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Kurt Luger, executive director of the Great Plains Indian Gaming Association in Bismarck, North Dakota, believes he knows what it takes for American Indian governments in the rural United States to succeed with internet poker.

“We need a coalition,” says Luger, with enough tribes to generate the player liquidity for a profitable online poker venture.

 “I’d like to see (an internet) server on Shakopee,” he says of the prosperous Shakopee Mdewakanton Sioux Community in Prior Lake, Minnesota, near Minneapolis, an operation that would link smaller, remote tribes in the Midwest, Great Plains and throughout the United States.

“That’s what I would like to see happen, if I had my druthers.”

Outside California—potentially the country’s most lucrative online poker market with 38 million people—many of the 255 tribes in the lower 48 states believe interstate alliances are crucial to efforts to leverage entry into online gambling.

California is the anomaly, with tribes and card rooms seeking legislation to legalize intrastate internet poker.

Tribal networks linking reservations in the more rural states are particularly logical in the absence of federal legislation and with the growing number of states legalizing internet gambling, creating competition for the 425 Indian casinos in 28 states. Ten states may legalize online wagering this year, said Gambling Compliance.com, joining Nevada, New Jersey and Delaware.

Meanwhile, a handful of smaller tribes are considering launching real-money websites to offer poker and Class II bingo under the Indian Gaming Regulatory Act. Some plan to press the legal envelope and accept wagers beyond reservation borders, a strategy many Indian law experts believe will be found to violate federal law.

But defining a nationwide internet trend in Indian Country is extremely difficult. “Tribes are all over the spectrum on iGaming,” says online consultant Ehren Richardson.

With the likelihood Congress will not move on internet wagering, a growing number of indigenous leaders no longer see the urgency to seek entry into the market.

“There is not the pressure to get it done today as there was a few years ago,” says Chuck Bunnell, CEO of the Mohegan Tribe of Connecticut.

And, perhaps most significant, larger tribes are becoming skeptical that the resources needed to launch a gambling website will justify the returns. The skepticism is supported by dismal revenue reports out of Nevada and New Jersey, where Governor Chris Christie’s expectations of $180 million a year have been lowered to $34 million.

“Some of the bigger tribes have really, really looked at the internet,” says a prominent Washington lobbyist, “particularly a few years ago, when there was the sense, ‘It’s going to happen. It’s going to happen. It’s going to happen.’

“But there’s now a sense nothing is going to happen. And the bigger tribes aren’t willing to put a lot of money out because they don’t see the returns.”

“I’ve seen that all along,” says Jeffrey Nelson, attorney for the Tribal Internet Gaming Alliance (TIGA) a coalition of two Wisconsin tribes (Lac du Flambeau Band of Lake Superior Chippewa Indians and Bad River Band of Indians) seeking to link reservations in a network offering Class II bingo.

“TIGA was born from small to mid-sized tribes. We don’t have any large tribes. I would love to have a wealthy tribe join us.”

Nelson doesn’t believe there is any significant trend other than “bigger tribes are just being cautious because they have a lot to lose.”

“As soon as California opens up, tribes are going to be singing a different song,” Nelson says. “If California opens up or if TIGA gets off the ground, there’s going to be a change.

“When that happens, I don’t know. I’m done predicting when it’s going to happen because I’ve never been right.”

One tribal official noted a gambling website platform could run from $60 million to $70 million, with annual marketing expenses well into eight figures. It’s a difficult bit of math for small tribes in rural markets outside California.

“It’s hard to build liquidity in states that aren’t very populous,” Bunnell says. “You have to accumulate a lot of states to generate the liquidity necessary to make (online poker) profitable. It’s difficult.”

Connecticut, home to both the Mohegan Tribe and Mashantucket Pequots, operators of Foxwoods Casino Resort, is expected to facilitate both tribes in enabling legislation under discussion by lawmakers.

Complex Legal, Jurisdictional Issues

The congressional landscape has changed dramatically since 2012, when Senate Majority Leader Harry Reid of Nevada failed in his effort to deliver federal internet poker legislation to his commercial gambling industry constituents.

There remains little appetite on Capitol Hill to expand gambling. Casino mogul Sheldon Adelson is pressing for abolition and, while several federal lawmakers continue to work to legalize online poker, Senator Lindsey Graham introduced legislation to ban it.

But tribal leaders contemplating entry into online commerce should not be swayed by lobbyists and consultants warning of pending legislation, says Valerie Spicer, executive director of the Arizona Indian Gaming Association.

They should instead base their decisions on good business sense.

“Tribes should not look at the internet any differently than any other business diversification or investment,” Spicer says. “At the end of the day that’s what it is, a business decision.

“A lot of basic business rules regarding return on investments and the like are being ignored because of the chatter that, ‘If you don’t do this you’ll be left behind.’ Or, ‘There’s billions of dollars to be made.’

“I don’t feel much of that is accurate, certainly not in the case of every single tribe in every single jurisdiction.”

The jurisdictional issues from state to state are, indeed, complicated. Tribes are not only subject to state prohibitions, but tribal-state regulatory agreements, or compacts, many of which limit online wagering. The compacts are required under IGRA for tribes operating Class III, casino-style gambling.

Tribes in California are working with card rooms in pursuing intrastate poker as a commercial venture outside the compacts, taxed and regulated by the state.

Indian communities in other parts of the country are exploring the option of offering online bingo and other Class II games under IGRA, regulated by tribes with oversight by the National Indian Gaming Commission, the regulatory agency for tribal casinos.

Still others—notably Santa Ysabel and the Aturas Tribe in California—appear willing to push the legal envelope, proposing to launch gambling websites that would take wagers from off the reservation.

Indian law experts believe federal law and NIGC regulations prohibit off-reservation wagers. But there are those who suggest that with servers on tribal lands and through the use of a system of “proxy play,” a legal argument can be made that wagers begin and end on Indian lands.

“Tribes are in control of their own destiny. They’re not dependent upon the state passing a law or the feds passing a law,” says Joe Valandra, CEO of Great Luck LLC, partners with Alturas and Desert Rose Bingo in what they hope will be a real-money online bingo operation.

“If our legal principle is established—that tribes regulate Class II gaming and that proxy play takes place on Indian lands—the sky’s the limit.”

Desert Rose has a small army of attorneys ready to take on state or federal legal challenges, but the launch of the site has been long delayed by the lack of a firm to process wagers.

 “Once there’s some legal certainty to the question of off-reservation wagers, more tribes will jump in,” says Great Luck attorney Kevin Quigley.

“If the courts hold that the gambling is, indeed, Class II with technological aids, which is permissible under IGRA, that’s the end of the story,” adds Norm DesRosiers, a regulatory consultant and former NIGC commissioner. “That will open the flood gates for tribes.”

But many doubt federal judges will allow persons in one state to gamble on a tribal website in another state.

“If the notion succeeds legally that you can specify that the gambling is taking place on Indian land, either through proxy or some other means, it will throw the door open for tribes to get into the business,” says John Tahsuda, partner in Navigators Global, a tribal consulting firm.

“But the courts have not been receptive to someone in a state that did not authorize gaming to reach out through technology to some other jurisdiction and make the wager.

“I find it hard to believe that a federal court would make the states powerless to protect their consumers, people who are physically within their jurisdiction.”

Tribes seeking to press the proxy battle face both legal and political challenges from states opposed to any expansion of legal gambling. Politicians can easily and quickly press for anti-internet legislation. And regulators can threaten to pull the charters of financial institutions willing to process online wagers.

“Anybody can say they have an interesting technology solution that will enable them to get around the legal system that they’re going to do whatever they want to do,” warns a regulatory consultant who requested anonymity.

“But the state has tremendous power. There is a panoply of action a state could take, not the least of which is criminal prosecution.”

Coalitions May Be The Key

Should the courts limit wagers to Indian lands, tribes in the “Land of 10,000 Lakes” would likely benefit from an interstate internet coalition of indigenous communities, pooling player liquidity from throughout the region.

Sources say the strategy would be similar to the concept voiced by Luger, a network of tribes linked to a common server, perhaps on Shakopee, one of the nation’s most prosperous Indian communities. Shakopee has a reputation of charitable giving, particularly to other Indian tribes.

“Shakopee would do it if they saw it as a way to help the smaller tribes,” says consultant Richardson. “Will they make money? Probably not. It’s a lot of investment and little return.

“People are still talking about it. It’s the pot at the end of the rainbow.”

“Shakopee can move the needle,” says the Capitol Hill lobbyist.

Shakopee tribal leaders and attorney Willie Hardacker declined requests to discuss internet gambling.

Internet gambling “is a greater threat than an opportunity” for American Indians, Mark Macarro, chairman of the Pechanga Band of Luiseño Indians, told a legislative symposium on online poker last February in Sacramento, California.

“We are talking about possibly destabilizing the one and only thing that’s ever really worked for tribal governments,” Macarro said of a $7 billion casino industry that has generated economic and social progress for the state’s 110 indigenous communities.

But tribes need to be prepared for the rapidly advancing technology and the political impact it may have on tribal casino exclusivity in the nation’s largest gambling state, Macarro said.

“We can’t afford not to be ready,” Macarro told the first annual iGaming Legislative Symposium, sponsored by Pechanga.net and Spectrum Gaming.

California, with 38 million people, is expected to be the nation’s most lucrative online poker market, generating some $400 million in annual revenue.

Two tribal coalitions—one led by Pechanga and another by the San Manuel Band of Serrano Mission Indians—are expected to reach agreement on bill language that political insiders believe will soon make it out of the state legislature, either this year or in 2015.

Those efforts may be complicated by a coalition of Morongo Band of Mission Indians, the Commerce Club and Hawaiian Gardens card rooms and PokerStars seeking entry into the market.

The group is hoping to rid pending legislation of “bad actor” provisions that threaten to thwart efforts by the Isle of Man online giant to achieve suitability for licensing.

The Isle of Man company withdrew from the U.S. online market in April 2011 when the U.S. Justice Department indicted founder Isai Scheinberg on fraud and money laundering charges as part of a high-profile crackdown on leading poker websites.

PokerStars in 2012 settled a federal money laundering civil case by paying $731 million to rescue rival Full Tilt Poker and pay back gamblers. The agreement required fugitive Scheinberg to leave PokerStars, but the company admitted no wrongdoing.

The company has since been trying without much success to get back into the U.S. market.

Tribal lobbyists do not believe the coalition has enough political clout to get PokerStars licensed in California.

Assemblyman Isadore Hall, chairman of the Assembly Government Organization Committee, is optimistic a bill will make it to the governor’s desk before the legislature is gaveled to a close August 31.

“I believe it’s possible in 2014,” Hall says.

“Internet poker will provide the California gaming industry with an innovative option to complement their existing business model.”

Bo Mazzetti, chairman of the Rincon Band of Luiseño Indians, said the two tribal coalitions are “99 percent there” in reaching consensus on bill language.

While the legislation will be respective of tribes as governments, the online industry will be a commercial operation outside of the Indian Gaming Regulatory Act, regulated and taxed by the state of California.

“This is not Indian gaming under IGRA. It’s not Indian gaming under federal law,” Mazzetti says, but an industry comprised of both tribes and licensed card rooms.

“We’re all in the same industry,” Mazzetti says. “We need to be driving one car, going down the same road.”

Just how large that industry grows is subject to debate. Some of the more optimistic predictions have since been tempered by discouraging results in Nevada and New Jersey.

“The number thrown out there is that 750,000 to 1 million people in California play online poker every day. That’s probably accurate,” says Arthur Terzakis, director of the Senate GO committee.

“The question, is how much of those people can you capture? How many of them want to play on a regulated site?”

Ehren Richardson, an internet gaming consultant, says once California launches online poker, other states will follow.

“If California goes—this year or next year—it won’t be long before other states start ramping up,” he says.

State legislation would likely pressure tribes to take the plunge into cyberspace.

Macarro’s recommendation is that indigenous communities that rely heavily on land-based casino revenue for their government services weigh the risks of getting into iGaming.

“With card clubs, it’s about profits. It’s about business,” Macarro says.

“For tribal governments it’s about preserving our unique indigenous identity.”

Call them indigenous machines.

After all, Class II gaming machines are what gave Indian gaming a jump-start after the 1988 Indian Gaming Regulatory Act cleared the way for tribes to offer electronic bingo on their reservations. Today, the machines house the same slot content that makes the majority of money for commercial casinos, and advancements in technology have meant that players, in general, like them as much as they like the traditional slots.

That’s good news for gaming tribes. Early Class II games had to have several discernable elements of bingo—they were slower, had several touch requirements, and generally, were not as entertaining as their traditional Class III counterparts. To counter that, tribes turned to compacts with state governors to give them the right to offer the lucrative traditional slots—in exchange of a substantial cut of that slot revenue.

Thanks to advancing technology, Class II is now a very viable option to the traditional slots, to the point where many tribes are now replacing compacted Class III games with Class II machines, for which they have to share revenue with no one.

“If tribes have the option of Class II without having to get into an agreement with state government, that’s a point of leverage they have in discussions and negotiations,” says Knute Knudson, vice president of Native American development for slot-maker International Game Technology. “Tribal leaders and tribal governments around the country are acutely aware of that leverage point. Therefore, they want to see Class II as strong a product as it can be, and they want to encourage suppliers to invest resources in the development of Class II products.”

“Class II continues to get better and more competitive with Class III product,” adds Mick Roemer, senior vice president of sales for Multimedia Games, one of the top Class II suppliers in the business as well as a growing Class III supplier. “The games have improved graphically, and the back-end systems are much more stable. The math models also continue to improve.”

“In many ways, the Class II bingo product has gotten stronger and more robust,” says Taryn Miller, product manager for Class II at Bally Technologies. “We now offer state-of-the-art platforms, dual-screen machines, high-definition displays, stereo sound, third-party licensed brands, player interfacing marketing such as our iVIEW technology, and more games than ever before.”

Long Road

The road from passage of IGRA to this new Class II power and leverage was a long and litigious one. Companies like Multimedia Games, Sierra Design Group (now part of Bally) and Sodak (now part of IGT) fought tooth-and-nail in the courts to validate better and better Class II technologies.

It was this very group of court decisions, in fact, that  shaped Class II into what it is today. Knudson was a vice president with Native American supplier Sodak at the time IGRA was first being implemented, and Sodak was IGT’s partner in Indian Country. He says suppliers began working with tribes immediately after IGRA passed in 1988 to define just what Class II could mean, beyond physical bingo operations on reservations.

“I started working with the definitions of Class II on the basis of the language in the Indian Gaming Regulatory Act, which defined Class I, Class II and Class III,” Knudson recalls. “In the very early stages of opening compacted markets throughout Indian Country, we at Sodak and IGT were very interested in what Class II was.

“There were a number of jurisdictions that had difficulty opening, where governors and attorneys general resisted compacting. As a result, any number of companies were experimenting with the definitions of Class II in launching products in all of those areas in one form or another—largely built around electronic bingo and centrally determined outcomes.”

“SDG was always looking for new opportunities in gaming and realized that Class II was an evolving and underserved area,” Miller says of Sierra Design Group, which Bally acquired in 2004. “The technology was limited and the bingo framework, which necessitated a minimum of two people playing together, created some hurdles and challenges.

“Most Nevada-licensed manufacturers were not experienced in tribal gaming and focused their R&D elsewhere. In partnering with California, Florida, Washington and Oklahoma tribes, we focused on providing a legal and compliant bingo product while also making it our goal to seek the widest scope of content and entertainment options available… Despite the challenges, our customers helped define the vision and product.”

This eventual definition of Class II was validated in the courts. Key, says IGT’s Knudson, were four appellate court decisions, each of which “provided for us a little bit more of the definition and clarification and direction as to what Class II could be.”

At the center of the legal battles, he says, were Multimedia Games and Rocket Gaming in Oklahoma, and Sierra Design Group in California. Multimedia was involved in what could have been the most important of those decisions—the decision of the U.S. Supreme Court to deny certiorari requested by several state attorneys general on the appellate decisions, “which essentially meant that all of those appellate court decisions were what we had to work with in definitions of Class II,” says Knudson.

“Multimedia Games pioneered the technology for today’s Class II electronic gaming device,” says Roemer. “MGAM had to go through several legal battles, including a Supreme Court decision, to develop and get approved the ‘electronic facsimile’ of the bingo game that allowed us to show various graphic alternative outcomes to the bingo card.

“In other words, if you had a win on your bingo card, we were able to show a more exciting graphic display of that winning combination. Our founder Gordon Graves was instrumental in paving the way for Native Americans to have access to competitive gaming products and allow the tribes to maintain their sovereign immunity.

“Without the litigation, Class II games as we know them would not exist.”

“The various litigation was a big help in legitimizing Class II,” adds Bally’s Miller. “Our historical investment in Class II R&D was not only justified, but further augmented by having a clearer regulatory path led by the tribes.”

Roemer, Knudson and Miller credit several tribes for helping to develop Class II into the games they are today, citing the Seminole Tribe of Florida, the Chickasaw Nation of Oklahoma, Alabama’s Poarch Creeks, and California tribes such as the Pechanga Band, Cabazon Band and Sycuan Band for working with suppliers to offer ever-more sophisticated technology in Class II in the midst of all the legal battles.

“The tribes, through careful and articulate legal work and consulting work with engineers and suppliers, were really able to weave their way through complicated law and complicated court proceedings, and won virtually all of those court cases, much to the chagrin of governors and state attorneys general,” says Knudson. “If you read IGRA, all of the conclusions the judges drew, in my judgment, were correct. So, we are where we are with very good product in that space for which you don’t require a compact.”

Knudson says the manufacturers also were key in the effort, working with the tribes to release Class II product as interpreted by each decision. “IGT had been working on various products for a long time, and we launched products in various markets at that stage,” he recalls. “Prior to launching our own server and our own EGMs, other suppliers were utilizing our content. For example, Wheel of Fortune was available in Florida, but on another supplier’s system and EGMs.”

Florida’s Seminoles, he says, were one of the tribes aggressive in developing Class II early on, because of “no cooperation” from the state in negotiating a compact. Slot officials at the Seminole casinos worked closely with Sierra Design Group and Bally to launch one of the top early Class II systems at a large resort casino, the Hard Rock.

Another result of some of the court decisions was the eventual elimination of Class II requirements such as multiple touches for each game, originally meant to simulate multiple “daubs” in the game of bingo. “Each of those appellate courts issued opinions that defined issues such as number of touches,” Knudson explains.

“For example, if you look at the 9th Circuit Court opinion, they talked about very specific things related to the rules of bingo. Nowhere does it say that it has to be multiple daubs or multiple touches in that decision. Now, most of the Class II in the country—not all—plays on a single-daub/touch game play methodology.”

Meanwhile, he says, the Supreme Court decision involving Multimedia opened the floodgates for other suppliers. “When the Supreme Court said they would not grant certiorari on the court decisions was when we aggressively entered the market,” says Knudson of IGT’s Class II business.

Roemer says the court battles fought by Multimedia Games and others were indicative of a resistance by state and federal governments to permit Class II games that were too close to Class III. “There was a great deal of pressure against allowing Class II technology advances in Native American country from both the state and federal level,” Roemer says.

R&D Resources

That really brought Class II to its current sophistication, though, were the research and development efforts put in by the suppliers to make the most of the legal interpretations of Class II.

“The investment of resources in game design and method of play, and in the appearance to the actual players of the games in the casino, has made the difference,” Knudson says. “The games are much more attractive, and the player has a much better experience because of the investments that have been made in graphics, in sound, in method of play, and bonusing and the like—making sure, of course, all the time that it stays within the structure of the legal rules of bingo.”

“Multimedia has been doing Class II games for longer than anyone, so we’ve learned what players want over the last 20 years,” says Roemer. “Our game developers are super strong, and putting out some very exciting and unique games, like ‘Moby Dick.’

“They are some of the top performers on the floor. In Class II jurisdictions, casinos could not operate without them, but now we are even seeing Class III compacted casinos offer Class II games, because it provides them the ability to expand their casino floors and still stay within the restrictions of their compacts. The best part, however, is that our Class II games compete head-to-head with Class III product.

“Class II is becoming a very viable alternative to Class III gaming now that the performance is pretty much indistinguishable. Many tribes in California, for example, are embracing Class II games and integrating them into their Class III floors.”

Miller and Knudson report similar renewed interest in Class II.

“We are seeing an increased interest in Class II gaming in many areas, even from casinos that are typically Class III operators,” says Miller. “In some cases, with the best-in-class machines, high-speed floors and connectivity of players, Class II bingo is an attractive option for many tribes and their players.”

“We’ve had an increased level of interest by tribal governments in Class II, pretty much nationwide,” Knudson says. “Our Class II product managers now have requests from 21 tribes in California for very specific information on our Class II product. That is a huge increase in the level of interest—and not just in California, but from multiple tribes in Wisconsin, Arizona, New Mexico and other jurisdictions.”

He adds that the advanced technology is only one of three reasons tribes are buying more Class II games. “No. 1 is the improvement in technology, but No. 2 is the fact that we’re entering into cycles where compacts are being reviewed or renegotiated, or there are conversations going on between tribes and governors on anticipated renegotiation. No. 3 is financial. In some instances, tribal governments are learning that after factoring in all financial issues, they may make more money with Class II.”

Roemer says these factors give tribes a key tool in negotiating with state governors. “Class II protects tribal sovereignty,” he says. “This is a very important point, and Multimedia is committed to providing top-performing Class II products to longtime customers.”

Roemer adds that Multimedia’s product development team has merged Class II and Class III disciplines—thanks to the advances in technology, what works in one works in the other. “Half or more of our games start as Class II, and then we port them to Class III and the Washington lottery (central determination system),” he says. “Although there are a few regional preferences, we’ve found that if a game is good, it usually works in all of our North American jurisdictions.

“Every market is unique in some way, but great games seem to work in almost any jurisdiction, Class II or Class III.”

Knudson says IGT also produces games that fit in either classification, but most recently, the slot-maker has begun a dedicated Class II development function. “We are producing games for Class II that have not been developed for Class III first,” he says. “Class II is receiving its own undivided and prioritized attention in game development.

“We made that shift in the last six months, and very soon we’ll be launching products that are exclusive for Class II—which is a reflection of our customers’ interest in this product area.”

Bally also designs games specifically for Class II, while transforming premium titles like Michael Jackson King of Pop, NASCAR, ZZ Top and others for Class II bingo operation. “Not many would have envisioned listening to ZZ Top while playing bingo,” Miller laughs.

Roemer says Multimedia, as one of the pioneers of Class II, will continue to drive the classification forward. “Class II gaming is starting to blend into what you see in Class III markets, and that trend will continue,” he says. “The Class II cabinets and features now rival Class III, and with Class II games being server-based, there are several opportunities to create more innovative game features and bonuses in the future.

“It is a powerful economic tool for Native American casinos, and Multimedia is proud to be one of the top providers of this technology.”