Regulatory Updates

Bingo: The Storm of Controversy

Eric Casey
Eric Casey

by Eric Casey, Director of Sales and Strategic Planning
Planet Bingo

Bingo managers, can you imagine no more Bonanza Bingo in your bingo hall? No more 'pick-a-pet' or wheel spin games, or any other bonus games not directly tied to the numbers called for that game of bingo? Can you imagine not being able to use your electronic bingo handsets or fixed-base units to play bingo, unless you are playing paper bingo cards along with them? Imagine the future of electronic bingo being stopped and severely restricted, an evolution frozen in time.

These fears and more could emerge as a new reality in session bingo if the NIGC's currently proposed Class II Classification Standards were to pass. The Standards use session bingo-play on paper bingo cards to create a baseline definition of “what is bingo,” and then proceed to regulate all forms of bingo played electronically without paper. Items liked pre-called Bonanza numbers and bonus prizes for winners would be curtailed, because to allow these in session bingo would open the door for digital equivalents on Class II machines. The NIGC's proposed Class II standards are imposing what the Class II industry is calling extraordinary, unnecessary and unviable restrictions on the game of bingo.

If they were passed into rule, Class II gaming – and bingo as we know it – would change, with a ferociously negative economic impact on the tribes that depend on it. And the ability of Indian Country's bingo industry to reinvent itself with technology at even the most fundamental level,
session bingo, would come grinding to a halt.

So, tribal governments are in an uproar over the NIGC's proposed Class II Classification Standards. NIGC Chairman Phil Hogen insists that there is a need to draw a 'bright line' between Class II and Class III games in order to protect Class II technology allowed under the IGRA from continued federal harassment and challenge or even a possible Congressional revisit to the Indian Gaming Regulatory Act. The intent is good, but the means have become cloudier and cloudier and those clouds are producing spectacular storms.

In May of 2006, a 5th Draft of the proposed Classification Standards was published in the Federal Register, along with a proposed amendment to the definition of bingo 'facsimile,' and followed by a draft of Class II Technical Standards in August. Once published in the Register, such proposals sit for a period of public commentary, during which time the NIGC has the option to revise them, and continue the process, or move to enable them as rule.

The proposals that were published by the NIGC surprised the entire industry. Filled with language that utterly endangers the commercial viability of Class II gaming, they also run countercurrent to the advice of the tribal advisory committee to the NIGC and to that of manufacturers that build and supply the products currently in the market and who would be required to build products that would comply with the proposed regulations.

The tribal advisory committee to the NIGC during the process of drafting these standards consisted of representatives from the Seminole Tribe of Florida, the Sault Ste. Marie Tribe of Chippewa, the Agua Caliente Band of Cahuilla Indians, the Cherokee Nation, the St. Regis Mohawk Tribe, the Viejas Band of Kumeyaay Indians, and the Muckleshoot Tribe. They wrestled with some tough questions. When and how does a technological presentation of the game of bingo stop being bingo? What standards can be applied to the Class II machine industry to ensure a game's 'Class II-ness,' and to ensure game and system integrity? The panel worked with the NIGC for many long months to find a path to that 'bright line' between Class II and Class III that would be viable for the entire industry. But when the NIGC published their proposed changes in the Federal Register, even the tribal advisory committee was taken aback.

On September 13th of this year, a letter signed by the entire tribal advisory committee went to the NIGC. It begins with this:

“Dear Chairman Hogen and Vice-Chairman Choney,

The undersigned are the seven tribal members of the Class II Advisory Committee selected by the National Indian Gaming Commission in early 2004 to assist with the development of new Class II regulations. We are submitting our comments to express our unanimous opposition to both the proposed change to the definition of ‘facsimile’ and the proposed Class II Classification Regulations.”

The letter provides details of the advisory committee's analysis and objections, and ends with the following paragraph:

“As the tribal representatives selected by the NIGC to assist with the development of Class II regulations, we are profoundly disappointed by the proposed regulations developed by the NIGC. The proposed regulations go far beyond what is necessary to clarify the line between Class II and Class III gaming, and appear to be little more than an attempt to appease the Justice Department (which has historically taken an overly restrictive view of what Congress authorized in the IGRA) and certain states that are opposed to commercially viable Class II gaming. We sincerely hope that the Commission steps back from this misguided effort and instead works with Tribes to develop Class II regulations that reflect the broad scope of Class II gaming intended by Congress.”

This drama was due to get even more intense. The NIGC expanded the public commentary to include public hearings in Washington, D.C. at the Department of the Interior on September 19th. At these hearings, the Commission heard from numerous panels of tribal leaders, tribal gaming attorneys, manufacturers, and others from the spectrum of industry – and the Commission was bombarded with opposition to the proposed Classification Standards.

One of the more surprising results of the public hearings in Washington, D.C. came from the manufacturer's panel, which consisted of representatives from IGT, Bally's, Multimedia Games, Rocket Gaming Systems, and Planet Bingo. The voices of these manufacturers came together spontaneously to speak out against the proposed standards. The manufacturers argued that the economic impact of the NIGC's direction would be devastating to the Class II Bingo industry, and that manufacturing product to comply with the regulations as proposed would not be viable.

At the hearings, the NIGC listened carefully to all of the testimony against the classifications, but everyone went away wondering if anything had been accomplished and if it was still possible to turn the tide. Soon after the hearings, the panelists that participated that day received a follow-up questionnaire from the NIGC. (You can view the full transcripts of the hearings, as well as testimony and public commentary from numerous tribal governments, on the NIGC website at www.nigc.gov.) The manufacturer's questionnaire asked 21 questions about the opinion of the representative company with regards to the proposed standards, and about each company's independent position on the viability of the Class II market under the proposed regulations. It was expected that each company would
submit its response, if they so chose, giving the NIGC more specific detail on the types of product that might be feasible and how each of the suppliers was thinking.

But something unique happened. The five manufacturers, many of them staunch competitors in the industry, set competition aside. The five came together and decided to answer the NIGC's questionnaire in a common voice, once again, a voice of unanimous opposition to the proposed Class II Standards, this time, from a unified manufacturing perspective. The response letter from the five manufacturers began with this statement:

“Dear Chairman Hogen and Commissioner Choney,

We appreciate the opportunity to provide you with additional information on the problems posed by the proposed Class II regulations. As manufacturers, we are accustomed to dealing with regulatory agencies on an individual basis. Usually, our competitive positions require us to act individually and then only in consideration of our respective companies' business plans and interests. These proposed regulations are so problematic that they have created an unusual situation and led us to prepare this joint response to your questions in the hope that our shared expertise and experience will give you a clearer picture of the full scope of harm that is threatened. Please note that this letter includes additional discussion that goes beyond your recent inquiry, but which we feel must be included in order to provide the proper context for the very important decisions that must be made as the NIGC goes forward.”

As noted, the manufacturer's questionnaire from the NIGC contained 21 questions aimed at further illuminating the problems, from the manufacturing viewpoint, related to building product that would conform to the Commission's proposed standards. Below is the text of the very first question and the unified response from the five manufacturers.

1. What do you anticipate will be the effect of the proposed regulations on manufacturers? Tribes? Customers? States?

As proposed, the regulations will have a devastating impact on Indian gaming. Game revenue is directly related to the number of games that can be played within a set period of time. The regulations will make bingo games much slower. In fact, the minimum amount of time to play a game will be doubled or tripled. If only one-third as many games can be played, then revenue could be reduced by two-thirds. Coupled with the artificial “daub” requirements (including both the number of and spacing of “daub” prompts) and limitations on prize values, the resulting games are likely to be rejected by players, especially in jurisdictions where tribes are forced to compete against more entertaining non-Indian gaming
(i.e. Florida, Texas and Alabama). Thus, the actual reduction in revenue would be even greater. This will hurt tribes economically and deprive them of any meaningful leverage in compact negotiations with state governments.

Since the games will be very expensive to produce (due to other aspects of the proposed classification regulations and the technical standards regulations), each game will need to generate a significant amount of revenue in order to be commercially viable - even more than the games on the market today, which are less expensive to produce. As proposed, it does not appear that the proposed regulations would permit us to develop commercially viable games. Thus, as indicated at the hearing on September 19, major Class II manufacturers are likely to leave the market, which could leave tribes at the mercy of “unscrupulous vendors” - repeatedly identified by the NIGC as a source of regulatory concern.

Also, as the regulations will apply to “session bingo played through an exclusively electronic medium,” even the traditional session bingo environment will be negatively affected. The session bingo market in general continues to evolve with portable and fixed-base electronic bingo devices becoming more and more the standard on which the game is played, and there is progression toward the day when electronic bingo cards will replace paper bingo cards just as paper bingo cards replaced 'shutter cards.' As it stands now, under the proposed regulations tens of thousands of portable electronic bingo devices used in session bingo would not be able to conform to the machine restrictions and would be rendered useless for all-electronic session bingo play.

Finally, we note that the proposed regulations would put tribes at a significant competitive disadvantage compared to electronic bingo games permitted to non-Indians under state law. For example, the electronic bingo games permitted under Alabama law require a 5x5 card, but otherwise give the operators flexibility in game design consistent with that provided by the IGRA definitions, the rules of bingo and the congressional intent for flexibility of tribal operations. Unlike tribes, commercial and charitable bingo will be able to operate with full auto-daub (one touch) and no restrictions on prize values. Similar games have been proposed in other states, such as Texas. The games that would be permitted under the proposed regulations would not be able to compete with such non-Indian bingo games. As such, the NIGC's artificial constraints on the tribal operation of electronically assisted bingo games would invert the express promise of the IGRA to ensure that tribes be permitted to conduct such gaming as is otherwise permitted by the state. It would also totally ignore Congress' exhortation that tribes have maximum flexibility in the use of developing technology.

The next 20 questions in the NIGC's questionnaire become increasingly technical, and the full content of the manufacturer's response to the NIGC questionnaire is available to anyone interested in reading it. After this submittal, the manufacturer's panel group was able to coordinate a meeting with Chairman Hogen, Vice-Chair Choney, NIGC Chief of Staff Joe Valandra, and two NIGC attorneys that was held in Billings, Montana, on November 2nd, in conjunction with meetings that the NIGC was holding with the Montana Tribal Gaming Association and the seven Montana tribes.

The manufacturer's meeting was requested by the manufacturer's group to clarify to the NIGC the points of their unprecedented 'unified response,' to reaffirm the group's opposition to the proposed classification standards, and to urge the Commission to stand down on the proposals. This unity was as powerful a statement as could be made on behalf of those who design and build many of the products that work for tribal government gaming in the Class II arena. And furthermore, a solution was proffered: rather than impose classification and technical standards onto the tribes and the industry from Washington, let the tribes and the manufacturers work together themselves to find and define that 'bright line' between Class II and Class III, and then work with the NIGC to find a workable solution.

As the Montana meeting wrapped up, it was suggested the manufacturers and the tribes could come together in a working group to renew the process of finding and forming an acceptable set of Class II Standards. This would necessarily include the NIGC's guidance on critical issues that it feels are essential, but it would allow the users and the builders of Class II bingo products to be participant in the formation of the standards. This would be a major step in the right direction.

The NIGC has scheduled another session with its Tribal Advisory Committee on December 4-5 in Washington DC. One of the focuses of this next round will be on the results of recently concluded economic impact studies. The meetings are open to the public, and everyone is encouraged to attend.
The storm of controversy will continue to rage around bingo and Class II gaming as we move into 2007, but we can be optimistic about the strength of the industry unity in defending viable, profitable Class II gaming in the face of the NIGC's quest to find the 'bright line' that defines bingo in the age of technologic innovation. But there can be no doubt: this is one more battle on a road of many battles, and the outcome will be as important to the future of tribal government gaming as any that have been fought to date.

Eric Casey is Director of Sales and Strategic Planning with Planet Bingo. Casey has 15 years experience in the bingo industry, working with all segments of the marketplace. He can be reached by calling (760) 773-0197 or email ecasey@planetbingo.com