New Class II rules pose huge economic blow for tribes: study

Bingo machines ‘as fast and as lucrative as Class III,’ Justice complains

WASHINGTON – If tribal nations had not already denounced the National Indian Gaming Commission’s proposed Class II gaming regulations, a devastating new study predicting higher costs, lower revenues and fewer jobs at tribal casinos would give them reason to do so.

Tribal casinos could lose up to $2.8 billion in revenues and face expenses of almost $350 million in redeveloping Class II machines if the proposed regulations are implemented, according to a study by Dr. Alan Meister of the independent Analysis Group of Los Angeles.

The commission asked Meister to conduct the independent study of the proposed new rules for Class II gaming released in October of 2007.

The proposals include classification standards, definitions of electronic versions of games, minimum internal control standards and technical standards for Class II games – bingo, lotto, pull tabs and others – that are played using ”electronic, computer or other technological aids.”

The changes center on what distinguishes Class II gaming machines from Class III slot machines. Class II machines are bingo-based games that involve two or more players playing against each other. Class III machines pin a single player against the machine.

The distinction is important. Under the 1988 Indian Gaming Regulatory Act, tribes currently retain their authority to conduct, license and regulate Class II gaming with federal government oversight, and without the need for tribal-state compacts or profit sharing with the states. Class III gaming requires a tribal-state compact and, although IGRA does not mandate payments to the state in Class III compacts, a cut of the tribe’s profits has become part of the deal.

Tribes across the country oppose the proposed new rules, because at the heart of the controversy is the issue of control over tribal economic development. Meister’s study is sure to add fuel to the fire.

The proposed regulations have no redeeming qualities, according to Meister’s analysis.

”In general, the NIGC’s October 2007 proposed Class II gaming regulations would have a significant negative impact on Indian tribes. The magnitude of the negative impact would vary widely from state to state, tribe to tribe, and facility to facility depending on the legal landscape, political environment, existing market conditions, and the availability of viable alternatives to Class II machines,” Meister reported.

In addition to gaming revenue losses, Meister projected non-gaming revenue losses of approximately $62 million to $191 million per year. But if the proposed regulations render Class II machines unlawful or unfeasible, non-gaming revenue loss could reach $300 million per year.

The new rules would translate into approximately 3,336 lost tribal member jobs per year or 7,890 annually if the proposed regulations render Class II machines unlawful or unfeasible.

Tribal nations would also incur higher revenue sharing costs of around $214 million per year, a prospect states would welcome.

Class II gaming has been particularly beneficial to tribes in states that refused to negotiate a tribal-state compact ”in good faith,” since these tribes are not then at the mercy of the state for their economic development.

But for the past several years, the Justice Department and the NIGC have been trying to change the laws governing Class II gaming machines. In waging its turf war, Justice has sought through various means to bring Class II gaming under its control, but several federal courts have upheld the tribes’ right to conduct Class II gaming under IGRA, which allows technological aids to bingo-type games.

While Justice offered different rationales for its attempts to rein in Class II gaming, the real reason that technology has made Class II bingo machines too fast – and, therefore, a lot of fun for customers and profitable for the tribes – was revealed in a June 15, 2004, letter to Sen. Ben Nighthorse Campbell.

”Since IGRA’s enactment, the technology has changed substantially so that machines used in Class II gaming can be as fast and as lucrative as Class III machines, and, from a player’s perspective, may be virtually indistinguishable,” Assistant Attorney General William Moschella wrote.

The public comment period on the proposed regulations has been extended to March 9.

Judith Shapiro, an Indian law attorney who worked with committees appointed by NIGC to provide input into the formulation of the new rules, said the issue is likely to end up in court.

”If they don’t change their mind and they go ahead and publish the final rule in the Federal Register without significant changes, at that point there are likely to be major judicial challenges,” Shapiro said.

”We’re hoping not to have to go there. We don’t want to spend Indian country’s money that way. We think we can probably win, but we’d rather reach an acceptable resolution without litigation. We’ve said so many times, and have worked hard towards that goal,” she said.