Casino Enterprise Management

True server-based technology has been the backbone of Class II gaming since its inception. The Indian Gaming Regulatory Act gives Native American gaming operations across the country the right to operate Class II games, with no limit on the technology that can be used and no interference from state or federal governments. Still, some in the industry believe Class II gaming is second class, when this is far from reality.

For the past two years, CEM has had a series of networked gaming guides. In 2011, we finally tackle Class II. We gathered a group of true industry experts together via conference call to discuss the topics relevant to this important area of the industry.

Below is the lineup of those who participated in the discussion. On the following pages, you’ll read the conversation exactly as it happened. The conversation is one everybody in the industry needs to listen to. This article and related podcast will highlight the present and future advances in Class II gaming technology and why it is a wise choice for tribal gaming operations across the United States. We hope you find it insightful.

The Line-Up:

Moderator:

Matthew Morgan
Gaming Commissioner Chickasaw Nation

Panelists:

Nick Farley
President
Eclipse Compliance Testing

Kevin Parker
Co-Founder
Lynx Gaming Solutions

Olaf Vancura
Vice President of Game Development
AGS

Matthew Morgan: Let’s briefly explain Class II gaming and why it is truly server-based.

Nick Farley: In my thoughts, the most elemental form of Class II gaming is bingo. Bingo is a participation game; two or more players must compete to be the first to attain a game-ending bingo pattern. To play bingo in an electronic environment requires the use of server-based gaming and, as such, that a server must link multiple player terminals together to facilitate the management of multiple bingo cards, a centralized ball draw, as well as prize management and determination. The server must ensure that two or more people have purchased bingo cards. The server links the player terminals into a single game where bingo numbers are randomly drawn and broadcast to the participating player terminals. The player terminals monitor the ball draw and match numbers drawn with like numbers on bingo cards. When a winning bingo pattern is attained, the player terminal informs the server of the win and any associated prize that is awarded with it.

MM: That’s a very technical explanation, but I think when we start talking about Class II, we get into the technology very quickly. IGRA was a groundbreaking piece of legislation in that it did try and define what was traditionally known as the game of bingo, including the three elements that you speak of, Nick. From an operator’s point of view, Olaf, what would you look at? You come from a traditional Class III and are going into Class II. What are some of the things that would jump out at you as some of the advantages of a Class II system?

Olaf Vancura: Well, that’s actually an outstanding question. That can be answered in a number of ways, so let me just touch on a couple of them. In terms of a tribal casino that has a compact with the state for Class III, typically there’s a price to pay for that. To have a Class III game, let me use an example in Connecticut with Foxwoods or Mohegan Sun, where 25 percent of the slot win has to be given to the state there. Whereas, because Class II is bingo-based and has a competitive element, and because bingo basically is a game that’s offered in these states, there’s no compact necessary. So there’s no tax that these tribes have to pay to the state to offer Class II. There’s a definite incentive for tribes to want to have Class II, because essentially they keep 100 percent of the revenue, instead of, let’s say, 75 percent. On the game development side, which is where I come from, Class II has some challenges because it does have to play like a bingo game. The game developer or the design process isn’t as robust; it’s not in general. You’re not able to do as many things as you might be able to do in Class III. It’s limiting in that sense. The name of the game becomes, how can you create Class II product—which necessarily is server-based for the reasons that were discussed earlier—within the rules of the Class II environment, that, from the player’s perspective, is as good as Class III? That’s kind of the angle that we’re taking here at American Gaming Systems.

Kevin Parker: If I can add something from the operator’s standpoint—I was an operator for 15 years. Olaf did a great job there. The biggest part on our side is compacts. The state has a compact with the tribe, and of course they do take a percentage—some states are 10 percent, some are based on a tiered system going up from the number of units you have, some are up to 25 and 30 percent. That’s not the only thing you have to look at. You also have MOUs, memorandums of understanding, with the local government. Those are the things that no one really thinks about when they’re putting together a Class III floor. In Class II, there are no fees. We pay our minimal fee to the NIGC to operate a device, and that’s it. We pay that regardless. It gives the operation the ability to go ahead and really manage. The cost-effectiveness of your floor goes way up when you use Class II. The other thing is, groups out there like AGS, Rocket Gaming Systems, IGT or any of the major vendors that are going with Class II—their games are getting better and better and better. When we put them on a floor, the most important thing we can do is actually celebrate the fact that it’s Class II, celebrate that it’s a different kind of gaming style than Class III. I’ve had great success with that in several houses, where you put it on the floor and you say, ‘This isn’t your traditional Class III game; this is Class II. It plays a little bit differently.’ The functionality allows you to give it its own venue. I think that’s really important. Now that Chairman Hogen is no longer with the NIGC and the bright line distinction has settled down and we’re defining bingo by what bingo is as opposed to what bingo isn’t, I think vendors and manufacturers like Olaf’s company are going to make huge strides in the near future.

MM: I agree. Some of these things you’re seeing out there in the Class II market. At the Chickasaw Nation, we have about 40 percent Class II machines. Some of the innovations over the last three to five years in the bingo world are amazing, from where we started at our roots 10 or 15 years ago. It’s funny how it always goes back to that math, and trying to explain to somebody the engines that operate that. Do you think you could explain to us in the simplest terms why the math behind the Class II system is different than your Class III systems?

NF: I’ll do my best to talk about the math behind this. Of course, being an engineer, that’s hard to do. There are a lot of complexities in Class II gaming, one of which is the math behind bingo. Class II bingo employs some very complex math models. Today’s bingo games offer multiple prizes for attaining various bingo patterns within a certain number of balls drawn. Unlike slot machines that possess a finite number of symbols on each reel—and then with that you can do combinations and permutations, mathematical calculations to determine theoretical payback percentages, probabilities of outcomes and things like that—Class II bingo introduces levels of complexity that are relatively unknown to slot machine math. While most bingo games use a 75-number pool, broken down into five distinct groups, with 15 numbers in each group, the math is not just determining the probability of matching numbers, but it requires examining the probability of attaining specific bingo patterns within a specified number of balls drawn. Here in the lab, we have different ways of calculating bingo math. We have some tools that we have developed in-house that will use patterns and probabilities based on the numbers of balls drawn to get that. In other instances, we’ve developed computer simulators to actually play bingo games and facilitate simulated ball draws to come up with the mathematical probabilities of attaining different bingo patterns and bingo prizes.

MM: That’s always important when we’re talking about Class II and the distinctions between the two. A lot of times when I talk to people, not in gaming especially, if they see your player stations sitting there they try to look at it, to determine if it’s Class II or Class III. And for novice players walking up, you can point out some of the differences in a Class II versus Class III bingo card and some of the engines and way it works. I always use the word engine because I try to explain it to them like a car. “Do you have a four-cylinder, six-cylinder, a V8? What do you have under the hood that operates the engine? Is it natural gas?” A lot of cars look similar, but once you get down to the nuts and bolts of it, it’s very different. I think it’s a good distinction to have once we start talking about our math models and how bingo has evolved from that session games that we used to know in the late ‘70s, early ‘80s. We really saw it come on strong in the ‘90s with all the technology out there right now. Kevin, what do you think is the most advanced technology used in the Class II gaming system?

KP: Actually, Class II’s technology has far outstretched Class III for years and years. I used to just chuckle at that. I had the opportunity last year to put together a server-centric mobile gaming platform with John Acres of Acres 4.0. The thing is, Class II in and of itself has always been so much more technically flexible in how they delivered the game to the customers. If we’re asking about games, one of the neatest things that has come out in the last few years is Rocket Gaming’s funded million dollar progressives with their Gold Series games. It’s pretty remarkable, because for the longest period of time, with wide area progressive games like Wheel of Fortune and Wizard of Oz that were the strongest products out there, your ability to win a life-changing jackpot relies on the ability to spin a particular winning decision that depends on the number of virtual reel stops a player may have, on each spin, one shot out of 250 million possible spins. With Rocket’s new game platform, basically, the players’ pool itself funds that jackpot. When the contribution funds to a million dollars, a very realistic opportunity is there for players to hit a must go jackpot within this network. That’s a fantastic thing. From an operator’s standpoint, to be able to look back and to actually have a really good shot at hitting a million dollar jackpot in your facility and to be able to market that, that’s extraordinary. And then to be able to offer a player in your facility the chance for a life-changing jackpot that’s actually attainable and achievable—outstanding. I just see all of these incredibly smart people at these manufacturers coming out with some great innovations in the next several years, because they don’t have the federal government and the NIGC saying that they can’t do it anymore.

MM: I can see that. Olaf, from your perspective at American Gaming Systems—who has one of the classic Class II game platforms in the Liberty Sevens theme—with your experience in Class II, what can Class II manufacturers learn from a Class III manufacturer at this point? What should they be looking toward?

OV: I think that’s a direction that gaming has gone in general, which is—up through the mid ‘90s to late ‘90s—players were completely satisfied with a more or less passive experience, where they would wager one to three coins and pull the arm. Everything was a stepper reel at the time, and it was passive. North America has embraced bonusing and games that have a lot of player interactivity, and that’s easier to accomplish in Class III than it is in Class II. Because, as it was alluded to earlier, the engine for Class II is a bingo game. That is a positive in the sense that it affords some strategic advantages to the tribes that have Class II in terms of financial and otherwise political. But it’s also a disadvantage from a game design point of view, because it limits what you can do. You have much more flexibility in Class III. Really, I think the challenge for us manufacturers is in areas where both Class II and Class III games are co-mingled side by side. Class III games tend to outperform. And it’s because of the flexibility, I think, in part, the game design process is easier. It’s easier to accommodate what players are looking for—both things like math profiles, things like volatility, but also in terms of game play—with a player picking objects or interacting with the game in some way. I would like to also chime back in on the comment made earlier, and I agree. To some extent, server-based gaming has been here all along, in terms of Class II. The recent push or the recent headlines about Class III gaming becoming server-based, it’s a little bit of “been there done that.” Class II has been doing that for a long time. It’s been kind of unheralded and behind the scenes as a means to facilitate making this a bingo game. But it’s kind of funny in a sense, that there’s so much hubbub about it now in Class III, because this has been done for quite some time already in Class II. Technologically I agree—at least by some measures—on the technical side, Class II is ahead of Class III.

NF: I would agree that Class II is technologically more advanced than Class III, certainly. A server-based computer network is obviously more advanced than a slot machine environment. The talk about downloadable and server-based gaming in Class III is evolving, and like Olaf just said, Class II has been there and done that. Downloadable software, server-based gaming has been in existence in Class II for more than 10 years. There’s a lot that Class II can teach Class III when it comes to new technologies.

MM: And you’ve been able to watch that, I would think, rather quick progression in Class II, given its history of where it started and where it’s come. Being from the Oklahoma market, we say we grew up on Class II.  That’s what our players were used to, and in 2005 we had a compact go into effect with the state of Oklahoma that brought in certain types of Class III machines. They had to get used to that. As you look around the country and you still see some of the jurisdictions—Washington, Oklahoma, Alabama—that are Class II, and as you look into other markets—I’ll use California as an example—what do you guys think of those jurisdictions, and do you think you’re going to see more Class II games become more of a topic in historically Class III areas like California?

KP: I’ve opened three facilities in the state of California over the past 10-12 years. I’ll tell you one of the things that we run into in the state of California. I think it’s no surprise or no secret to anybody that the state is hurting financially to a huge degree. I don’t know how many billions we’re in the hole right now, but the state is going to continue to look toward Indian gaming as a revenue source. This is not why IGRA was created, but the states are there and the states are going to ask for ever-increasing amounts of money, as is the local government. What you’re going to see in more and more facilities is an increase in Class II. They’re going to increase in Class II for several reasons. One, it’s a different style of game. We should never hide it; we should celebrate it. The second thing, and maybe the most important thing to anybody from a financial standpoint, is you don’t pay as much money. You pay the vendors for their participation portion, because it’s a participation type of game style, and that’s fine. You have a lot of participation games on the regular floor as well, and you pay into those. You’re not paying the state, you’re not paying the local governments, other than the other agreements that you have within the tribe. It’s also going to help with compact renegotiation. We can show the different states across the country, and the state of California specifically, that we have other options out there to produce our gaming revenues. When we go to the state for compact renegotiations in the next eight years or so, we’re going to be well-positioned to get better financial terms from the state. If the state believes that there’s only Class III, that it’s the only viable game in town, and we continue to develop that reality as an industry, the casinos in Indian country are going to be hurting. And that’s not even taking into account whatever we’re going to experience with online gaming. That’s something that’s going to happen, and we need to plan on it. I think the online experience is one of the things that Class II is going to do very well, because Class II is already server-based. Not downloadable or server-assisted—everything’s within that server. The cost to the tribes can be much less expensive. We can reconsider the delivery devices, because there is no random number generator residing in the machine. There’s no hopper. There’s none of that. We just have to rethink; do we really need those big boxes on the floor? Is there a different delivery system that we can introduce to our patrons that can be offered at a lesser expense to the operation? And if Class II is the first one to get that—because they’ve already got the technology worked out on the back end—holy cow. Class II is going to grow in leaps and strides—I hope.

NF: I’d like to dovetail off of Kevin’s comment there. With some of the life-altering jackpots that are being offered on Class II products and the speed in which the games are being played and some of the innovations in which the player experiences Class II, such as a dual-action button, where pressing down on the button causes you to bet and lifting up on the button causes you to daub and claim, you’re kind of interfacing with the machine through one motion—down and up—like you would pressing the play button on a slot machine. All of that adds to the player experience. The Class II bingo game plays at a similar speed to a slot machine and hence, approaches the earnings of a slot machine in a gaming environment. When you factor in the tax element—because in Class II, there’s a tax benefit to the tribes in that they’re not paying the state or local taxes—I think that Class II devices may, in some instances, outperform Class III. What Kevin was saying about having Class II gaming devices on a tribal gaming floor, I think is an excellent bargaining tool for compact negotiation. It’s a bargaining chip with state governments because Native American tribes can now negotiate favorable terms on their Class III gaming compacts. They’re not just going to be stuck there where, we want to have Class III and we’re just going to have to play the game with the state. Well no, they can come back and say, “You want so much money; well we’ve got Class II, so we don’t really need to negotiate with you so hard. If we can’t come to terms we’ll just run a Class II operation.” As you mentioned, Matt, you’re 40 percent on your floor with Class II, and that’s a great position to be in, because if the state ever wanted to come back and negotiate its compact with your tribe, you’re in a position to say, “40 percent of my machines are earning very well and if you don’t like the 60 percent that our floor is giving as Class III, then we’ll just get rid of that and make our places 100 percent.” Not that you’d want to do that, but you’re in the position to put yourselves in the driver’s seat with a negotiation.

KP: Feeding off of what Nick just said, maybe in the future perhaps a tribe wants to do just that. There are several properties within the state of California that didn’t go with a compact. They operate a Class II gaming floor. And because of their location, they do incredibly well. It depends on your location, the comfort level of your customers, and it will depend upon the cost of the boxes. The boxes are getting more and more expensive every year. No more paying $18 thousand to $21 thousand for a box on the floor. That can’t continue on that way. Facilities are going to figure out that that’s just too expensive. If Class II, who’s always been in the forefront—at least as long as I’ve been in gaming—if they can figure out a way to offer the same player experience that they have right now at less cost to the facility, the facilities will start moving more toward Class II. It’s a dollars and cents move. It’s a tight economy, and we all realize that. I don’t know that we’re ever going to get to the same place that we were a few years ago in gaming, when it was ever-expanding. Now there’s a heck of a lot more boxes out there than we have need for. Now, to make the same revenue, we’ve just got to get a little more creative about it.

NF: Just to add to that, you talk about the price of purchasing a Class III slot machine approaching $20,000 and even exceeding it when you put on some additional options and features. You look at the business model that Class II gaming suppliers have built throughout Native America where it’s a revenue share type of situation, where they’ll come in and they’ll assume the risk and put the games on the floor. They’ll maintain the machines and give you updates and things like that all in return for a percentage of the revenue generated by the machine. There’s a lot of incentive for the manufacturer to create games that earn well because they have a strong interest in the game. They’re not going to just drop off their boxes and pick up the check and walk away. And if it doesn’t perform, oh well, you’ve got the option to take if off the floor and deal with it. You bought them, they’re yours, do whatever you want with them. No—they’re a player in this. They have an interest in these machines earning to the best of their potential, which kind of forces them to be innovative in the technologies that they’re going to implement in Class II, to keep them on par performance-wise with Class III slot machines.

MM: Excellent points, gentlemen. Olaf, do you have anything to add to this?

OV: I agree with what you guys are saying—that the tribes are incentivized to have Class II for strategic financial reasons as well as political. We appreciate that, and at least within AGS that’s exactly our plan, to try to elevate the standard for Class II slot machines so that they do perform better and, frankly, so players will enjoy them as much as Class III. I’ll just go back to the point I made earlier—in those areas where Class II and Class III slots co-mingle, Class III tends to outperform. It’s to the extent that some properties have only Class II because they have a captive market they’re able to do that. But many tribes are not in that position. They almost have to look to Class III because those games are more popular with the players. Part of our goal at AGS is to elevate the product that we’re producing for Class II so that, from the players’ perspective, it’s as good as Class III.

MM: Olaf, with you saying that, and with some of Kevin’s and Nick’s comments on really making sure we have a viable Class II product to go forward, what do you think we’re looking at in terms of technology in the future? Are we looking at more progressives? Mystery jackpots? Community bonusing? Where do you think we’re going in Class II?

OV: I think all of those are on the horizon. For historic reasons, progressives have been popular in Class II areas, and I think will continue to be. We do have to capitalize on that. One of the things I alluded to earlier is that Class III games tend to be highly interactive these days. Players are looking for things to do during the course of a game, or during the course of a feature, or a bonus game. That’s one of the areas that we’re exploring to make our Class II product more interactive.

MM: Kevin, you know, as the gaming industry has become more global, and as we come to watch different jurisdictions, looking at Macau or Singapore properties, where you’re seeing games that are more interactive. In a Class II sense, I know you start talking about the delivery system and the boxes, which, as you very well pointed out, could change in the future. What are you going to see in some of those? Do you want to try and predict the future, in a sense, and look at some of the delivery models that are being discussed that are out there right now?

KP: Class II has always been the step-child—and I mean that not in a positive sense—of gaming. The folks that got in there at the beginning and worked on the Class II side, some of them are just incredibly innovative human beings. One of the biggest problems that we had on the Class II side of the industry, and with the tribes, was having to fight the NIGC for years. I represented two separate tribes in their discussions toward what the proposed regulations for Class II would do to the welfare of the tribe itself. I think that Class II is going to come out of left field, in a sense, with something incredible. I believe that Class II is going to re-define the way that we look at a slot machine. Somebody on the Class II side is going to say, why do we have to use the technological aids to the game of bingo in a standard format; why does that have to be in the form of reels? Why does it have to look like a slot machine? Is that what the generations that are coming up are looking for? I’m talking about our Playstation and our Wii crowds—I don’t think they are. I think that the Class II folks, they’ve got to capitalize on this big time. I’m just really excited about where we’re going to go with Class II in the future. I know that that was an aside to the question. With the proper security processes put in place, I think that we’re going to see Class II in hotel rooms. I think that we can port Class II on mobile devices very easily. Those mobile devices can be slaved, using Bluetooth, to the televisions that we have within the casinos and offer a completely different gaming experience. Even in our traditional bingo halls we can set these mobile games right up beside our traditional bingo, and they can augment play. I really see the possibilities that this will take off —whether it’s this side of the pond or the other side of the pond.

OV: To add to that point, I want to mention one of the products that we’re working is along that same vein, that the delivery for the bingo does not need to be slot reels. It’s a game that we have called Diamond Lotto, and we’ve had quite a bit of success with it in the Florida market. And what we’ve done is we’ve upgraded it and turned it into a wide area progressive and will be launching it shortly in California. I agree—Class II limits you in terms of game design to some extent, because you’re confined to a bingo game, but in another sense there are areas that are untapped, that are really, to a large degree, untried. Not everything needs to have slot reels. And that’s a valid point.

MM: Thanks, Olaf. Nick, to pick up on that theme, as a testing laboratory, you know that entertaining displays have never been limited. They’re not a part of IGRA’s statutory definitions, so what do you think we’re going to see in the form of entertaining displays or delivery systems of how to receive that content off the server in terms of Class II gaming?

NF: You know, I always have to be sensitive not to give away trade secrets of any of our customers, but there are going to be new and innovative ways to deliver bingo outcomes outside of spinning reels and cards and things like that. There are some right now that can use cards and dice and some other elements to kind of create a casino-style game to it. I think really to bring up the next generation of gaming interest into Class II or Class III, the games are going to have to be more interactive. Your loyalty systems aren’t just going to have to be accumulating points to get a comped meal or a hotel stay; it’s going to have to be more of a loyalty points system like you’d see with American Express membership rewards, where you can use those points to get merchandise and take vacations. You’re going to see more of the Internet experience—second life type things. I think they are going to start evolving into the gaming floor in both Class II and Class III, and quite honestly I think that Class II might be the facilitator of some of these new technologies and means to deliver game outcome because of the flexibility of the Class II systems. They’re not limited in how they can present themselves. The alternative entertaining display can be anything that a game developer can imagine. I think you’re also going to start seeing Class II, as regulation and laws get put on the books for the legalization of Internet gaming, Class II is going to make a logical progression into the Internet realm. Of course, right now, it’s questionable and risky. As the mud becomes clearer and Internet gaming becomes an integrated part of legalized gaming, and it’s regulated, you’re going to see Class II do very well in that area as well as on the casino floors that it’s serving right now.

MM: As we’ve grown this industry, and I really believe that Class II is an industry, I’ve become a big advocate of having viable Class II products on your floor. Some of the points that you gentlemen have talked about earlier, whether it’s a financial model, or whether it’s a management strategy that you’re looking at, and future compact negotiations, or if you’re in the state of Alabama, that is your only choice. As Class II begins to become technologically advanced and grow into other jurisdictions in the country, what do you guys think are some of the advantages of having the Class II product on the floor? Is it purely financial or are there other reasons out there? I don’t know what you gentlemen see out there in your jurisdictions. I will tell you, I have a lot of Class II and Class III in my jurisdiction and I have a lot of Class II that go head to head with Class III, and the win per unit is equal or more than some of my Class III games. 

KP: You bring up some great points. This is the most exciting time to be involved in Class II, ever. We think about the limitations all the time, but let’s think about the possibilities. The game of bingo is one of the most fascinating games ever. The number of permutations for bingo is not infinite, but it is infinite to the human mind. There are tons of possibilities out there with this. I think, as far as going head to head, you bring up a great point. I understand that there are vendors out there that serve both the Class II and Class III markets, and Class III has the best possibility of putting out a product across jurisdictions and making money. But Class II, in and of itself, is a central determination system. When I was in Washington, we were able to put Class II against Class III up there, and we used one of the major vendors. We went head to head, and the rest of the state did the same thing. We were able to re-negotiate a great Appendix X with the state of Washington. Ron Allen and his whole crew had a great deal to do with that, and there were all kinds of different points that they negotiated, but it did come down to revenue and the fact that Class II was doing as well, if not better, in a lot of the facilities, than Class III.  Some people call gaming in Washington Class II ½, but it is a Class III central determination lottery-style platform. There’s no random number generator in the machine or anything like that. Any good operator out there should take a really good look at Class II. I will say this—that Gold Series that I was talking about earlier—most facilities that wouldn’t look at Class II previously have got Gold Series. And they have Gold Series because it’s an achievable life-altering jackpot for their players.

NF: I would agree with that. The life-altering jackpots that you’re seeing on the Gold Series games are really gaining attention in facilities that shy away from Class II, thinking that the games are too slow, or not very entertaining, or whatever preconception that they may have that would be, in my opinion, wrong. But those life-altering jackpots are really turning heads and getting some serious attention in the traditional Class III floor in Native America. I also see that as tribes flourish with Class II gaming and its evolution as it continues to become more entertaining and competitive with Class III slot machines, you’re going to see more state-run gaming venues, maybe even charitable gaming venues. Look toward the Class II-type game. I realize that Class II is only a term you can use in Native America, but let’s face it, it’s being used internationally. I think you’re going to see a competitive situation where charitable gaming is going to start looking at playing bingo in an electronic format and then casinos are going to start looking at this and asking, “Why can’t we have it also?” It’s all going to come down to competing for the discretionary dollar of the people that want to participate in the gaming experience. Class II is going to become a serious player. It already is a serious player, but I think it’s going to get more and more attention from your traditional Class III environment, and you’re going to also start to see it evolve in charitable markets. We saw that a few years ago in California. I think that charitable markets, as they need more and more revenue to support these charities, are going to look at that as a viable option.

KP: Adding to Nick, because every one of his comments have been good so far, one of the things that we’re going to see change within our industry as we go forward is this expansion of gaming. It just kept expanding and expanding; it was like the housing market. It was like the dot-com boom of the late ‘90s. Everything was going and everything was rosy, and all of a sudden the bottom dropped out. It happened with the entire economy. Now when we look at it and we go back, there are a ton of machines out there and there’s a limited player base that’s aging every day. Basically what we’ve got to do as operators and as those folks who watch over the facilities and the economic engines for the tribes, we’ve got to start looking at competing for the entertainment dollar. Not the gaming dollar, but the entertainment dollar. I know that when customers come into my facility, they have a whole bunch of choices. It’s not, “Do I want to go to Casino X, Casino Y or Casino Z,” it’s, “Do I want to stop at Starbucks?” “Do I want to go bowling?” “Do I want to go to a movie?” “What’s going to be the best bang for my buck?” That’s where we as operators need to start looking. We need to start making sure that we consider this reality as we plan for the future. It’s no longer sensible or viable to offer the same old product that’s been out there forever and expect great results. It’s just not going to happen. The innovation is going to do it, the staff for the casinos, and rebranding ourselves as an entertainment facility that has gaming—actively looking and competing for the entertainment dollar for each one of the people out there, because that’s the only way these facilities are going to keep operating. The margins are getting thinner and thinner, and the states are asking for more and more. We’ve got to be smart. That’s just the way we’ve got to do it now.

MM: I’ve got one last question here, and it’s about service windows. Class III system operators are very proud of their marketing systems and some of their customer services they can offer through their service windows. Nick, can this be done in Class II?

NF: Absolutely. The service windows are being provided by third-party back-end system manufacturers. With the GSA protocol, S2S (System to System) you can use that third party back-end system to communicate with a Class II gaming system and send all types of messages. So really, to implement in a Class II environment—seeing as how Class II by its very nature is server-based, you really just add some new instructions to the server to communicate with the player terminal to put up these service windows and send different types of non-gaming information down to the player terminals through the back-end system communicating S2S to the Class II system and then the Class II system communicating within its own network to put up these service windows on the player terminals. I don’t think it would be a stretch for Class II to do that at all.

MM: Kevin, in some of the facilities you’ve opened, you’ve had Class II and Class III running side by side. Do you see any problems in the facilities that you’ve opened having the Class II and Class III system communicate with third-party systems?

KP: No, I don’t. Bally’s system can tie together most everything. I think as we go forward and the GSA standards become more defined and everything becomes more plug and play, it’s going to get easier to communicate with different facilities. I’m actually up in the state of Washington right now. I took my nephew out for his birthday to a local area casino last night, and I noticed that they had three different kinds of tickets, because they have three different vendors, and Class II and Class III mixed in the facility—and doing it very well. But the thing is, you’ve got to go to different kiosks. They’ve trained their staff very well, and more importantly they’ve trained their player base very well to understand that this is a minor inconvenience. But really it isn’t a minor inconvenience. These are the kind of things where we absolutely have to stick with the GSA standards or whatever comes after the GSA standards. We have to go with that plug and play. I’m very impressed with what we’ve done in the last few years, and it’s just going to get better and better.

NF: Three different vouchers in one facility. When the compacts were first signed in Oklahoma five-six years ago, it was the same situation. You had eight vendors on your floor, and eight different vouchers being generated and eight means to cash them in or convert them into something that could be put into a different manufacturer’s machine. It was the Oklahoma Class II/Class III mix on the floor that really drove the S2S protocol to really evolve and become something viable, specifically for ticket vouchering. I was doing the on-site inspection at the Choctaw facility in Durant, which was one of the first facilities to implement the S2S protocol, and it was done specifically for vouchering. After the bugs got worked out, it worked like a charm. You could play one manufacturer’s machine that was Class II, generate a voucher and go over to another manufacturer’s machine whether it was Class II or Class III. Didn’t matter, put that voucher in and it would accept it because each of those independent systems, those closed systems for each manufacturer, were communicating to the ticket vouchering system through S2S communication protocols. Even though Manufacturer X had his own Class II system, Manufacturer Y had his own system, those two systems were communicating to the vouchering system through S2S, and therefore were able to validate, cross-validate tickets and vouchers. It made it seamless for the player experience because they didn’t have to worry about what Kevin’s experiencing in Washington. They didn’t have to be trained to know that, “Alright I have Manufacturer X’s voucher, I can either go to another Manufacturer X machine, or I have to go to a cashier, or go to a specific kiosk to get cash, and then if I want to play some more I have to take that cash and put it into somebody else’s machine.” I think that that S2S has been a very good tool to facilitate—specifically vouchering—across multiple manufacturer’s products.

MM: Is there anything else you’d like to add on top of the Class II technology that we’re looking at and the viability as an industry?

KP: What I would like to do is appeal to the tribes. I’d like to appeal to the different manufacturers. Shoot, I’d like to appeal to just about anybody. Class II is absolutely viable. It’s exciting, it’s innovative and it’s got a group of folks that have been operating Class II who are nimble. They think on their feet and can rapidly adapt. I think it’s very important to all of us and to our industry as a whole, especially with compacts starting to expire out there in the next few years, to go ahead and make Class II the very best possible platform that we can. So that we can continue to compete in our own states, in our own local geographical areas, and be viable and keep these tribes—with the funding that they need, to meet their social obligations to their communities and their nations. I just think it’s so important.

MM: Great point, Kevin. I think sometimes that’s lost when you start looking at Indian gaming. You’ve got to remember what those funds are generated for. The tribal governments are there to meet the needs of their people. That’s sometimes lost in the world of gaming and it’s an important point to reiterate.

KP: And it is—our owners in tribal gaming, they’re not big corporations; they’re not single fat cats. We’re providing elder care for kids in their teens right now for their futures. We’re providing day care services for kids that aren’t even born. The funding that it takes to get the infrastructure up and to get the training for the different tribal members and the different tribal staffs be able to take care of their folks. That’s what Indian gaming was, and is, all about. I just think it’s really important to never lose sight of that.

MM: That goes right back into your point earlier, Kevin and Nick, where you’re looking at the viability of that industry as an alternative to Class III, especially when you bump up against those compacts and renegotiating. If you’re trying to negotiate for the first time, you’re trying to maximize your tribal dollars, and that’s something that you really need to look at. And you really need that product there to turn to just in case something ever happens to those compact games.

NF: I’d just like to add—Class II gaming is all about sovereignty. It’s a Native American tribe’s sovereign right to engage in Class II gaming activities. Non-tribal operations could not operate bingo games and get the tax benefits and other benefits that Native Americans enjoy with Class II. It’s somewhat disheartening to see that many tribes are not taking advantage of this tremendous benefit of utilizing Class II gaming on their casino floors. There’s just so much that Class II gaming can bring in the area of betterment for the tribes financially, but also the entertaining value that it brings to its customers. If there are any tribes out there that haven’t experienced Class II gaming in its modern form, I think they really need to take a hard look as to why not. The games play almost as fast as a slot machine. In many cases, as you mentioned, Matt, Class II games can earn as well as, and in some cases better than, a Class III slot machine. You can’t ignore that. When you’re looking at what Class II gaming can do for a tribe and proving the tribe and its facilities to its tribal members, you really have to take that into consideration.

KP: One other thing on that—from an investment point of view—if there’s a tribe out there that has money that they would like to invest in something that really could benefit all of the tribes in Indian country and benefit themselves, we have to remember that this industry had its hands tied behind its back by the NIGC for a good period of time. Just think of what they could have done if they didn’t have their hands tied behind their back. And now that the Stevens commission is in place, I’m really excited to see what Class II can do. I just think it’s going to be phenomenal. If the larger tribes would look toward investing, and some of the smaller tribes that are well off, but the larger tribes, as far as financial means, it could give such a jumpstart to Class II as far as where the innovations go. It could just be amazing.

MM: Coming from the Chickasaw Nation, where we currently operate over 14,000 electronic gaming units—both Class II and Class III—we would have never ever reached that potential without Class II and where we got our start from those machines back in working with our vendors in the early days such as Multimedia Games’ venture into electronic Class II bingo stations. It’s been an amazing ride for us. It’s been one that’s allowed us to go back and do things that we could have never envisioned 20-25 years ago being able to do. Some of our economic ventures that we’re in, whether it’s radio stations or newspapers or chocolate or hotels or gaming, whatever we decide to go back into from an economic standpoint, it’s always going back to generate those funds back to the tribal government for educational needs—day care systems, health care, elder care, the betterment of the Chickasaw Nation and the state of Oklahoma in general. Some of those things were never possible without that Class II market that we’re talking about today. You’ll always see me as an advocate of Class II, and I really appreciate all of your gentlemen’s time today.

Editor’s Note: We hope you also enjoyed the time you spent reading this article. Please watch for the second part of this continued discussion, with more gaming experts weighing in, in an upcoming issue.