Casino Enterprise Management

If the proposed regulations currently being debated for Class II are approved, manufacturers and members of the Class II gaming community say the games will be slower, harder to play, unappealing to the customer, and the commercial integrity of the game product (games and technical aides) will be seriously compromised. The proposed series of changes to redefine established regulations will have such a wide ranging impact that many manufacturers of Class II products have joined together to communicate their concerns to the National Indian Gaming Commission (NIGC).

The comment period for Class II technical regulations was extended by the NIGC from Dec. 15, 2006, to the latest deadline of Jan. 31, 2007, in part because of the comments received at the Tribal Advisory Committee meeting held in Washington, Dec. 5-6, 2006.

A Technical Standards Work Group (TSWG) was formed by several manufacturers to collectively respond to the NIGC with their concerns to the proposed regulations. Some of the proposed rule changes would add a new part to the commission’s regulations covering technical standards for Class II bingo and games similar to bingo that are played electronically, or with technical aides. The manufacturers expressed their concerns about the content of the proposals in writing in October 2006 to NIGC Chair Philip Hogen. The group also met in November and shared their concerns directly with the commission.

The manufacturers’ group includes representatives from: IGT, Rocket Gaming Systems, Multimedia Games, Bally Technologies, and Planet Bingo.

Bally Technologies Senior Vice President and General Counsel, Mark Lerner, concluded in a letter to Hogen in November 2006 that: “It is Bally’s belief that Congress has already provided a bright line test to distinguish electronically-aided Class II games from Class III games.…In contrast, the classification regulations proposed by the NIGC would muddy this clear line by imposing numerous onerous restrictions on both the underlying games and the types of electronic aids used to play those games.”

The NIGC and the Department of Justice want to see a clearer line of distinction between Class II and Class III. They contend that because of technical advances over the years, the lines between the two have blurred. Obviously, when the gaming regulations were enacted in 1988, the future, in terms of technological development, was an unknown. 

Since the Indian Gaming Regulatory Act of 1988, Congress has always intended to allow tribal use of technical aides for Class II gaming with a clear line between those used in Class II and those used in Class III. History has shown that there have been opinions issued through the courts with reference to specific technological enhancements that have applied to Class II.

Manufacturers and government regulators, after careful review and appropriate debate, agreed on specific guidelines. Some parties feel that the Class II format has evolved in the market place as NIGC and the manufacturers have worked together over the years. They communicated on previous case law and creating new addendums to regulations in an effort to allow the industry to do business and grow while still showing lines of distinction between products. Indian Gaming is subject to more stringent regulation and security controls than any other type of gaming in the United States (Economic Impact Report 2005, Indian Gaming Assoc.)

The manufacturers contend that the new draft proposals, if adopted in their present form, will negatively impact these same technical enhancements that have been allowed in the marketplace.

Over the years, many manufacturers involved in Class II gaming have been able to offer many great enhancements and upgrades, wining a favorable certification through the prescribed legal methods. As the improved technology went live and received wide-customer acceptance, the economic factors greatly improved for both manufacturers and tribes. 

Knute Knudson, vice president Native American Development for IGT, said: “Of the three proposals, it appears the one most likely to be resolved and published in the short run is the Class II Technical Standards proposal.”  Knudson is participating in the tribal/manufacturing group that is providing input into the Technical Standards Work Group.

Knudson further stated: “…After they open up the process for more dialogue, the technical standards rule should be much better than when they started. This is particularly true if they push most of the standards from the player station to the system, which more fully acknowledges the nature of the Class II product.”

In written questions to NIGC Chair Philip Hogen, I asked him whether he had any thoughts on the Technical Standards Work Group and whether he feels that the Tech Standards will be the first issue resolved, as some have stated.

Hogen responded: “A great deal of constructive comments about all the proposals have been received by NIGC from many quarters, and that information is being carefully evaluated, as is the complex legislative, legal, regulatory, and operational history of Class II and Class III gaming. All this is being considered. While the classification and technical proposals are generally part of the same package, NIGC is dedicated to promptly, but carefully, bringing greater clarity to this area, and no sequence of what regulations, if any, to adopt has yet been made. The Technical Standards Work Group has been very diligent lately by focusing on this issue, and NIGC appreciates their efforts and respects their viewpoint.”

Some proposed changes, if adopted in their present form, will ultimately require the manufacturers to develop a new platform which involves testing, game creation, and approvals. All of this is at a tremendous cost and time to manufacturers.  They will have to assess whether it would be cost effective to redesign the system supporting the games to meet the new standards. 

Many industry authorities feel once the changes are implemented, the product could be rejected by the customers due to slowness. In jurisdictions where competition for Class III exists, or specific state compacts are in effect, those tribal communities that are Class II only will suffer great economic hardships. The manufacturers contend that where customers have a choice, they would choose to play in non-tribal facilities based on the proposed standards. 

A report submitted in November 2006 to NIGC by the Analysis Group Inc., an economic, financial, and strategy consulting firm, stated, “Generally, the proposed changes are expected to be more restrictive than existing regulations and are likely to limit the types of gaming machines that are currently operated as Class II devices.” The Analysis Group Inc. notes that Class II machine gaming is conducted in the context of a gaming system that includes electronic player stations, services, and operating software.

Congress has always intended to allow tribal use of technical aides for Class II gaming with a clear line between those used in Class II and those used in Class III.

The report that was commissioned by the NIGC cites the proposed changes, if adopted, will have a wide variation in impact from state to state, and tribe to tribe. This is dependent on legal, political, and marketing conditions.

I asked Hogen his thoughts on the report, and whether he feels that tribal gaming operations that do not have a state compact, could be in jeopardy.

Hogen  responded: “NIGC asked for a study of the economic impacts, and we got a good one.  A problem, however, is that there seems to be a presupposition that there will be a ‘change’ in the rules that apply, with respect to what equipment can be used for Class II games. The fact is, there weren’t any clear rules in the first place, and that is what has been needed.  In IGRA, Congress envisioned bingo (with electronic and technologic aids) being played without compacts, and casino gaming including slot machines and electronic facsimiles of games of chance played only with compacts. Given the advances in technology, it’s harder to identify that dividing line. We’re not trying to move that line; we’re just trying to clarify where it’s always been.

“Clearly, if it turns out that regulations are finalized, which classify modes or practices currently in use without compacts, as those which may only be utilized with compacts, this will have an impact,” Hogen said.

Through the present list of draft proposals for the regulatory changes, the manufacturers are faced with changes in equipment definitions, design, and classification standards. Any adopted new standards that impose an economic burden of redesigning Class II systems to comply with any changes in regulations will negatively impact the marketplace of tribal operations both in gaming and non-gaming venues.

With the proposed requirement to make bingo games slower, revenue is expected to be reduced because of extended game session times. The game times could double or even triple. This could discourage customer play, placing some tribes at a competitive disadvantage with a negative impact on revenue earned by some tribal bingo operations.

Manufacturers are saying that the bingo game and related components would have to be redesigned to meet the current proposed standards. We know Class II games operate as part of a total gaming system. This system accommodates interaction through related components, as well as a central server.

To redesign any part of the game and its components to accommodate revised regulations produces a “domino theory” of events. One change of regulation affects one part, and the changes continue throughout the system until an entirely new platform has been created. 

Some manufacturers state that they may have to leave the marketplace because the cost to re-tool and re-invent the same product would be prohibitive. There will be fewer options for tribes trying to purchase game products because costs will rise and the selection will dwindle. 

It is believed that to design a new bingo product is just not feasible within the framework of the current proposed regulations. The feeling is that the changes will affect the actual play of the game. The view is widely held that if a customer has a choice (based on the proposed draft of regulations being accepted) between Class II and Class III, they will choose Class III. Customers want a real-time play environment, not the imposed delay in play, which is currently proposed for bingo.  

Director of Sales for Planet Bingo™, Eric Casey, explained: “All parties involved want to ensure and protect the integrity and security of the Class II gaming systems supplied to the tribes. To this end, we all support technical standards for Class II gaming. But these standards do not need to re-define the game of bingo, or inhibit or restrict the way the game is played. Class II gaming is already well defined under the Indian Gaming Regulatory Act, and the statutory criteria therein define the game of bingo whether it’s played on hard-cards with beans or on technologically advanced electronic bingo systems.”

Casey is optimistic that the recently formed Technical Standards Work Group, in working with the Tribal Advisory Committee and the NIGC, will have a positive impact on shaping the proposed standards into something viable for the industry.

The manufacturers support reasonable technical standards to protect the integrity of Class II. With the recent involvement of the work group, it is felt that an agreement on the standards will be worked out.

Although the topics of classification standards and definitions for Class II may continue to be an ongoing debate, the technological standards will more than likely be defined first. And as Hogen noted earlier, the TSWG has been diligently focusing on the technological standards. He clearly stated, “...No sequence of what regulations, if any, to adopt, has yet been made.”

Hogen noted he is optimistic about the current dialogue.

All parties involved want to see continued growth and long term success for Tribal Gaming, ensuring continued integrity and security for Class II.

Robert Ambrose has worked in slot operations for 22 years, most recently as an Executive Director of Slots and Marketing Operations for a resort property in Atlantic City. He can be reached at ramb16[at]juno.com.