around the country, in this

      13      hearing room, while we speak.

      14             I attribute that to the nature --

      15             SENATOR BONACIC:  Maybe we could get a couple

      16      of tips.  We could get in on this action.

      17             JAMES FEATHERSTONHAUGH:  Possibly.

      18                  [Laughter.]

      19             JAMES FEATHERSTONHAUGH:  I attribute that to

      20      the nature of the crowd, so we know that that is

      21      attractive.

      22             For the most part, we think, and the studies

      23      that have been done seem to indicate, that this is a

      24      discreet population.

      25             As you saw, 85 percent of them hadn't been to







                                                                   31
       1      a casino.

       2             So, we're not here to say this will destroy

       3      racing or gaming as it exists.

       4             We are saying that we should proceed

       5      carefully as we do it.

       6             SENATOR GRIFFO:  Thank you, Chairman.

       7             SENATOR BONACIC:  Do you have any questions,

       8      Kathy?

       9             SENATOR MARCIONE:  No.

      10             SENATOR BONACIC:  Let me throw out a couple

      11      questions.

      12             With respect to the racinos, do you believe,

      13      if online poker is authorized, that the revenues of

      14      the racinos will be enhanced or diminished, in your

      15      judgment?

      16             JAMES FEATHERSTONHAUGH:  Could I ask you a

      17      question, Mr. Chairman?

      18             SENATOR BONACIC:  Of course.

      19             JAMES FEATHERSTONHAUGH:  Would the online

      20      gaming be authorized so that the casinos or the

      21      "racinos," as you call them, could operate it?

      22             If we can operate it, I believe it will

      23      enhance our revenues.

      24             SENATOR BONACIC:  Okay.  Got that.

      25             JAMES FEATHERSTONHAUGH:  If we can't operate







                                                                   32
       1      it, I believe that will hurt them.

       2             SENATOR BONACIC:  I understand that.

       3             If I'm reading the tea leaves right as you're

       4      speaking, you would rather slow online poker down as

       5      far as the racinos are concerned, because you may

       6      view it as an issue that's at risk, number one, if

       7      they don't allow it in racinos.  And I'm not saying

       8      we're not thinking that way.

       9             But, in general, you know what -- we know the

      10      economic vitality, as you have spelled it out.

      11             So, I assume that you're not too anxious to

      12      see online poker go forward.

      13             Would that be a fair statement?

      14             JAMES FEATHERSTONHAUGH:  It would be fair to

      15      say that we certainly think that we should not move

      16      forward with online poker or any expansion of gaming

      17      until the three authorized and sited casinos are up,

      18      their construction has been completed, and they are

      19      open and doing business.

      20             SENATOR BONACIC:  Okay.

      21             The way the licensing process is going,

      22      especially in Schenectady and (unintelligible), that

      23      we could be three, three and a half years away when

      24      all three are up and operating, if all three are

      25      going forward.







                                                                   33
       1             So, you would see it as a lost opportunity

       2      for revenue from the state in that three-year

       3      period?  Or --

       4             JAMES FEATHERSTONHAUGH:  I don't see it as a

       5      lost opportunity for revenue to the state.

       6             I would comment that the license fee that's

       7      included here, and with the happy thought that it

       8      would create $100 million, is certainly out of

       9      proportion to any of the other licensing fees in the

      10      other states.

      11             Now, I understand why New York is critical,

      12      and the speaker before me could have addressed that

      13      that too, because you do need critical mass if

      14      you're going to do this.

      15             But, putting that aside and looking at the

      16      success; or, more accurately, lack thereof, of where

      17      it is now, and the uncertainty on the federal side,

      18      I think, until the federal government has decided

      19      what it's going to do, that there is no lost

      20      opportunity.  I think we can wait comfortably.

      21             SENATOR BONACIC:  Okay.  I have one question

      22      of Spectrum, if I may.

      23             I would like to talk about online gaming and

      24      land-based gaming.

      25             Now, I'm of the impression that if you







                                                                   34
       1      authorize into that gaming, the amount of people who

       2      gamble will grow because of the convenience of

       3      gaming.

       4             And you also made a remark that those gaming

       5      people online are not likely to go to land-based

       6      casinos?

       7             Did you say that?  Or --

       8             MICHAEL POLLOCK:  No, I didn't --

       9             SENATOR BONACIC:  -- did I misunderstand?

      10             MICHAEL POLLOCK:  I didn't want to imply that

      11      they are not likely to go.

      12             To date, they have not gone, in part, because

      13      they are younger.  Casinos have not effectively

      14      marketed to them.  They're not -- they may not be

      15      enamored with the experience that they see right now

      16      in casinos.

      17             But, I would suggest that casinos have to

      18      increase their -- attract a younger demographic.

      19      They have to grow their customer base.

      20             And online is, and will prove to be, in my

      21      view, one of the most effective means of doing that

      22      as part of an overall strategy.

      23             You'll note, for example, that it's --

      24      I don't think it's a coincidence that Borgata in

      25      Atlantic City is the most successful land-based







                                                                   35
       1      operator.  It also happens to be successful online.

       2      And that is, in part, due to the fact that they

       3      have -- that the people who do play online at

       4      Borgata, and Borgata-related sites, like the

       5      Borgata.  It's part of an overall marketing

       6      strategy.

       7             If you have something that people want to go

       8      to, it offers an effective means of reaching them.

       9             SENATOR BONACIC:  Okay.  Thank you.

      10             SENATOR MARCIONE:  I do have a question.

      11             If we're saying that 85 percent of people who

      12      are gambling online have never been to a casino,

      13      then why wouldn't the existing casinos want to have

      14      a license right away, to grab those people that are

      15      currently not coming to your casinos and your

      16      racinos?

      17             Why do you want to wait?

      18             JAMES FEATHERSTONHAUGH:  The reason we want

      19      to wait, is we think that the expansion of gaming in

      20      any way in New York, over the next 24 to 36 months,

      21      will have a significantly negative and disruptive

      22      impact on what all of us, not always on the same

      23      page, but all of us worked to get done over the last

      24      three years.

      25             We think the uncertainty of it,







                                                                   36
       1      Senator Marchione, is what's hard to deal with.

       2             SENATOR BONACIC:  I want to thank you --

       3             SENATOR MARCIONE:  But, Jim --

       4             SENATOR BONACIC:  Oh, I'm sorry, Kathy.  Go

       5      ahead.

       6             SENATOR MARCIONE:  But, Jim, someone's

       7      getting the business right now.

       8             JAMES FEATHERSTONHAUGH:  Pardon?

       9             SENATOR MARCIONE:  Someone's getting that

      10      business right now.

      11             So, why wouldn't you want to that someone to

      12      be you?

      13             JAMES FEATHERSTONHAUGH:  Well, there are some

      14      people that are getting it.  It's likely they're not

      15      getting it legally, but --

      16             SENATOR MARCIONE:  Okay.

      17             SENATOR GRIFFO:  Can I just add to that, just

      18      to close on that then?

      19             Because it's more of a concern, you're

      20      looking at this, not only regionally, but

      21      nationally.  Right?

      22             If you look at the industry as a whole, what

      23      are you seeing in the projections as an industry

      24      nationally?

      25             I mean, we're seeing casinos closed in







                                                                   37
       1      Atlantic City.  We're seeing native American

       2      facilities hurting in some areas.

       3             Is that what you're really trying to indicate

       4      here?

       5             JAMES FEATHERSTONHAUGH:  Yes, I mean, it's

       6      clear that this is not an endless -- you know, an

       7      industry that can grow forever.

       8             And, in fact, as you bring new engines for

       9      gaming and make them available, the stress and

      10      strain it puts on the existing industry.

      11             If you haven't been to Atlantic City in

      12      two years, and you go back, you won't recognize this

      13      strip.

      14             There is no question that this is the law of

      15      diminishing returns.

      16             And what we are suggesting is that, here in

      17      New York, at least what's under our control, we

      18      should be very cautious and very respectful of the

      19      laws of economics as we do it.

      20             SENATOR BONACIC:  I would like to summarize

      21      what I've heard today, from your position, and you

      22      tell me if I'm off-base.

      23             Take your time with online poker.  We're not

      24      in a hurry as far as the racinos are concerned.

      25             Number two:  If we are going to go forward,







                                                                   38
       1      certainly, let the racinos, as well as the casinos,

       2      have online poker.

       3             And, number three:  Make it land-based.

       4             Would that be a summary of your position,

       5      those three points?

       6             JAMES FEATHERSTONHAUGH:  That is the reason

       7      why it is my understanding that you are a skillful

       8      and successful trial lawyer.

       9                  [Laughter.]

      10             JAMES FEATHERSTONHAUGH:  You have summarized

      11      my position exactly.

      12             SENATOR BONACIC:  Okay.

      13             I want to thank all three gentlemen for

      14      coming here today.

      15             Thank you.

      16             SENATOR MARCIONE:  Thank you.

      17             JAMES FEATHERSTONHAUGH:  Thank you.

      18             SENATOR BONACIC:  Our next speaker is

      19      John McManus.  He's the executive vice president and

      20      general counsel to MGM Resorts International.

      21             Good afternoon.

      22             Good afternoon, young lady.

      23             JOHN McMANUS:  Thank you, Chairman Bonacic,

      24      and members of the Committee.

      25             I also have with me Denise Miller, who's our







                                                                   39
       1      senior vice president of government affairs.

       2             MGM Resorts International is very pleased to

       3      be here today, and to assist the Committee in its

       4      work, in what we think is a very exciting

       5      opportunity to advance online poker in the state.

       6             I've submitted some prepared written remarks,

       7      which were not 12 pages, but, I could read them in

       8      five minutes, but I won't.

       9             SENATOR BONACIC:  Thank you.

      10             JOHN McMANUS:  I'm going to try to avoid

      11      repeating as many of the points that we've heard

      12      that we agree with, and I'm happy to answer any

      13      questions.

      14             I think one of the comments that I heard in

      15      the last presentation, and there was a question from

      16      the Senator, about:  Isn't this activity already

      17      occurring, and why wouldn't you want to capture the

      18      revenue and regulate it?

      19             To us, that's the point of this.

      20             Online poker has been thriving throughout the

      21      United States, really, since the Internet matured.

      22      And prior to 2006, it was the Wild West, and anyone

      23      who wanted to participate did.

      24             Then, in 2006, UIGEA came along, which put

      25      some enforcement risk, and some left the market;







                                                                   40
       1      others filled that void.

       2             And then we had Black Friday in 2011; and,

       3      yet again, we saw the void filled.

       4             So, it's not a question of whether you want

       5      to have an Internet-poker market.  One exists;

       6      there's a lot of money passing through,

       7      unfortunately, because it's unregulated and

       8      offshore.

       9             We don't know how much, but prior to

      10      Black Friday, the estimates were, that in the

      11      United States, it was certainly in excess of a

      12      billion-dollar market.  This was the most important

      13      Internet-poker market globally, despite it being

      14      lawful in Europe.

      15             So from our perspective, having a safe and

      16      regulated Internet-poker industry that can provide

      17      tax revenue, provide all of the benefits that come

      18      from that to the state, makes all the sense in the

      19      world.

      20             And we're very pleased that you're examining

      21      this and considering passage of an appropriate law.

      22             So, first and foremost, I think that's the

      23      position.

      24             I would like to comment on a few of the other

      25      points that were touched.  I'm not going to really







                                                                   41
       1      follow my prepared remarks at all.

       2             There's a question, I think, that really

       3      leads to user cannibalization with land-based

       4      operations when you introduce Internet operations.

       5             And, there's some others who will be

       6      testifying later who can probably provide more

       7      detail on that than I can.

       8             But, our company is one of the largest

       9      land-based casino operators in the world, and we are

      10      advocates for expansion of Internet poker, and

      11      Internet gaming as well, in jurisdictions where they

      12      want to entertain that.

      13             So our view is that it doesn't cannibalize,

      14      but it rather grows the market.

      15             And, I had the good fortune of being in

      16      Saratoga Springs about a month ago, at a gaming-law

      17      conference, and I heard one of the comments and

      18      questions from the audience.  And I believe that it

      19      was one of the racino operators or somebody

      20      associated with one, commented, that, you know, you

      21      look around the racino and the demographic is

      22      getting much, much older, and questioning the

      23      viability of that business model, moving forward.

      24             The Internet is the future, not just for the

      25      gaming industry, but for any industry.







                                                                   42
       1             I mean, I can remember as a child, seeing the

       2      Montgomery Ward and the Sears catalogs, and those

       3      were a big deal, that everybody had one in their

       4      house.

       5             Montgomery Ward doesn't exist.

       6             Sears is a store that my kids know as a place

       7      you can go to in the mall to buy a lawn mower.

       8             The gaming industry, if it doesn't innovate,

       9      will find itself being Amazon'd by other forms of

      10      entertainment, and some of the tax revenues and

      11      other benefits, employment, things that were part of

      12      the spectrum presentation that the state currently

      13      enjoys, I would argue, that those are being put at

      14      risk if you don't embrace innovation, such as

      15      Internet poker.

      16             So, from our standpoint, there's no question

      17      that Internet poker can be effectively regulated,

      18      and a safe and fair experience can be created for

      19      the consumers, which is what you really want,

      20      because you don't have that now.

      21             When it's somebody in some island somewhere

      22      or in Central America or some part of Eastern Europe

      23      operating some unlawful site, you don't know what

      24      you're getting.

      25             You could be getting a fair game.  You might







                                                                   43
       1      not be getting a fair game.

       2             Certainly, there's no remedy if you have a

       3      problem.

       4             So we think, for a variety of policy reasons,

       5      it makes perfect sense to expand gaming to these new

       6      opportunities to attract new consumers, and bring

       7      people into the revenue stream for the state.

       8             And I believe, also, for the racinos and the

       9      future casinos, you will create new interests.

      10             If you look at the prior experience with

      11      unlawful online poker, I think it did just that for

      12      land-based poker, particularly in Las~Vegas.

      13             You know, World Series of Poker was always a

      14      big event.

      15             Some of the most colorful characters in the

      16      gaming industry are poker players in Las~Vegas.

      17      They all have nicknames.  They wear big jewelry,

      18      they have sun glasses and headphones.

      19             But that's not everyone, and people are

      20      intimidated to go into that environment.

      21             But there's a whole nother class of consumer,

      22      a younger demographic, who love to play poker.

      23             And if they can do it online, where they

      24      don't have to be intimidated by the guy with the

      25      gold chains and the sunglasses, they do it.







                                                                   44
       1             And you look now at the World Series of

       2      Poker, it has gone crazy.

       3             And you now have, you know, 25-year-olds

       4      coming in, who likely have not spent much time at

       5      all in these casinos, coming in and doing quite well

       6      in these.

       7             And, so, it's a whole new group.

       8             And we think that if the industry doesn't

       9      innovate, it risks declining rather than growing.

      10             I understand the desire to protect market

      11      share, certainly.  I would expect that you would

      12      want racinos and current participants in the market

      13      to participate in the new market, if you adopt one.

      14             And really, with that, I'd offer to answer

      15      any questions.

      16             SENATOR BONACIC:  Do you have any questions?

      17             SENATOR MARCIONE:  I don't.

      18             SENATOR BONACIC:  Yes, let me ask a couple

      19      fundamental questions, because you have knowledge of

      20      results in Nevada with MGM.

      21             When you went to online poker, did it hurt

      22      the casino revenues in any way while your online

      23      poker revenues was going up?

      24             JOHN McMANUS:  Actually, Senator, we do not

      25      have online poker, our company in Nevada.







                                                                   45
       1             SENATOR BONACIC:  Okay.

       2             JOHN McMANUS:  We were later to the market.

       3             But, no, there was no indication that others

       4      participating in the market saw cannibalization.

       5             The problem with Nevada is the size of the

       6      population.

       7             We're looking for other states, frankly, like

       8      New York, to compact with, to create the liquidity

       9      pool to help it to make sense.

      10             But, I think that their operators in Nevada

      11      struggled because of the size to the market there

      12      and the inability to compact across state lines.

      13             But, nobody seems concerned about the other.

      14             SENATOR BONACIC:  You have online poker now?

      15             JOHN McMANUS:  We are -- you have an expert

      16      here today, Tom Ballance from Borgata --

      17             SENATOR BONACIC:  I'm coming to you first.

      18             JOHN McMANUS:  Okay.

      19             No, we do not.  We don't operate anywhere

      20      yet.

      21             We are prepared to enter the New Jersey

      22      market, and eventually the Nevada market.

      23             SENATOR BONACIC:  Okay.

      24             I want to thank you very much, Mr. McManus.

      25             I have no further questions.







                                                                   46
       1             Everybody -- I'm by my self here.

       2             JOHN McMANUS:  I chased them all away.

       3             Thank you.

       4             SENATOR BONACIC:  No, not at all.

       5             Thank you very much for coming.

       6             JOHN McMANUS:  Okay.  Thanks.

       7             SENATOR BONACIC:  David Satz, who is the

       8      senior vice president of government relations and

       9      development, Caesars Entertainment Corporation.

      10             Good afternoon.

      11             DAVID SATZ:  Good afternoon, Mr. Chairman.

      12             Like my colleagues before me, I provided a

      13      detailed testimony and a PowerPoint, which I will

      14      kindly be happy to overlook right now, and just hit

      15      a couple of key points to avoid redundancy for

      16      yourself here.

      17             I -- actually, starting, and going against

      18      the grain with redundancy, I think the real key

      19      point is that it already exists.

      20             And as Mr. McManus just talked about, and

      21      everybody else has been talking about, it's not a

      22      question of, you know, will it happen?  It's

      23      happening.

      24             It's happening unregulated.  It's happening

      25      with no taxes.







                                                                   47
       1             And so, I think that's absolutely a critical

       2      point, as you look to whether or not the state wants

       3      to grab a hold of it and make it safe and secure and

       4      collect the taxes, or just let it go on with the

       5      rogue market that exists.

       6             If there's any question about whether it

       7      exists, in the PowerPoint that we've provided,

       8      there's an actual website called "pokerscale.com,"

       9      that will show you all of the illegal sites and the

      10      numbers of people that they have.

      11             So, it exists, and it's actually even

      12      reported out there.

      13             The second point, which I think has also been

      14      made, but I think it's critical that you walk away

      15      understanding it, and that is, that in New Jersey,

      16      Nevada, Delaware, and even some of the lottery

      17      states that are now getting it into, the existing

      18      regulatory apparatus and the robustness of that

      19      technology, and how they work with the rules in

      20      technology, have demonstrated that you can protect

      21      children with age and ID checks, sometimes stronger

      22      than you can in a brick-and-mortar environment.

      23             You can protect state borders, and make sure

      24      it's only within the borders, and you can protect

      25      the vulnerable.







                                                                   48
       1             Some of the responsible gaming pieces that

       2      you have with menus, that people can pick different

       3      limits, things that you couldn't do in a

       4      brick-and-mortar environment because somebody can

       5      just get up and move away.

       6             There's only one funnel through which a

       7      customer can come through you, and that person can

       8      set their own limits, they can set their own time

       9      limits.

      10             So, that robustness of the technology I think

      11      is really, really critical.

      12             Just one point to the position of the

      13      racinos, and I understand where they're coming from,

      14      because we're in some markets where this is being

      15      debated as well on the land-based side.

      16             But, I think it's critical that everybody

      17      understands that federal threat, and the efforts by

      18      a certain individual to ban Internet gambling in all

      19      of the states, is very, very, very real.

      20             There were hearings in March before the

      21      Judiciary Committee.  There's rumors of hearings

      22      later this fall.

      23             A bill has been introduced in the House.  One

      24      has been introduced in the Senate.

      25             And, as I'm sure you will hear out play over







                                                                   49
       1      the next coming weeks, this is not some idle threat,

       2      you know, You better do this, or else.

       3             But, sitting and waiting, as I think one of

       4      the witnesses testified, I think could be a mistake,

       5      because what's at stake here are the Tenth Amendment

       6      rights of the states to jump in and determine their

       7      own fate.

       8             And with that out there, if that goes into

       9      effect, the question is, How far can the federal ban

      10      go?  "Can it get to other forms of gambling?"

      11      because the Internet's so fundamental to everything

      12      we do.

      13             Last, I just wanted to quickly hit on what

      14      I believe to be some very, very key policy issues.

      15             The first I don't think I need to go into too

      16      much.  I think it's built into your bill, and that

      17      is:  Poker is very doable, and a good place to start

      18      within the existing laws and constitutional

      19      constraints that you have in this state.

      20             Number two:  Poker can be a good revenue

      21      source for this state.

      22             We've commissioned a company, H2 Capital --

      23      Gambling Capital, to look at the potential revenue

      24      from the state.

      25             It's not a panacea, but it's a decent amount







                                                                   50
       1      of money.  It's about one -- they estimate somewhere

       2      between 1.71 billion and 2.83 billion over a 10-year

       3      period.

       4             It goes down a little bit, depending on what

       5      kind of fee would be associated with that.

       6             But if you attached a reasonable 15 percent

       7      tax rate to those kind of monies, the state could be

       8      looking at somewhere between 256 million and

       9      425 million dollars over a 10-year period.

      10             Again, it's not a panacea, but these are

      11      moneys that are currently escaping the entire

      12      taxation piece.

      13             I want to emphasize that a tax has to be

      14      reasonable for this model to work, for several

      15      reasons.

      16             Number one:  There is an illegal market out

      17      there.

      18             If you create too high a tax rate, the

      19      illegal market's going to continue to compete.  And

      20      while you have brands and protections, eventually,

      21      they can make it dis-economic for the legal market

      22      to really compete.

      23             Number two:  Unlike a brick-and-mortar model,

      24      a significant amount of money -- and I think

      25      Mr. Ballance is testifying later, and he can talk







                                                                   51
       1      more to economics -- but, almost up to 50 percent,

       2      and sometimes more, can be spent on bonuses and

       3      marketing and stuff.

       4             So it's a very different model.

       5             So, tax rates that get anywhere near where

       6      the current racino rates are, and stuff, just would

       7      not work.  You would not have a legal model to work

       8      within that.

       9             I think one of other point that we strongly

      10      recommend, I think Mr. McManus touched on this, is

      11      the idea of pooled liquidity and the ability of the

      12      state to compact with other states.

      13             We think it's critical for a poker world to

      14      exist online that, eventually, the states have the

      15      ability to compact with each other.  And that's

      16      really critical for this working over the long term.

      17             And for New York, it maximizes the revenue in

      18      tax, and also the customer experience.

      19             Last, which is a critical question that

      20      I think goes to where the racinos were testifying,

      21      and that is:  What model do you choose?

      22             And I think there, you have a choice.

      23             And I'm not here to advocate one or the

      24      other.

      25             I think your bill has already gone with the







                                                                   52
       1      first option, I'm going to put up there.

       2             But, very much like a "lottery" model, I'll

       3      call it, the State can put these licenses out for,

       4      you know, the market to bear as it may bear for a

       5      fee, and put it out there, and not have any tie to

       6      the racinos or casinos.

       7             The racinos and casinos could participate,

       8      and they could, you know, enter into marketing

       9      arrangements with any of those licensees.

      10             That's, I believe, what's built into your

      11      bill right now, and I think that works.

      12             Another one is to tie the licenses to the

      13      existing racinos and casinos.

      14             I think that would reduce the amount of fees,

      15      if there was a fee there, that you could receive,

      16      because you would be having combinations put

      17      together.  But that certainly is another model.

      18             The point I wanted to make, that whichever

      19      model you go with, it's very important, and this was

      20      touched upon in the previous testimony, and that is,

      21      to recognize that neither of them are going to

      22      cannibalize the existing racinos and casinos.

      23             And that's because, you know, we're talking

      24      about Internet poker.  It's a very limited piece,

      25      that's for a younger demographic that, historically,







                                                                   53
       1      is not really coming to casinos and racinos right

       2      now.

       3             Our experiences have been, about 85 percent

       4      of our customers in New Jersey and Nevada where we

       5      do operate aren't coming to our casinos.  We don't

       6      know them at all.

       7             Can they be used to bring to your

       8      brick-and-mortar casinos, or for us to enter into

       9      arrangements with existing casinos and racinos?

      10             The answer is, yes.

      11             But, I just wanted to make that, I think, an

      12      issue that's there for you as legislators, and the

      13      Legislature, to determine, is which model do you

      14      want to go for?

      15             But they have their consequences, depending

      16      on which way you go.

      17             SENATOR BONACIC:  The 85 percent that are

      18      doing the Internet gaming, not coming to the

      19      casinos, is the jury still out on that?

      20             I mean, do you have enough knowledge of

      21      results, that you can't penetrate that number better

      22      with marketing?  Or you've thrown the towel in and

      23      you say, it's not going to work?

      24             DAVID SATZ:  Oh, no.  We constantly try to go

      25      into our database.







                                                                   54
       1             So, Caesars has a very large database, where

       2      we'll try to go to our customers.  But what we're

       3      finding is, the vast majority of the players, that

       4      85 percent, are people we didn't know in our

       5      database.

       6             SENATOR BONACIC:  Right.  Okay.

       7             DAVID SATZ:  So it's a different demographic.

       8             SENATOR BONACIC:  Right.

       9             DAVID SATZ:  It creates opportunities.

      10             SENATOR BONACIC:  I'm understanding the issue

      11      of liquidity, and compacts, for a larger market to

      12      reach on the Internet.

      13             Do you think it's a concern, if there are

      14      compacts with two, three states, with different

      15      regulators for each state?

      16             Do you think that makes it more difficult to

      17      do compacts?

      18             DAVID SATZ:  So I would defer, in part, to

      19      Mr. Williams.

      20             But I think what you find is the regulators,

      21      I think, already communicate with each other.

      22             And I think, the compact, that there is

      23      currently one existing between Nevada and Delaware.

      24      And I think what you find, the regulators very much

      25      communicate with each other.  They ensure that their







                                                                   55
       1      interests are protected.

       2             Nobody's going to enter into a compact unless

       3      they can ensure that they can fully protect all of

       4      the issues that they want to protect.

       5             And your Legislature -- you, and the

       6      Legislature, may set certain standards that in other

       7      states may not, and they're going to want to make

       8      sure that the denominator is going to catch that.

       9             SENATOR BONACIC:  So it's in their best

      10      interests to cooperate, all the regulators, for a

      11      compact that works, because everyone benefits in

      12      terms of revenue to those states.

      13             Would that be a fair statement?

      14             DAVID SATZ:  Correct.

      15             SENATOR BONACIC:  Okay.

      16             All right.  I want to thank you very much,

      17      Mr. Satz, for coming.  You've been very

      18      informative.

      19             The next gentlemen is Tom Ballance, who is

      20      president of the Borgata Hotel, Casino, and Spa in

      21      Atlantic City.

      22             SENATOR BONACIC:  Good morning.

      23             THOMAS BALLANCE:  Good afternoon, Senator.

      24      How are you?

      25             SENATOR BONACIC:  Nice to see you again.







                                                                   56
       1             THOMAS BALLANCE:  Good to see you, and thank

       2      you so much for having me.

       3             So, I think -- I sit here, coming from the

       4      unique point of view of a person who really spent

       5      their entire career, over 30 years, purely in

       6      land-based gaming.  And then was, candidly,

       7      something of a reluctant participant in the

       8      introduction of online gaming -- gaming in

       9      New Jersey.

      10             I'm very sympathetic to a lot of things that

      11      Mr. Featherstonhaugh said up here because, I was

      12      him.  Okay?

      13             I was thinking, Okay, so we're going to

      14      introduce online gaming, and what's going to happen?

      15      But, our customers are going to play online, and

      16      where I used to pay an 8 percent tax, I'm now going

      17      to pay a 15 percent tax, and it's going be a

      18      margin-eater and it's going to empty my casino.

      19             And I was generally worried about that.

      20             We were really in a position where, you know,

      21      it was either, participate, or give that business up

      22      to a competitor.

      23             So we had to get into the game, and we did

      24      so.

      25             Fortunately, what we found out is that,







                                                                   57
       1      consistent with everything that you've heard, the

       2      online-gaming customer is a different customer than

       3      the land-based customer.

       4             We find that the online customer, outside of

       5      a poker tournament, if you take out poker-tournament

       6      play where you have to make a commitment to be

       7      there, they're playing for 15 minutes, 20 minutes at

       8      a time.

       9             In order to make a commitment to come to a

      10      land-based casino, you've to get up, you've to get

      11      dressed, shower, get in your car and drive there.

      12      You've got to make a big commitment, so you're going

      13      to be there for a long time.

      14             The online customer is more of a nibbler.

      15      Right?  They want to play for a few minutes, and

      16      they want to get out.

      17             So it is a very different customer, and we

      18      have found that it's been an excellent addition to

      19      our distribution network.

      20             What I've also found, and what concerned me

      21      going into online gaming was our license and our

      22      reputation, but, the process of regulating online

      23      gamers, particularly for anti-money laundering and

      24      being of age, is so much more effective than even

      25      what exists in land-based gaming.







                                                                   58
       1             If you think about money laundering, right,

       2      we have to get from you, your name, your address,

       3      and your social security number, and we have to

       4      check all of those things.  We check the databases

       5      to be sure that they're correct.

       6             Then, when you go to make your transaction,

       7      say you're a drug dealer going to launder money,

       8      we're going to locate you to within three meters of

       9      where you're standing.  Okay?

      10             That's not the way you launder money.  You

      11      launder money anonymously.

      12             Then, if you do, if you are, you know, dumb

      13      enough to do that, we've then got filters that

      14      watch.

      15             So, a great way, you know, the way people

      16      typically launder money in poker is, you and I sit

      17      at a table and I lose my money to you.  All right?

      18             In the online world, we watch that -- we

      19      watch these hands all the time.  We know, if there's

      20      a person who's always folding a good hand, that

      21      they're giving that hand up to another person.

      22             You don't know that's happening in the

      23      land-based world.

      24             So, it's really much more well-controlled in

      25      the online world than it is even in the land-based







                                                                   59
       1      world.

       2             Now, I've, you know, looked at your bill.

       3      I see it, and I understand that it is a poker-only

       4      bill and, I understand why.  You know, I get that.

       5             It's important to know that, in New Jersey,

       6      poker is only about 18 percent of the total

       7      online-gaming revenue.

       8             And, you know, New York is about double the

       9      size and population of New Jersey.

      10             Now, since we opened, there were four -- when

      11      we opened, there were four poker networks.  There

      12      are now two.

      13             The reason that poker networks shrink out of

      14      the market is that there's not enough players

      15      playing the game.  Right?  You're not playing

      16      against the house.  You need players to play

      17      against.  That's who the bank is, essentially, is

      18      one another.

      19             So when we had four -- when we had

      20      four networks, there just weren't enough players to

      21      have a game available for people to play every hour

      22      of the day, or the kind of game they wanted to play

      23      at the times that they wanted to play them.

      24             This is why, I think, in order for New York

      25      to expect anything more than maybe double the







                                                                   60
       1      revenue of Atlantic City -- of New Jersey's poker

       2      revenue, and probably only one or two -- say two or

       3      three long-term surviving poker networks, you've got

       4      to compact.

       5             If you don't compact, New York, in

       6      three years, will be a two- or three-network poker

       7      operation because that's all the liquidity that's

       8      out there to support it.

       9             So, you know, whether licenses are granted,

      10      you know, to existing operators, not to existing

      11      operators, you know, I know that we would certainly

      12      be interested in participating in New York, and, you

      13      know, we're regulated.  You know, we have the same

      14      risks for our licenses as anybody here.

      15             But, the mechanisms, in order to be able to

      16      compact, in order to be able to leverage the -- all

      17      the work -- the good work that the New Jersey

      18      regulators have done, creating regulations, all of

      19      the infrastructure that's already been built in

      20      New Jersey to make it a good, hardy business,

      21      which -- I mean, the key to the success of any of

      22      these initiatives is that the business thrives; that

      23      they permit and they encourage cross-state

      24      compacting.

      25             The details of how that would work out is







                                                                   61
       1      hard to say right now.

       2             It's certainly workable, as David said.

       3             Nevada did it with Delaware.

       4             In Europe, different countries have compacts.

       5      I mean, you're dealing with currency exchanges, and

       6      all kinds of problems, that we don't have over

       7      there.

       8             And you can work that out.

       9             So I think that those are really the key

      10      issues that we see going into this.

      11             Looking at the fee structure, I really think,

      12      if there is a $10 million buy-in, and that is not an

      13      offset against future taxes, or something like that,

      14      I think you'll also wind up with very few

      15      participants in the market.

      16             I just don't -- it's not a very attractive

      17      economic proposition, I think, for any operator.

      18             So, I would recommend that you give that a

      19      second look.

      20             And then, finally, you know, you've revolved

      21      this bill, as David has said too, very smartly

      22      around games of skill.

      23             I'm not sure if -- well, you're the

      24      legislator, you'll figure this out, but, there is

      25      opportunity to go beyond poker.  Right?







                                                                   62
       1             You can play today, there are people with

       2      technologies out there, to play head-to-head

       3      scrabble; scrabble tournaments.  You know,

       4      backgammon tournaments.  And these are games of

       5      skill.

       6             And I think when you really think about the

       7      long-term health of the gaming business, we have to

       8      get into skill-based games.  That is what the

       9      younger people are playing, it's what they're

      10      interested in.

      11             Poker is one form of skill-based gaming.

      12             There are others.  They're not ready to come

      13      to market today, but they will be ready to come to

      14      market in the next -- you know, in next few years.

      15             And, it is critically important that we as an

      16      industry figure out how to monetize that customer

      17      base and that desire for that skill-based

      18      competition.

      19             SENATOR BONACIC:  In New Jersey, are you

      20      there with -- I'm not saying these other games, but,

      21      you're allowed --

      22             THOMAS BALLANCE:  Yes.

      23             SENATOR BONACIC:  -- to do full-time gaming

      24      on the Internet other than poker?

      25             THOMAS BALLANCE:  Okay.  So New Jersey --







                                                                   63
       1      yes, New Jersey permits casino games, it permits

       2      poker, and it permits other games of skill.

       3             SENATOR BONACIC:  Other games of skill.

       4             THOMAS BALLANCE:  Yes, other games of skill.

       5             SENATOR BONACIC:  And that may not

       6      necessarily be roulette or the traditional activity

       7      that we associated with gaming.

       8             It could be games, is what you're saying.

       9             The whole game plan is to build up the

      10      liquidity; build up the people participating?

      11             THOMAS BALLANCE:  Yes.

      12             Actually --

      13             SENATOR BONACIC:  That's the whole game plan?

      14             THOMAS BALLANCE:  Actually, if you had

      15      participated, you probably would have won our first

      16      skill-based gaming tournament.  It was free-throw

      17      shooting.

      18             SENATOR BONACIC:  Oh, I didn't know that.

      19             THOMAS BALLANCE:  So, yeah, yeah.

      20                  [Laughter.]

      21             THOMAS BALLANCE:  Yeah, we had a

      22      free-throw-shooting contest.

      23             And, no, anything that you can imagine that

      24      is skill-based, right, our regulators will work with

      25      us on how to structure a tournament.







                                                                   64
       1             That's exactly what we did.

       2             We wanted to do, make an "Angry Birds"

       3      tournament.  Right?  That technology wasn't ready.

       4             But we also wanted to test and prove and

       5      figure out, how do you run a skill-based tournament?

       6             And, it was in March we said, Well, how about

       7      a free-throw-shooting competition.

       8             And the regulators worked with us, and

       9      developed all of the rules to support that and do

      10      it.

      11             And we could do it with any game online once

      12      we get the technologies developed.

      13             SENATOR BONACIC:  A couple weeks ago we

      14      visited you, and the New Jersey regulators, at the

      15      Borgata, and two things impressed me.

      16             One of things was the relationship between

      17      the regulators and the owners of the casino.  That

      18      it was like a partnership to make things work.  Not,

      19      in any way, to drop the safeguards of what their job

      20      was.

      21             So that was -- I was impressed with that.

      22             And the second thing was the sophistication

      23      of the technology, and how you can identify who's

      24      playing, and the information they have to give.

      25             Maybe you should talk a little bit about the







                                                                   65
       1      technology, and how an individual has to identify

       2      themselves before they can even play, and how you

       3      can shut them down, if they're running out of money,

       4      or if you think they're addicted, or you think

       5      they're cheating.

       6             I think that's worth talking about.

       7             THOMAS BALLANCE:  Sure, sure.

       8             So a couple of things:

       9             First, you're right about the relationship

      10      with the -- between the regulators in the industry,

      11      particularly as it came to the launch of online

      12      gaming.  Okay?  Our regulators were very committed

      13      to the concept of getting it done.

      14             And when you really think about it, all of

      15      this -- I mean, a lot of the AML work, geolocation

      16      doesn't exist at all overseas, this was all

      17      brand-new technology.

      18             And the only way that we were able to get

      19      that to market in the nine months that we had to do

      20      it, was for the regulators and the industry to work

      21      together, day-to-day.

      22             And, honestly, I think it improved our

      23      overall relationship.  It really did.

      24             But what is unique about online gaming is the

      25      whole concept that it is account-based wagering.







                                                                   66
       1             There's no such thing as an anonymous bet or

       2      an anonymous spend in online gaming -- well, in

       3      legal, in regulated, online gaming.

       4             That does exist in the illegal market, which

       5      you've heard about.

       6             But one of the key elements is, when you sign

       7      up, first, you have to give us your name, then you

       8      give us your address, then you give us your social

       9      security number.

      10             We go out to three or four different

      11      databases -- to LexisNexis, to Aristotle, to all

      12      these other databases -- to match up and guarantee

      13      that, on the driver's license, on credit cards...on

      14      everything registered to that name, that address

      15      matches, and that social security number matches,

      16      and, that you're 21 years old.

      17             It then goes out, literally, to the IRS

      18      database to be sure that it's -- that's not a

      19      deceased person's social security number, to confirm

      20      that.

      21             So, you have to have -- if you're not using

      22      your own identity, you have to be using someone

      23      else's identity perfectly, and then their credit

      24      card as well, which, you know, people protect

      25      themselves against that.







                                                                   67
       1             That's just so much more protection than you

       2      get anywhere else.

       3             And then, you know, you didn't get to see,

       4      but it's very interesting, the division of gaming

       5      enforcement, literally, has a screen on the wall in

       6      their building, where every time a person signs on,

       7      you see a little pin drop into a map.  And you know

       8      that that person's in New Jersey, it's green, and

       9      they get to play.  Then you see one on the other

      10      side of the Hudson River, and that person doesn't

      11      get to play.

      12             SENATOR BONACIC:  Yeah, I think a point

      13      that's worth mentioning, is that you must be in

      14      Jersey to play.  You can be a New Yorker that goes

      15      to Jersey, and they can play.

      16             THOMAS BALLANCE:  That's right.

      17             SENATOR BONACIC:  But once they go back to

      18      New York, they're shut out.

      19             THOMAS BALLANCE:  Yes.

      20             And, in fact, you can be -- you can set up

      21      your account while you're in New York, and you can

      22      even fund your account while you're in New York.

      23             You simply can't play until you enter

      24      New Jersey.

      25             Now, if we were to compact, right -- well, if







                                                                   68
       1      we were to compact in, if you wanted to take -- if

       2      you wanted to evaluate, of course, and feel

       3      comfortable with the New Jersey regulations, it is

       4      almost, literally, a matter of redrawing the lines

       5      on the geolocation map.

       6             I'm sure it's a bit more technical than that,

       7      but, it is the kind of thing that could be done

       8      in -- you know, in months, not years.

       9             SENATOR BONACIC:  I think it's probably worth

      10      mentioning, your technology is in place.

      11             If there were a compact, you're suggesting

      12      New York can take advantage of that technology, and

      13      not duplicate that expense in New York if they go on

      14      their own without a compact.

      15             THOMAS BALLANCE:  Absolutely.

      16             SENATOR BONACIC:  Is that --

      17             THOMAS BALLANCE:  Absolutely.

      18             SENATOR BONACIC:  Okay.

      19             THOMAS BALLANCE:  Yes.  And the cost of

      20      writing the regs and running the -- there's a big

      21      commitment to building that regulatory body.

      22             SENATOR BONACIC:  What do you suggest is that

      23      up-front fee to do that?

      24             THOMAS BALLANCE:  I'm sorry, say that again?

      25             SENATOR BONACIC:  What would it cost New York







                                                                   69
       1      to duplicate from scratch what you already did?

       2             THOMAS BALLANCE:  Honestly, I haven't thought

       3      about it in terms of an estimate at all.  But,

       4      I mean, I think our division of gaming enforcement

       5      has about 40 online-gaming people in it.  And

       6      probably another, I don t know, 150 or so, you know,

       7      regulators.

       8             SENATOR BONACIC:  Okay.

       9             Thank you very much, Mr. Ballance.

      10             THOMAS BALLANCE:  Thank you, sir.

      11             SENATOR BONACIC:  Kevin Cochran is the senior

      12      legal analyst of Gambling Compliance.

      13             And after Mr. Cochran will be

      14      Mr. Schwartz, who will be our last speaker.

      15             So, Kevin Cochran is on now.

      16             KEVIN COCHRAN:  Good afternoon.

      17             SENATOR BONACIC:  Good afternoon, Kevin.

      18             I just want the other speakers to know, it's

      19      not what you said that cleared the house.

      20             They had other events.

      21                  [Laughter.]

      22             KEVIN COCHRAN:  Mr. Chairman, thank you

      23      very much for having me today.

      24             My name is Kevin Cochran, and I'm a senior

      25      legal analyst for Gambling Compliance, a







                                                                   70
       1      subscription service that provides information on

       2      regulatory issues and gaming markets around the

       3      world.

       4             The purpose of my testimony, I'm going bring

       5      up four major points we would like to touch on

       6      without being too repetitive, hopefully.

       7             First, I would like to update you on the

       8      status of online gaming in the United States and a

       9      few key international markets.

      10             Second, we'd like to provide some data around

      11      the possible size of the New York Internet-poker

      12      market, and the licensing models that could be

      13      adopted in state.

      14             Third, I would like to share

      15      Gambling Compliance's views on how the U.S. Internet

      16      gambling law and regulation will evolve in the near

      17      to medium future.

      18             Finally, I would like to highlight certain

      19      policy questions that the Committee and Assembly may

      20      wish to keep in mind should the State consider

      21      regulation of Internet gambling in future months.

      22             Internationally, more than a dozen European

      23      countries, including the U.K., Italy, France, Spain,

      24      Denmark, and Belgium, have legalized and regulated

      25      Internet gaming within their borders, and a number







                                                                   71
       1      of others are considering reforms as well.

       2             Meanwhile, Canadian lottery corporations in

       3      Quebec, British Columbia, Manitoba, were joined by

       4      Ontario in 2015 to offer government-run online

       5      casinos.

       6             In the United States, so far, there have been

       7      10 state legislatures and Congress that have

       8      considered legislation in 2015 that would legalize

       9      Internet gaming or Internet poker.

      10             At the federal level, one bill has been

      11      introduced that would authorize states to

      12      participate in a nationwide regulatory regime for

      13      Internet poker.

      14             So far, that bill has not advanced since its

      15      introductory phase.

      16             Also this year, as touched on earlier, two

      17      pieces of legislation to ban Internet gambling

      18      throughout the country, by amending the 1961 Wire

      19      Act, have been introduced.

      20             Of course, the Empire State is no stranger to

      21      debating expanded gambling issues, having approved

      22      commercial casino gambling a few years ago, and just

      23      this year, allowing six of the state's nine racinos

      24      to offer video lottery games, including elements of

      25      skill and player interaction.







                                                                   72
       1             Next, I would like to touch on some of the

       2      regulatory models that could be considered if

       3      New York were to offer online gaming or online

       4      poker.

       5             If you look at Exhibit C in the PowerPoint

       6      that I've given you, it kind of outlines what the

       7      states that have introduced gaming legislation in

       8      the -- states have done.

       9             You can see that New York kind of stands in

      10      the area that is the fewest in the open-licensing

      11      market.

      12             So the first type of model would be the one

      13      operated in Nevada and New Jersey, where

      14      online-gaming licenses are limited to the state's

      15      existing operators of land-based casinos.

      16             They run their own systems, and they're

      17      subject to the oversight of independent regulatory

      18      agencies.

      19             Next, the second model that was talked about

      20      earlier, adopted by Delaware, allows the state's

      21      lottery to procure and control a single

      22      Internet-gaming platform that is offered on a

      23      white-level basis -- -label basis, I'm sorry, to

      24      Delaware's land-based casinos, who then market the

      25      games to consumers.







                                                                   73
       1             Finally, the third model is what has been

       2      proposed in your bill: an open-licensing scheme.

       3             This model is the one adopted by various

       4      Western European countries, which issue licenses

       5      directly to Internet-gaming companies without

       6      requiring any local partnerships with land-based

       7      operators or lotteries.

       8             In choosing which regulatory model to pursue,

       9      it may be important to consider how each sector of

      10      the state's gambling industry fits into the puzzle,

      11      especially in New York, which boasts such a strong

      12      lottery, racing industry, video-lottery

      13      establishments, tribal casinos.  And you also have

      14      to consider the emerging commercial casinos that

      15      carry substantial investment requirements.

      16             Among other issues that have impeded progress

      17      on online poker in California, a major sticking

      18      point has been which of the state's gaming interests

      19      should be eligible for licensure.

      20             It's already also been talked about whether

      21      New York would consider expanding from just a

      22      poker-only model to a full-casino model.

      23             There are a few tweaks and variations we'd

      24      like to point out.

      25             As mentioned earlier, about four-fifths of







                                                                   74
       1      New Jersey's revenues are driven by games other than

       2      Internet poker.

       3             Alternatively, the Legislature could consider

       4      a broad authorization of online gaming and grant

       5      regulators the authority to set rules only for those

       6      specific games they consider appropriate.

       7             This is actually the route Nevada took, as

       8      the legislature has passed a broad bill in the early

       9      2000s, and the regulators chose to only allow poker.

      10             The Legislature could also consider allowing

      11      online poker in just a limited range of

      12      online-casino products, excluding, for example,

      13      slot-style games.

      14             And this is some of the things you touched on

      15      with the last speaker, about turning, you know, cell

      16      phones and mobile games into slot machines.

      17             In Italy and Spain, they actually outlawed

      18      slot-style games, but they allow Black Jack and

      19      other table games.

      20             Quickly, there are some other major policy

      21      issues to be considered.

      22             The number of licenses and license fees,

      23      which was just addressed.

      24             The taxation model.

      25             The licensing and suitability.  This includes







                                                                   75
       1      the treatment of so-called "bad actors."

       2             And, also, how you would want to license

       3      non-gaming technologies, like, identifying --

       4      identity-verification software and payment

       5      solutions.

       6             Also, player liquidity and offshore

       7      competition, making sure that there's a big enough

       8      market to sustain poker in the state.

       9             And, also, how laws currently in place could

      10      affect the offshore-gaming areas, and try to ensure

      11      that, New York's legal -- or, poker market will

      12      continue to grow.

      13             I'll quickly turn to the market update in the

      14      United States so far.

      15             In 2014, national Internet-gaming revenue,

      16      the amount generated from Internet-gaming activity

      17      in the three states where gaming is operational, it

      18      was approximately 135 million, with New Jersey

      19      accounting for, roughly, 91 percent of the national

      20      total.

      21             In 2015, we expect national Internet-gaming

      22      revenue to rise to approximately 160 million, driven

      23      primarily by a 19 percent year-over-year increase in

      24      New Jersey Internet-gaming revenue.

      25             If you look at Exhibit H on the slide, it







                                                                   76
       1      talks about, from a New York-only perspective.

       2             We believe the state's Internet-poker market

       3      could generate around 122 million in its first full

       4      year of operations, rising to 164.1 million in its

       5      fourth full year of operations.

       6             Our base-case estimates; meaning, our

       7      middle-of-the-road estimates, assume that New York

       8      will not be as severely impacted by

       9      payment-processing issues as New Jersey was when it

      10      first rolled out.

      11             And, also, that size issues will serve as a

      12      significant drag on the market in year one before

      13      partially alleviating over time.

      14             To put those figures in a New-York relevant

      15      perspective, we expect New York poker Internet --

      16      or, New York Internet-poker revenue, at the

      17      market-maturity phase, to make up less than

      18      5 percent of the state's overall gaming-revenue mix,

      19      given that the state's lottery, commercial, and

      20      native American gaming activities currently generate

      21      well over 7 billion in gaming revenue annually.

      22             Moving forward, I want to provide a brief

      23      update on where and when Internet gaming is likely

      24      to expand.

      25             Between 2008 and 2013, the number of states







                                                                   77
       1      considering legislation that would legalize Internet

       2      gaming or Internet poker increased, from two, to

       3      ten states.

       4             That increase was driven largely by the state

       5      budget-deficit crisis which arose during, and

       6      continued after, the most recent recession.

       7             Since 2013, the number of states considering

       8      legislation that would authorize Internet gaming or

       9      Internet poker only has settled between nine and

      10      ten annually.

      11             Of note, New York has considered legislation

      12      that would permit Internet poker only since 2014.

      13             The four jurisdictions having already passed

      14      some form of Internet gaming-enabling language, for

      15      what we call "wave one"; so this is the three states

      16      currently operating, and also the U.S. Virgin

      17      Islands.

      18             In 2015 to 2017, we expect there will be a

      19      second wave of such legalization in which one, of

      20      California or Pennsylvania, are most likely to

      21      legalize Internet gaming, whether that be online

      22      casino games or online poker only.

      23             We at Gambling Compliance believe New York

      24      could potentially fit into the end of our second

      25      wave of online-gaming authorizing states, or be







                                                                   78
       1      placed into the third wave of online-gaming states,

       2      likely to legalize a form of online gaming by 2020.

       3             To conclude:

       4             If New York continues to evaluate online

       5      gaming and considers allowing online poker, a

       6      regulatory model that fits the state must be chosen.

       7             This will likely require policy discussions

       8      similar to the expansion of land-based gaming,

       9      involving fundamental questions as to the economic

      10      and consumer-protection benefits of regulation

      11      versus any perceived negative social impacts.

      12             But, New York is also a unique gaming state,

      13      lending itself adaptable to different types of

      14      Internet-gaming licensing schemes.

      15             It has, basically, what a lot of states and

      16      others have in that size.

      17             Once again, I thank you for this opportunity,

      18      and welcome any questions you may have, and I'm also

      19      happy to answer any follow-up questions that the

      20      Committee may have as well.

      21             SENATOR BONACIC:  Are you familiar with the

      22      licensing fee in some of these states?

      23             And is the 10 million a deterrent as a

      24      stand-one?  Or should we consider a credit towards

      25      the rate for the first two or three years of







                                                                   79
       1      operation?

       2             KEVIN COCHRAN:  So, from that perspective,

       3      I know, in Pennsylvania's proposals, there's been at

       4      least four this year.

       5             The license fees have ranged anywhere from

       6      about 5 million, and some of them have ranged as

       7      high as 10 million.

       8             So you seem to be kind of on par there.

       9             But I believe we would agree with some of the

      10      earlier projections, that something around

      11      10 million might limit some of the operators willing

      12      to enter the market.

      13             As for the credit, I can't speak directly to

      14      the Internet-gaming aspect of it.

      15             But I know, recently, regulatory reform

      16      around land-based casinos, they've been working more

      17      of a credit system back into some of the states,

      18      with Delaware's opening a legislative-policy

      19      committee this year, trying to create more credits

      20      for the state to ease the burden on some of the

      21      operators.

      22             SENATOR BONACIC:  Okay.

      23             I want to thank you very much for the very

      24      thorough report, by the way.

      25             KEVIN COCHRAN:  Thank you very much.







                                                                   80
       1             SENATOR BONACIC:  All right.  And our last

       2      speaker is Richard Schwartz, who's president of

       3      Rush Street Interactive.

       4             Thank you for your patience.

       5             RICHARD SCHWARTZ:  Good afternoon, Chairman.

       6             SENATOR BONACIC:  Good afternoon.

       7             RICHARD SCHWARTZ:  Thank you for providing us

       8      with the opportunity to discuss online poker and its

       9      effects on the gaming industry in New York State.

      10             My name is Richard Schwartz, and I'm the head

      11      of Rush Street Interactive.

      12             Rush Street believes that, if implemented,

      13      online gaming represents an opportunity to promote

      14      and strengthen the health and financial performance

      15      of the racinos, native American facilities, and

      16      newly-authorized commercial casinos in the state of

      17      New York, while, at the same time, generating

      18      incremental revenue for the state.

      19             Given the large capital investment, and the

      20      job creation of the New York brick-and-mortar casino

      21      and racino industry, we strongly believe that the

      22      New York Legislature, if it legalizes online gaming,

      23      is vital to the public interest.

      24             The online-gaming licenses should only be

      25      awarded to the brick-and-mortar casino and racino







                                                                   81
       1      operators in the state of New York.

       2             All three states that have legalized online

       3      gaming have tied the issuance of those licenses to

       4      the existing brick-and-mortar gaming facilities in

       5      those states.

       6             Although the regulation of online gaming

       7      provides a sizeable market opportunity in its own

       8      rights, we will focus today more on the

       9      opportunities I-gaming will provide the New York

      10      brick-and-mortar casino and racino industry.

      11             First:  The New York casino industry is

      12      currently disadvantaged compared to the

      13      Atlantic City brick-and-mortar casinos, because only

      14      those in New Jersey brick-and-mortar casinos today

      15      are promoting I-gaming services to players that are

      16      living within the state of New York.

      17             For example, Atlantic City casinos are

      18      enticing players living in the New York metropolitan

      19      area with offers to visit Atlantic City casinos and

      20      join their loyalty programs, when, otherwise, those

      21      players may have planned visits to New York-based

      22      casinos.

      23             By regulating Online Casino New York,

      24      New York can even the playing field and counteract

      25      the aggressive marketing and player-acquisition







                                                                   82
       1      initiatives of the New Jersey brick-and-mortar

       2      casinos.

       3             Second, regulating I-gaming will enable

       4      brick-and-mortar casinos and racinos to broaden both

       5      the reach of and the appeal of both existing and

       6      under-construction New York casino brands in the

       7      region, and to acquire a new and expanded base of

       8      players for those brands.

       9             We've heard several speakers note earlier

      10      about the importance of the attracting the younger

      11      demographic.

      12             And online gaming does -- in fact, the data

      13      does proves that that does occur.

      14             It is clear from New Jersey operators,

      15      I-gaming has enabled the Atlantic City operators to

      16      introduce the brick-and-mortar casino players to new

      17      players in the region.

      18             In fact, three months ago I was at a hearing

      19      in Pennsylvania, where all of the -- 11 of the

      20      12 land-based properties in the market supported

      21      online gaming.  And at the time, the support was

      22      limited, really, only to brick-and-mortar casinos in

      23      Pennsylvania.

      24             Senior executives from Caesars, and I know

      25      Mr. Satz was here today, but they asked the







                                                                   83
       1      Pennsylvania legislature at that time, to protect

       2      our casinos from unhealthy competition and

       3      oversaturation, and at the same time, they explained

       4      again, that the online has the opportunity to grow

       5      the brick-and-mortar revenues, and create

       6      cross-marketing opportunities, to strengthen the

       7      performance of the brick-and-mortar casinos in that

       8      market.

       9             So, specifically, Michael Cohen of Caesars

      10      testified, as we heard today, that 80 percent of the

      11      Caesars online players were new or inactive players.

      12             So, some of the players were in active;

      13      meaning, they've been in the database, just not in

      14      the last year or so.

      15             But I think the really key point was, though,

      16      is that, so far, 15 percent of those players then

      17      subsequently visited the properties in the state of

      18      New Jersey.

      19             So you are seeing about 15 percent of those

      20      players are then visiting the property.

      21             And since the market is relatively young,

      22      only several years ago, we do think that as the --

      23      to your earlier question, as the market evolves and

      24      matures, you will have better programs in place to

      25      reach the players online, and to (unintelligible)







                                                                   84
       1      return visits or increased visits to the properties

       2      in the market.

       3             Further, you know, this really validates, in

       4      our view, that online gaming has introduced, and

       5      reintroduced, players to brick-and-mortar casinos,

       6      and has the opportunity to provide a strong

       7      marketing tool for the holders of the land-based

       8      licenses in this market.

       9             Third:  I-gaming services, materially, have

      10      had a positive impact on the revenue generated from

      11      the existing casinos in New Jersey.

      12             This is actually one of the more important

      13      points that I think, where, one of the operators in

      14      New Jersey, The Golden Nugget, did a review of their

      15      own performance of online gaming as they also

      16      operated the land-based property in Atlantic City.

      17      And they publicly shared, that when a land-based

      18      Golden Nugget player registers online; so, an

      19      existing land-based player in other property, those

      20      players subsequently increased their land-based

      21      revenues by over 10 percent, at 11 percent.

      22             So to state it over again:  A land-based

      23      player who registers online subsequently spends

      24      11 percent more back at the land-based property.

      25             So, it's not necessarily only about the new







                                                                   85
       1      players coming in, but it's also the ability to

       2      reach and engage your existing land-based players in

       3      a new channel, that provides an opportunity to

       4      engage them, communicate with them, and promote new

       5      opportunities for them to return to the property.

       6             There are a few other marketing programs in

       7      the industry that we think have the same capacity to

       8      grow the performance of land-based properties.

       9             As a result of this, and other data, other

      10      compelling data points from other markets, we

      11      would -- online gaming represents a long-term

      12      opportunity to increase both the health and

      13      financial performance of those brick-and-mortar

      14      casinos and racinos in the state of New York.

      15             At this time, we support the New York

      16      Legislature's efforts to both legalize, not only

      17      poker, but also online gaming, in the state.

      18             We think poker alone is very limited, and as

      19      Mr. Ballance testified earlier, represents under

      20      20 percent of the revenues; whereas, you know, a

      21      casino product, other products, obviously, create a

      22      more holistic view and opportunity to engage players

      23      with similar products that are used to -- in the

      24      land-based world.

      25             However, we'd only support the efforts of







                                                                   86
       1      online-gaming licenses a real issue exclusively to

       2      the holders of these land-based licenses who have

       3      made the investments in the state of New York

       4      previously.

       5             Several of the reasons why we believe this

       6      position is supportable is:

       7             First:  Connecting online-gaming licenses to

       8      brick-and-mortar casinos and racinos in the state is

       9      consistent with what the precedent that has been

      10      established in all the other three states that have

      11      legalized online gaming in the United States.

      12             Secondly, the recent online gaming --

      13      online-gaming legalization that was introduced in

      14      other states that are considering online gaming,

      15      such as Pennsylvania and California, also connect

      16      online-gaming licenses to the land-based properties.

      17             Third:  The land-based casinos and racinos in

      18      New York are really best positioned to safeguard the

      19      integrity of the online games, to develop the

      20      trusted consumer-facing brands that players will

      21      trust and know and are familiar with, and, really

      22      importantly, ensures accountability by enabling

      23      players to visit a physical property if it's a

      24      problem.

      25             As you know, as Mr. Pappas, our first







                                                                   87
       1      speaker -- the first person who testified today,

       2      said, he mentioned the Lock Poker, how there was a

       3      problem with that.

       4             You know, think about the opportunity for a

       5      player to actually go visit a property and have the

       6      conversation with someone in person, to say, Hey,

       7      I had a problem with your service.  I expect to get

       8      paid or compensated, and this is what happened.

       9             It certainly is a big benefit for the

      10      credibility and the trust if you have a physical

      11      location in the state that's licensed, where a

      12      player can visit if there's any problems.

      13             Fourth:  Land-based casino and racino

      14      operators in New York are really the only entities

      15      that are positioned to really use the online gaming

      16      as a means to further enhance and complement the

      17      benefits delivered by casino gaming to the

      18      communities in which we operate, or will operate,

      19      including all the effective cross-marketing

      20      promotions that -- and benefits that the New Jersey

      21      brick-and-mortar casino industry has experienced so

      22      far.

      23             And, finally, and lastly, as

      24      Mr. Featherstonhaugh stated, the legalization of

      25      brick-and-mortar gaming in New York, there are







                                                                   88
       1      substantial benefits to the state, including not

       2      only taxed revenues for education, but, in the

       3      future, our casinos in Schenectady will be delivery

       4      property-tax relief to residents to both the city of

       5      Schenectady, as well as the county of Schenectady.

       6             Additionally, to date, the land-based gaming

       7      industry in New York has invested billions of

       8      dollars in general economic development, generated

       9      many thousands of jobs, and made significant

      10      contributions to the horse-racing and agricultural

      11      industries.

      12             It's vital that these investments are

      13      considered and protected, especially considering

      14      that online-gaming investment and job creation on a

      15      (unintelligible) basis, will be relatively

      16      immaterial, and substantial, compared to the

      17      brick-and-mortar gaming investments.

      18             At the end of the day, if structured

      19      properly, we believe that the regulation of online

      20      gaming represents a win-win for both the state and

      21      the of New York -- and the New York casino and

      22      racino industry.

      23             SENATOR BONACIC:  Thank you, Mr. Schwartz.

      24             Without disclosing, you know, any

      25      confidences, but, when do you anticipate getting a







                                                                   89
       1      license, building out, and actually being

       2      operational?

       3             Do you have a sense you can share with us, or

       4      is that -- you would rather not answer that

       5      question?

       6             I don't want to put you on the spot.

       7             RICHARD SCHWARTZ:  No, we are scheduled to

       8      operate within 18 months of obtaining a license,

       9      which we believe may be happening any month now.

      10             SENATOR BONACIC:  That's encouraging.

      11             You know, I thank all of the three casino

      12      owners for investing private-sector money, you know,

      13      to create jobs and economic vitality and bring

      14      revenue to the state.

      15             That's -- I consider that terrific.

      16             I think that's all I have for now.

      17             And I thank you very much, Mr. Schwartz, for

      18      coming.

      19             I'm sorry you had to wait so long.

      20             RICHARD SCHWARTZ:  It was great.

      21             Thank you.

      22             It was a great hearing.

      23             SENATOR BONACIC:  So let me repeat what

      24      I said before about written remarks.

      25             I have written remarks, let's see, from the







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       1      Coalition Against Gaming in New York.

       2             I have, Interfaith Impact of New York State,

       3      opposition to wagering on Internet poker in

       4      New York.

       5             And, lets see, who's the third?

       6             Oh, Mr. Wilmot, Sr., of Wilmorite, chairman

       7      and director of Lago Resort and Casino, has given

       8      written remarks.

       9             So anyone that still wishes to give written

      10      remarks, as I said, we'll keep it open till

      11      September 30th.  They should address it to our

      12      Senate Committee.

      13             Andrew Winchell, the gentleman that's sitting

      14      over there in the corner, is my point person for

      15      this Committee.

      16             I want to thank all the speakers who have

      17      participated.

      18             Truly, very knowledgeable and enlightening.

      19             I have found that, you know, when I got into

      20      this subject, I didn't know much about it, and so

      21      I've been trying to learn more and more, to proceed

      22      intelligently when we do move.

      23             I worked with Assemblyman Pretlow, I tried to

      24      work in parallel activity, so if this is a matter

      25      we're going to do as a matter of state policy, we







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       1      move together.

       2             And, you know, we've -- our gaming commission

       3      is relatively new.  We don't have knowledge of

       4      results of the three casinos because the licenses

       5      haven't been issued yet.

       6             So, I have intentionally held off on online

       7      poker, wanting to see how the casinos were

       8      proceeding.

       9             I thought that was our prime activity, or a

      10      higher priority.

      11             So I've been in fact finding and

      12      investigation.

      13             And the people here who testified have all

      14      been terrific and very enlightening.

      15             I thank you all for being here.

      16             I'm now going to adjourn this Racing and

      17      Wagering.

      18             It's now twenty to three, on September 9th

      19      of 2015.

      20             Thank you very much.

      21                  (Whereupon, at approximately 2:40 p.m.,

      22        the public hearing held before the New York State

      23        Senate Standing Committee on Racing, Gaming, and

      24        Wagering concluded, and adjourned.)

      25                            ---oOo---