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November 2, 2012 Senate Majority Leader Harry Reid 522 Hart Senate Office Building Washington, DC 20510 Senator Jon Kyl 730 Hart Senate Office Building Washington, D.C. 20510 Dear Senate Majority Leader Reid and Senator Kyl: On behalf of the more than one million members of the Poker Players Alliance (PPA) and countless other American poker players and enthusiasts, I am writing to express our sincere thanks for your work on Internet poker legislation. As you are aware, the laws regarding Internet gaming are in dire need of updating, and our current policies leave Americans without even the most basic of consumer protections. Appropriate regulation of Internet poker is absolutely necessary in order to prevent fraud and underage participation, to ensure mitigation of problem gambling issues, and to establish a robust and responsible platform for all Americans who desire to play America’s greatest card game over the Internet. A purported draft of your proposed legislation, the Internet Gambling Prohibition, Poker Consumer Protection, and Strengthening UIGEA Act of 2012, has been made public and, while not confirmed as final, it seems generally consistent with what has been described to us by your respective staffs and others. Thus, the following comments are in reference to that draft bill. We are pleased with many aspects of the draft. It would establish licensed and regulated Internet poker in the United States and provide for strong consumer protections including mandated segregation of player funds, background checks of providers, and criminal penalties for cheaters. It would also strengthen our nation’s current policies with respect to Internet gaming and provide a solid framework for states to regulate online poker. Not only would this protect players and vulnerable populations, it will bring this burgeoning industry onshore to create U.S. jobs, stimulate our economy, and generate much needed tax revenue without raising any existing taxes. Without taking anything away from the numerous strengths of this proposed legislation, however, poker players have identified some areas where we believe improvement can still be made. As you know, the poker community has been very active in grassroots advocacy efforts. Their support and enthusiasm will clearly be beneficial in ensuring that there is a strong coalition of support for the ultimate bill. Therefore, with the understanding that the bill is still in draft form, the second reason for this communication is to provide the PPA's input for your consideration as the legislation continues to evolve.

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I will take each area of suggestion in turn:

Opt-In Provisions We recognize the importance of the legitimate role of states to regulate traditional in-state bricks and mortar gaming, and we believe this role rightly extends to regulating Internet poker. The draft bill appropriately puts the primary regulatory authority in the hands of the states with the most experience in gaming regulation and correctly establishes a federal standard for all states to meet. Having a single federal standard instead of 50 individual state regulatory models is the optimal structure, given Internet poker's unique need to have interstate play to be a viable and enjoyable game. This combined federal-state structure will greatly benefit the players, the operators, and the states that choose to be part of the system. We are concerned, however, that the current draft bill has taken a step back from previous versions that were made public with respect to the method of establishing state participation. Draft legislation from 2010 provided that states that already allow for and regulate commercial, non-tribal poker would be presumed to opt-in to the federal system. This seems a reasonable assumption to us. It also helps to both streamline the process and make it more predictable. The latest draft, however, removes this sensible accommodation and now requires that every state opt-in through an act of its state legislature even if that state already permits commercial poker. The success of regulated Internet poker will rest on the ability to offer services to consumers in multiple jurisdictions/states under common platforms. Requiring additional legislative authority from a state already participating in commercial poker can only slow the process and thus potentially undermine the basic need of businesses to predict their market at a specific time. This could not only stunt the growth of the regulated industry, but could also allow additional room for unregulated operators to exploit the uncertainty and greatly diminish the promised revenue for state and federal governments. We encourage you, at a minimum, to restore provisions in the bill that allow for several states to enter the system as soon as regulations are complete. 15 Month “Black Out” The current draft requires that Internet poker rules and regulations be completed within 270 days of the law’s enactment. However, it also stipulates that no licensed operator can offer services until after 450 days of enactment. While we poker players fully understand the importance of creating strong regulations and thoroughly vetting licensees, we also believe this can be effectively accomplished in an expedited time frame. This is especially true when one considers that states like Nevada have already established rules and regulations for Internet poker and other states, including New Jersey and Delaware, are currently in the rule-making process. We would also ask you to consider that other countries that have been successfully regulating Internet poker for several years were able to make their fully regulated games available to players much sooner than 15 months after enactment of their respective laws. For recreational online poker players to be without their pastime, and for professional online

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players to be without their means of making a living, 15 months of delay is asking a lot. We believe that a robust and effective regulatory framework for Internet poker, with ample time for both government and businesses to adapt to that framework, can be achieved in much less than 15 months. We urge shortening that time frame in the bill as much as possible without jeopardizing overall standards. International Play As stated previously, Internet poker will be most successful when there is the ability to offer services to consumers in multiple jurisdictions. Your legislation should provide for the opportunity for Americans to play with international players on commonly regulated Internet poker websites. For players, it will expand their opportunities to compete. For operators, it will allow them to extend their brands and businesses. And for governments, it will increase their revenue streams. The current bill does not recognize the international marketplace and “ringfences” the United States from the rest of the online poker world. This fact, coupled with the onerous state opt-in provisions, puts the success of this new, regulated market at a distinct disadvantage. While we recognize that international play will require specific agreements with foreign governments and foreign regulators, and that this will take time, we see no reason to preclude permanently the possibility. We therefore encourage you to include a provision, as was included in earlier proposals, for the ability to allow for international play at an appropriate time in the future. Player Taxation Issues Although not specifically addressed in the bill, the payment of taxes on poker winnings is of significant concern for poker players. Currently there are no IRS guidelines on how a player should go about computing tax liability for playing poker online. Poker players have so far been forced to guess at the appropriate method of reporting by looking at IRS guidelines for live poker play. This is difficult, however, as online poker play differs from live play in significant ways. In looking at the draft bill poker players are impressed and pleased with the level of reporting to the IRS that is required. Having the IRS get direct access to the net amount a player wins or loses at any particular site over the course of the year is clearly the best record of a players results and assessing a player’s tax penalty (if any). A provision that declares that a player's net win or net loss from a site over a year is the amount of win or loss that must be declared for taxes would clear up this confusion completely. At the very least, however, poker players think the final rules and regulations should direct the IRS to formulate guidelines for reporting income from online poker prior to commencement of play. Equitable Treatment of Indian Tribes and Lotteries One of the hallmarks of a successful online poker marketplace will be competition. Consumers will greatly benefit by having a multitude of playing choices, and it will strengthen the industry overall. With that said, we share the concerns of Native American Indian Tribes who believe their sovereignty is threatened by the current draft bill. Further, we believe that state lotteries that wish to be regulated operators of Internet poker should be able to seek licenses. We are hopeful

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that their concerns can be accommodated, not only to ensure strong competition among those who would offer Internet poker, but also to ensure that there is a strong coalition of support for the ultimate bill. Prohibitions Against Certain Game Providers We are also concerned about provisions in the draft that seek to exclude certain, but not all, online poker providers who previously accepted U.S. players. These provisions seem arbitrary, unduly unfair and possibly unconstitutional. If included in the final bill, the provisions will exclude some of the largest and most recognizable brands that have the deepest experience in offering Internet poker services from competing in the U.S. market. One of the primary reasons for supporting this bill is the need to correct the vague and outdated laws surrounding Internet gaming. However, this bill seeks to unduly punish those who provided online poker to U.S. players, even where it is unclear whether they violated any federal laws, and even for operators who have neither been convicted of any crime nor accused of mistreating U.S. players. Former U.S. Solicitor General Paul Clement has written to you separately to explain why these provisions are constitutionally dubious and may represent a bill of attainder. We echo Mr. Clement’s concerns and hope you will give serious consideration to fixing this section of the bill so that the regulators have discretion to take into account all relevant information when deciding to issue licenses and need not exclude an otherwise suitable licensee for merely having provided poker to U.S. players after a certain arbitrary date. Again, thank you for recognizing the need for updating our laws with respect to Internet gaming. We are pleased with your work in this area and hope you will consider our recommended improvements to the draft bill. We are available should you like to discuss any of these matters further. Sincerely,

Alfonse D’Amato Chairman, Poker Players Alliance

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