New products and the potential for regulatory clarity are lighting up Class II gamingAfter years of questions, the Class II gaming constituency looks like it finally may be getting some answers.
This sector of the industry, long recognized by tribes as an essential expression of sovereignty and a key leverage point in their government-to-government dealings with states, is positioned for expansion as tribal gaming operators can pick among a wealth of new “tax-free” product from manufacturers whose see growth on tap for Class II.
Underlying their collective enthusiasm is the regulatory review process at the National Indian Gaming Commission (NIGC), which last month concluded a series of nationwide tribal consultations that highlighted the need to re-address Class II Minimum Internal Controls Standards (MICS) and technical standards developed by chairwoman Tracie Stevens’ predecessor, Phil Hogen, whose attempt to draw a “bright line” between Class II and Class III devices is up for discussion.
The process began last November, when the NIGC published a Notice of Intent (NOI) to inform the public that the NIGC was conducting a comprehensive review of all regulations promulgated to implement the Indian Gaming Regulatory Act (IGRA), said Stevens.
“The Commission began a series of government-to-government tribal consultations in January of this year which resulted in meaningful dialogue with tribal leaders and tribal gaming regulators,” Stevens explained. “This Commission continues its commitments to Tribes by having discussions prior to initiating the rulemaking process to address the need for changes before drafting proposed rules. Currently, the Commission has received input from over 70 tribes and nearly a dozen other interested groups. The Commission is currently reviewing and examining every comment received to create a regulatory review agenda.”
That agenda is expected to be revealed next month, and it is assumed by many that Class II MICS and technical standards will figure on the list of priorities, as the issue was repeatedly brought forward by tribes before the Commission. Although it is estimated by some that it will be another 12 to 18 months until final regulations are published, the hope is that this NIGC will clean up some of the problems that were created for Class II by its predecessor in its attempt to draw the bright line between Class II and Class III.
A key area of emphasis for tribes and gaming manufacturers is creating an environment that will foster innovation on the Class II side and reduce if not eliminate the cost of regulatory uncertainty for manufacturers and operators.
“Class II gaming has been the one mainstay that tribal gaming can rely on,” said Jamie Hummingbird, director, Cherokee Nation Gaming Commission. “It is the only type of gaming we can offer that doesn’t require compacting and revenue sharing. Also, if we want to compact, or have the ability to negotiate compacts with states, to have Class II games that perform at or near the level of Class III is an instrument we can use to help spur along those discussions.”
Hummingbird, who will be one of the leading regulators representing tribes during the review process, shares a consensus view in the industry that, as one tribe put it, a generic standard for Class II may be better than hard-and-fast rules.
“One of my comments to the Commission was there’s a difference between a standard and an operating procedure,” said Hummingbird. “The standard gives you a broad goal that you need to achieve whereas the operating procedure gives you a step-by-step process that you need to follow in order to achieve that goal. What we have in the MICS in a number of cases are operating procedures and step-by-step processes. I think if they took a half-step back and took those processes back to the level of a standard that allowed tribal regulators to work with their respective operations to come up with solutions that fit their needs, be it the tribal governmental structure, the compact requirements that they have with their state or whatever unique set of circumstances they have, that’s a much better way to go than having to fit 300-plus operations in to a cookie cutter set of Class II standards.”
For Kevin Parker, who operated Class II games at various casinos for 15 years and has advised several tribes on NIGC standards, the issue is similarly straightforward. “It all boils down to one thing: We all wanted [Chairman Hogen] to define Class II for what bingo is, not for what it is not,” said Parker, who now heads the consultancy Lynx Gaming. “Bingo is a series of balls, it’s random, and once you have a bingo you have to daub it. If you define what bingo is and move the technology out from there, I think you’re fine. As long as you have the game of bingo as a base, and the wheels and the bells were all a technological aid to bingo, then there was that bright line distinction between a Class III slot and a Class II slot.”
The number of Class II games in the field is placed at 45,000, with devices in 13 jurisdictions. All placements run through tribal gaming commissions, which have limited their requests for two-touch machines to 2,800 in five states, with the rest of the market using the one-touch, auto-daub games that came in for such scrutiny from the prior NIGC. With auto-daub, the ball draw result is electronically transmitted to the terminal, which automatically covers any matching numbers on the player’s card(s), without any further action by the player. Opinions differ, but requiring the extra touch can cut earnings by as much as half.
Class II devices tend to perform best in Alabama and Texas, where there is no competing Class III product. Oklahoma, California and Washington are strong markets as well. As an aside, Alabama’s attorney general wrote the NIGC last month telling it that Poarch Creek’s Class II machines at its three facilities were illegal under state law and must be removed. But federal law, which allows tribes to engage in any gaming operation that the state allows, applies here, and Alabama permits paper bingo. As such, the challenge is not seen as a meaningful threat by the industry.
Manufacturers, who always saw the bright line as a practical matter and never let it get in the way of innovation, are continuing to move forward. Those with roots in Class III that have maintained a direct presence in the sector are renewing their commitment to it. Class II manufacturers, for their part, are building out their game libraries, upgrading game platforms and adding progressive jackpot solutions, as the following summary shows:
BALLY TECHNOLOGIESBally’s roots in Class II go back to its acquisition of Sierra Design Group in 2003. The company’s long-term involvement with the technology has given it certain advantages, said Walt Eisele, vice president of strategic technology, who came to Bally from SDG.
“Any product that you carry forward gradually, there’s something that you learn each year, with each product cycle,” he said. “Given that Sierra Design Group started with Class II product back in 2001, we’ve got better auditability, better capability for our customers to manage it, better game mechanics and carrying our Class III look and feel into a Class II environment.”
For Eisele, the bright line between Class II and III was always clear to the players. “There’s certainly enough on the screen that would indicate it’s not a standard Class III product. The regulations do require that a bingo card be present. If you watch players, a veteran or experienced Class II player clearly understands that it’s a bingo game. And you’ll see interesting behaviors such as changing the bingo card randomly, or cycling through to get their favorite numbers, to effect their luck. Most players understand that it is a different kind of game, and the manufacturers have done a good job of making the most compelling, profitable game within the guidelines provided by the NIGC.”
Eisele said there are certain types of Class III product that seems to play well in Class II. “Hot Shots has been one that we pulled into Class II relatively quickly because of its game within-a-game mechanics. Fireball, which has a 32-inch top box on it, is another game we pulled that into Class II quickly and we’ve had great success with that.” The company’s Four Corners venue-wide progressive remains popular, and it has an approved progressive product called Million Degrees.
All Class II games are on Bally’s Alpha platform, which it also inherited from SDG. The product has a SAS interface on it which permits it to interact with standard system peripherals, including iView and doing bonusing that way to the extent that it’s allowed by jurisdictions, and iDeck is on the road map. “We have not deployed any Class II games with iDeck yet,” said Eisele. “But in the next round, as we move our Class II games onto our Alpha II Pro Series cabinet you’ll start seeing iDeck offered as an option as well.”
CADILLAC JACKCadillac Jack, a Class II-oriented manufacturer is very bullish on the future, according to Chris Korpi, vice president of sales. “More tribes are moving toward Class II placement at the expense of Class III placement,” he said. “All the Class II vendors have created great looking cabinets with excellent game content. We consistently place highest in win-per-day in Class II. We have a couple of themes that casinos can’t get enough of. So Hot and Ghost Bear with Adam Beach are two examples. We have a 15, 20, 30, 40, 50 and 100-line library of games.”
Korpi noted that the player experience on a Class II game is less volatile, satisfying a basic player need. “If your desired personal experience in time-on-device, your money is going to last a little longer on a Class II machine; it’s a different type of math environment,” he said. “In Class III, the random number generator has no memory of any game played before or after it. You could plug in the game, push the button and win $1 million; it doesn’t make a difference who else is playing that game or how much money has been wagered. In Class II, it’s pari-mutuel, player against player. There are a finite number of people playing that game and an outcome that must be delivered. It’s more of a defined mathematical outcome, so the volatility in terms of game outcome wins is much less.”
That said, large jackpots aren’t alien to Class II, particularly with the new progressive products that are filling up the sector. Cadillac Jack has two different wide area progressive products in Class II, Cadillac Cash and Mega Strike. One of its Cadillac Cash games paid out over $830,000 on Oklahoma earlier this year, to take one example. Mega Money Maker, which allows for five different levels of internal jackpots, has been another strong addition to the line-up.
“We now have 50- and 100-line games with pick engines that mean the bonuses aren’t pre-determined but actually have player interaction, where bonuses could lead to nested bonuses within the bonuses,” said Korpi. “That’s one of the things that make the IGT and WMS games work so successfully, that there’s unpredictability within the bonus round that has a higher attainment value. A lot of that’s dependent on whether you can have a LCD screen like our Genesis cabinet.”
INTERNATIONAL GAME TECHNOLOGYFor IGT, Class II is strong and getting stronger, according to Knute Knudson, vice president, Native American Development, who notes that about half of 23 tribal-state compacts will expire in the next ten years.
“In that renegotiation process, in the scarce revenue era that we’re in, all states will be looking to increase revenue from all sources,” Knudson said. “They will view tribal governments as one possible source and will push hard in all those compact renegotiation processes. What happens here is that Class II, which is not part of the compact negotiation process, becomes the last line of defense and becomes the hold card that tribes have. If they have available to them a Class II product that is as good as or better than their Class III products, they can choose let their existing compact lapse and not negotiate a new one.”
Knudson said that, in addition to such Class II strongholds as Alabama, Texas, and Oklahoma, there is “renewed interest” in Washington, California, Arizona, Minnesota, Michigan and South Dakota.
“At the property level and the market level, there’s interest in strong games and new technology,” he said. “We are looking at a number of things in this category, including introducing our popular licensed themes and a tiered multi-level progressive in Class II. In terms of themes, Sex and the City is on the horizon, as are all the variations of Wheel of Fortune. All our popular licensed themes continue to be introduced into Class II all the time, and all of our Class II activity has been migrated to the new AVP platform.”
MULTIMEDIA GAMESA Class II pioneer, Multimedia Games is stretching its reach into Class III (see Talking Points, page 14), but the company remains as committed as ever to the segment, which is starting to rebound, said Mick Roemer, vice president of sales.
“We were the inventors of what you know as Class II today, with MegaNanza and MegaMania, wide-area paper-style progressives that turned into electronic gaming machines,” Roemer said. “That was primarily focused in Oklahoma, which pretty rapidly transitioned from Class II into Class III, where most of our footprint was. At one point, we may have had about 20,000 machines in Oklahoma. Class III offered very innovative games whereas Class II was kind of stagnant. Now you’re seeing Class II games stabilizing and actually increasing in Oklahoma a little bit in Oklahoma and elsewhere.”
The loyalty factor works well for Multimedia; players who only had Class II available to them for years have stuck with them. “There are some customers who grew up with these games and like being able to see the card on the game and being able to change that card. Kind of gives them the feeling that they can change their luck,” Roemer said. Our Meltdown game in Washington is an example of a product that really has a following. It has been there for ten years or more.”
On the new games side, Multimedia’s forays into Class III have yielded some exciting new Class II product, but there are still games that it debuts in Class II. “Our Side-Action series, Sport of Kings, and Lockdown were developed for Class III but with Class II in mind,” Roemer said. “Some product we put out in Class II first, such as the King Richer game that we recently launched in Class II first. In that particular case, we were looking for a mechanical, dollar product for the Oklahoma market. Sometimes it’s about getting the product to market faster. We have a Class II version of our popular slot tournament product, TournEvent. In Morongo, we put some new three-reel mechanical games that are beating Class III games.”
VIDEO GAMING TECHNOLOGIESFor VGT, as well as its competitors, any regulatory clarity coming out of the current NIGC process will be welcomed. “What happened in the past is we spent a lot of time and money on back-up technology for whatever came out of the rules and regulations committees so we would been prepared,” said James Starr, senior vice president of sales. “We may have used that time to develop more games and products. We had a lot of different options in the can; we spent a lot of time on alternative systems which may have impeded the game development.”
VGT has close to 20,000 games on its Live Call Bingo platform in the field, almost all of which are Class II.
In Oklahoma, the company has 19,000 player terminals; at least 16,000 are Class II and most of the remainder are scheduled to go back to Class II this year per the tribes’ request. The company also has Class II games in California, Washington and Montana.
Hot Red Ruby, Mr. Moneybags, Lucky Ducky - games put out in Oklahoma in 2002 - are still in the field. “These games definitely have legs; the first games we put out are some of our most popular games,” Starr said. “There’s a lot of brand loyalty that sits with those titles.”
VGT has focused a lot the last couple of years on system development and building out its game library. “We now have fast interfaces for all of the back offices,” Starr said. On the new games front, five-reel video products such as Hunt for Neptune’s Gold and Silver Dollar Shootout have hit the market. VGT also has a new five-reel mechanical cabinet. “When you get your free spin the rope lighting lights up the cabinet,” Starr said. “These games all have our trademark red screen free spin. If you talk to the GM’s in our market, they all say they don’t ask for VGT, they ask for those games with the red screen; all these games still have the red screen in a five-reel, multi-denom environment. Our players today are simply quarter and above players, so this gives us a different segment of the market to go after.”
Progressives are another growth area: “We’ll have four and five-tiered progressives that hit more frequently,” Starr said. “In the markets we compete in today, the majority play three times a week. I don’t believe the most of these players looking for a life-altering event. We do plan to eventually have product like that.”