NIGC report sends tribal shockwaves

February 05, 2008 6:08 AM
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Class II or bingo-style slot machines used in tribal casinos may soon be reclassified — and in effect, outlawed — under a proposed change in regulations by the organization that governs tribal gambling.

And the cost to tribes across the country?

About $1.2 billion a year in reduced gambling revenue and increased costs to change the machines or get new ones, according to a report issued Friday by the National Indian Gaming Commission.

The organization has been under increasing pressure to better define which machines are truly bingo-style machines, called Class II, and which are the faster and potentially more lucrative Las Vegas-style machines, called Class III.

Class III slots require that the tribes enter into an agreement with their states; Class II machines do not.

The report was prepared by Dr. Alan Meister of the Analysis Group and follows a November 2006 study he did for the Commission on an earlier proposal.

The Commission intends the current set of proposed regulations to more clearly distinguish the "electronic and technological aids" Indian tribes may use to offer Class II Bingo and similar games from Class III casino gaming equipment such as slot machines or "electronic facsimiles of games of chance."

Class III gaming — also called Las Vegas-style gambling — requires tribes to enter into compacts with the states where they are located; Class II gaming does not.

Because of the current lack of clarity between "technological aids" and "electronic facsimiles," the Commission is concerned that much of the equipment now used to electronically connect bingo players may actually qualify as Class III gaming and be unlawful.

To address this lack of clarity, the Commission has proposed a package of regulations that will more clearly define how much electronic technology may aid bingo players before crossing into the areas constituting electronic facsimiles. The proposals would set game, technical, and internal control standards that equipment must meet before qualifying for play without tribal-state compacts. Compliance would be determined by tribal gaming regulatory authorities after examination by independent testing laboratories.

"If we adopt these proposed regulations or something similar," NIGC Chairman Phil Hogen stated, "a lot of the equipment some tribes have placed on their Class II gaming floors today won’t meet the new requirements and compliant replacement equipment will likely be somewhat less lucrative. Thus, there will be some considerable short-run cost associated with these regulatory steps. However in the long run, stability will be brought to this important area, and the industry will be better served by our clearly informing tribes what they can legally invest in and operate, what banks will be willing to finance, and what the designers and manufacturers of these games can provide."

Hogen went on to explain that in the Commission’s proposal, they have recognized these challenges and they provide for a five-year grand-father provision that would permit the continued use of non-conforming equipment during that period. In addition, grand-fathered equipment is freely transferable to other tribal gaming operations.

The economic impact study finds that the proposal will cause a total nationwide loss of approximately $1.2 billion in gaming revenue, the mid-point in a range of $575.9 million to $1.8 billion. Discounting revenue generated by equipment that may actually qualify as Class III gaming cuts the loss by more than half, to $481.9 million, the mid-point in a range from $235.5 million to $728.6 million. The study notes as well that the $347.9 million in compliance costs is spread over the five-year grandfather period.

"Even though the Indian gaming industry generates over $26 billion annually," Hogen pointed out, "these are significant impacts, and of course not all gaming tribes will be impacted evenly."

The comment period for the proposed regulations was recently extended by the Commission to March 9, 2008, resulting in a 137 day-comment period since the proposed regulations were published in the Federal Register on October 24, 2007.

The Commission has created Tribal Advisory Committees to assist it in drafting these proposals, and those committees are scheduled to meet with the Commission again on February 29, in Washington, D.C. to review comments received by that date and to further advise the Commission.

To view a copy of the economic impact study, please visit the NIGC’s website at www.nigc.gov

The NIGC is an independent regulatory agency established within the Department of the Interior pursuant to the Indian Gaming Regulatory Act of 1988.