Chairwoman of the Interactive Gaming Council and

Managing Editor and Chief Executive Officer of Rolling Good Times OnLine

Before the House Subcommittee on Crime

February 4, 1998

Mr. Chairman, members of the Subcommittee, my name is Sue Schneider. Thank you for the invitation to testify today.

I come before you wearing two hats. First and foremost, I am here as a representative of the interactive gaming industry. Specifically, I am Chairwoman of the Interactive Gaming Council. Formed in 1996 under the auspices of the Interactive Services Association, the IGC has more than 60 members from around the globe.

In addition to my duties as chair of the IGC, I am also the CEO of RGT OnLine Inc., a St. Louis-based company that publishes Rolling Good Times OnLine. RGT OnLine has been reporting on the interactive gaming industry since 1995.

As you embark on the fact finding process, I urge you not to get embroiled in the broader debate about the propriety of legalized gambling in general. Forty-eight states already allow some form of wagering - much of it, state sponsored. If someone wants to bet, he or she ca already do that in 96% of the country. So I would direct you to look at more substantive issues than the broad claim that gambling is a vice, and therefore any attempt to expand consumer choices is bad policy.

The fundamental question should be: What is the best public policy for consumer protection - prohibition or regulation?

If regulation is rejected in favor of prohibition, one of two things will happen: either scrupulous operators will be forced to move to jurisdictions that are willing to tax and regulate this activity, or they will be forced out of business, leaving unscrupulous or unregulated operators in their place. Under either scenario, the opportunity for state and federal authorities to enact stringent consumer protection measures will be lost.

Let me make it clear that legitimate operators would welcome U.S. regulation and expect taxation. Historically, gaming has been strictly controlled and regulated, primarily at the state level. However, the Internet is a global medium of communication that spans borders and jurisdictions. And that suggests a federal - or even global - approach.

Internet technology has made the world far more of a global village than ever before. Fortunately or unfortunately, prohibiting specific types of content on the web is nearly impossible, short of an international treaty.

However, various governments around the world are regulating or preparing to regulate online gaming services. This list includes Australia, New Zealand, a number of nations in Central America and the Caribbean such as Costa Rica, and European countries such as Germany, Finland, and Sweden.

Other governments are waiting in the wings. Canada may again consider legislation that would permit provinces to license and regulate Internet casinos. Nevada has enacted legislation that makes Internet gaming a crime, unless the wager is placed with a state-licensed sports book or casino. New York considered Internet gaming legislation in 1997, in an effort to shore up a declining horse racing industry. More will soon follow as governments that recognize the potential of Internet gaming race to regulate and tax it.

Let me turn to some of the substantive issues raised by Senator Kyl and others.

Regardless of whether we are talking about virtual or traditional casinos, there are three questions that must be answered: (1) integrity of the games; (2) access by minors; and (3) compulsive gambling.

When witnesses come before you and extol the dangers of Internet gaming, they fail to recognize that the same technology which makes Net gambling feasible, also allows for more precise auditing and control. Technology can also provide powerful tools to screen out minors and compulsive gamblers. Let me give you an example.

I have three river boat casinos within a mile of my office. I can do a lot of damage to my bank account there and virtually no one will know. Moreover, many traditional casinos try to create an environment that fosters risk-taking. Few have windows or clocks. Some provide free drinks and other amenities to their patrons. These same casinos try to keep minors out, but some invariably slip through the system.

Contrast this with a virtual casino.

When one plays electronically, each bet is closely monitored. With today's financial reporting, it is possible to verify a bettor's age, identity, and spending history almost instantaneously. Software now exists which allows people to lock themselves out or set loss limits. Many sites have their own limits as well. For example, one site has set a $200 per week credit limit for all of its customers. Many do not accept credit of any kind.

As to integrity, technology now exists that allows regulators to randomly audit web sites to ensure the fairness of the games. This technology is similar to that currently used to evaluate slot machines, video poker, and other games offered by brick-and-mortar casinos.

I would like to take on one serious inaccuracy that frequently appears in the rhetoric of anti-gambling advocates. They often portray a scenario in which a child borrows the family credit card to access a gaming site, and gambles away the mortgage money. That would be truly appalling if it were accurate. However, such a scenario is just not possible.

In circumstances where charges are unauthorized or made by minors, debts are written off by the credit card companies or charged back to the operators. It is no different than if someone were to steal a credit card to buy thousands of dollars worth of electronic equipment. In fact, most states provide further protection by specifically making gambling debts uncollectible.

You should know that the IGC is working to address other legitimate issues on our own as we seek a comprehensive regulatory framework. We are finalizing responsible gaming guidelines for our members that deal with underage and compulsive gambling. We have also developed a Code of Conduct that functions as a process for dispute resolution. Although the Code is not yet final, we intend it to function in much the same manner as the Better Business Bureau. I have included copies of the Code of Conduct and the responsible gaming guidelines as part of my written testimony.

We are also working as an industry to ensure that winnings are paid out fully and promptly. One option may be to require all IGC members to put up security in the form of a bond. Another may be to establish a joint fund to pay those who have failed to receive their winnings. Regardless of which approach IGC takes, guaranteeing pay out is the easiest problem for the industry to address.

Let's also talk briefly about the legislation sponsored by New Jersey Representative Frank LoBiondo that is before you today. Based on S. 474 in the Senate, H.R. 2380 is an attempt to apply a 19^th century solution to a 21^st century question. In so doing, the LoBiondo bill would create a new class of criminal - the casual bettor. Not even the Wire Act criminalized the act of placing a bet. But more importantly, it would create a law that even the Justice Department has said is unenforceable. Surely there are better ways of addressing valid concerns about Internet wagering - without trivializing law enforcement or undermining states' rights.

Last year, Congress created the National Gambling Impact Study Commission to explore, among other issues, Internet gambling. That Commission will hold a hearing in May to look at this complex question and is expected to issue a report next year. I urge you to wait for the facts before making a policy decision that impacts businesses, states, individual consumers, and the Internet.

In closing, I hope you question those who claim that Internet gaming cannot be regulated. As your colleagues around the globe can attest, regulation of this activity is already taking place. Look at how other jurisdictions are grappling with these new challenges before you make your decision.

Mr. Chairman, the Net has brought a whole new world into every home equipped with a computer. With it comes a challenge that must be addressed by national and international policy makers: How do we allow the Internet to provide opportunities for people of all ages without limiting content to that which is appropriate only for the youngest or least sophisticated?

The "lowest common denominator" approach was rejected by the Supreme Court when it struck down parts of the Communications Decency Act. I hope that you and your colleagues will look at this issue objectively to see that solutions other than prohibition provide for greater consumer protection in the global marketplace.

Mr. Chairman, Internet gaming juxtaposes 20^th century issues against 21^st century technology. Please do not apply a 19^th century solution that neither protects the consumer nor ends the activity.

Again, thank you for your time. I would be pleased to answer any questions you may have.