Regulatory Updates

Class II Gaming is a Vital Part of the Industry

Barry W. Brandon
Barry W. Brandon

Barry W. Brandon, Senior Vice President & General Counsel
Seneca Gaming Corporation

Tribes across Indian Country with various levels of gaming interests are aware that the National Indian Gaming Commission has introduced new rules for the conduct of Class II gaming. In looking at the rulemaking involving Technical Standards, MICS, Classification Standards, and Facsimile definition, we must consider the potential impacts on the ability of tribes to effectively operate Class II gaming as an economic engine. (The following comments and opinions are mine, as I do not speak on behalf of the Seneca Gaming Corporation or the Seneca Nation of Indians.)

Unlike tribes in other regions of the country, the tribes in the Northeast, including the Seneca Nation as an example, rely heavily on Class III games and devices. For that reason, the proposed regulations will have a less pronounced impact in the Northeast. That being said, however, this has not always been the case with the Seneca Nation of Indians.

Until about five years ago, when the Nation entered into a Class III gaming compact with the State of New York authorizing three Vegas-style casinos, the Nation relied heavily on Class II games and devices. The Nation has a great appreciation for the importance and value of Class II devices in markets where such devices are exclusive. Class II gaming served as a primary economic engine for the Nation's government for many years. Indeed, the revenue generated from Class II gaming not only fueled critical Nation governmental programs, it also provided the “seed money” for the Nation's entry into the Class III gaming industry.

While the Seneca gaming corporations in connection with Class III gaming have been tremendously successful, Class II gaming continues to be an essential source of revenue for the Nation. While many tribes who had had success in the Class III gaming arena have abandoned their Class II gaming
activities, the Seneca Nation continues to rely on revenue generated by its two Class II venues to support critical governmental programs, services and jobs.

In my opinion, it would appear that the specific Class II regulations are altogether unwarranted and unjustified. While the stated purpose of the proposed regulatory changes “is to establish clear and verifiable standards and procedures for the proper classification, approval, and operation of Class II games,” I am unconvinced that such changes are warranted. In recent years, numerous federal courts and the NIGC – through numerous advisory opinions and the 2002 rule-making – have brought significant clarity and predictability to game classification under IGRA. More specifically, in the wake of the 2002 regulatory shift, the U.S. Courts of Appeals for the 8th and 10th Circuits ruled that certain gaming devices constituted Class II technologic aids for purposes of IGRA. The cases represented two of a long line of cases in which Indian tribes were successful in defending themselves against enforcement actions initiated by either the NIGC or the Justice Department, or both. Thus, the Commission's efforts in this regard are unnecessary.

Further, the proposed regulations seek to roll back the hard fought gains of tribes pursuant to federal court actions. In turn, the proposed regulations place unreasonable and unwarranted restrictions on the use of technologic aids in connection with Class II gaming - restrictions that will no doubt have a profound negative financial impact on Class II gaming tribes and their attendant markets.

As more tribes seek to develop Class III gaming enterprises, the right to conduct Class II gaming without the need for a gaming compact with the state can be a valuable negotiating tool. During compact negotiations, the subject of revenue sharing and revenue share percentage can be a very important, yet difficult, point of negotiation. Without the right to conduct Class II gaming on their territories, tribes, particularly those who have come to rely on gaming revenues to support key services and programs, could be at a significant negotiating disadvantage and at risk of having to agree to exorbitant revenue sharing formulas. However, the success of Class II gaming in states where Class III gaming is not permitted, such as Florida, gives other states reason to pause should they try to push the revenue sharing envelope too far.

In the end, Class II gaming is an important economic tool for many tribes. The right of tribes to continue to operate in Class II gaming, consistent with the Federal courts’ rulings, is certainly worth fighting for.

Barry W. Brandon is Senior Vice President of and General Counsel for Seneca Gaming Corporation. He can be reached by calling (716) 299-1100 or email bbrandon@snfgc.com