Public Hearing to Discuss the Future of Online Poker in New York State

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 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 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 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 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. 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. 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. 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 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. 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. 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 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 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 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, 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 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. 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. 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? 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. 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. 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. 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. 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, 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 -- 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 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 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, 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 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 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 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 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. 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 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 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, 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 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, 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 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; 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 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. 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 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. 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. 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. 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. 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. 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 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 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 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 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, 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. 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 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. 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, 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. 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 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 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 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? 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 -- 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. 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 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. 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. 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 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 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 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 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. 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. 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 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 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 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 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 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 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. 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 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 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 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) 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 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 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 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 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 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 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 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---