Group Predicts Class II Regulations Will Kill Indian Gaming

At a panel discussion held last April at the National Indian Gaming Association's 17th annual meeting and trade show in San Diego, a group of lawyers, gaming machine manufacturers and former commission members led by Elizabeth Homer, a former NIGC vice chairman, determined that the ''bright line'' of regulations that National Indian Gaming Commission Chairman Phil Hogen hopes will save Indian gaming will actually kill it.

''When I left NIGC in 2002, I thought my three-year ordeal with Class II definitions had ended,'' Homer said. ''Here we are five years later, trying to work with the NIGC to hopefully do some damage control with their package of Class II regulations, which by virtue of their own expert will cost Indian country somewhere between $1.2 [billion] and $2.4 billion of lost revenue annually.''

Testifying before the Senate Committee on Indian Affairs April 17, Hogen conveyed his urgency to complete the regulations revision before he retires.

''I gotta get this done. I mean, I've been at it now for more than five years. It's time to draw this bright line so that the industry, the manufacturers, the tribes, the states can know what's going on.

''Right now there's confusion. That's not good for the industry. And if and when there appears to be a loss of integrity in the [regulatory] system, then the goose that laid the golden egg [Indian gaming] would be at risk. I don't want to be responsible for that,'' he told the senators.

Several of the panel members have been working as NIGC-appointed advisers on the proposals along with tribal leaders for more than a year. But when the proposed regulations were posted last October, they were surprised to learn of NIGC's changes and the addition of classification standards they had not worked on.

The proposals deal with classification standards, definitions, minimum internal control standards and technical standards for Class II games - bingo, lotto, pull-tabs and others - that are played using ''electronic, computer or other technological aids.''

The changes center on what distinguishes Class II gaming machines with bingo-based games from Class III slot machines, an important distinction since tribes can profitably conduct Class II gaming without a tribal-state compact or profit-sharing with the states. Class III gaming requires a tribal-state compact; and although the Indian Gaming Regulatory Act does not mandate payments to the state in Class III compacts, a cut of the tribe's profits has come to be part of the deal.

At the center of the controversy is the issue of control over tribal economic development.

Homer and Teresa Paust, a panel member who also served at the commission, changed the definitions of the terms ''electro-mechanical facsimile, electronic aids, and games similar to bingo'' during their tenure at NIGC in response to several court cases. The changes resulted in an increase in income of approximately $2 billion a year in Indian country for the past five years, Homer said.

''That's because by clarifying the law with regard to what this terminology means, we also clarified that electronically aided Class II gaming is legal and is authorized under the Indian Gaming Regulatory Act.''

Now the commission wants to change those definitions.

''We think the clarity under the law has been provided, that the bright line that the current [commission] membership is so desperately seeking has already been elucidated and illuminated for the world and we are very disappointed now after so many hours, days, weeks, months and holidays that we've not been able to persuade the NIGC that sometimes you just best leave well enough alone,'' Homer said.

The re-written regulations essentially make all electronically aided Class II gaming machines into Class III machines, and they add 10 new requirements that will need certification.

''If these regulations are finalized, every single Class II game on the floor in any tribal facility won't be Class II because they weren't designed to meet the additional 10 requirements,'' Paust said.

She and other panelists urged people to contact their congressional representative to oppose the regulation changes.

''Unless you have a compact that never expires, this is really important,'' she said. ''If you've got a compact that expires in 20 years down the road, what happens when you have to go back? You don't have a fallback position. You either do what the state wants you to do or you're finished. So long as we have a viable economic alternative - a Class II system - you can compete on a certain level, you can tell the state, 'You know what? You're just asking for far too much. We're just going to play Class II games.'''

Jess Green, a litigator who won several of the federal cases upholding Class II legality, said the new regulations would force Indian gaming out of business and leave the field open for commercial gaming.

''The rules just apply to us. We've spent the last 15 years developing server-based gaming that makes money and, well, if it makes money, they're going to copy it - that's what they do for a living. So if you don't restrict commercial-based gaming, what you force us to do is abandon the successful server-based deal we created: and who makes money when that happens? We're the ones that are going to be choked out - Indians! Indian governments!'' Green said hotly.

He also challenged the NIGC's authority to regulate gaming.

''Nothing in IGRA gives the NIGC authority over the [tribal] gaming commissions. NIGC has the authority to come and see and inspect operations. Our commissions are the authorized regulators unless we're violating the law; and if we're violating the law as Hogen testified, take me to court, I want to go!''

Class II gaming machine manufacturers oppose the proposed regulations, which they say will devastate their businesses. Ron Harris, CEO of Rocket Gaming Systems, a manufacturer of gaming machines, said the regulations the advisory groups worked on - at an estimated cost of $20 million - should be adopted.

''We found out last year how much power our industry has. We have the power to stop them all, and that's what's going to happen if they push [the regulations on] facsimiles,'' he said. ''And we've tried to communicate that. We can't take it. That's not a threat; it's reality. It will destroy our industry as it is today.''

Joe Volanda, a former NIGC commissioner, said he left and founded his own organization - Advisors - because of ''what was going on'' at NIGC.

The commission has found no one in Indian country who supports the proposed regulations, he said.

''So it's beyond me that the rationale of the chairman is he thinks he's saving Indian gaming and the rest of us believe that he's killing Indian gaming. I guess the line doesn't get any brighter than that.''

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