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A Class of Its Own

Posted on March 7, 2019 by -

The history of Class II electronic bingo under the Indian Gaming Regulatory Act of 1988 is one of conflict. Originally introduced as an “electronic enhancement” of traditional bingo under IGRA’s Class II rules, electronic bingo machines would evolve through an effort by suppliers to multiply potential bingo-card patterns and work the math, displaying bingo results as the reel results in games that looked identical to the slot machines in commercial casinos.

Pioneering tribes, notably the Seminole Tribe of Florida, showcased Class II slot machines during the 1990s as the technology improved to make them appear more slot-like. The Seminoles’ expanding use of Class II games ultimately led the tribe into legal roadblocks, including a 1996 lawsuit by the state of Florida attempting to enjoin the Seminoles from offering the games, which the state claimed were in reality “electronic or electromechanical facsimiles of games of chance,” prohibited under Class II of IGRA.

While that particular lawsuit was dismissed on tribal immunity grounds, the Seminoles and other tribes would win subsequent legal and bureaucratic battles over the nature of Class II electronic bingo machines, including an extended battle with the National Indian Gaming Commission, the federal agency overseeing Indian gaming. Former NIGC Chairman Philip Hogen spent much of his 2002-2009 tenure attempting to establish technical standards for Class II that would draw what he called a “bright line” distinguishing Class II games from Class III casino slots.

Some of those standards were the very elements preventing Class II from enjoying earnings approaching Class III slots—such as a rule requiring multiple “touches” by the player to complete each play on the slot, simulating the “daubing” of a bingo card. As his term was nearing its end in 2008, Hogen announced that NIGC was dropping the most controversial standards initially proposed for Class II games, including multiple touches.

Ironically, by that time, the Seminoles had moved on to Class III, negotiating a compact with Florida that was finalized in 2010, giving the tribe the right to offer Class III slot games. Across the country in California, a few other of the most successful gaming tribes in the U.S. were earning profits mainly from compacted Class III slot machines—which had been deemed a necessity as the young California tribal industry competed with nearby Nevada.

Meanwhile, game developers working for leading suppliers of both Class II and Class III slot machines refined the technology and game math, allowing Class II slot games to perform and play ever closer to the game experience provided by their Class III counterparts.

Today’s Class II market is served not only by a few longtime Class II stalwarts, but by a collection of well-capitalized suppliers that benefited from major mergers and acquisitions. The former Global Cash Access merged with traditional Class II supplier (and fast-growing Class III company) Multimedia Games to form Everi; AGS acquired veteran Class II supplier Cadillac Jack. Slot giant Aristocrat acquired Tennessee-based Class II company VGT.

The resulting financially powerful companies have joined large suppliers like IGT and Scientific Games, which have long supplied Class II Native American markets, and smaller but well-established Class II suppliers such as Georgia’s Eclipse Gaming, in steadily improving the technology of Class II to the point where the two styles of games are now more similar than ever.

“It’s tremendous what’s happened over the last five years,” says Andrew Burke, senior vice president of slot products for AGS. “Everything, from internet speed—because everything is linked up—is just so much faster than it was 10 years ago. The ability to port complex math models from Class III into Class II, and to create Class II unique math models, shows that the technology has really opened up. The game play itself is almost indistinguishable. If you put a bank of Class II games in the middle of a floor of Class III games, in a market that’s never had Class II, a player would never know the difference.”

“I’ve been in Class II probably 18 years, and yes, (technology) has narrowed the gap,” says Tim Minard, CEO of Eclipse Gaming. “There have been significant improvements in technology. Class II has evolved into high-performing entertainment.”

Knute Knudson, who was a South Dakota lawmaker when IGRA was passed, joined International Game Technology in 1992 as vice president specializing in serving Native American markets. Over his 27 years at IGT, Knudson has witnessed the entire evolution of the Class II gaming machine. He says IGT and other suppliers have “closed the gap” in game play between Class II and Class III “unequivocally.”

“Some of the best ways to demonstrate that are play functionality, and specifically, game speed,” Knudson says. “For example, our Class II game will complete a play cycle in 2.5 seconds, which is exactly the play cycle for a Class III game.”

 

Adding Class II

The evolution of Class II technology has provided content for a growing market, as even tribes in markets that allow both Class II and Class III are increasing Class II in their game mix.

“Markets like Oklahoma that have had Class II continue to add it,” says Burke at AGS. “And there’s a mandate that any part of their floor should be at least 50 percent Class II. The new markets are starting to try it that haven’t historically tried it—markets like Arizona, Indiana, the new Four Winds property—and we’re hearing about a lot of new projects like that. They’re actually trying Class II for the first time in a lot of cases, which I think is great.”

“And you find interest in just about all jurisdictions,” adds IGT’s Knudson. “There’s a variety of reasons for that, the first of which is, of course, the quality of the Class II, and the machine performance.”

Jesse DeBruin, senior vice president of gaming operations for Everi Holdings, notes that while Class II growth is not evident in all markets that include both classifications, the industry overall is increasing its footprint of Class II games.

“In California over the past two-plus years, the majority of those tribes have renegotiated their compacts, and a lot of those tribes have reduced or eliminated our Class II footprint,” DeBruin says, citing state removals of caps on Class III games as the primary reason.

“However, we’re also seeing a lot of new Class II-only facilities go up,” he says. “You have Four Winds in Indiana. You have Texas casinos, you have Alabama casinos. You also have a lot of states where they consider Class II a significant part of the roadmap, and they want to continue to expand and grow Class II.”

Minard of Eclipse Gaming, a longtime Class II supplier with presence in some Class III markets, says the growth of Class II is not over. “I believe that Class II will become continually more relevant,” he says, “as we continue to come up with more exciting and different games for that market.

“The advantage of Class II is that there’s a ton of titles out there; everybody’s developing, and there’s a lot of familiarity. But not every one of those games has a Class II version.”

There is, in fact, still much more variety in Class III game libraries, which is why tribes in markets like California and Florida continue to add them. However, James Starr, president of VGT, says Class II suppliers are working diligently to close the gap.

“We have an opportunity to expand Class II hardware and content to provide variety similar to that available in Class III,” Starr says. “We as well as other manufacturers are slowly making progress toward delivering more of the form factors and content for Class II. Now, Class II options are better, and technology is definitely better.

“Historically, Class II technology and products have been perceived as inferior. Some in the industry have caught on to the fact that the technology has advanced rapidly, particularly in the last three or four years.”

He says the acquisitions have fueled the acceleration of development on the Class II side. “Some people perceive that Class II is still where it was 10 to 12 years ago. That’s one of the things we’ve had to work hard to overcome, historical expectations, and it’s our biggest challenge going forward.”

 

Class II vs. Compacts

Although technological advancement has made the play experiences of Class II and Class III nearly identical, gaming tribes in many states where both classifications are authorized still lean on the traditional Class III games. That may be changing, but compacted tribes are sure to continue to take full advantage of the ability to offer any and all new slot games from the major suppliers, not to mention a full complement of table games.

In addition to variety, Minard of Eclipse Gaming notes that while very close, Class II games are not yet identical in play to traditional Class III slots. “The speed in which you can do the ball calls and bingo results has created just a nominal speed difference,” he says. “I think the math models are still a little bit different, but bingo still has a finite amount of outcomes. So, there are things you can do with Class III that are maybe a bit more challenging with Class II.”

One more difference that is not normally noticed at the larger casinos but is still a Class II rule: At least two players must be active for a Class II bingo game to proceed, so on a near-empty floor, a Class II machine may pause after the spin button is pushed to wait for another player to join the server-based bingo game.

Minard stresses, though, that improvements in processing speed are all but wiping those differences out, from the player’s perspective. The evolution of Class II has made them a viable substitute for Class III where both classifications are available, he says.

VGT’s Starr offers Oklahoma as a prime example, where there is significant Class II growth in what he estimates is the largest hybrid Class II/Class III market today. “We have seen a trend the last few years in Oklahoma where it’s crept up from around 40 percent Class II to over 45 percent today,” he says. “You also are starting to see some markets like California and Washington add some Class II—not at the rates you’re seeing in Oklahoma, but even in some states like Wisconsin, you’re seeing some Class II, more as a trial. As we become successful, I’m sure they’ll add more.”

The value of Class II to gaming tribes in hybrid jurisdictions lies not only in their play and earning power, but in the leverage they give tribes in negotiations when it comes time to renew Class III gaming compacts. After all, there is no revenue sharing for Class II games, so the closer the play experience comes to Class III, the more viable it is to load a slot floor with Class II and pay nothing to the host state.

“There are active compact negotiations in a number of jurisdictions,” says IGT’s Knudson. “Negotiations continue in Oklahoma. Some major markets expire very soon. Class II is an extremely important negotiating tool, because compacts obviously are not necessary for Class II products to be utilized.”

“I’m watching tribes go through (negotiations) right now in Oklahoma,” says AGS’ Burke. “I can tell you Class II gives them that leverage, because they are 100 percent serious about going all Class II if they don’t get what they want.

“The tribes have been able to look at the states with a straight face and say, ‘Hey, if you don’t want to negotiate with us and play ball with us, we’ll just go this other route.’ I think that’s why it’s important to them that they keep 50 percent of their floor in Class II, in case they need to make a switch fast.”

 

Accelerating Game Development

The growth of Class II—and the refinement of bingo math models to the point where play is nearly identical to Class III—has led to parallel efforts in game research and development as suppliers strive to fill the gap in available content between the two classifications.

All of the suppliers serving both classifications now design new games to be launched in both classes simultaneously, as well as new games specifically tailored to Class II and customers in specific markets.

DeBruin says Everi devotes its efforts to creating content that will earn in either class. “It’s something we’ve prided ourselves on, in terms of our approach with our tribal partner customers,” he says. “We do not have separate development teams. We design a game with Class II operators in mind, and then release it, across Class II and Class III. That allows us to leverage our game design in all markets. It gives us flexibility.”

Burke says AGS follows the same procedure, on the slot platform the company developed on the bones of the operating system it inherited from the former Class II-heavy Cadillac Jack. VGT’s Starr, similarly, says all Class II development is now under the same Aristocrat team that produces Class III titles.

Knudson says IGT designs class II-specific content, along with Class III content that can be ported over to Class II. “We’re putting a lot of the very successful games from Class III into Class II, and we’re also designing very specific games just for Class II,” he says.

One result of all this new R&D effort is a growing library of products that follow the same trends as the Class III market. Lately, that means progressive slots. All the manufacturers are proliferating the progressive footprint in Class II markets, particularly in the area of local-area progressives.

“What you’re seeing more and more now is technology where there’s not only the wide-area progressive, but you’re also seeing the single-site local-area progressives,” says VGT’s Starr. “And those tend to be the games players want to play the most. Particularly, we’re seeing a trend toward those single-site progressives because they tend to hit more frequently.”

Many of the progressives now in the Class II market are in the style of multiple progressives popular in Class III markets right now. “I think the shift to multi-level progressives in Class II is really driven more by the shift of progressives in general,” comments Burke. “The whole gaming market has shifted that way, to the point where if you don’t have games with progressives, you’re in trouble.”

As in Class III, there is plenty of room for innovation in the Class II market. Eclipse Gaming, for instance, offers an “Anyline Progressive” that awards players regardless of the pay line on which a winning progressive lands. “Entertainment obviously is becoming a little more of a factor in Class II,” says Minard. “You see bigger splash, bigger cabinets, more unique cabinets, better lights, better graphics… The math still makes such a difference, but the visual aspects of these games are improving more and more.”

The acceleration of Class II content introduction is supported by the same R&D efforts that support the Class III libraries of all manufacturers—small suppliers like Eclipse as well as the industry leaders. “We do player focus groups,” Minard says, “and we have advisory councils that include players, but mostly consist of slot directors from around the country. We do that regularly; we’re always soliciting feedback.

“And being small, we can be nimble. We’ve been in business 10 years, and we’ve earned a good share of the marketplace. We’ve got over 100 titles, and we have a good stable base of customers that like to play our games.”

The larger, post-merger companies like Everi and AGS, while combining design efforts and growing in Class III markets, mirror that same attitude of managing their market share, their legacy companies having served Class II markets for decades.

“For a company like ours that started as a Class II company, we have a design philosophy in mind, where we’re designing for Class II and Class III customers together,” says DeBruin. “Suppliers that started as Class III might not have the same approach. Everything we offer in Class III, for the most part, we offer in Class II. That’s not always the case with other manufacturers.

“So, I think casinos will continue to look for both Class II and Class III, where they can. I think Class II is certainly here to stay, long-term. I think it’s going to continue to be of critical importance to tribes. It really allows them to maintain their independence… You still have some jurisdictions out there and some states out there that have zero compacts, and it’s purely Class II—Texas, Alabama—so, from a macro level, Class II will continue to be of critical importance to customers.”

“Class II will continue to grow as a percentage of the overall slot product,” agrees IGT’s Knudson. “While I don’t think you will see double-digit increases on an annual basis, I think it’s possible we could see increases on an annual basis in Class II.”

“We were happy to see a few Class II-only properties opening up just in this last year, like Four Winds South Bend in Indiana and Prairie Flower in Iowa,” adds VGT’s Starr. “While there is an expansion of Class II-only properties, we have seen more Class III facilities giving Class II a trial. As we continue to improve Class II quality, more Class III properties continue to add Class II games.”

“I think there’s still this stigma and this thought that technology in Class II is old and antiquated,” says Burke at AGS, “so, I think a lot of people just aren’t aware of how far it’s come.

“I see it growing. I see it becoming a way for tribes to expand their businesses. I think you should see big California operators start to explore smaller Class II facilities on their reservations. The technology is there to do that. The business is there to do that. So, I think that as they mature their businesses, Class II is a natural way to grow it.”

Going to the Dark Side

Posted on March 7, 2019 by -

When the state of Arkansas expressed an interest in legalized casino gambling, it came as no surprise that the Quapaw and Cherokee Indian Nations of neighboring Oklahoma would finance the ballot initiative that got the industry up and going.

When MGM Resorts International built a $1 billion hotel casino in Springfield, Massachusetts, near the border with Connecticut, it made perfect sense for the Mohegan and Mashantucket Pequot tribes to pursue a competing project in East Windsor.

And when the Poarch Band of Creek Indians sought an investment opportunity to capitalize on its casino resort and entertainment interests in Alabama, the tribe’s Wind Creek Hospitality invested $1.3 billion in Sands Casino Resort Bethlehem in Pennsylvania.

“We’ve proven ourselves when it comes to gaming and hospitality,” says Robert McGhee, vice chairman of the Poarch Band, which operates three hotel casinos in Alabama and more than a dozen non-gambling hotels in the Southeast and Caribbean Islands.

American Indian tribes are parlaying skills and experience gained through 30 years of operating tribal government casinos on Indian lands with a growing list of commercial casino ventures in the United States and overseas.

Rather than operating casinos under the Indian Gaming Regulatory Act (IGRA) of 1988, which exempts tribes from state taxes and allows them primacy in regulating their gambling operations, tribes are wading into the commercial gaming sector.

The move off the reservations is to be expected. With the growth of the $32.4 billion tribal casino industry to some 500 gambling operations in 29 states, opportunities on Indian lands have dissipated.

“With some exceptions, the Indian gaming market is fully developed,” says Bryan Newland, chairman of the Bay Mills Indian Community of Michigan and a former counsel with the Department of the Interior. “There are tribes seeking to become new entrants into the gaming market. But by and large, most federally recognized tribes that want to engage in gaming are already doing it.”

 

Opportunity Knocks

About 250 of 370 tribes in the lower 48 states operate reservation casinos. Another 80 or so receive funds from tribal casinos or lease machines. Others are too remote or lack land upon which to build casinos.

“Most of the opportunities in Indian Country have already been developed,” agrees Kristi Jackson, chairman of TFA Capital Partners, an investment banking firm servicing tribal and commercial gambling and leisure industry clients. “It’s more difficult to get land into trust, the regional markets may already be saturated and the spread of commercial gaming is making things less advantageous. There are fewer opportunities.”

The Cherokee Nation of Oklahoma purchased commercial racetracks in Oklahoma and Texas.

Mohegan Gaming & Entertainment, an enterprise of the Mohegan Tribe of Connecticut, owns and/or operates Resorts International in Atlantic City, Mohegan Sun Pocono Race Track and Casino in Pennsylvania and tribal hotel casinos in Washington state and Louisiana. It also is partners in the development of Project Inspire, a gambling resort in South Korea.

Tribes are also outsourcing management expertise and investing in partnerships with other tribes seeking the remaining opportunities in Indian Country.

The Seminole Tribe of Florida, owners of the multibillion-dollar Hard Rock International, operates the former Trump Taj Mahal in Atlantic City and is in partnership with the Menominee Tribe of Wisconsin, Enterprise Rancheria of California and others.

The Chickasaw Nation is financing the 42,000-square-foot Golden Mesa Casino being built by the Loyal Shawnee in the Oklahoma Panhandle near Guymon.

Expanding their gambling interests beyond Indian lands is also part of efforts by tribes to diversify their economies.

“I think there’s going to be more tribes buying gaming assets,” Jackson says. “I also think there’s going to be more tribes buying real estate and businesses related to what they’ve been successful doing. There is a need in most cases to look beyond the boundaries of the reservation and do things that will diversify their economy.

“Tribes may go far afield from what they’ve been doing, from gravel operations to construction management to other kinds of businesses that are not related to hospitality or entertainment,” she says. “We’re working with several tribes, actively. And the common thread is the realization that they have grown as far as they can with gaming on the reservation.

“I will say an absolute trend is the diversification away from home-based gaming.”

 

Confronting Competition

Tribal commercial casino efforts in Arkansas, Connecticut and elsewhere are partly intended to confront or prevent potential competition.

Such is the case with the Quapaw and Cherokee Nation efforts in Arkansas, which last year passed a ballot initiative to legalize four commercial casinos, two at existing racetracks and two others in Pope and Jefferson counties.

Quapaw’s Downstream Casino Resort enterprise and the Cherokee Nation’s Cherokee Nation Businesses (CNB) operate tribal government casinos along the East Oklahoma border with Arkansas.

“Their goal and part of my goal was to protect the western side of the state of Arkansas from expanded gambling, which would encroach on the market of Downstream Casino Resort and the Cherokee Nation,” Quapaw Chairman John Berrey says.

Berrey says the Quapaw also wanted to invest in the tribe’s ancestral lands in Jefferson County.

“Our strategy is to try and get back to where we’re from,” Berrey says. “It’s a mandate from the tribe to get back home.”

The Cherokee Nation, forced out of its ancestral lands in the Carolinas in the 1800s, hopes to expand its market.

“Arkansas, being an adjacent state, would be a logical extension of our operations here in Oklahoma,” says Chuck Garrett, vice president of CNB, the economic arm of the tribal government with gambling, health care, aerospace, technology and other enterprises.

The two tribes contributed more than $6 million to the initiative campaign. Arkansas citizens in November voted 54 percent to 46 percent to adopt Ballot Issue 4, a constitutional amendment allowing four casinos in the state.

Quapaw’s Downstream Development Corporation is looking to open a casino and 12-story hotel in Pine Bluff, in Jefferson County, as early as 2020.

The Quapaw casino would offer all gambling options, including a sports book, but Berrey says sports wagering is not a major focus of casino operation because it has a low profit margin.

The Cherokee Nation, meanwhile, has aspirations of building a casino resort near Russellville in Pope County, not far from where the tribe operates nine casinos in northeast Oklahoma. The tribe failed in attempts to get an initiative on the 2016 ballot.

Developing a casino in Pope County may be problematic.

Pope County voters approved an ordinance requiring county officials to hold a referendum before issuing letters of support for a casino. The ordinance is likely to be challenged in the courts.

The tribe also faces competition. Gulfside Casino Partnership, operator of a hotel-casino in Gulfport, Mississippi, is seeking state approval of a $250 million resort in Russellville.

“We are excited to make a significant economic investment in the Arkansas River Valley with this first-class resort,” Terry Green, co-owner of Gulfside, said in a press release.

“This project will create more than 1,500 new jobs and generate millions of dollars in taxes, improving the county’s infrastructure and its overall quality of life.”

Cherokee leaders fear a commercial operation would seriously impact business.

“A significant portion of our market originates in northwest Arkansas, and if an operator other than Cherokee Nation was to gain a foothold, that would threaten jobs at Cherokee casinos,” CNB CEO Shawn Slaton told the Cherokee Phoenix newspaper.

“It could also decrease, for the first time ever, revenue that ultimately funds health care, housing, education and other tribal services,” Slaton says. “CNB will always go to whatever lengths necessary to protect Cherokee jobs and not only preserve, but continue to increase the dividend paid to the Cherokee Nation, which funds critical services for Cherokee Nation citizens.”

 

Tribal War with MGM

The Mohegan and Mashantucket Pequot tribes of Connecticut have similar concerns about MGM Grand’s $1 billion facility in Springfield, Massachusetts.

The casino entertainment company has lobbied heavily against the tribes’ efforts to develop a commercial casino in East Windsor to prevent the state from losing jobs and revenue to the Springfield resort.

Tribes have assured state officials the East Windsor project would not impact tribal-state casino regulatory compacts that pay the state 25 percent of their slot revenues, or more than $270 million for the last two years.

But MGM has lobbied the Department of the Interior and the Trump White House, stalling the East Windsor project. MGM officials contend the East Windsor project, along with a proposal to establish another casino in Bridgeport, should be open to public bidding.

Now that former Interior Secretary Ryan Zinke has resigned, tribal leaders expect the approvals could be finalized.

State Senator Cathy Osten has submitted a bill, co-sponsored by other legislators, that would eliminate the need for federal approval of the East Windsor project, newly titled “Tribal Winds.”

The tribes say the casino—estimated to cost $250 million to $300 million—would open 18 to 24 months after construction begins and generate $75 million annually in state revenue.

“We’re ready to go when you are,” Mohegan tribal Chairman Kevin Brown told a legislative committee in January. Brown stepped down from his position in February, but remains on the tribal council.

 

A Problematic Process

As a concession to states, the commercial casino industry and anti-gambling interests, authors of the Indian Gaming Regulatory Act (IGRA) largely limited casinos to tribal lands in existence when the act was passed by Congress in 1988.

But the federal law did allow Section 20 exemptions for newly recognized and restored tribes and property acquired in a federal lands claim. The exemptions were intended to provide “equal footing” for tribes not eligible for gambling when the act was passed.

IGRA also allows tribes to develop casinos on trust land off existing reservations, a process referred to as “two-part determinations” because it requires approval from the governor and proof a casino is in the best interest of the tribe and not harmful to nearby Indian and non-Indian communities.

But getting approval from Interior and the Bureau of Indian Affairs under any Section 20 exemption is a long and expensive endeavor, often fraught with politics and likely to result in years of litigation.

“It’s a high bar to clear,” says Newland. “You have to incur millions of dollars of expense to compile the material needed to get through the bureaucratic process. Then if you get a favorable decision, there’s the legal cost to defend the decision in court.

“The process has become very difficult.”

The process grew more complex with the 2009 U.S. Supreme Court ruling in Carcieri v. Salazar, which limited Interior’s authority to place land in trust for tribes.

Justices in Carcieri ruled that Interior could not place land in trust for tribes not “under federal jurisdiction” with enactment of the Indian Reorganization Act of 1934.

Justices, however, did not define “under federal jurisdiction,” giving anti-gambling groups and tribes opposed to new competition legal ammunition to contest Section 20 petitions.

Carcieri caused a lengthy and expensive bureaucratic process to drag on even longer and become even more costly.

“The opposition from existing tribal casinos was not anticipated, nor was Carcieri,” says attorney Alex Skibine, who served as deputy counsel for the House Committee on Interior and Insular Affairs when IGRA was drafted.

The Supreme Court ruling in Carcieri allows opponents to question whether Interior has the authority to place land in trust for gambling.

Congress has rebuffed efforts to enact a legislative “fix” to the Supreme Court ruling in Carcieri.

“The problem is not with IGRA,” tribal attorney Judith Shapiro says of the difficulty in acquiring land for casinos. “The problem is with Carcieri.”

“The easy ones have already been done,” Shapiro says of the trust land casino development in the early years of IGRA. “There hasn’t been a lot of growth. That’s been true for a long time.”

Pamunkey tribal Chief Robert Gray says he would consider operating a casino in Norfolk, Virginia under commercial law rather than struggle through IGRA’s long, complicated and expensive process.

“As a federally recognized tribe with both the right to engage in gaming activities and the financial backing to make it happen, we believe that if the commonwealth is ready to authorize gaming, our project should be part of it,” Gray said in a statement.

“To consider other projects without taking into consideration the Pamunkey casino in Norfolk and the potential of additional Pamunkey casinos in Virginia would fail to take a much-needed comprehensive approach to gaming.”

Jackson says gambling under IGRA may be problematic, but it still provides opportunity for indigenous Americans, particularly newly recognized, restored and landless tribes.

“There are plenty of examples around the country where the revenues from gaming are providing services tribal members would otherwise not have access to,” Jackson says.

Section 20 projects are becoming a rarity.

“Instead of 20 a year,” she says, “there may be one or two.”

 

A More United Industry

The nationwide campaign to legalize sports betting aligned the lobby and trade organizations for the commercial and tribal segments of the legal gambling industry, the American Gaming Association (AGA) and the National Indian Gaming Association (NIGA).

Eleven of the larger casino tribes eventually joined the AGA.

While there are significant differences between commercial and tribal government gambling, there are many policy issues that unite the two segments of the casino industry.

“We made a very consequential decision, and we’re not uniting for the sake of uniting,” says NIGA Chairman Ernie Stevens. “We’re uniting because it’s important to our future.”

Where There’s Smoke

Posted on March 7, 2019 by -

The research and experience of casino operators in jurisdictions around the world suggest that restrictive smoking policies have deleterious effects on gaming volumes. However, very few research studies on the social and economic impacts of nonsmoking constraints have been conducted in gaming facilities owned by tribal governments.

In spite of a relative lack of empirical research, informal outreach across tribal casino operations in California reveals that most tribal casino operators share similar concerns about whether nonsmoking constraints hurt gaming volumes.

Starting in 2008, a coalition of public health professionals began working with two tribes in California to establish smoke-free policies at their casinos. The coalition collected data on air quality and surveyed both patrons and staff at tribal properties. Employees and patrons alike expressed concerns about the risks of regularly breathing secondhand smoke, including an increased risk for lung cancer, stroke and heart disease. While doing their research, public health professionals found that 63 percent of casino patrons surveyed indicated that they would visit more often or equally as often if the casino went completely smoke-free.

After receiving these research results in 2014, tribal leaders from one of the tribes, along with 100 percent of tribal membership, supported adopting a nonsmoking policy at their casino. Ultimately, the tribe decided to make their new casino completely smoke-free, only the second casino in California to do so.

After going nonsmoking in 2014, the tribe’s casino began to see revenues fall, since many casino guests in this repeater-market property enjoyed smoking while they gamble. Ultimately, the tribe and its casino management team modified its policy to remain 70 percent non-smoking. The hotel, restaurants, poker room and Events Center remained smoke-free. The tribe and casino management also committed to ensuring that popular games and machines are available in nonsmoking areas, and to upgrading their overall filtration systems.

This early tribal case, along with prior work in commercial casino jurisdictions, reveals that the No. 1 reason for allowing smoking in tribal casinos (or commercial casino properties) is the widely held belief by casino operators that nonsmoking constraints negatively impact gaming revenues. However, rarely have these claims been studied empirically in more than one property, across several variables and over a significant period of time.

In the spring of 2018, my colleague at San Diego State University, Dr. David Kamper, and I applied for funding from the California Department of Public Health to pursue a rigorous, scientific and objective evaluation of such claims about the impact of nonsmoking constraints on machine volumes in tribal casino operations, with the larger aim of supporting tribal casino operators to make informed decisions regarding nonsmoking policies at their properties. Last fall, we received the news that our funding request has been granted.

While employee and patron surveys have been conducted at a handful of tribal casinos in California, this survey data has never been triangulated with gaming volume data. Our SDSU study will be the first of its kind by introducing game performance analysis of smoking versus nonsmoking sections into the assessment of nonsmoking constraints on tribal casino operations. In addition to performing several analyses of game performance, our study will look at the changes in smoking versus nonsmoking section performance over time to examine whether any negative effects on gaming performance following the introduction of nonsmoking constraints become smaller over time, revealing an adaptation effect.

Over the next four years, we will collaborate with between six and nine tribal governments and casinos in California. Several data collection strategies will be employed. For the game performance analysis, tribal casino operators (most likely slot operations managers) will be asked to complete a data input sheet covering at least six months of data for both smoking and nonsmoking sections.

The data input sheet will ask for information ranging from the number of working games to the gross coin-in to the total win and the total slot player head count. Operators will also be asked to provide information related to property-specific events that may affect game performance independent of nonsmoking constraints, such as anniversary parties, lottery drawings or concerts.

In addition to collecting gaming data, we will with tribal casino operators conduct intercept surveys to gauge the importance of the nonsmoking section in the patronage decision. Also, we will conduct surveys with employees to gauge the importance of the nonsmoking section in their employment and/or job selection decision.

These surveys should also provide insight regarding views, opinions and attitudes toward nonsmoking sections. The data will be collected using employee and patron surveys used in prior research on this topic in order to do comparative analysis.

We expect that the findings from the game performance analysis will indicate the dollar value of any difference in the game-level performance across the smoking condition and whether such differences are statistically significant, including whether they signal an adaptation effect over time. Patron and employee survey data will provide a broader perspective on the value and effect of nonsmoking sections on casino patronage and casino employment decisions, while also providing something of a triangulation function.

The research collaboration we are developing with tribal casino operators in California is also meant to serve as a model of research for other projects that are supported by the Sycuan Institute on Tribal Gaming at San Diego State University. That is, we strive to encourage research that produces actionable results for tribal governments and tribal casino operators while also encouraging the use of empirical data to inform business and government decision-making.

We look forward to sharing the results of this important work as it becomes available, and encourage any interested tribes to reach out to us to participate in this historic project.

Looking Back to Look Ahead

Posted on March 7, 2019 by -

On February 14, I was invited to speak at a symposium, hosted by the Brookings Institute, to discuss what’s next for the tribal gaming industry. Brookings economist Randall Akee brought together a variety of experts and speakers from the United States federal government, tribal governments, academia, and other governmental and non-governmental institutions, all of whom reflected on the first 30 years of gaming under the Indian Gaming Regulatory Act (IGRA) and opined on expectations for the next 30 years to come.

The main takeaway: data matters.

It is no secret that federal law and policy have historically oscillated between two contrasting approaches to Indian affairs. At times, the federal government has enacted laws that detracted from or diminished tribal sovereignty and self-determination.

For instance, with the passage of the Allotment Acts at the turn of the 19th century and into the first decade of the 20th, we witnessed a significant diminishment of the inherent right of tribal nations to make their own laws and be governed by them.

The passage of the Indian Reorganization Act (IRA) in 1934 marked a distinct shift away from assimilationist policies of the Allotment Acts towards restoring tribal sovereignty and self-determination. But this shift did not take place in a vacuum. While many events and facts shaped the motivations and intentions of lawmakers at that time, there can be no question that the Merriam Report served as a significant catalyst for the IRA of 1934.

The 847-page Merriam Report, commissioned by Brookings (then known as the Institute for Government Research), collected data from tribal communities across the United States and studied the economic and cultural impacts that the Allotment Acts had on American Indians. The data showed clearly that the assimilationist policies and laws in place at the time had not led to economic prosperity in Indian Country, but instead, had increased poverty and removed valuable resources from tribal nations and their citizens.

This Brookings-commissioned work was invaluable, and the report quickly became the basis for drafting and passing IRA, an act that sought to restore the tribal sovereignty and self-determination that the Allotment Acts had taken away.

As we reflect on the first 30 years of IGRA today, we can learn a lot from the numbers. From our perch as the federal regulators of Indian gaming, we at the NIGC have been direct witnesses to what has effectively been a three decades-long referendum on the viability of tribal stewardship over the industry. From that perch, we have observed firsthand the conclusive benefits of supporting tribal sovereignty in both the operation and regulation of the industry.

In the last 30 years, Indian gaming has brought Indian Country unprecedented economic development and growth. Today, Indian gaming constitutes a $34.2 billion dollar industry that funds critical tribal governmental programs. Tribal nations are the 13th largest private employer in the U.S.

Additionally, Professor Akee shared that the residual economic effects of the Indian gaming industry cannot be understated. In his research, he has found that over the past 30 years, overall education attainment has increased with graduation rates up by 40 percent, and there is an increase in the likelihood of youth continuing on to vote and become engaged in civic activities.

To be sure, IGRA was the result of a compromise, as it created a role for states in Indian gaming that states previously had never held. At the same time, because Congress crafted IGRA from three foundational principles—tribal economic development, tribal self-sufficiency, and strong tribal governance—the act created a regulatory framework that places tribal self-determination front and center. For the last 30 years, tribal self-determination has guided the NIGC’s regulatory actions and enforcement of IGRA’s mandates and prohibitions.

The NIGC’s primary mandate, therefore, has been to regulate in a manner that strengthens tribal sovereignty and affirms tribal nations as the primary regulators of their own gaming operations.

Much of the success of IGRA’s first 30 years can and should be attributed to the fact that tribes themselves serve as the primary regulators of Indian gaming.

We have seen how the implementation of IGRA has led to one of the most successful industries in the country, if not the world. And I can confidently say that the success of this industry is due to IGRA’s placing the highest level of importance on the principles of tribal sovereignty and self-determination. NIGC has followed suit and incorporates these principles in all that we do.

On several recent occasions, I have been hearing a similar, reoccurring question: “What will the next 30 years of IGRA and Indian gaming look like?” The short answer is we have 30 years of reliable facts demonstrating the successes of Indian gaming, which will shape and push Indian gaming policy into its future.

Ultimately, what lies in store for Indian gaming has yet to be written, and it is up to the decision-makers of Indian policy and the Indian gaming industry itself to ensure Indian gaming continues to see the successes we have witnessed to date. Given our observations of the tangible benefits of adherence to self-determination principles in the creation and implementation of IGRA, advancement of these principles should define future policy discussions, including topics of the day, such as sports betting or internet gaming.

The remarks of those who spoke at Brookings this past February clearly demonstrate that IGRA is one of the most successful and relevant laws to date in Indian Country. After 30 years of IGRA, I am confident that both the NIGC and the Indian gaming community are on the right path.

At the same time, we are mindful of IGRA’s self-determination goals at every turn. As a result, we understand that our regulatory responsibilities require us to collaborate, consult and coordinate with tribal nations at all times, which strengthens tribal self-governance and, as a result, strengthens the industry itself. We are excited to enter into the next 30 years of Indian gaming.

Protecting Tribal Sovereign Immunity

Posted on March 7, 2019 by -

Suppose a federal employee began drinking at work on federal property and caused an accident on his way home. The victim of this accident could certainly bring a suit against the federal employee, but would that victim ever consider suing the United States government? The United States and the 50 states have laws and regulations protecting their sovereign status and ability to be sued. This is a right of the sovereign that goes back to the days of kings.

Indian nations, as sovereigns, possess the same sovereign immunity from suit that federal and state governments possess. Tribal sovereign immunity is a recognized doctrine of federal law based on the status of Indian tribes as sovereigns whose existence predates the United States.

Recently, within the past two years, the Supreme Court has limited tribal sovereignty and jurisdiction vis-à-vis non-Indians. This challenge may also represent an opportunity that can be addressed through the use of risk management, risk pools, tribal tort reform and federal legislation affirming the authority of Indian tribes to establish our own laws on tort reform.

Native peoples are the original inhabitants of the Americas, endowed by our creator with inalienable rights to life, liberty and the pursuit of our ways of life. From the beginning of time, our grandmothers and grandfathers founded our nations’ tribal governments to preserve our native rights, safeguard our rights to freedom and liberty, and exercise self-government to protect native lands, culture and future generations.

When Europeans first landed on American shores, they sought out Native Americans for advice, friendship, and to secure permission to live in America. The Dutch came to New Netherlands (now New York) in 1609 under orders to negotiate with tribes for land. The English colonies sought recognition of their colonial lands taken from neighboring Indian nations, but recognized Indian tribes as the original owners of the soil.

In his Statement on American Indian Policy (1983), President Ronald Reagan explained the historic nation-to-nation relations between the United States and Indian nations:

“When European colonial powers began to explore and colonize this land, they entered into treaties with sovereign Indian nations. Our new nation continued to make treaties and to deal with Indian tribes on a government-to-government basis. Throughout our history, despite periods of conflict and shifting national policies in Indian affairs, the government-to-government relationship between the United States and Indian tribes has endured.”

In the bigger picture, there are looming challenges to tribal sovereign immunity, especially in cases involving tort liability to third parties arising in the commercial context. Often the challenges to tribal sovereign immunity arise in cases where small-dollar claims are at issue—$25,000 in some cases.

In the Kiowa and Bay Mills decisions, the Supreme Court questioned whether tribal sovereign immunity should extend to third-party tort victims. The Supreme Court explained: “There are reasons to doubt the wisdom of perpetuating the doctrine (i.e., tribal sovereignty)… This is evident when tribes take part in the nation’s commerce. Tribal enterprises now include ski resorts, gambling, and sales of cigarettes to non-Indians… In this economic context, immunity can harm those who are unaware that they are dealing with a tribe.”

In Lewis v. Clark (2017), the Lewises were traveling on I-95 in Connecticut south towards New York City, and were struck in the rear by Clark, an employee of a tribal gaming authority. The Supreme Court held: “in a suit brought against a tribal employee in his individual capacity, the employee, not the tribe, is the real party in interest and the tribe’s sovereign immunity is not implicated. That an employee was acting within the scope of his employment at the time the tort was committed is not, on its own, sufficient to bar a suit against that employee on the basis of tribal sovereign immunity.”

While the Lewis case does not represent a significant diminishment of the doctrine of tribal sovereign immunity, another case might develop into more dangerous limitations. Accordingly, the question arises, should Indian tribes now act to forestall, to the extent possible, such “common law” activism by the Supreme Court vis-à-vis tribal sovereign immunity?

The challenge to tribal sovereign immunity may also be an opportunity. State and local governments have undertaken risk management programs and established risk pools to spread the cost of insuring against third-party tort claims over a period of years and even among small governments.

At least 33 states’ acts limit, or “cap,” the monetary amount for damages that may be recovered from judgments against the state, and at least 29 states (often in combination with a cap) prohibit a judgment against the state from including punitive or exemplary damages.

The Federal Tort Claims Act has been extended to cover Indian tribes and tribal employees in some circumstances under Public Law 93-638 contracts. Yet, in the commercial context, there is little statutory limit on the exposure of tribal sovereign immunity.

As Indian nations, we have always been forward-looking, whether it was land, environmental, or resource protection. Indian Country is not about to let the Supreme Court drag us back to the days when the federal government told us what was best for our communities. Now is the time to be proactive and search for a common ground to protect tribal sovereignty.

Operating risk pools provides an avenue for tribes to pool their economic interests to better manage insurance costs, identify risks early and cooperate on risk management. If tribes can evaluate the intertribal risk pool approach as a model, federal legislation might be sought to limit tribal government exposure by affirming an elective tribal law system of limited waivers of sovereign immunity.

NIGA is committed to taking this sovereignty discussion to the next level of action, and made it a prime topic of interest at our annual trade show. Tribal leaders are eager to start the discussion of how to protect tribal sovereignty in the 21st century.

Indian Country Online

Posted on March 7, 2019 by -

One of the sources of incremental revenue for commercial casino companies has been online gaming. In New Jersey, the struggling Atlantic City casinos were thrown a lifeline with iGaming. Revenue has steadily risen and has helped bolster the bottom lines of those once-struggling casinos. The total monthly gross gaming revenue in New Jersey for online gaming alone is about $35 million, which, if it were a separate casino, would make it the second-highest-grossing casino in the city.

And sports betting is doing its part as well. Just six months into its legalization, New Jersey is taking more than 70 percent of its revenue from mobile betting.

Despite the fact that online betting and mobile wagering are abundant, Atlantic City casinos are also attracting new customers to their brick-and-mortar facilities by offering points and comps via their online rewards club that can only be redeemed inside the casino property.

The question of how tribal government gaming can benefit from online gaming and sports betting is complicated.

Since the vast majority of tribal casinos are located on relatively remote reservations, usually a long drive for customers, tribal leaders are reluctant to give them a choice of playing from a mobile device or a computer. Even though a tribal casino could conceivably derive revenue from iGaming, it is more important to be able to bring that customer to the actual casino. Because usually it’s more than just one person, and usually they do more than just gamble.

So I understand that reasoning.

On the other hand, there are more and more opportunities for people to play online—legally or illegally.

Sports betting is spreading like wildfire across the country. At this time, there are eight states where sports betting is legal and almost 20 where there is legislation to make it so. But in states where tribal gaming is pretty much the only game in town, tribes are shutting down the train. Even when legislation would limit sports betting to tribal facilities.

Now as I said, I understand the reasoning in requiring a customer to visit your somewhat remote tribal casino to gamble, but if sports betting is limited to the tribes, why not incorporate it? Especially if you can add mobile sports betting to your list of offerings.

I also understand that there are concerns about tribal sovereignty, and while I don’t discount the importance of that issue, there are some ways around it—ways to establish a sports betting business outside of the reservation. Not being an attorney, I wouldn’t venture a suggestion about how that could be accomplished, but I know some brilliant tribal lawyers who could get the job done.

The Choctaws in Mississippi have found a way. Yes, I know that they already operate in competition with commercial casinos and must introduce sports betting just to keep pace, but they were able to get over the sovereignty issue, as well as the off-reservation questions. And I’m sure they’ve got a mobile solution in their plans once that becomes legal in the state.

And the Santa Ana tribe in New Mexico has proactively installed sports betting at its Santa Ana Star casino, determining that they have the right under their compact with the state. That’s still to be determined, but sports betting there continues.

But let’s talk about the overall picture, and how tribal gaming is almost completely discounting interactive gambling—at its own peril, I believe.

You can’t bury your head in the sand and pretend that it isn’t happening. Because it is. And without any participation or negotiation from the tribal side, it could be a serious mistake.

We’ve all got these devices called cellphones or tablets that rule our lives these days. You can’t book a plane ticket, check into a hotel room or make a restaurant reservation without one. And they keep getting more and more sophisticated. There’s an app for everything, including lots for gambling.

Tribes that are ignoring this coming technology tsunami are fooling themselves. Yes, you need to balance the issues of in-person gambling and entertainment, along with the sovereignty issues, but iGaming and mobile sports betting are coming. Tribes need to be prepared.

Yes, getting tribes on the same page is very difficult—almost impossible. So maybe tribal members have to think for themselves and decide what is best for their individual tribes.

Let’s end this column with one word: Blockbuster. Used to be one on every corner, but now they’ve disappeared from the landscape because the owners didn’t believe Netflix would work. Who ever heard of mailing a DVD to customers? But that was just the start for Netflix and new technology. Let’s not let tribal gaming become the Blockbuster of the 21st century.

TBE Architects

Posted on April 3, 2018 by -

During the past 45 years, the Native American-owned firm of TBE Architects (Thalden Boyd Emery) has become one the best-known casino-hotel architects in America. Empowered with the tag line “All Hospitality All The Time,” TBE Architects has a depth of experience like no other Native American-owned architecture firm. Its passion in architecture and design has led to working with more than 113 tribes and First Nations, designing more than 200 casino projects and more than 400 hotels.

The firm, with its highly experienced staff of professionals, combines the Native American background and architectural expertise of Chief Boyd, chief executive officer and principal; the creative hotel and casino design expertise of Rich Emery, president and design principal; the design acumen of David Nejelski, creative director and principal; and the management talents of Nick Schoenfeldt, vice president and principal.

Since 1971, TBE Architects has been designing resorts, hotels and casinos for the hospitality and gaming industries. The firm’s approach of creating “Ordinary to Extraordinary” is based on developing unique and exciting visions and bringing them to life. The firm has built a reputation for delivering projects on time and on budget. TBE Architects provides full architectural services including master planning, engineering and interior design.

TBE Architects is an active Associate member of the National Indian Gaming Association, the California Nations Indian Gaming Association, the Arizona Indian Gaming Association and the Oklahoma Indian Gaming Association.

To learn more, visit thalden.com or contact Linda J. Roe, vice president, client development at 602-321-6207.

Scientific Game

Posted on April 3, 2018 by -

Scientific Games is dedicated to being the industry’s only complete global solutions provider with products that will enhance the entire gaming operation, both on the casino floor and behind the scenes.

As an innovator of creative content and technology, Scientific Games continues to set new standards in the gaming industry, leading the way in the design, manufacturing and distribution of premium gaming content and products.

The company’s products stem from the proven, successful brands Bally, Barcrest, Shuffle Master and WMS. Scientific Games’ compelling content and proprietary solutions engage players and empower customers because of cutting-edge technology, decades of extensive industry knowledge and market research insights that provide a deep understanding of player and casino demand and preference.

  • Customers count on Scientific Games for:
    • Electronic gaming machines for commercial and tribal casinos, video lottery, central determination, licensed betting office, arcade and bingo markets across the globe.
  • • An extensive library of proprietary and licensed brand game content that includes some of the hottest entertainment brands, designed to maximize player enjoyment and operator’s return on investment.
  • • A cutting-edge family of gaming platforms featuring the latest technology, engineered with both the player and operator in mind, to take player attraction and engagement to new levels.
  • • Engaging, proprietary table games, table game progressives, card shufflers and chip sorters.
  • • Innovative electronic table games, including fully electronic, multi-terminal and multi-game configurations linked to virtual, hybrid and live games.
  • • The most robust suite of casino system products and solutions that allows operators to manage all aspects of their business while maximizing operating efficiency, player engagement and ultimately, revenue.

For more information, stop by NIGA Booth 934 or visit scientificgames.com.

Rymax Marketing

Posted on April 3, 2018 by -

Seeking new ways to engage and empower players? Meet Rymax Marketing Services, the No. 1 supplier of player loyalty solutions.

Rymax’s strategically crafted, turnkey programs make every player feel like a winner, through an unmatched portfolio of 15,000 premium merchandise rewards from more than 350 of the world’s most sought-after brands. Rymax continuously expands its product portfolio, adding an average of 40-60 new brands every year.

Rymax’s Strategic Interactive Themed Events excite players through hands-on, exclusive reward experiences that drive ROI and increase repeat play. Each product at these unforgettable, award-winning events is hand-picked, to accurately target and reward players.

As the exclusive provider of nearly 100 aspirational brands, such as Michael Kors, Skullcandy, Thule and Viking, Rymax has access to the latest and greatest models and inventory, as well as best-in-class pricing. Rymax also has the ability to create specialized product bundles that strengthen the perceived value and functionality of the merchandise.

Brainstorm Logistics, Rymax’s fulfillment arm, houses and ships reward products from the company’s distribution centers. Inventory is monitored by the minute, enabling a nationwide network of warehouses to provide quick and efficient order fulfillment based on each consumer’s geographic location.

The Rymax fully owned and operated U.S.-based call center provides customers with real-time status updates and ensures all customers receive stellar service from the moment they place an order until it arrives at their doorstep.

As the industry’s only one-stop-shop, Rymax designs, implements and manages all program elements under one roof—including event integration, fulfillment and delivery. Rymax brings the most in-demand products, customized technology solutions and world-class services to the gaming marketplace.

For more information, stop by Booth 828 at NIGA or visit rymaxinc.com.

Purchasing Management International

Posted on April 3, 2018 by -

Purchasing Management International is the leading FF&E and OS&E purchasing company in the gaming industry. With extensive experience in large luxury gaming projects, working with the leading designers, architects and owners, PMI offers owners the accuracy, integrity and buying power necessary to successfully work on the most demanding gaming projects.

The company has purchased and installed more than $3 billion in hotel, resort and casino furnishings, operating equipment and systems worldwide. PMI’s services include FF&E and OS&E purchasing for renovation and new construction, operating supplies purchasing and advisory services for capital budgeting, inventories and due diligence for acquisitions and valuations.

PMI expertly advises Indian gaming clients, tribal associations and native nations as part of their economic development activities. PMI has successfully worked with tribal organizations such as Pokagon Band of Potawatomi, Cherokee Nation, Comanche Nation, Poarch Band of Creek Indians, Gila River Indian Community, Yavapi Nation, Pueblo of Sandia, Choctaw of Mississippi and Choctaw of Oklahoma.

PMI uses a unique purchasing management system to deliver the speed and accuracy required by gaming projects. PMI’s experienced staff is the best in the industry, and has deep vendor knowledge plus the creativity to keep projects moving forward under the pressure of a gaming project’s requirements. PMI’s system of checks and balances includes a separate expediting department to control the custom approval process, project deliveries and final delivery costs. Time and again, PMI saves clients money and time.

PMI’s mission is to provide a select number of clients worldwide with its proven purchasing, renovation and technical expertise at the best quality and pricing obtainable in the industry.

For more information, visit pmiconnect.com.