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Summarized Comparison with February 2008 Analysis

This analysis supplements a previous analysis prepared for the Commission. The purpose of this 

analysis was to compare the incremental social benefits and costs to fulfill the Commission’s statuatory 

obligation under the Congressional Review Act. Since the analytic focus of this report is estimating 

social benefits and costs, it is reasonable that the two analyses may have different results. 

While this report uses the same data and approaches as the February report, there are important 

differences. These differences have a substantial impact on the final estimates of economic impact on 

Class II facilities. While Table 4-9 below highlights some of the similarities and differences, the major 

differences are the following: 

 The reports use different units to present costs. Both reports must present costs that occur in 

different years in a common measuring system. The February 2008 report presents discount 

costs occurring in the future and presents a present value estimate in current dollars. This 

report annualizes the flow of benefits and costs over a ten-year period using a seven percent 

real discount rate. Based on our interpretation of the February 2008 results for Scenario 2A in 

that report, the net gaming revenue loss is estimated to be $1.2 billion in current dollars. 

Based on this interpretation, Scenario 2A in the February report estimates a much higher net 

revenue loss than this analysis. 

 For one measure of net gaming revenue loss, the February report uses a similar approach as 

this report. However, the assumed compliant game is an older offering from Multimedia that 

had lower revenues than the Reel Time game used in this analysis. In this report, we assume 

that tribal gaming operators will chose the Class II game that gives the highest possible net 

revenues and that complies with the regulation. This difference led to the substantial 

difference in the reduction in Class II gaming revenue in the two analyses. 

 The February report estimates that all machines and titles will undergo conversion, 

reprogramming, and replacement costs. For Scenario 2 in the February report, these costs 

equate to roughly $20,000 per Class II player interface. In this report, we assume operators 

will not pay for (and thus suppliers will not provide) reprogramming that exceeds the cost of a 

new compliant system (estimated to be $6,000). In addition, this analysis finds that the 

grandfathering provision will reduce compliance costs substantially. 

 The February report assumes all current Class II machines are noncompliant. While it may be 

unlikely that current machines are in full compliance with every provision of the classification 

and technical standards, many machines that have opinion letters deeming them Class II may 

only require nominal upgrades. We use the Commission’s estimate of compliance rate as the 

basis for this analysis. 
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Table 4‐9:  Comparison o f Major Differences Between the Analyses

Data/Assumption February 2008 Report This Analysis

Data Year 2006 2006 

Number of Affected Class II 

Machines 

15,765 (Scenario 2A) 5,000 to 20,000 

Growth Rate of Class II 

Market 

10-yr compound annual growth rate 

of Indian gaming (14.6 percent) 

State-specific growth rate. 

For Class II only states, 

annual average of machine 

growth in the past five years. 

Estimated Change in Gaming 

Revenue 

42 percent (range of 21-64) 5-17 percent 

Compliant Game Used to 

Model Gaming Revenue Loss 

MegaMania Reel Time 

Basis for Change in Class II 

gaming revenue 

Both observed revenue loss from 

current Class II revenue per game to 

MegaMania and measured increase in 

game time 

Market observation of the 

difference in Reel Time and 

MegaNanza’s net revenue 

Baseline Compliance Rate 0 20 – 80 percent 

Effect of Grandfathering No change; costs are just shifted in 

time 

Substantial 

Classification Costs 1.2 billion (current $ for Scenario 2A) 27 – 87 million (annualized $) 

Estimated 

Replacement/Reprogramming 

Costs 

$350 million (current $ for Scenario 

2A) 

$1.5 to $5.3 million 

(annualized $) 

Estimated Nongaming 

Revenue Loss 

$127 million (current $ for Scenario 

2A) 

$1.1 - $3.7 million 

(annualized $) 

Estimated Potential Tribal 

Member Job Losses 

3,336 71 – 231 

Benefit Estimate None or qualitative Partially Quantified