The Potential Economic Impact of the October 2007 

Proposed Class II Gaming Regulations 

Submitted to: 

National Indian Gaming Commission 

Submitted by: 

Alan Meister, Ph.D. 

Analysis Group, Inc. 

601 S. Figueroa Street, Suite 1300 

Los Angeles, CA 90017 

213-896-4500 (phone) 

213-623-4112 (fax) 

ameister@analysisgroup.com 

February 1, 2008 
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

Executive Summary 

In May 2006, the National Indian Gaming Commission (NIGC) proposed regulations of 

Class II Indian gaming. The proposed regulations, which included game classification 

standards and a revision to the definition of “electronic or electromechanical facsimile,” 

were intended to more clearly distinguish Class II gaming from Class III gaming.1 

Generally, the proposed regulations were expected to be more restrictive than existing 

practices and likely to limit the types of gaming machines that would be considered to be 

Class II devices.2,3 In February 2007, after careful consideration of the potential economic 

hardship that would be incurred by tribes and Class II system manufacturers, the NIGC 

withdrew the proposed regulations. 

However, in October 2007, the NIGC proposed revised versions of the withdrawn proposed 

regulations. While these revised regulations are expected to be less stringent than the 

withdrawn proposed regulations in some ways, they are still expected to be more restrictive 

than existing practices. 

I was commissioned by the NIGC to conduct a second independent study of the potential 

economic impact of the proposed Class II regulations on Indian tribes. Specifically, I was 

asked to identify the potential economic impacts of the October 2007 proposed regulations 

and, to the extent possible, quantify them on an aggregate nationwide basis. Due to the 

confidentiality of tribal financial data, analyses cannot be presented on facility-by-facility, 

tribe-by-tribe, or state-by-state bases. For the purposes of this study, I have assumed that the 

October 2007 proposed Class II regulations would go into effect in January 2008 and be 

legally enforceable. I have no opinions in these regards. 

Given the information considered, I have arrived at the following conclusions: 

1) In general, the NIGC’s October 2007 proposed Class II gaming regulations would 

have a significant negative impact on Indian tribes. 

2) The magnitude of the negative impact would vary widely from state to state, tribe to 

tribe, and facility to facility depending on the legal landscape, political environment, 

existing market conditions, and the availability of viable alternatives to Class II 

machines. 

3) There would be a variety of negative economic impacts on Indian gaming facilities 

with Class II machines and tribes that operate them: 

 

1 In August 2006, the NIGC also proposed technical standards. 

2 It is important to recognize that Class II machine gaming is conducted in the context of a gaming system that includes 

software, player interfaces, and titles. 

3 It is the NIGC’s position that not all of the systems currently operated by tribes meet the statutory definition of Class II 

games or comport with game classification advisory opinions issued by the NIGC’s Office of General Counsel. Thus, the 

NIGC considers such systems to be “illegal” (i.e., they are Class III games). I have no opinions in these regards. 

i Report Submitted to the

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The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

 A decrease in gaming revenue; 

 A decrease in non-gaming revenue; 

 A decrease in the variety and quality of Class II gaming machines; 

 Gaming facility closures; 

 An increase in capital, deployment, compliance, regulatory, training, revenuesharing, and financing costs; 

 A decrease in the number of tribal member jobs; and 

 A decrease in innovation in the Class II gaming machine market. 

4) There are also other broader economic impacts on Indian gaming: 

 A decrease in leverage that tribes would have in the negotiation/renegotiation of 

Class III gaming compacts with states; 

 Restriction of new entry into the Class II machine market; and 

 A change in the degree of competition experienced by Class III gaming facilities 

as Class II machines become less desirable substitutes for Class III games in the 

eyes of consumers and as more Class III gaming is introduced.

Although all of the aforementioned economic impacts are rooted in economic theory, some 

are difficult to quantify and/or lack sufficient data for a quantitative analysis. Given these 

limitations, I have estimated the magnitude of the economic impacts that are readily 

quantifiable: lost gaming revenue; lost non-gaming revenue; increased revenue-sharing 

costs; increased capital, deployment, and compliance costs; and lost tribal member jobs. 

Lost Gaming Revenue

 Class II machines would generate lower revenue under the October 2007 proposed 

regulations than existing practices. Tribes with Class II machines in 2006 included: 

Alabama, Alaska, Arizona, California, Florida, Minnesota, Montana, Nebraska, New 

York, Oklahoma, South Dakota, Texas, Washington, Wisconsin, and Wyoming. 

 Tribes that are able to shift from Class II machines to viable alternatives (e.g., Class 

III machines) would be able to mitigate their Class II gaming revenue losses with 

gains in other gaming revenue (e.g., Class III machine revenue). These tribes include 

all of those in Arizona, Oklahoma, Washington, and Wyoming, and most in 

California. 

 Using MegaMania as a benchmark for the performance of Class II machines under 

the May 2006 proposed regulations, I previously estimated that the average revenue 

per compliant Class II machine would be approximately 64 percent lower than the 

average revenue per existing Class II machine. 

ii Report Submitted to the

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The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

 Under the October 2007 proposed regulations, I estimate that the average revenue 

per compliant Class II machine would be approximately 21 to 64 percent lower than 

the average revenue per existing Class II machine. The upper end of this range 

assumes that, relative to the May 2006 proposed regulations, the October 2007 

proposed regulations would not improve Class II machine performance. On the 

other hand, the lower end of this range assumes that game speed was the overriding 

cause of the estimated decrease in machine performance under the May 2006 

proposed regulations, and that its improvement under the October 2007 proposed 

regulations would lead to a parallel increase in machine performance. 

 Based upon an informal survey of industry participants, I estimated that the best 

point estimate for the average revenue per compliant Class II machine under the 

October 2007 proposed regulations would be approximately 42 percent of the 

average revenue per existing Class II machine. This percentage, which is the 

midpoint of the aforementioned range, reflects a 60 percent increase in Class II 

machine performance relative to the May 2006 proposed regulations. 

 Given a 21 to 64 percent decrease in revenue per day for each Class II machine 

remaining in operation after the October 2007 proposed regulations go into effect, it 

is estimated that the annual gaming revenue loss would be approximately $575.9 

million to $1.8 billion. Using the point estimate of a 42 percent decrease in revenue 

per Class II machine per day, it is estimated that the annual gaming revenue loss 

would be approximately $1.2 billion.4

 Note that if the October 2007 proposed regulations render Class II machines 

unlawful or technologically unfeasible, as has been suggested by some industry 

participants, then lost gaming revenue would be equal to actual Class II machine 

revenue where there are no viable alternatives to compliant Class II machines. In 

this situation, lost gaming revenue would be approximately $2.8 billion. 

Lost Non-Gaming Revenue

 The 21 to 64 percent decrease in Class II machine performance under the October 

2007 proposed regulations would also result in lost non-gaming revenue of 

approximately $62.0 million to $191.9 million per year. The point estimate of a 42 

percent decrease in Class II machine performance would result in lost non-gaming 

revenue of approximately $126.9 million per year. 

 

4 It is the NIGC’s view that “illegal” Class II machines, as identified by the NIGC (see footnote 3), are not Class II games, 

and therefore should not be included in the calculation of lost gaming revenue. If “illegal” Class II machines are excluded 

from the analysis, lost gaming revenue would be approximately $235.3 million to $728.6 million per year given a 21 to 64 

percent decrease in revenue per day for each Class II machine remaining in operation after the October 2007 proposed 

regulations go into effect. Using the point estimate of a 42 percent decrease in revenue per Class II machine per day, it is 

estimated that the annual gaming revenue loss would be approximately $481.9 million. This scenario was developed 

solely at the request of the NIGC and does not reflect my opinion regarding the likely economic impacts of the proposed 

regulations. 

iii Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

 If the October 2007 proposed regulations render Class II machines unlawful or 

unfeasible and there are no viable alternatives to compliant Class II machines, the 

$2.8 billion annual loss of gaming revenue would result in lost non-gaming revenue 

of approximately $300.2 million per year. 

Increased Revenue-Sharing Costs

 While tribes in Arizona, California (excluding the Lytton Band), Oklahoma, and 

Washington would be able to shift from existing Class II machines to Class III 

machines and thus potentially generate higher revenue per machine if the October 

2007 proposed regulations were enacted, the tribes would also incur higher revenuesharing costs of approximately $213.9 million per year. It is uncertain whether these 

increased costs would be entirely offset by the increase in Class III machine revenue. 

This would depend on how much more revenue Class III machines generate relative 

to Class II machines, as well as other costs (e.g., capital, deployment, compliance, 

regulatory, training, and financing costs) that may be incurred by tribes to switch 

from Class II to Class III machines. 

Increased Capital, Deployment, and Compliance Costs

 The need to redevelop Class II systems, including software, player interfaces, and 

titles, as a result of the October 2007 proposed regulations would result in increased 

capital, deployment, and compliance costs of up to approximately $347.9 million 

over the five-year grandfathering period. It is likely that a large proportion, if not all, 

of those increased costs would be borne by tribes. 

Lost Tribal Member Jobs

 The 21 to 64 percent decrease in Class II machine performance under the October 

2007 proposed regulations would also result in approximately 1,629 to 5,044 lost 

tribal member jobs per year. The point estimate of a 42 percent decrease in Class II 

machine performance would result in approximately 3,336 lost tribal member jobs 

per year. 

 If the October 2007 proposed regulations render Class II machines unlawful or 

unfeasible and there are no viable alternatives to compliant Class II machines, the 

annual revenue losses and increased costs at Indian gaming facilities operating Class 

II machines would result in approximately 7,890 lost tribal member jobs per year. 

While it is my opinion that the scenarios summarized above represent the most likely 

outcomes if the proposed Class II regulations are enacted, alternative scenarios and 

sensitivity analyses are provided within this report to test how the economic impact varies 

given different assumptions. 

iv Report Submitted to the

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The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

Table of Contents 

Executive Summary .............................................................................................................................i

1. Introduction................................................................................................................................... 1

Qualifications................................................................................................................................. 1

Assignment .................................................................................................................................... 1

Information Considered ............................................................................................................... 2

2. Background.................................................................................................................................... 3

Indian Gaming............................................................................................................................... 3

Class II Machine Gaming ............................................................................................................. 4

Existing Class II Gaming Regulatory Environment ................................................................. 7

2006 Proposed Class II Gaming Regulations............................................................................. 8

October 2007 Proposed Class II Gaming Regulations............................................................ 10

3. Qualitative Review of the Potential Economic Impact of the Proposed Class II 

Gaming Regulations.................................................................................................................. 13

The Impact on Class II Gaming Machines ............................................................................... 13

Options for Tribes Operating Existing Class II Gaming Machines ...................................... 14

The Impact of the Grandfathering Provision .......................................................................... 15

The Direct Economic Impact on Class II Gaming Facilities and their Respective Tribes.. 15

Lost Gaming Revenue ......................................................................................................................... 16

Lost Non-Gaming Revenue ................................................................................................................ 17

Decreased Variety and Quality of Class II Machines...................................................................... 17

Gaming Facility Closures.................................................................................................................... 18

Increased Costs..................................................................................................................................... 19

Lost Tribal Member Jobs..................................................................................................................... 20

Decreased Innovation in the Class II Gaming Machine Market.................................................... 21

The General Economic Impact on Indian Gaming ................................................................. 21

Decreased Leverage in Class III Compact Negotiations/Renegotiations .................................... 21

Restriction of New Entry into the Class II Machine Market .......................................................... 22

Changes in Competition for Class III Gaming................................................................................. 22

4. Data............................................................................................................................................... 23

5. Quantitative Analysis of the Potential Economic Impact of the Proposed Class II 

Gaming Regulations.................................................................................................................. 26

Lost Gaming Revenue ................................................................................................................ 26

State-By-State Review of Class II Machine Gaming........................................................................ 26

Alabama.........................................................................................................................................26

Alaska ............................................................................................................................................27

Arizona ..........................................................................................................................................28

California.......................................................................................................................................28

Florida............................................................................................................................................30

Minnesota ......................................................................................................................................31

Montana.........................................................................................................................................32

Nebraska........................................................................................................................................33

New York ......................................................................................................................................33

Oklahoma ......................................................................................................................................33

South Dakota.................................................................................................................................34

Texas ..............................................................................................................................................35

v Report Submitted to the

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The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

Washington ...................................................................................................................................36

Wisconsin ......................................................................................................................................36

Wyoming .......................................................................................................................................37

Aggregate Methodology for Estimating Lost Gaming Revenue ................................................... 37

Actual Gaming Revenue .............................................................................................................37

Estimated Gaming Revenue Under the October 2007 Proposed Regulations .....................38

Lost Gaming Revenue..................................................................................................................43

Results of the Aggregate Methodology for Estimating Lost Gaming Revenue .......................... 43

Scenario 1.......................................................................................................................................44

Scenario 2.......................................................................................................................................46

Scenario 3.......................................................................................................................................49

Other Important Considerations........................................................................................................ 49

Lost Non-Gaming Revenue ....................................................................................................... 51

Methodology ........................................................................................................................................ 51

Results ................................................................................................................................................... 51

Increased Revenue-Sharing Costs............................................................................................. 53

Methodology ........................................................................................................................................ 53

Results ................................................................................................................................................... 55

Increased Capital, Deployment, and Compliance Costs ....................................................... 55

Methodology ........................................................................................................................................ 55

Results ................................................................................................................................................... 57

Lost Tribal Member Jobs ............................................................................................................ 59

Methodology ........................................................................................................................................ 59

Results ................................................................................................................................................... 60

6. Conclusions ................................................................................................................................. 62

Appendix A: About the Author..................................................................................................... 64

Appendix B: About Analysis Group, Inc..................................................................................... 65

Appendix C: Indian Gaming Facilities Operating Class II Machines in 2006 ..................... 66

Appendix D: Table 4 of Report on May 2006 Proposed Regulations..................................... 69

Appendix E: Indian Gaming Facilities Operating Class II Machines in Scenarios 2A and 

2B................................................................................................................................................... 70

Appendix F: Indian Gaming Facilities Operating Class II Machines in Scenario 3 ........... 71

Appendix G: Update to November 2006 Study .......................................................................... 72

vi Report Submitted to the

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The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

1. Introduction 

QUALIFICATIONS 

I am a Manager at Analysis Group, Inc., an economic, financial, and strategy consulting firm. 

I am an economist specializing in the application of economics to complex business issues, 

commercial litigation, and regulatory matters. I hold a Ph.D., Master of Arts (M.A.), and 

Bachelor of Arts (B.A.) in Economics from the University of California, Irvine. One of my 

areas of expertise is Indian gaming. I have consulted tribal and non-tribal governments on a 

wide array of economic issues related to Indian gaming. My work has included economic 

impact analyses, industry and market analyses, assessments of regulatory policies, analyses 

of Tribal-State gaming compacts and revenue sharing, feasibility studies, surveys, and expert 

testimony in litigation and regulatory matters. I have also conducted years of independent, 

academic research and authored numerous publications on Indian gaming, most notably my 

annual economic study of Indian gaming, the Indian Gaming Industry Report, which is widely 

cited and relied upon by governments, the gaming industry, and the investment community. 

Further background on myself and Analysis Group is set forth in Appendices A and B, 

respectively. 

ASSIGNMENT 

I was commissioned by the National Indian Gaming Commission (NIGC) to conduct an 

independent study of the potential economic impact of proposed Class II regulations on 

Indian tribes.5 Specifically, I was asked to identify the potential economic impacts and, to 

the extent possible, quantify them on an aggregate nationwide basis. Due to the 

confidentiality of tribal financial data, I am unable to present analyses on facility-by-facility, 

tribe-by-tribe, or state-by-state bases. 

In 2006, when I was originally commissioned to conduct my independent study, I was asked 

to review and analyze the facsimile definition and classification standards proposed in May 

2006 (hereafter referred to as the “May 2006 proposed regulations”).6 My original study of 

the May 2006 regulations was completed in November 2006.7 In February 2007, after careful 

consideration of the potential economic hardship that would be incurred by tribes and Class 

II system manufacturers, the NIGC withdrew the proposed regulations. 

 

5 Unless otherwise noted, the opinions set forth herein are those of the author and do not necessarily represent those of 

the NIGC. Furthermore, nothing in this report should be construed as a legal opinion or conclusion. 

6 Proposed Rule, 25 CFR Part 502, Definition for Electronic or Electromechanical Facsimile, Federal Register 71 (101), May 

25, 2006; Proposed Rule, 25 CFR Part 502 and 546, Classification Standards, Class II Gaming, Bingo, Lotto, et al., Federal 

Register 71 (101), May 25, 2006. I was not asked to review or analyze the technical standards in my November 2006 report 

(Proposed Rule, 25 CFR Part 547, Technical Standards for ‘‘Electronic, Computer, or Other Technologic Aids’’ Used in the 

Play of Class II Games, Federal Register 71 (155), August 11, 2006). 7 My original study of the May 2006 proposed regulations was entitled “The Potential Economic Impact of Proposed 

Changes to Class II Gaming Regulations” and was submitted to the NIGC on November 3, 2006. 

1 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

In July 2007, I was asked to review and analyze the facsimile definition, classification 

standards, and technical standards that were ultimately proposed in October 2007 (hereafter 

referred to as the “October 2007 proposed regulations”).8,9 In addition, I updated my 

November 2006 report to include new gaming market information and the most current 

tribal financial data available, both of which were relied upon in this present report. The 

updated report is set forth in Appendix G.10

For the purposes of this study, I have assumed that the October 2007 proposed regulations 

will go into effect in January 2008 and be legally enforceable. I have no opinions in these 

regards. 

INFORMATION CONSIDERED 

In conducting my assignment, I relied upon my knowledge of economics and Indian 

gaming. I also relied upon industry data confidentially provided to me by the NIGC. These 

data included gaming revenue, total casino revenue, tribal government revenue from Indian 

gaming, and Class II gaming machine counts.11 Gaming machine count data were 

supplemented by information from state gaming regulatory agencies and my previouslyconducted research, including the Indian Gaming Industry Report. 

In addition, input was provided by representatives of tribes, casinos, Class II system 

manufacturers, state gaming regulatory officials, and NIGC staff. This input was drawn 

from comments submitted to the NIGC and was supplemented by conversations during the 

course of my assignment.12

 

8 Proposed Rule, 25 CFR Part 502, Definition for Electronic or Electromechanical Facsimile, Federal Register 72 (205), 

October 24, 2007; Proposed Rule, 25 CFR Part 502 and 546, Classification Standards, Class II Gaming, Bingo, Lotto, Other 

Games Similar to Bingo, Pull Tabs and Instant Bingo as Class II Gaming When Played Through an Electronic Medium 

Using “Electronic, Computer, or Other Technologic Aids,” Federal Register 72 (205), October 24, 2007; Proposed Rule, 25 

CFR Part 547, Technical Standards for Electronic, Computer, or Other Technologic Aids Used in the Play of Class II 

Games, Federal Register 72 (205), October 24, 2007. 9 I was not asked to review and analyze the proposed Minimum Internal Control Standards (MICS) (Proposed Rule, 25 

CFR Part 542 and 543, Minimum Internal Control Standards for Class II Gaming, Federal Register 72 (205), October 24, 

2007). 

10 The updated study is entitled “The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations.” 

11 It is important to recognize that Class II machine gaming is conducted in the context of a gaming system that includes 

software, player interfaces, which are referred to in this report as gaming machines, and game titles. 12 Comments were communicated to the NIGC verbally (at government-to-government consultation meetings) and in 

writing (letters and statements) (http://www.nigc.gov/ClassIIGameClassificationStandards/tabid/620/Default.aspx). 

Telephone calls were made between August 14, 2006 and January 9, 2008. 

2 Report Submitted to the

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The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

2. Background 

INDIAN GAMING 

In the United States, gaming is conducted by Indian tribes as an exercise of their inherent 

sovereign rights as independent nations.13 And while Indian tribes have operated gaming 

facilities since the late 1970s/early 1980s, it was not until the passage of the Indian Gaming 

Regulatory Act (IGRA) by the United States Congress in 1988 that larger-scale Indian 

gaming began to emerge. Per IGRA, gaming serves as a means of “promoting tribal 

economic development, self-sufficiency, and strong tribal governments.”14 Toward these 

ends, tribes may only use gaming profits to: 

1) Fund tribal government operations or programs; 

2) Provide for the general welfare of their members; 

3) Promote tribal economic development; 

4) Donate to charitable organizations; and 

5) Help fund operations of local government agencies.15

In accordance with the first three uses, tribes have used gaming profits to support a variety 

of tribal programs and services, such as health care, housing development, schools, youth 

centers, scholarships, elderly care, child care, vocational training, environmental services, 

police and fire protection, water and sewer services, transportation, and cultural 

preservation, as well as to fund the development of other tribal enterprises. Also, some 

tribes (about 34 percent) distribute per capita payments to tribal members.16 With regards 

to the fourth and fifth uses, tribes make donations to charities and revenue sharing payments 

to state and local governments.

Per IGRA, there are three distinct classes of Indian gaming:17

 Class I gaming refers to “social games for prizes of minimal value or traditional 

forms of Indian gaming engaged in by individuals as part of, or in connection with, 

tribal ceremonies or celebrations.” 

 Class II gaming refers to “(i) the game of chance commonly known as bingo 

(whether or not electronic, computer, or other technologic aids are used in 

 

13 Light, Steven A., Kathryn R.L. Rand, and Alan Meister, 2005, Spreading the Wealth: Indian Gaming and Revenue 

Sharing Agreements, North Dakota Law Review, 80:4. 

14 Indian Gaming Regulatory Act, 25 U.S.C. § 2702. 

15 Indian Gaming Regulatory Act, 25 U.S.C. § 2710. 

16 In 2002, per capita payments were distributed to tribal members in 73 tribes (Source: National Indian Gaming 

Association, Indian Gaming Facts, accessed November 5, 2007 [http://www.indiangaming.org/library/indian-gamingfacts/index.shtml]). In that same year, there were 216 gaming tribes (Source: Meister, Alan, Indian Gaming Industry 

Report, 2007-2008 Edition, Newton: Casino City Press). Thus, approximately 34 percent (73/216) of gaming tribes 

distributed per capita payments in 2002. 

17 Indian Gaming Regulatory Act, 25 U.S.C § 2703. 

3 Report Submitted to the

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The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

connection therewith) – (I) which is played for prizes, including monetary prizes, 

with cards bearing numbers or other designations, (II) in which the holder of the card 

covers such numbers or designations when objects, similarly numbered or 

designated, are drawn or electronically determined, and (III) in which the game is 

won by the first person covering a previously designated arrangement of numbers or 

designations on such cards, including (if played at the same location) pull-tabs, lotto, 

punch boards, tip jars, instant bingo, and other games similar to bingo; and (ii) card 

games that – (I) are explicitly authorized by the laws of the State, or (II) are not 

explicitly prohibited by the laws of the State and are played at any location in the 

State ...” Class II gaming “does not include (i) any banking card games ... or (ii) 

electronic or electromechanical facsimiles of any game of chance or slot machine of 

any kind.” 

 Class III gaming refers to “all forms of gaming that are not Class I or Class II 

gaming.” This includes slot machines, other video and electronic games of chance, 

craps, roulette, pari-mutuel wagering, and house-banked card games like blackjack. 

CLASS II MACHINE GAMING 

Although Class II gaming includes traditional paper bingo and pull-tabs, it is largely 

dominated by electronic bingo and pull-tab machines.18 As shown in Table 1, 72 tribes 

operated 50,924 gaming machines as Class II devices in 160 Indian gaming facilities in 2006 

(see Appendix C for a list of facilities).19 These facilities generated total Class II machine 

revenue of approximately $3.6 billion and associated non-gaming revenue of approximately 

$154.2 million.20,21

 

Tribes 72

Facilities 160

Class II Machines 50,924

Gaming Revenue ($ Millions) $3,550.7

Non-Gaming Revenue ($ Millions) $154.2

Table 1. 2006 Class II Gaming Machine Market 

Sources: Indian Gaming Industry Report and NIGC data.

18 It is the NIGC’s view that some gaming machines operated by tribes as Class II machines fail to meet the statutory 

definition of Class II games and are thus Class III games. I have no opinion in this regard. See the Scenario 3 results in 

the Lost Gaming Revenue section of Chapter 5 for further discussion. 

19 NIGC; Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 20 Tribal government revenue resulting from Class II machine gaming revenue and associated non-gaming was 

approximately $733.5 million. 

21 Derived via analysis of tribal financial data provided by the NIGC and data underlying the Indian Gaming Industry 

Report. See the Chapter 4 for background on these data. 

4 Report Submitted to the

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The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

As shown in Table 2, there were 15 states with Class II machines in 2006: Alabama, Alaska, 

Arizona, California, Florida, Minnesota, Montana, Nebraska, New York, Oklahoma, South 

Dakota, Texas, Washington, Wisconsin, and Wyoming. It is important to note that while 

Class II machine gaming is operated in various states across the country, it is highly 

concentrated in two states: Oklahoma and Florida. Combined, these two states account for 

76 percent of the total number of Class II machines. Oklahoma alone has 59 percent of the 

machines. After Oklahoma and Florida, California, Alabama, and Washington have the 

largest number of Class II devices. 

State Tribes Facilities Machines 

Machines 

% of Total

Alabama 1 3 2,101 4.1% 

Alaska 1 1 30 0.1% 

Arizona 2 2 56 0.1% 

California 6 8 4,215 8.3% 

Florida 2 8 8,615 16.9% 

Minnesota 1 14 113 0.2% 

Montana 6 7 535 1.0% 

Nebraska 3 4 314 0.6% 

New York 2 3 1,287 2.5% 

Oklahoma 27 87 30,044 59.0% 

South Dakota 2 2 64 0.1% 

Texas 1 1 1,325 2.6% 

Washington 16 17 1,771 3.5% 

Wisconsin 1 1 361 0.7% 

Wyoming 1 2 94 0.2% 

Total 72 160 50,924 100.0% 

Sources: Indian Gaming Industry Report and NIGC data.

Table 2. 2006 Class II Gaming Machine Market by State

These statistics in Tables 1 and 2 reflect substantial growth over time. In fact, the Class II 

gaming machine segment of the Indian gaming industry has been growing at a much faster 

rate than Class III gaming.22 This growth of Class II machine gaming can be attributed to 

two key factors.23 First, Class II gaming machines have been evolving rapidly. 

Technological advances have allowed Class II machines to more closely mimic the look and 

feel of Class III machines. Relative to their predecessors, current Class II machines are 

generally more advanced, visually appealing, and capable of generating greater revenue. 

The second factor leading to the dramatic growth of Class II machine gaming has been the 

fact that some gaming markets in Class II-only states are in the early stages of development. 

Many of these states are smaller markets, often with only a few tribes and/or facilities and 

little or no local competition. Thus, there have been opportunities to expand existing 

facilities and/or develop additional facilities in these markets. 

 

22 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 

23 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 

5 Report Submitted to the

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The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

Despite its impressive growth, Class II machine gaming only represents a small portion of 

the total Indian gaming industry. In 2006, it represented approximately 14 percent of total 

gaming revenue generated at Indian gaming facilities.24 While the contribution of Class II 

machine gaming to the Indian gaming industry is small relative to that of Class III gaming, it 

is not insignificant or inconsequential. It plays an important role in the industry. First, Class 

II gaming machines are extremely important to tribes: 

 Where Class III gaming is not permitted, Class II machines have provided tribes 

viable gaming devices. In 2006, this was the case in the states of Alabama, Alaska, 

California (only for the Lytton Band of Pomo Indians), Florida, Nebraska, and 

Texas.25

 Where Class III gaming is permitted, Class II machines have been used to 

supplement Class III machines. This may be desirable for tribes that have 

restrictions on allowable Class III gaming (e.g., caps on the number of Class III 

machines that can be operated; a limit on the number of Class III gaming facilities 

that can be operated by a tribe; revenue sharing associated with Class III machines; 

and restrictions on the type and/or quality of Class III machines that can be 

operated). In 2006, Class III machines were supplemented with Class II machines in 

Arizona, California (for all tribes except the Lytton Band of Pomo Indians), 

Minnesota, Montana, New York, Oklahoma, South Dakota, Washington, Wisconsin, 

and Wyoming. 

 Whether or not Class III gaming is currently permitted, Class II machines may 

provide some leverage in future Class III compact negotiations or renegotiations. 

Current Class II machine gaming represents a potential fallback position for a tribe 

should a state refuse to negotiate/renegotiate a compact or not negotiate in good 

faith. The strength of the bargaining position of any particular tribe is affected by the 

quality of allowable Class II machines. 

Class II machine gaming is also important to the casino gaming market. In geographic areas 

where casino gaming is otherwise non-existent, Class II machines provide casino patrons a 

local gaming option. In geographic areas where casino gaming is limited or some distance 

away from patrons, Class II machines may provide some degree of competition. 

Competition between Class II and Class III machines is likely to be greater when there is less 

of a difference between the quality and performance of Class II and Class III machines 

and/or when Class II machine gaming is located closer to patrons than Class III machine 

gaming. 

 

24 Class II machine revenue as a percentage of total gaming revenue at all Indian gaming facilities = $3.551 billion / $ 

24.886 billion = 14.3 percent. Source: Analysis of NIGC data for fiscal year 2006. Note that total gaming revenue at all 

Indian gaming facilities is slightly lower than the amount publicly reported by the NIGC in June 2007. This is a result of 

adjustments made by the NIGC following that date. 

25 For a discussion of the situation in Florida, see the State-By-State Review of Class II Machine Gaming in the Lost 

Gaming Revenue section of Chapter 5. 

6 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

EXISTING CLASS II GAMING REGULATORY ENVIRONMENT 

IGRA established a framework for the regulation of Indian gaming.26 By design, regulatory 

authority differed depending on the Class of gaming being conducted. In particular, Class II 

gaming was maintained within the jurisdiction of Indian tribes and also subject to the 

provisions of IGRA, which include the NIGC’s power to promulgate regulations and 

guidelines it deems appropriate to implement the provisions of IGRA.27

While the classification of Class II games was broadly defined in IGRA, the NIGC adopted 

regulations that included specific definitions of terms used in IGRA’s game classification 

framework. Because IGRA recognized the right of tribes to use “electronic, computer, or 

other technologic aids” but not “electronic or electromechanical facsimiles” to conduct Class 

II gaming, the definitions of these terms has become critical. In 1992, the NIGC defined these 

terms as follows:28

§ 502.7 Electronic, computer or other technologic aid. 

(a) Electronic, computer or other technologic aid means any machine or device that: 

 (1) Assists a player or the playing of a game; 

 (2) Is not an electronic or electromechanical facsimile; and 

 (3) Is operated in accordance with applicable Federal communications law. 

(b) Electronic, computer or other technologic aids include, but are not limited to, 

machines or devices that: 

 (1) Broaden the participation levels in a common game; 

 (2) Facilitate communication between and among gaming sites; or 

 (3) Allow a player to play a game with or against other players rather than with 

or against a machine. 

(c) Examples of electronic, computer or other technologic aids include pull tab 

dispensers and/or readers, telephones, cables, televisions, screens, satellites, 

bingo blowers, electronic player stations, or electronic cards for participants in 

bingo games. 

 

26 Indian Gaming Regulatory Act, 25 U.S.C. § 2710. 

27 Indian Gaming Regulatory Act, 25 U.S.C. § 2710(a)(2). 

28 25 Code of Federal Regulations (CFR) Parts 502.7 and 502.8; 57 FR 12392, Apr. 9, 1992, as amended at 67 FR 41166, June 

17, 2002. 

7 Report Submitted to the

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The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

§502.8 Electronic or electromechanical facsimile. 

Electronic or electromechanical facsimile means a game played in an electronic or 

electromechanical format that replicates a game of chance by incorporating all of the 

characteristics of the game, except when, for bingo, lotto, and other games similar to 

bingo, the electronic or electromechanical format broadens participation by allowing 

multiple players to play with or against each other rather than with or against a 

machine. 

2006 PROPOSED CLASS II GAMING REGULATIONS 

Over time, the interpretation of the aforementioned terms has been the subject of great 

debate. Thus, in May 2006, the NIGC “determined that it [was] in the best long term interest 

of Indian gaming to issue classification standards clarifying the distinction between 

‘electronic, computer, and other technologic aids’ used in the play of Class II games and 

other technologic devices that are ‘electronic or electromechanical facsimiles of a game of 

chance.’”29 In doing so, the NIGC also decided that a further revision to the definition of 

“electronic or electromechanical facsimile” was needed.30 In addition, in August 2006, the 

NIGC proposed technical standards “to provide a means for tribal gaming regulatory 

authorities and tribal operators to ensure that the integrity of Class II games played with the 

use of electronic, computer, or other technologic aids, is maintained; that the games and aids 

are secure; and that the games and aids are fully auditable.”31

Generally, these proposed regulations were expected to be more restrictive than existing 

practices and likely to limit the types of gaming machines that would be operated as Class II 

devices. According to the proposed regulations,32 Class II games using electronic, computer, 

and other technologic aids would have had to meet the following requirements:33

 For bingo or other games similar to bingo: 

• Players must compete against one another. 

• Although the NIGC encourages play with six or more participants, a game can 

begin with a minimum of two players if six players do not enter a game within 

two seconds after the first player enters. 

• Bingo cards must be used; however, those cards may be electronic. 

• Bingo cards must be provided to players before numbers are drawn. 

 

29 Proposed Rule, 25 CFR Part 502 and 546, Classification Standards, Class II Gaming, Bingo, Lotto, et al., Federal Register

71 (101), May 25, 2006. 

30 Proposed Rule, 25 CFR Part 502, Definition for Electronic or Electromechanical Facsimile, Federal Register 71 (101), May 

25, 2006; Proposed Rule, 25 CFR Part 502 and 546, Classification Standards, Class II Gaming, Bingo, Lotto, et al., Federal 

Register 71 (101), May 25, 2006. 31 Proposed Rule, 25 CFR Part 547, Technical Standards for ‘‘Electronic, Computer, or Other Technologic Aids’’ Used in 

the Play of Class II Games, Federal Register 71 (155), August 11, 2006. 

32 Proposed Rule, 25 CFR Part 502, Definition for Electronic or Electromechanical Facsimile, Federal Register 71 (101), May 

25, 2006; Proposed Rule, 25 CFR Part 502 and 546, Classification Standards, Class II Gaming, Bingo, Lotto, et al., Federal 

Register 71 (101), May 25, 2006. 33 This list is not intended to be a complete list of requirements, but rather a summary of the key classification standards. 

For a complete list of the standards, see the Proposed Rules. Not included or addressed in this report are technical 

standards proposed by the NIGC. As noted in the Assignment section of Chapter 1, I was not asked to review or analyze 

the technical standards in my November 2006 report or the update to it, which is set forth in Appendix G. 

8 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

• Each card played in a game must have an equal chance of obtaining any winning 

pattern. 

• Technologic aids are permitted but they must prominently display using two 

inch letters a message that it is a game of bingo or game similar to bingo. 

• One-half of the screen must display the bingo game at all times. 

• Alternative technologic displays of game results (e.g., game theme graphics, 

spinning reels, or other imagery) are permitted as long as the game results on the 

electronic bingo card are always shown. 

• Numbers must be randomly drawn (without replacement) in real time or very 

near real time to the actual play of the game. 

• Different entry wagers are permitted. 

• An "ante-up" format is permitted. 

• An "auto-daub" feature is not permitted; thus, players must take overt action to 

daub (i.e., cover) numbers at least one time in each round after numbers are 

drawn. 

• The minimum time for players to daub numbers must be two seconds. 

• There must be at least two releases of numbers before a game-winning pattern is 

created. 

• The minimum time for each number release must be two seconds. 

• A game-winning prize must be awarded in every game. 

• A game is won by the first person covering the pre-designated game-winning 

pattern. 

• The prizes in the game may be increased or progressive prizes offered based 

upon a higher entry wager. 

• All prizes must be based upon achieving pre-designated winning patterns 

common for all players. 

• Gaming-winning prizes must be at least 20 percent of the amount wagered and 

have a minimum value of one cent. 

• Prizes may not be based on an event not directly related to the game. 

• All prizes must be fixed in amount or established by formula and be disclosed to 

all players in the game. 

• The use of a paytable for determining prizes is permitted. 

• Pre-designated interim prizes may be offered but all players in a game must be 

competing for the same set of prizes. 

• "Stand-alone progressives" and "mystery jackpots" are not permitted. 

• A "gamble feature" is not permitted. 

• "Residual credit removal" is not permitted. 

• "Free games" are permitted as a marketing tool as long as all players 

participating in the game that led to the free games receive the same number of 

free games. 

 For pull-tabs: 

• The game must exist in a tangible format (e.g., paper) and be readily accessible to 

the player at the player station. 

9 Report Submitted to the

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The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

• The tangible pull-tab must contain the information necessary to determine if a 

player won a prize. 

• Technologic aids are permitted but they must prominently display using two 

inch letters a message stating that it is a game of pull-tabs. 

• Alternative displays of game results (e.g., game theme graphics, spinning reels, 

or other imagery) are permitted as long as the game results are always shown 

along with important player information. 

• The game may not accumulate credits. 

• The player station may not pay out winnings, or dispense vouchers or receipts 

representing such winnings. 

In February 2007, after careful consideration of the potential economic hardship to tribes and 

Class II system manufacturers,34 the NIGC withdrew these proposed regulations and 

announced that if they go forward with any new version of the regulations, they would 

likely vary from these withdrawn versions.35

OCTOBER 2007 PROPOSED CLASS II GAMING REGULATIONS 

In October 2007, the NIGC proposed revised versions of the facsimile definition, 

classification standards, and technical standards,36 and also proposed new minimum 

internal control standards (MICS).37 In terms of the facsimile definition, the October 2007 

version now defines an electronic or electromechanical facsimile as “a game played in 

electronic or electromechanical format that replicates a game of chance by incorporating all

the fundamental characteristics of the game,” or bingo, lotto, other games similar to bingo, 

pull-tabs, and instant bingo games that do not comply with the October 2007 classification 

standards.38 This is more stringent than the May 2006 proposal, which did not explicitly 

require compliance with the classification standards and its many parts. 

 

34 When the May/August 2006 proposed regulations were first put forward, there was considerable criticism from 

industry participants, namely tribes and Class II system manufacturers. These criticisms were validated and quantified to 

a large extent in my independent November 3, 2006 economic impact study that was commissioned by the NIGC and has 

now been updated (see Appendix G). Source: Proposed Rule, 25 CFR Part 502 and 546, Classification Standards, Class II 

Gaming, Bingo, Lotto, Other Games Similar to Bingo, Pull Tabs and Instant Bingo as Class II Gaming When Played 

Through an Electronic Medium Using “Electronic, Computer, or Other Technologic Aids,” Federal Register 72 (205), 

October 24, 2007, p. 60486. 

35 The withdrawal and announcement also applied to the technical standards published in August 2006, which I was not 

asked to review or analyze in my November 2006 report or the update to that report, which is set forth in Appendix G. 

36 Proposed Rule, 25 CFR Part 502, Definition for Electronic or Electromechanical Facsimile, Federal Register 72 (205), 

October 24, 2007; Proposed Rule, 25 CFR Part 502 and 546, Classification Standards, Class II Gaming, Bingo, Lotto, Other 

Games Similar to Bingo, Pull Tabs and Instant Bingo as Class II Gaming When Played Through an Electronic Medium 

Using “Electronic, Computer, or Other Technologic Aids,” Federal Register 72 (205), October 24, 2007; Proposed Rule, 25 

CFR Part 547, Technical Standards for Electronic, Computer, or Other Technologic Aids Used in the Play of Class II 

Games, Federal Register 72 (205), October 24, 2007. 37 MICS were proposed by the NIGC in October 2007 (Proposed Rule, 25 CFR Part 542 and 543, Minimum Internal Control 

Standards for Class II Gaming, Federal Register 72 (205), October 24, 2007). As noted in the Assignment section of Chapter 

1, I was not asked to review or analyze the MICS. 

38 Proposed Rule, 25 CFR Part 502, Definition for Electronic or Electromechanical Facsimile, Federal Register 72 (205), 

October 24, 2007, p. 60483. 

10 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

With regards to the classification standards, the NIGC made several changes to the May 2006 

proposed regulations.39 First, the October 2007 proposed standards eliminated some of the 

required time delays by: 

 Changing the minimum time for players to daub numbers to be the time it takes for 

all players to daub, with a maximum time of two seconds if all players do not daub; 

 Reducing the number of required releases of numbers from two to one (i.e., allowing 

a two-touch machine); and 

 Eliminating the two-second time delay for each release of numbers. 

In the aggregate, the revised regulations reduced the total game time by approximately six to 

eight seconds from the May 2006 proposed standards.40 It should be noted that there are 

still delays in the October 2007 proposed standards versus what is actually in operation in 

most Indian gaming facilities today. These remaining delays include: 

 A minimum wait time of two seconds for the start of a game if six players have not 

joined; and 

 Up to two seconds for players to daub and/or claim a prize if all players do not daub 

sooner. 

Second, in addition to the partial increase in speed, the October 2007 proposed classification 

standards improved the playability of Class II machines to some degree by: 

 Allowing for different winning patterns for interim prizes; 

 Allowing for different probabilities of interim prize patterns; 

 Relaxing the requirement that a technologic aid display a message stating that it 

plays a game of bingo or game similar to bingo – from a message using two-inch 

letters to one that is described as prominently displayed; and 

 Allowing the electronic bingo card to be less than one-half of a game screen, but no 

less than two inches by two inches (i.e., four square inches). 

Third, the October 2007 proposed classification standards also shifted the responsibility of 

certifying testing laboratories from the NIGC to tribal gaming regulatory authorities. 

Fourth, the October 2007 classification standards introduced a grandfathering provision for 

continued use of existing Class II machines for a period of five years. 

 

39 Source: Proposed Rule, 25 CFR Part 502 and 546, Classification Standards, Class II Gaming, Bingo, Lotto, Other Games 

Similar to Bingo, Pull Tabs and Instant Bingo as Class II Gaming When Played Through an Electronic Medium Using 

“Electronic, Computer, or Other Technologic Aids,” Federal Register 72 (205), October 24, 2007, pp. 60486-60487. This list 

is not intended to be a complete list of changes, but rather a summary of the key changes identified by the NIGC. 40 There would be two seconds less for the first release of numbers, two seconds less for eliminating the second release of 

numbers, two seconds less for eliminating the daub after the eliminated second release of numbers, and up to two 

seconds less for changing the minimum time to daub from two seconds to the actual time it takes players to daub. 

11 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

As for the technical standards, comments from industry participants indicated that the 

August 2006 proposed version was inflexible, impractical, and unfeasible.41 This led the 

NIGC to allow its Class II gaming advisory committees, which consisted of tribal 

government representatives and tribal regulators, to work independently to redraft the 

technical standards. In doing so, the committees solicited the assistance of Class II system 

manufacturers. As a result of this effort, the NIGC made a few sweeping changes. First, in 

order to maintain technological flexibility, the technical standards were redesigned to 

describe regulatory outcomes desired by the NIGC rather than prescribing particular 

implementations of technology. Second, the technical standards were redeveloped to reflect 

the unique nature of Class II gaming systems rather than Class III gaming machines. Third, 

many of the functions withdrawn from the August 2006 proposed technical standards were 

more appropriately moved into the October 2007 proposed minimum internal control 

standards (MICS).42 Fourth, as was done with the October 2007 proposed classification 

standards, the NIGC introduced a grandfathering provision for continued use of existing 

Class II machines for a period of five years. 

 

41 Proposed Rule, 25 CFR Part 547, Technical Standards for Electronic, Computer, or Other Technologic Aids Used in the 

Play of Class II Games, Federal Register 72 (205), October 24, 2007, pp. 60509-60510. 

42 As noted in the Assignment section of Chapter 1, I was not asked to review or analyze the MICS. 

12 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

3. Qualitative Review of the Potential Economic Impact of 

the Proposed Class II Gaming Regulations 

As noted in my November 2006 study, which was revised in conjunction with the present 

report and is set forth in Appendix G, the May 2006 proposed regulations were generally 

expected to have a significant negative economic impact on tribes if they were enacted and 

legally enforceable.43 And although the October 2007 proposed regulations are likely to 

cause less of an economic hardship on tribes than the May 2006 proposed regulations, they 

are still generally expected to result in significant negative economic impacts on Class II 

machines and tribes that operate them. Also, the October 2007 proposed regulations will 

still have a broader economic impact on Indian gaming. As discussed below, while the fiveyear grandfathering provision will reduce the chance of temporary gaming facility closures, 

it will have little if any effect on any of the other negative economic impacts of the proposed 

regulations. It will only serve to delay some of them. 

This chapter provides a qualitative review of the potential economic impacts of the October 

2007 proposed Class II gaming regulations. Each of these potential impacts is independently 

reviewed below. However, note that the impacts are not necessarily additive (i.e., the actual 

total impact may be less than or greater than the sum of the individual impacts).44 In fact, 

some impacts are likely to be captured in the quantification of other impacts.45 Overall, it is 

difficult to determine the cumulative effect a priori. Chapter 5 of this report estimates the 

magnitude of the quantifiable economic impacts. 

THE IMPACT ON CLASS II GAMING MACHINES 

Based upon my review of the October 2007 proposed regulations, comments from industry 

participants, and discussions with NIGC staff,46 I understand that the October 2007 

 

43 Based upon my discussions with tribes, casinos, and Class II system manufacturers during the course of my assignment, 

I understand that it is likely that various tribes and Class II system manufacturers will file lawsuits against the NIGC over 

the legality of the proposed regulations, if enacted. I have no opinions regarding the legality and enforceability of the 

proposed Class II regulations. 

44 The total economic impact would be equal to the sum of the lost profits from the non-duplicative portions of each 

impact set forth in this chapter of the report (see the direct impacts numbered one through seven below and the broader 

impacts numbered one through three below). However, as noted later in this report, a number of the economic impacts 

were not quantifiable. Furthermore, sufficient industry-wide cost data other than that set forth in this report were not 

available for computing lost profit. 45 For example, at least some of the effects of decreased variety and quality of Class II machines, as well as gaming facility 

closures, are likely to be captured in lost gaming revenue. 

46 Proposed Rule, 25 CFR Part 502, Definition for Electronic or Electromechanical Facsimile, Federal Register 71 (101), May 

25, 2006; Proposed Rule, 25 CFR Part 502 and 546, Classification Standards, Class II Gaming, Bingo, Lotto, et al., Federal 

Register 71 (101), May 25, 2006; Proposed Rule, 25 CFR Part 502, Definition for Electronic or Electromechanical Facsimile, 

Federal Register 72 (205), October 24, 2007; Proposed Rule, 25 CFR Part 502 and 546, Classification Standards, Class II 

Gaming, Bingo, Lotto, Other Games Similar to Bingo, Pull Tabs and Instant Bingo as Class II Gaming When Played 

Through an Electronic Medium Using “Electronic, Computer, or Other Technologic Aids,” Federal Register 72 (205), 

October 24, 2007; Proposed Rule, 25 CFR Part 547, Technical Standards for Electronic, Computer, or Other Technologic 

Aids Used in the Play of Class II Games, Federal Register 72 (205), October 24, 2007; comments by tribes and Class II system 

manufacturers; telephone conversations with tribes, Class II system manufacturers, and NIGC staff during the course of 

my assignment. 

13 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

proposed regulations would still be restrictive in nature. In achieving the NIGC’s goal of 

further differentiating Class II gaming from Class III gaming, the October 2007 proposed 

regulations would still make newly compliant Class II machines inferior to existing Class II 

machines. Relative to existing Class II machines, compliant Class II machines would still be: 

 Slower – Delays would still be introduced between and during games. 

 More cumbersome to play – Additional daubing and wait time would still exist. 

 Confusing – Inconsistencies in the speed of a machine would still be created due to 

varying lengths of time delays. These inconsistencies in game play may still create 

the perception of unfairness to players. 

 Less diverse – The overall decreased viability of Class II machines would likely result 

in fewer Class II system manufacturers, decreased competition, a reduction in 

innovation in the Class II gaming machine market. 

Given these problems, newly compliant Class II machines would be less appealing to 

patrons and generate less gaming revenue than existing Class II machines. This decrease 

would result from two effects. First, fewer total visits would likely be made to Class II 

gaming facilities. Some patrons may make fewer visits to Class II gaming facilities, while 

others may stop visiting altogether. The effect is especially dependent upon gaming 

alternatives that are available to patrons. Second, when patrons do visit, some may decrease 

their spending. This can result from a decrease in the appeal of the machines and/or a 

decrease in the amount of time that machines are available for play (e.g., if utilization of 

machines is 100 percent and the machines are slower, fewer plays of the machines can be 

made). 

OPTIONS FOR TRIBES OPERATING EXISTING CLASS II GAMING MACHINES 

Under the October 2007 proposed regulations, there would be three potential options for 

tribes operating Class II gaming machines: 

(1) Adopt compliant gaming machines – If a tribe wants to continue operating Class II 

gaming machines and it has no other viable alternative, then it must adopt gaming 

machines compliant with the proposed regulations. 

(2) Adopt an alternative – If a tribe has an alternative that would be more profitable 

than compliant gaming machines, then it would surely shift to the alternative. 

Furthermore, if the alternative turned out to be more profitable than existing Class II 

machines (e.g., Class III machines), then a tribe would be better off than its existing 

situation. One may argue that if the alternative would make a tribe better off, it 

would have already been doing that alternative. However, this is not necessarily the 

case. Alternatives may only become available as a result of the proposed Class II 

regulation (e.g., a tribe may choose to enter into a compact or renegotiate a compact 

when it otherwise would not do so; the Department of the Interior may consider 

granting requests for Secretarial Procedures more often and/or more quickly; a tribe 

14 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

may discover an existing alternative that it was not previously aware of; tribes 

and/or Class II system manufacturers may develop new alternatives). If an 

alternative were more profitable than compliant gaming machines but less profitable 

than existing Class II machines, then a tribe would still choose the alternative but be 

worse off. 

Note that if a tribe offering Class II machines is able to introduce Class III gaming or 

add more Class III machines as an alternative to Class II machines, then it could just 

continue operating the Class II machines, which would then be considered Class III 

machines under the October 2007 proposed regulations. Of course, traditional Class 

III machines are likely to be much better revenue generators than Class II machines 

reclassified as Class III machines. 

In theory, an alternative could be something other than gaming. However, in most 

cases, non-gaming alternatives are not likely to be as viable as gaming alternatives. 

(3) Shut down – If a facility were no longer able to generate sufficient revenue to cover 

its variable costs of operation, a tribe may shut down the facility. In the short run, it 

seems likely that tribes without a viable alternative would try to work with whatever 

is allowed under the October 2007 proposed regulations. However, in the long run, 

if gaming revenue losses at some gaming facilities are too large, those facilities may 

be forced to shut down. Indeed, given the large expected decrease in revenue (see 

Chapter 5), it is likely that some smaller Indian gaming facilities that are only 

marginally profitable would have to shut down. Unfortunately, in the aggregate 

analyses set forth in this report, there is no way to identify these cases. 

THE IMPACT OF THE GRANDFATHERING PROVISION 

As noted in Chapter 2 of this report, the NIGC has added grandfathering provisions to the 

October 2007 proposed classification and technical standards. Given that these provisions 

should provide tribes ample time to comply with the regulations, temporary gaming 

facilities closures are much less likely to occur (see the Gaming Facility Closures section 

below for further discussion). However, the five-year grandfathering provision will not 

eliminate any of the other negative economic impacts of the October 2007 proposed 

regulations (e.g., decreased revenue and increased costs). It will only serve to delay them. 

THE DIRECT ECONOMIC IMPACT ON CLASS II GAMING FACILITIES AND 

THEIR RESPECTIVE TRIBES 

In light of the effects of the October 2007 proposed Class II regulations and the options 

available to tribes operating Class II gaming machines, there would be several negative 

economic impacts on Class II gaming facilities and the tribes that operate them: 

(1) Lost gaming revenue; 

(2) Lost non-gaming revenue; 

15 Report Submitted to the

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The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

(3) Decreased variety and quality of Class II machines; 

(4) Gaming facility closures; 

(5) Increased capital, deployment, compliance, regulatory, training, revenue-sharing, 

and financing costs; 

(6) Lost tribal member jobs; and 

(7) Decreased innovation in the Class II gaming machine market. 

Lost Gaming Revenue 

Because the October 2007 proposed regulations will slow down Class II gaming machines, 

make them more cumbersome and confusing to play, and cause them to be less appealing to 

patrons in comparison to existing Class II machines, there would likely be a decrease in 

gaming revenue from Class II machines. First, a slowdown of machines reduces the amount 

of time available for play. Thus, fewer dollars can be generated by a machine when it is 

utilized 100 percent of the time or when patrons are time constrained (i.e., patrons have a 

limited amount of time to gamble). Second, a less appealing, more cumbersome, and 

potentially confusing Class II machine could also decrease consumer demand. Patrons may 

come less often, maybe not at all, or go somewhere else instead (e.g., a Class III Indian 

gaming facility, a commercial casino, or a racino). 

The decrease in gaming revenue may vary widely from state to state, tribe to tribe, and 

facility to facility depending on the legal landscape, political environment, existing market 

conditions, and the availability of viable alternatives to Class II machines. In terms of the 

latter reason, if tribes have an alternative to Class II machines, there may be little or no 

decrease in gaming revenue. The impact depends on how well the alternative ultimately 

performs. If the alternative does at least as well as existing Class II machines,47 then there is 

no gaming revenue loss. If the alternative does not perform as well as existing Class II 

machines, then the gaming revenue loss would be equal to the revenue generated by existing 

Class II machines minus that generated by the alternative. 

Also, note that if the October 2007 proposed regulations render Class II machines unlawful 

or technologically unfeasible,48 as has been suggested by some industry participants, then 

lost gaming revenue would be equal to the entirety of Class II machine revenue where there 

are no viable alternatives to compliant Class II machines. 

If tribes do not have a viable alternative to Class II machines, they would have to adopt 

lower revenue-generating Class II machines that comply with the October 2007 proposed 

regulations. In the extreme, if the gaming revenue loss to an Indian gaming facility were 

large enough, it could put them out of business. Although such individualized outcomes 

 

47 If an alternative requires revenue sharing (e.g., Class III machines), it must outperform existing Class II machines by a 

margin equal to its revenue sharing. 

48 I have no opinion regarding the technological feasibility of the October 2007 proposed regulations. 

16 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

cannot be predicted by an aggregate economic model, such as that used in Chapter 5, it is a 

realistic possibility for some tribes given the magnitude of the expected lost gaming revenue 

(see Chapter 5 for further details). And if lost gaming revenue is significant enough to force 

a facility to shut down, then lost gaming revenue for that facility would equal actual gaming 

revenue. For this reason, lost gaming revenue estimated in Chapter 5 is likely to be 

conservative. 

Overall, a decrease in gaming revenue may be reflected by a decrease in revenue per 

machine and/or a decrease in the number of gaming machines in operation.49

Lost Non-Gaming Revenue 

If there is a decrease in gaming revenue, there is also likely to be an associated decrease in 

non-gaming revenue. Many Indian gaming facilities now offer on-site non-gaming 

amenities such food and beverages, lodging, retail, and entertainment. While historically 

many Class II facilities have not had much in the way of non-gaming amenities except some 

food and beverages, this has been changing. In recent years, the general trend in the Indian 

gaming industry has been towards the addition or expansion of non-gaming amenities. This 

has occurred for two reasons. First, they often generate a revenue stream of their own. 

According to aggregate tribal financial data, non-gaming revenue was approximately 13 

percent of gaming revenue at all Indian gaming facilities nationwide (including Class II and 

Class III facilities) in 2006.50 For facilities with Class II machines, the contribution is much 

less at approximately four percent of gaming revenue. The second reason for the trend 

towards more non-gaming amenities is the positive impact they tend to have on gaming 

revenue. Good quality amenities tend to draw people from farther distances, encourage 

them to stay longer, and spend more money. 

Decreased Variety and Quality of Class II Machines 

The enactment of the October 2007 proposed regulations is likely to change the landscape of 

the Class II system manufacturing market, which in turn will have an impact on tribes that 

continue to offer Class II machines. As previously noted, the October 2007 proposed 

regulations are likely to decrease demand for Class II machines. Thus, tribes with Class II 

machines will either convert to compliant Class II machines, which are likely to be less 

appealing to patrons and generate less revenue, or shift to available alternatives (e.g., Class 

III gaming). Given economies of scale inherent in the manufacture of gaming machines (i.e., 

lower per unit costs as more units are manufactured),51 a decrease in demand may result in 

higher costs per Class II machine. On the whole, some Class II system manufacturers may 

 

49 For further discussion, see the Methodology section under Lost Gaming Revenue in Chapter 5. 

50 Analysis of NIGC data. 

51 For example, product research and development costs are spread over more machines as the number of manufactured 

machines increases. 

17 Report Submitted to the

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The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

no longer find it profitable to stay in the market.52 And a decrease in competition among 

Class II system manufacturers would likely lead to a decrease in the variety and/or quality 

of Class II machines, as well as an increase in prices of Class II gaming equipment (for a 

further discussion of price increases, see the Increased Costs section). 

While the October 2007 proposed regulations would likely have a negative impact on the 

Class II system manufacturing market, and thus tribes that operate compliant Class II 

machines, the proposed regulations could benefit the Class III machine manufacturing 

market as there would be an increase in demand as a result of some gaming operations 

shifting from Class II to Class III machines.53

Gaming Facility Closures 

Given that no existing Class II machines meet the October 2007 proposed regulations, tribes 

would be required to remove, modify, or replace every existing Class II machine in 

operation. This could take some time as compliant Class II gaming systems must be 

developed, tested, certified by independent laboratories, and installed/modified in gaming 

facilities across the country. In mid to late 2007, Class II system manufacturers were 

estimating that it would take more at least a few years to accomplish these tasks.54 The 

actual timeline would depend on how many machines ultimately need to be replaced or 

modified, how many manufacturers are left in the market, which manufacturers remain, 

how close a manufacturer’s existing machines are to meeting the proposed regulations, a 

manufacturer’s engineering capabilities, possible backlogs at gaming machine laboratories, 

and how quickly issues can be resolved after machines have been submitted to a lab.55

The October 2007 proposed regulations would give tribes five years to become compliant.56 

Thus, assuming that the required changes to Class II gaming systems are technologically 

feasible, tribes should have sufficient time to replace or modify existing Class II systems with 

compliant ones. And therefore, tribes will not have to worry about temporary facility shut 

 

52 Some major manufacturers, such as IGT and Bally Technologies, have entered the Class II system manufacturing 

market in the past few years as a result of the increasing demand for Class II machines. If this demand is eliminated or 

reduced by the October 2007 proposed Class II regulations, it is likely that a number of manufacturers will leave the 

market because of a likely decrease in profitability. As a matter of fact, at least one manufacturer has unequivocally said 

that it would not continue making Class II machines if the May 2006 proposed regulations were enacted. Other 

manufacturers have stated they are unsure whether they would remain in the market. Source: Discussions with Class II 

system manufacturers. 

53 For the manufacturers that make both Class II and Class III machines, the loss in the Class II market may be offset to 

some degree by a gain in the Class III market if they earn some of the shift in business. 54 This is a revised estimate provided by several major Class II system manufacturers (revised from that given in mid to 

late 2006), assuming that the modifications to Class II gaming systems are technologically feasible. However, according to 

some manufacturers, the technological feasibility of compliant Class II gaming systems remains an open question. 55 If existing Class II system are modified or replaced with compliant systems, then the timing will depend on the number 

of Class II system manufacturers that remain in the market and their manufacturing/modification capacities. However, if 

some tribes were to switch to Class III gaming, then the timing will depend on the number of Class III machine 

manufacturers and their manufacturing capacities. 

56 Proposed Rule, 25 CFR Part 502 and 546, Classification Standards, Class II Gaming, Bingo, Lotto, Other Games Similar 

to Bingo, Pull Tabs and Instant Bingo as Class II Gaming When Played Through an Electronic Medium Using “Electronic, 

Computer, or Other Technologic Aids,” Federal Register 72 (205), October 24, 2007; Proposed Rule, 25 CFR Part 547, 

Technical Standards for Electronic, Computer, or Other Technologic Aids Used in the Play of Class II Games, Federal 

Register 72 (205), October 24, 2007. 

18 Report Submitted to the

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The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

downs due to non-compliance. However, the actual replacement and/or modification of all

Class II machines in a gaming facility is likely to require temporary and/or partial closures 

of gaming facilities. 

Lastly, as previously noted, there may also be permanent closures of entire Indian gaming 

facilities or portions thereof. If a Class II-only facility does not have a viable alternative to 

existing Class II machines and compliant Class II machines do not generate sufficient 

revenue to cover the variable cost of operations, a tribe may have to shut down a facility. In 

such cases, lost gaming revenue would equal total gaming revenue. If Class II machines in a 

Class III facility are no longer profitable and there is no viable alternative, a tribe may have 

to shut down those machines altogether. Thus, in these situations, lost gaming revenue 

would equal Class II machine revenue. 

Increased Costs 

Given that there are no existing Class II gaming machines that would meet the requirements 

of the proposed regulations,57 all existing Class II gaming systems operated by tribes must 

be modified or replaced (either with compliant Class II machines or available alternatives). 

And in doing so there would be significant incremental costs that otherwise would not have 

been incurred: 

(1) Capital costs – costs of modifying or replacing Class II gaming systems,58 including 

software, player interfaces, titles, and other related components; these costs are likely 

to be passed through to tribes in the form of higher purchase prices if Class II 

systems are purchased by tribes or higher participation fees (i.e., a higher percentage 

of gaming revenue charged by Class II system manufacturers to tribes) if Class II 

systems are leased.59,60

It is my understanding that these capital costs are purely incremental in nature and 

would not be incurred but for the proposed regulations. Due to the smaller size of 

this still-developing Class II machine market and the fundamental nature of Class II 

 

57 Based upon comments from tribes, casinos, Class II system manufacturers, and NIGC staff. 58 Throughout the course of conducting this study and my previous study of the May 2006 proposed regulations, Class II 

system manufacturers have referred to Class II gaming systems as “all components, whether or not technologic aids in 

electronic, computer, mechanical, or other technologic form, that function together to aid the play of one or more Class II 

games ...” The key components of Class II gaming systems are: software, player interfaces, and titles. Software, which 

may reside on centralized servers and/or player interfaces, are the “operational program or programs that govern the 

play, display of results, and/or awarding of prizes or credits of Class II games.” A player interface, also commonly 

referred to as an electronic player station (EPS), bingo player interface (BPI), or the box, is “any component or components 

... including an electronic or technologic aid ... that directly enables player interaction in a Class II game.” A title, also 

commonly referred to as a game, refers to the game theme or graphical display at the player interface, including both the 

bingo card and alternative displays. Sources: Class II system manufacturers and the October 2007 proposed regulations 

(Proposed Rule, 25 CFR Part 547, Technical Standards for Electronic, Computer, or Other Technologic Aids Used in the 

Play of Class II Games, Federal Register 72 (205), October 24, 2007). 59 If machines are sold rather than leased, which is currently the norm, the risk associated with owning lower-revenue 

generating compliant machines would be shifted from manufacturers to tribes. 

60 There will also be capital costs for tribes that shift from Class II to Class III machines. However, if Class III machines do

in fact perform better than compliant Class II machines, then the gaming revenue gains (and non-gaming revenue gains 

associated with the gaming revenue gains) may offset increased capital costs. 

19 Report Submitted to the

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The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

gaming, the software, player interfaces, and titles are not replaced based on a typical 

Class III machine lifecycle (e.g., five years). Software and player interfaces are 

typically only replaced or modified if they are damaged or switched out with a new 

system, which is not all that often. Also, relative to the number of total player 

interfaces (50,000 plus), there are not a lot of available titles. Thus, titles are not often 

retired or discarded by Class II system manufacturers. In fact, many titles (e.g., 

Rocket Classic from Rocket Gaming Systems, Red Hot Ruby and Mr. Money Bags 

from VGT, and Red White & Blue from IGT) have been around for quite a long 

time.61

(2) Deployment costs – delivery and installation of newly compliant Class II gaming 

systems, including software, player interfaces, titles, and other related components if 

necessary. 

(3) Compliance Costs – test lab fees for ensuring the software, player interfaces, and 

titles are compliant with the proposed regulations. 

(4) Regulatory costs – increased costs of regulating new and/or modified Class II 

systems following the proposed regulations. 

(5) Training costs – increased costs to Indian gaming facilities to acclimate casino 

employees and customers with compliant Class II machines. 

(6) Revenue-sharing costs – increased payments to state and local governments if tribes 

shift from Class II machines to Class III machines as a result of the enactment of the 

proposed regulations; only relevant in states where tribes have revenue sharing 

agreements in their gaming compacts. 

It should be noted that it is uncertain whether these increased costs would be 

entirely offset by the increase in Class III machine revenue. This would depend on 

how much more revenue Class III machines generate relative to Class II machines, as 

well as other costs (e.g., capital, deployment, compliance, regulatory, training, and 

financing costs) that may be incurred by tribes to switch from Class II to Class III 

machines. 

(7) Financing costs – for existing financing, such as for the construction or renovation of 

gaming facilities, a decrease in Class II machine revenue and gaming facility closures 

may trigger additional costs, such as increased interest rates, penalties, and possibly 

even defaults; for future financing, the result may be higher financing costs, inferior 

financing terms, and possibly the inability to obtain financing at all. 

Lost Tribal Member Jobs 

If Indian gaming facilities, and subsequently tribal governments, experience a decrease in 

revenue as a result of the proposed regulations, tribes may find it necessary to reduce the 

size of their workforces, which typically include tribal members. 

 

61 Discussions with Class II system manufacturers. 

20 Report Submitted to the

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The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

Decreased Innovation in the Class II Gaming Machine Market 

Lastly, the proposed regulations are likely to stifle innovation in the Class II machine gaming 

market. First, the proposed regulations would certainly take the industry backwards in 

terms of technological development. I believe there is universal agreement on this. 

However, this seems to be in line with the main goal of the proposed regulations – to draw a 

clearer distinction between Class II and Class III machines. 

Second, there is less incentive to conduct further research and development for Class II 

systems as a result of: tighter regulations; decreased revenue generation capabilities; fewer 

Class II system manufacturers and decreased competition; and increased costs, including 

difficulties in obtaining financing (for both manufacturers to develop Class II systems and 

tribes to purchase/lease Class II systems) and huge investments in non-growth activities 

such as making Class II systems compliant with the proposed regulations.

THE GENERAL ECONOMIC IMPACT ON INDIAN GAMING 

The proposed regulations would also have other broader economic impacts on Indian 

gaming, including: 

(1) Decreased leverage in Class III compact negotiations/renegotiations; 

(2) Restriction of new entry into the Class II machine market; and 

(3) Changes in competition for Class III gaming. 

Decreased Leverage in Class III Compact Negotiations/Renegotiations 

In accordance with IGRA, Class III gaming compacts govern the operation of Class III 

gaming. The negotiation/renegotiation of compacts is often a very difficult process. Thus, 

as in most types of negotiations, relative bargaining positions are very important. The party 

that has the stronger bargaining position is more likely to get a favorable outcome on issues 

within the negotiation/renegotiation. In terms of gaming compacts, important issues 

include tribal sovereignty, the degree of state regulatory authority, the types and number of 

games, the number of gaming facilities, revenue sharing, economic benefits conferred upon 

tribes in exchange for revenue sharing (e.g., exclusivity), and voluntary compliance with 

various non-tribal regulations (e.g., environmental and labor). 

In the negotiation/renegotiation of compacts, Class II machine gaming has played an 

important role by serving as leverage for tribes. If states refuse to negotiate/renegotiate 

gaming compacts or do not do so in good faith, tribes can turn to Class II machines, over 

which the state has no say. In essence, Class II machines can serve as a fallback position for 

tribes. 

However, if the viability of Class II machines is diminished (i.e., a decrease in revenue 

and/or an increase in costs), as is expected to be the case with the October 2007 proposed 

21 Report Submitted to the

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The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

regulations, at least some of a tribe’s leverage in negotiating/renegotiating gaming compacts 

would be lost. The degree of the lost leverage ultimately depends on other circumstances, 

such as competition, the types and quantity of gaming contemplated, whether the compact is 

for new gaming or the expansion of existing gaming, and the well-being of both state and 

tribal economies. But if sufficient leverage is lost, the result could be refusals by states to 

negotiate/renegotiate gaming compacts or tribes having to negotiate unfavorable compacts 

(e.g., curtailing of tribal sovereignty or an increase in revenue sharing). 

Restriction of New Entry into the Class II Machine Market 

New entry into the Class II machine market, in the form of new and expanded Class II 

gaming facilities, would likely be restricted under the proposed regulations. The expected 

decrease in revenue and expected increase in costs of operating compliant Class II machines 

(as noted in previous sections of this chapter) would substantially reduce the potential 

profitability of Class II machines. This, in turn, could make it uneconomical to construct 

new facilities or renovate existing ones. While this result is likely to limit the extent of future 

competition in Class II machine gaming markets, the benefits of reduced competition would 

accrue to tribes operating compliant Class II machines. However, this impact may not be 

significant if the market potential for compliant Class II machines is small to begin with. 

Changes in Competition for Class III Gaming 

While the proposed Class II regulations may provide greater clarity regarding the distinction 

between Class II and Class III machines,62 they will do so in a way that will likely affect the 

degree of competition in the Indian gaming industry. First, consumers are likely to view 

compliant Class II machines as less desirable substitutes for Class III machines than existing 

Class II machines. This would decrease the ability of Class II machines to compete against 

Class III gaming. Gaming patrons may just participate at alternative locations, including 

Class III gaming facilities. While this would result in a negative impact on Class II machine 

operators, it could have a positive impact on Class III gaming facilities if they garner the 

additional business. 

Second, if the proposed regulations force some tribes to shift from Class II machines to Class 

III machines, this could increase the degree of competition within the Class III machine 

gaming market. 

 

62 If the proposed regulations amend game definitions and classification standards to more clearly define Class II gaming, 

they may help create some sense of stability in the marketplace. In the past, there has been some sense of uncertainty as 

to what is allowed. In fact, the NIGC has had a number of disputes with tribes and Class II system manufacturers over 

what is and what is not a Class II machine. As a result, there has been and continues to be a potential threat by the NIGC 

to fine or close down facilities that it deems not to be in compliance. 

22 Report Submitted to the

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The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

4. Data 

As identified below, I have compiled information from what I believe to be reliable sources. 

While third-party data were not independently audited, they were cross-checked with other 

sources wherever possible. 

Data on the number of gaming machines in calendar year 2006 were obtained from a few 

sources. Total machine counts per Indian gaming facility were gathered at the end of 2006 as 

part of my annual Indian gaming study, the Indian Gaming Industry Report.63 For Class IIonly facilities, the Class II machine counts were equal to the total machine counts given that 

there were no other types of machines available. For Class III facilities with Class II 

machines, the total machine counts were equal to the sum of Class II and III machine counts. 

Furthermore, with the exception of Oklahoma, Class II machine counts were not separable 

from the total machine counts. Thus, it was necessary to use Class II machine counts 

provided by the NIGC in October/November 2006. Unfortunately, there were no facility 

counts for Oklahoma. Thus, I calculated the statewide Oklahoma Class II count as the 

statewide total machine count, which was available in the Indian Gaming Industry Report, 

minus the statewide Class III machine count, which was available from the State of 

Oklahoma.64 Note that the use of a statewide Oklahoma Class II machine count required all 

Oklahoma revenue and ratio calculations (e.g., gaming revenue and non-gaming revenue) to 

be done at the statewide level, not on a facility by facility basis, as done for all other states. 

Also, note that for facilities only open a portion of 2006 (i.e., they opened or closed during 

2006), their machine counts were prorated for the portion of the year they were operated. 

Tribal financial information, including gaming revenue and non-gaming revenue, were 

provided confidentially by the NIGC.65 I understand that these data come directly from 

audited financial statements submitted by tribes to the NIGC.66 The most recent year of 

available data is 2006. For a small number of gaming facilities, financial information was 

incomplete in the NIGC data.67 It is my understanding that these data gaps may be the 

result of information not being submitted by tribes on time. While the facilities with missing 

values could not be included in the calculation of market statistics defined below (e.g., 

revenue per machine per day and ratio of non-gaming to gaming revenue), they were still 

included in the quantifiable impacts.68

Generally, gaming revenue is defined as all amounts wagered minus prizes and payouts. 

Class II machine revenue, which is of primary interest in this report, was not explicitly 

 

63 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 64 State of Oklahoma, Office of State Finance. 

65 As noted in footnote 168, transfers of profits from gaming facilities to tribal governments were also reviewed. 

66 Data were provided in electronic databases. 

67 Gaming revenue was not available for five facilities, including a small subset of gaming facilities with Class II machines 

(three of 158 facilities in 2006). 

68 In terms of lost gaming revenue, these facilities were accounted for in the number of machines to which revenue per 

machine per day was applied. For further discussion of the methodology for calculating lost gaming revenue, see the 

Lost Gaming Revenue section of Chapter 5. 

23 Report Submitted to the

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The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

provided in the tribal financial information provided by the NIGC. Therefore, for all 

facilities with Class II machines, Class II machine revenue was calculated as a proportion of 

total gaming revenue.69 Based upon the nationwide Indian gaming data, total machine 

revenue is approximately 90 percent of total gaming revenue.70 For Class II gaming 

facilities, total machine revenue is equal to Class II machine revenue because all machines 

are Class II. For Class III facilities with Class II machines, total machine revenue includes 

revenue from both Class II and Class III machines. Therefore, in order to separate out Class 

II machine revenue, it was assumed to be proportional to the share of Class II machines 

relative to total machines in operation. In other words, total machine revenue was 

multiplied by the ratio of the number of Class II machines to the total number of gaming 

machines. In order to account for the fact that Class III machines have a higher revenue 

generation capability than Class II machines, Class III machines were more heavily weighted 

than Class II machines in this computation. Based upon an analysis of NIGC data and 

discussions with Class II system manufacturers, I have assumed that the nationwide average 

revenue per Class III machine is approximately one and a half times that of the nationwide 

average revenue per Class II machine. Thus, Class III machines were given a weight of one 

and a half times that of Class II machines in the aforementioned ratio. 

Non-gaming revenue is defined as any gaming facility revenue that is not directly generated 

by gaming activities. Non-gaming revenue includes revenue from food and beverages, 

lodging, retail, entertainment, and any other non-gaming operations. In order to estimate 

non-gaming revenue attributable to Class II machines at each facility, it was calculated as a 

proportion of total non-gaming revenue.71 Specifically, total non-gaming revenue was 

multiplied by the ratio of Class II machine revenue to total gaming revenue. 

Market statistics (e.g., revenue per machine per day, and the ratio of non-gaming revenue to 

gaming revenue) were calculated using all facilities for which relevant data were available in 

each particular analysis (i.e., Scenarios 1, 2A, 2B, and 3). Revenue per machine per day was 

computed as Class II machine revenue divided by the number of Class II machines in 

operation divided by the number of days in the year. The ratio of non-gaming revenue to 

gaming revenue was computed in relation to Class II machines only. Thus, the ratio of nongaming revenue to gaming revenue was calculated as the sum of non-gaming revenue from 

all relevant facilities, divided by the sum of gaming revenue from all relevant facilities, 

multiplied by the ratio of Class II machine revenue to total gaming revenue. 

 

69 For Oklahoma, given that the Class II machine count was only available on a statewide basis, Class II machine revenue 

was calculated on a statewide basis. Also, given that Class III gaming revenue could be reliably estimated from revenue 

sharing payments, Class II machine revenue was estimated as total gaming revenue minus Class III gaming revenue. 

Source for revenue sharing payment data: State of Oklahoma, Office of State Finance. 70 Analysis of data from Joseph Eve, The 2007 Indian Gaming Cost of Doing Business Report, 2007. 

71 For Oklahoma, given that the Class II machine count was only available on a statewide basis, Class II-related nongaming revenue was calculated on a statewide basis. 

24 Report Submitted to the

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The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

Data on output per worker (i.e., gaming revenue per worker) were derived from information 

underlying the Indian Gaming Industry Report.72

The percentage of gaming facility employees that are tribal members comes from the 

National Indian Gaming Association (NIGA).73

Total industry estimates of capital, deployment, and compliance costs for making Class II 

systems compliant with the October 2007 proposed regulations were provided by Class II 

Class II system manufacturers. Upon request, several manufacturers also provided 

individual company cost estimates. 

 

72 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 

73 NIGA website (http://www.indiangaming.org/library/indian-gaming-facts/index.shtml), accessed November 5, 2007. 

25 Report Submitted to the

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The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

5. Quantitative Analysis of the Potential Economic Impact of 

the Proposed Class II Gaming Regulations 

Although all of the potential economic impacts noted in Chapter 3 are rooted in economic 

theory, some are difficult to quantify and/or lack sufficient data for a quantitative analysis. 

Furthermore, when quantifiable, the impacts must be measured on an aggregate nationwide 

in order to protect the confidentiality of individual tribes’ financial data. However, it is 

important to note that the impacts may vary significantly from state to state, tribe to tribe, 

and facility to facility depending on the particular circumstances of each situation. 

Given these limitations, I have estimated the magnitude of the economic impacts that are 

readily quantifiable: lost gaming revenue; lost non-gaming revenue; increased revenuesharing costs; increased capital, deployment, and compliance costs; and lost tribal member 

jobs. While the other potential economic impacts from Chapter 3 were not quantifiable at 

this time, they should be considered qualitatively in conjunction with the quantified impacts. 

LOST GAMING REVENUE 

As noted in Chapter 3, the proposed Class II regulations will lead to Class II gaming 

machines that are inferior to existing Class II machines. This would lead to a decrease in 

gaming revenue for tribes that continue operating Class II machines. 

State-By-State Review of Class II Machine Gaming 

In 2006, there were 15 states where Class II gaming machines were operated by tribes: 

Alabama; Alaska; Arizona; California; Florida; Minnesota; Montana; Nebraska; New York; 

Oklahoma; South Dakota; Texas; Washington; Wisconsin; and Wyoming. Each state is 

briefly reviewed below to provide some context for the lost gaming revenue analysis.74 

Appendix C provides a list of the Indian gaming facilities that operated Class II gaming 

machines in 2006. 

Alabama 

In Alabama, the Poarch Band of Creek Indians operates Class II gaming machines. In 2006, it 

operated three gaming facilities with a total of 2,101 Class II machines.75 As reflected by the 

growth of its facilities, the Tribe has experienced success with Class II machines. 

However, the Tribe’s gaming facilities have seen increased competition in the last couple of 

years. First, beginning at the end of 2003, greyhound racetracks in Alabama began operating 

electronic bingo machines that are somewhat faster than existing Class II machines operated 

 

74 Background on each state is based upon input gathered from tribes, casinos, Class II system manufacturers, NIGC staff, 

and state gaming regulatory agencies, as well as my research conducted outside the scope of this assignment. 

75 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 

26 Report Submitted to the

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The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

by the Tribe76 Second, in early 2006, new competition came in the form of “sweepstakes 

machines,” which look and sound much like slot machines.77 While the intricacies of these 

sweepstakes machines are beyond the scope of this study, it is my understanding that they 

identify whether or not a patron won a pre-determined sweepstakes.78 Although legally 

challenged at first, a court decision has deemed these devices to be legal under existing law 

and they have subsequently spread throughout the state.79

The increased competition, which would be considered Class III gaming under existing 

game classification advisory opinions issued by the NIGC’s Office of General Counsel, has 

already had a negative impact on the Tribe’s gaming facilities.80 Meanwhile, the Tribe 

believes that is entitled to operate Class III gaming given the type of gaming already 

operated in the state. However, the State of Alabama is unwilling to enter into a gaming 

compact with the Tribe. Therefore, the Tribe has requested Secretarial Procedures in order 

to operate Class III gaming.81 At this time, no significant progress has been made in this 

regard. 

Given the current situation, if the NIGC’s proposed Class II regulations are enacted, the 

Tribe would be forced to replace all of its existing Class II machines with compliant devices. 

In light of the scope of the proposed Class II regulations, any new compliant Class II gaming 

machine would be inferior to the Tribe’s existing devices, as well as competitor’s devices 

(i.e., electronic bingo machines at greyhound racetracks and sweepstakes machines). 

Alaska 

In 2006, there was only one tribe, the Metlakatla Indian Community, operating Class II 

gaming machines in Alaska.82 It operated 30 Class II machines in its single facility,83 which 

is in a remote part of the state. Competition is very limited in the area. There is only 

charitable gaming, which allows bingo and pull-tabs, but only in paper form. 

If the proposed Class II regulations are enacted, the Tribe would have no choice but to 

replace its existing Class II machines with compliant ones. Although, the compliant 

 

76 Based upon discussions with tribal representatives, Class II system manufacturers, and NIGC staff. 

77 Rose, Nelson, “Court Approves Racino’s Non-Slot Machines,” Casino City Times, June 18, 2006 

(http://rose.casinocitytimes.com/articles/27582.html). 

78 I understand that patrons purchase Internet access cards, and that in doing so, they also receive sweepstakes entries. In 

order to determine whether an entry was a winner or not, patrons have to either access an Internet website, call an 800 

number, or use the sweepstakes machine as an electronic reader. 

79 Rose, Nelson, “Court Approves Racino’s Non-Slot Machines,” Casino City Times, June 18, 2006 

(http://rose.casinocitytimes.com/articles/27582.html). 

80 Based upon discussion with a tribal representative and a cursory review of NIGC data. 

81 When a tribe has been unable to negotiate a compact with a state, the Secretary of the Department of the Interior can 

intercede and prescribe procedures under which Class III gaming may be conducted. Secretarial procedures are 

authorized by IGRA (25 U.S.C § 2710(d)(7)(vii)). 

82 While a number of other tribes, Native Villages, and tribal organizations operate bingo and pull-tabs, they are not 

regulated as Class II gaming. They are in fact licensed by the State of Alaska as municipalities and non-profit 

organizations qualified to conduct charitable gaming activities. None of these charitable gaming activities are allowed to 

utilize electronic gaming devices. Source: Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: 

Casino City Press. 

83 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 

27 Report Submitted to the

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The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

machines would be inferior to existing gaming machines operated by the Tribe, they would 

still be superior to current charitable gaming. 

Arizona 

In Arizona, tribes primarily offer Class III gaming. In 2006, 15 tribes operated a total of 

12,713 gaming machines in 26 facilities (three of which were only traditional bingo halls).84 

Of these machines, only 56 (less than one percent) were Class II.85 These machines were 

offered at two facilities. One of them had 16 Class II machines alongside 950 Class III 

machines. The other facility was a small Class II-only facility with 40 Class II machines. 

As reflected by the foregoing counts, Class II machines currently play a minor role in 

Arizona. This is a result of how the tribes’ gaming compacts are structured.86 While, 

revenue from Class II machines is not subject to revenue sharing with the State of Arizona 

like revenue from Class III gaming, Class II machines count towards a tribe’s machine cap 

just like Class III machines. 

Therefore, if the proposed Class II regulations were enacted, tribes operating Class II 

machines could shift to Class III machines, which generally generate higher revenue per 

machine, but which would require revenue sharing, which is done on a tiered, sliding scale 

basis of one to eight percent of net win.87

California 

Like tribes in Arizona, California tribes primarily offer Class III gaming. In 2006, 54 tribes 

operated a total of 62,732 gaming machines in 57 facilities.88 Of these machines, 4,215 (seven 

percent) were Class II.89 These machines were offered at eight facilities across the state. 

In seven of those eight facilities, Class II machines were used to supplement Class III 

machines, which were restricted to a machine cap per 1999 gaming compacts.90 These seven 

facilities, which are operated by five tribes (Morongo Band of Mission Indians, Pechanga 

 

84 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. Machine counts at Arizona 

Indian gaming facilities that were open only part of 2006 were prorated. 

85 Arizona Department of Gaming, Status of Tribal Gaming in Arizona as of 1/1/07, January 2007. 

86 Each tribe has an initial gaming machine allocation, which increases every five years in accordance with the growth of 

the state population. On top of this initial allocation, each tribe has an additional gaming machine allocation. This 

additional allocation represents the number of devices that can be acquired from other tribes not operating their full 

initial allocation or from the State if a tribe is unable to acquire devices from another tribe. A tribe may operate up to 40 

Class II machines per gaming facility, but they count against the tribe’s additional allocation. Any Class II machines over 

40 would count against the tribe’s initial allocation. Source: Model Tribal-State Gaming Compact, Arizona, 2003. 

87 One percent of the first $25 million dollars of Class III net win; three percent of the next $50 million dollars; six percent 

of the next $25 million dollars; and eight percent of Class III net win in excess of $100 million dollars. Source: Model 

Tribal-State Gaming Compact, Arizona, 2003. 

88 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 

89 Source: NIGC, October/November 2006. Due to data limitations, it was assumed that the number of Class II machines 

at the end of 2006 was equal to that in October/November 2006. 

90 Some tribes, including one of the six with Class II machines, have even been held below their Class III machine cap as a 

result of the statewide machine cap, which according to the California Gambling Control Commission, has already been 

reached. Tribes have disagreed with this conclusion. 

28 Report Submitted to the

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The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

Band of Luiseño Indians, Rincon Band of Luiseño Mission Indians, San Manuel Band of 

Mission Indians, and Sycuan Band of the Kumeyaay Nation), had 3,195 Class II machines in 

2006.91

The other facility with Class II machines was operated by the Lytton Band of Pomo Indians 

(“Lytton Band”). This facility had 1,020 Class II machines in 2006.92 The Lytton Band 

operates Class II machines by necessity because it does not have a gaming compact with the 

State of California. Although a compact was entered into by the Tribe and Governor 

Schwarzenegger in 2004, it did not ultimately receive the required approval from the State 

Legislature. Furthermore, given the current political environment and strong opposition 

facing the Tribe, it seems very unlikely that the Tribe will be able to get a compact approved 

for its urban location. 

If the proposed Class II regulations were enacted, the Lytton Band would be forced to switch 

to compliant Class II machines because it has no other viable gaming option. And there 

would be an identical effect on any other uncompacted tribes that may wish to operate Class 

II machines in the future. 

As for existing gaming tribes that already have compacts, including those tribes operating 

Class II machines within their Class III facilities, they have the ability to increase the number 

of Class III machines they can operate by renegotiating their compacts.93 The ability to do so 

is evidenced by the recent flurry of renegotiated compacts. In 2004, five tribes successfully 

renegotiated their compacts to allow for an increase in the number of Class III machines they 

can operate.94 Also, four of the five tribes operating Class II machines (all but the Rincon 

Band) renegotiated compacts with the Governor in August 2006 and obtained ratification 

from the State Legislature in 2007.95

California tribes not only have the ability to increase their number of Class III machines by 

renegotiating their compacts, they are likely to be better off in terms of gaming revenue too. 

If this were not the case, then the aforementioned tribes with Class II machines would not 

have recently agreed to the renegotiated compacts. 

It is important to note that there are potential drawbacks to adding more Class III machines 

through compact renegotiations (for more details, see Chapter 3 under Decreased Leverage 

 

91 NIGC. 

92 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 

93 Per the most-favored tribe clause in the 1999 compacts, California gaming tribes that have not amended their compacts 

have the right to the same terms and conditions as those tribes that have amended their compacts. 94 In fact, the restriction on the number of machines was eliminated in the 2004 amended compacts. And although the 

tribes can operate as many machines as they want, the revenue-sharing rate increases as the number of machines 

increases. 

95 The gaming compact amendment for the Agua Caliente Band of Mission Indians was also ratified by the California 

State Legislature. However, this Tribe does not have any Class II machines. It is duly noted that four renegotiated 

compacts, namely those for the Agua Caliente Band of Cahuilla Indians, Morongo Band of Mission Indians, the Pechanga 

Band of Luiseño Indians, and Sycuan Band of the Kumeyaay Nation, are being challenged by voter referenda. Racetracks, 

hotel unions, and a couple other Indian tribes are attempting to invalidate these renegotiated compacts via voter 

referenda. 

29 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

in Class III Compact Negotiations/Renegotiations). The Tribes with recently renegotiated 

compacts had to make some concessions, including increased revenue sharing of 15 to 25 

percent of Class III machine net win, depending on the number of additional Class III 

machines added per tribe. Also, in the long run, substantial increases in the supply of Class 

III machines in the market could reduce profit margins. 

Florida 

There are two tribes with Class II gaming machines in Florida. In 2006, they operated a 

combined total of 8,615 Class II machines in eight facilities.96 While the tribes have wanted 

to operate Class III gaming for some time, they had been unable to get the State of Florida to 

negotiate gaming compacts. Thus, Secretarial Procedures were requested in order to operate 

Class III gaming.97 This process, which began back in 1994, made little progress until 

recently. 

Over the past year or so, the Department of the Interior has been threatening to issue 

Secretarial Procedures for the Tribe’s operation of Class III gaming if a gaming compact is 

not soon negotiated between the State of Florida and the Seminole Tribe of Florida.98 This 

has been encouraging news for the Seminole Tribe. However, in August 2007, the Fifth 

Circuit Court of Appeals ruled that Secretarial Procedures were “invalid and constitute[d] an 

unreasonable interpretation of IGRA.”99 While the decision only directly affects the 

geographic area covered by the Fifth Circuit, it may very well lead to legal challenges in 

other Circuits, including that which has jurisdiction over Florida.100 In fact, I understand 

that the State of Florida has planned to take legal action to impede Secretarial Procedures 

from being enacted if they are issued. As of the writing of this report, I understand that the 

Department of the Interior is petitioning the Fifth Circuit Court of Appeals for a 

reconsideration of its recent decision. If the petition fails, the case could go to the U.S. 

Supreme Court. 

Nonetheless, with a new governor stepping in and Secretarial Procedures looming, the State 

began negotiating with the Seminole Tribe in 2007. And finally on November 14, 2007 the 

Seminole Tribe of Florida and the Governor of Florida signed a Class III gaming compact 

that would allow the Tribe to operate Class III gaming machines and some house-banked 

table games (e.g., blackjack and baccarat,).101 While this gaming compact received the 

 

96 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 97 Statement of the Honorable James E. Billie, Chairman, Seminole Tribe of Florida, before the Senate Committee on Indian 

Affairs, July 21, 1999. 

98 Letter from Dirk Kempthorne, Secretary of the United States Department of the Interior, to Charlie Crist, Governor of 

Florida, June 22, 2007. 

99 State of Texas v. United States of America, et al., United States Court of Appeals, Fifth Circuit, “Appeal from the United 

States District Court for the Western District of Texas,” filed August 17, 2007 and revised September 13, 2007 (see p. 41). 

100 Discussion with George Skibine, Acting Principal Deputy Assistant Secretary for Indian Affairs at the Department of 

the Interior, September 26, 2007. 

101 Compact Between the Seminole Tribe of Florida and the State of Florida, November 14, 2007 (published in the Federal 

Register on January 7, 2008). 

30 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

required federal approval in early January 2008,102 the Florida State Legislature has filed a 

petition asking the Florida Supreme Court to declare the Seminole Tribe’s compact invalid 

unless and until it is approved by the State Legislature.103 Currently, no decision has been 

rendered by the Court. And it is my understanding that the Seminole Tribe does not plan to 

add any Class III machines until the matter is decided. If the gaming compact is found to be 

valid, then the Tribe can offer Class III machines in place of its Class II machines, and 

according to the compact, all Class II machines would need to be converted to Class III 

machines within five years of the effective date of the compact. However, if the gaming 

compact is found to be invalid, then the Tribe would be forced to continue operating Class II 

machines unless and until its gaming compact is ratified by the State Legislature or 

Secretarial Procedures are enacted by the Department of the Interior. And given the current 

demeanor sentiment of the Legislature, it is uncertain whether a compact would be ratified. 

In any case, aside from the Seminole Tribe, there is uncertainty regarding the operation of 

Class II machines by the Miccosukee Tribe of Indians of Florida. “Due to various on-going 

[sic] legal developments,” the Tribe’s requests for Secretarial Procedures and a tribal-state 

gaming compact have been deferred indefinitely.104

Given all of the uncertainty regarding if and when Class III gaming may be available in 

Florida, it has been assumed that the proposed regulations would force the tribes to switch 

to inferior Class II gaming. 

Minnesota 

Akin to Arizona and California, Minnesota is a Class III gaming state with a relatively small 

amount of Class II gaming. In 2006, 12 tribes operated a total of 20,931 gaming machines in 

35 facilities.105 Of these machines, 113 (less than one percent) were Class II.106 They were 

offered at 14 small Class II-only facilities. All of these facilities are operated on fee lands 

within the reservation of the White Earth Band of Chippewa Indians (“White Earth Band”) 

and some are actually owned by non-tribal members.107

Per its gaming compact, the White Earth Band is not limited in terms of the number of Class 

III gaming machines that can be operated at its Class III gaming facility.108 However, I 

understand that the small gaming operations on fee lands are not covered by the Tribe’s 

compact and, therefore, they are restricted to Class II gaming.109 Therefore, if the proposed 

 

102 Notice of Deemed Approved Tribal-State Class III Gaming Compact, between the Seminole Tribe of Florida and the 

State of Florida, Federal Register, January 7, 2008, Volume 73, No. 4, p. 1229. 103 Florida House of Representatives, et al. v. Charlie Crist, in his capacity as Governor of Florida, Supreme Court of Florida, 

Petition for Writ of Quo Warranto, November 19, 2007. 

104 Letter from Counsel for the Miccosukee Tribe of Indians of Florida to the Office of Indian Gaming within the 

Department of the Interior, the U.S. Department of Justice, and the Office of the Governor of Florida, January 9, 2008. 

105 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 106 Source: NIGC, October/November 2006. Due to data limitations, it was assumed that the number of Class II machines 

at the end of 2006 was equal to that in October/November 2006. 

107 Based upon a discussion with NIGC staff. 

108 Tribal-State Compact, For the Control of Class III Video Games of Chance on the White Earth Band of Chippewa 

Reservation in Minnesota, effective October 3, 1991. 

109 Based upon a discussion with NIGC staff. 

31 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

regulations went into effect, the White Earth Band would have no choice but to replace 

existing Class II machines with compliant Class II machines. 

Montana 

In 2006, six Montana tribes operated a total of 1,098 gaming machines in 25 facilities.110 Of 

these machines, 535 (49 percent) were Class II.111 They were operated in a total of seven 

facilities, including at least one facility for each gaming tribe in the state. 

The gaming compacts in Montana are very restrictive relative to those in other states in 

terms of gaming machines. The compacts not only cap the number of Class III machines that 

can be operated per facility,112 but they also restrict the type of allowable machines (i.e., only 

video bingo, video keno, and video poker) and their operation (e.g., payouts and hours of 

operations).113 In fact, I understand that Class III machines in Montana may be on par with 

or possibly even inferior to existing Class II machines in terms of performance.114 In 

addition, non-tribal businesses (e.g., taverns and gas stations) located on tribal reservations 

are able to license Class III machine equivalents from the State just like similar businesses 

not located on the reservations.115 Thus, Montana tribes face this unusual source of 

competition on their own land. 

Given the quality of Class III gaming in Montana, tribes have been using Class II machines to 

supplement Class III machines. In fact, two tribes, the Blackfeet Tribe and Confederated 

Tribes of Salish and Kootenai, no longer have Class III gaming compacts with the State. 

Upon their expiration, the tribes chose not to renew their compacts. Thus, they currently 

only operate Class II machines. If the proposed Class II regulations went into effect, existing 

Class II machines for these two tribes would have to switch to compliant Class II machines. 

Also, given that most of the Montana tribes are at or near their machine caps, they would 

have to make their Class II machines compliant with the proposed regulations. 

 

110 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 111 Source: NIGC, October/November 2006. Due to data limitations, it was assumed that the number of Class II machines 

at the end of 2006 was equal to that in October/November 2006. 

112 Montana Department of Justice, Gambling Control Division website, accessed September 25, 2006 

(http://doj.mt.gov/gaming/tribalgamingcompacts.asp). 113 Agreement Between the Assiniboine and Sioux Tribes of the Fort Peck Reservation and the State of Montana, July 1, 

1992; Interim Agreement Between the Blackfeet Indian Tribe of the Blackfeet Reservation and the State of Montana, 

October 26, 1996; Amendment to the Interim Compact Between the Chippewa Cree Tribe of the Rocky Boy Reservation 

and the State of Montana, November 21, 2005; Agreement Between the Confederated Salish and Kootenai Tribes of the 

Flathead Nation and the State of Montana, October 12, 2001; Agreement Between the Crow Indian Tribe and the State of 

Montana, June 12, 1998; and Agreement Between the Northern Cheyenne Tribe and the State of Montana, July 19, 2002. 

114 Based upon a discussion with NIGC staff. 

115 Based upon discussions with tribal casino representatives. 

32 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

Nebraska 

In 2006, three tribes operated a combined total of 314 Class II machines in four facilities.116 

Approximately 61 percent of these machines were located within one of the four facilities. 

The remainder of the Class II devices were operated in three relatively small facilities. 

The tribes in Nebraska serve relatively small markets with competition in adjacent states, 

namely Iowa and South Dakota, which both offer Class III gaming. While the tribes have 

wanted to operate Class III gaming for some time, they have been unable to get the State of 

Nebraska to negotiate gaming compacts. Thus, Secretarial Procedures were requested 

approximately 10 years ago in order to operate Class III gaming.117 However, the State has 

not been open to this request. 

Therefore, if the NIGC’s proposed Class II regulations were enacted, Nebraska tribes would 

have no choice but to adopt compliant Class II machines. 

New York 

In 2006, three tribes operated a total of 10,907 gaming machines in seven facilities in New 

York.118 Of this total, 1,287 (12 percent) were Class II.119 These Class II machines were 

operated at three gaming facilities. 

All three of the facilities are restricted to Class II gaming as they are not covered by gaming 

compacts. And if the NIGC’s proposed Class II regulations went into effect, these facilities 

would have no choice but to replace existing machines with compliant machines. 

Oklahoma 

Prior to 2005, Oklahoma tribes only offered Class II gaming, including bingo and pull-tab 

machines. However, pursuant to gaming compacts entered into in 2005, tribes began 

offering Class III gaming machines and non-house banked card games.120 In 2006, 31 tribes 

operated a total of 37,760 gaming machines in 94 gaming facilities.121 As of the end of 

calendar year 2006, the majority of gaming machines were still Class II. Twenty-seven tribes 

 

116 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 117 Discussion with tribal representative. 

118 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 119 Source: NIGC, October/November 2006. Due to data limitations, it was assumed that the number of Class II machines 

at the end of 2006 was equal to that in October/November 2006. 

120 These Class III machines, which are referred to as “compacted machines,” include electronic bonanza-style bingo, 

amusement/skill games (e.g., video poker), and instant bingo. Source: Model Tribal Gaming Compact, Oklahoma, 2005; 

Multimedia Games, Inc., Form 10-K, For the Fiscal Year Ended September 30, 2005. 

121 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 

33 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

operated 30,044 machines (about 80 percent of the total number of machines) in 87 

facilities.122 Thus, only 7,716 machines were Class III. 

However, the shift to Class III machines has steadily continued. As of the end of September 

2007, the number of Class III devices jumped to 22,566.123 In fact, some facilities are all Class 

III now.124 In addition, the success of Class III devices has improved significantly. When 

first introduced, Class III machines were not performing as well as Class II machines. 

However, more recently, Class III machines have been outperforming Class II machines.125 

For calendar year 2006, revenue per Class II machine per day was approximately $125.126 

Revenue per Class III machine per day has grown from approximately $128 in September 

2006 to $140 in December 2006, $152 in March 2007, $142 in June 2007, and $145 in September 

2007.127 

Given the above, if the proposed Class II regulations are enacted, tribes would be forced to 

shift to all Class III machines. However, as discussed in the Increased Costs section of 

Chapter 3, the tribes would have to incur additional revenue-sharing costs in order to 

operate more Class III machines. Per their gaming compacts, tribes must pay four to six 

percent of Class III machine net win to the State.128

South Dakota 

In 2006, the nine South Dakota tribes operated a total of 2,209 gaming machines in 12 

facilities.129 These facilities primarily offered Class III gaming. However, Class III machines 

are subject to a cap. As a result, two of the facilities also offered Class II machines to 

supplement their Class III machines. Of the total number of gaming devices, only 64 (three 

percent) were Class II.130

I understand that the tribes have been interested in renegotiating their compacts in order to 

increase their Class III machine caps. However, the State has refused to renegotiate with 

them. Some claim that the State will not renegotiate because it does not want to potentially 

 

122 Sources: Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press; State of 

Oklahoma, Office of State Finance. The Indian Gaming Industry Report counted 94 Indian gaming facilities in Oklahoma, 

while there are only 87 included in this report. One gaming facility, the Keetoowah Cherokee Casino, was excluded from 

this report because it was not considered to be Indian gaming by the NIGC (the facility is not considered to be on “Indian 

lands”). In addition, there were six other gaming facilities excluded from this report because they did not have Class II 

machines (i.e., they were traditional bingo halls or Class III gaming facilities). 123 State of Oklahoma, Office of State Finance. 

124 Based upon discussions with industry participants and NIGC staff. 

125 This finding was confirmed in discussions with industry participants. 126 Analysis Group estimates based upon data from the State of Oklahoma, Office of State Finance. 

127 Analysis Group estimates based upon data from the State of Oklahoma, Office of State Finance. Revenue per Class III 

machine was calculated on a quarterly basis because Class III machine counts were only available on a quarterly basis. 128 For Class III machines, revenue sharing payments are four percent of the first $10 million of Class III machine revenue, 

five percent of the next $10 million, and six percent of Class III machine revenue in excess of $20 million. Source: Model 

Tribal Gaming Compacts, Oklahoma, 2005. 

129 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 

130 Source: NIGC, October/November 2006. Due to data limitations, it was assumed that the number of Class II machines 

at the end of 2006 was equal to that in October/November 2006. 

34 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

hurt its own video lottery revenue.131 Therefore, given the current situation, if the proposed 

Class II regulations went into effect, the tribes would have to switch to compliant Class II 

machines to supplement their Class III gaming. 

Texas 

There is only one tribe, the Kickapoo Traditional Tribe of Texas, operating an Indian gaming 

facility in Texas.132 In 2006, it operated two Class II-only facilities. However, only one of 

them had Class II machines. The other only operated traditional bingo. The total number of 

Class II machines operated by the Tribe in 2006 was 1,325.133 Despite its very rural location 

along the border of Mexico, it has done well and continued to increase its capacity. 

However, over time there has been an increase in competition from commercial facilities 

with gaming machines that pay out low-stakes, non-cash prizes.134 The Tribe has noted that 

it would be at a severe competitive disadvantage if the proposed Class II regulations went 

into effect and forced them to shift to inferior machines.135

Thus, as has been the case for some time, the Tribe would like to operate Class III gaming. 

However, the State of Texas refuses to enter into a gaming compact with the Tribe. 

Therefore, the Tribe has requested Secretarial Procedures. In May 2007, the Tribe received 

some positive news from the Department of the Interior in the form of a preliminary 

decision regarding the scope of gaming that should be allowed by the Tribe.136 According to 

the Department, the next step was to try and bring the State and the Tribe back to the 

negotiating table. However, this positive news was trumped by a recent decision by the 

Fifth Circuit Court of Appeals in which Secretarial Procedures were deemed to be invalid.137 

As of the writing of this report, I understand that the Department of the Interior is 

petitioning the Court for a reconsideration of its decision. However, until and unless there is 

a change in this recent decision, the Department cannot issue Secretarial Procedures in the 

geographic area covered by the Fifth Circuit, including Texas. 

Given the current situation, if the NIGC’s proposed Class II regulations are enacted, the 

Tribe would have no choice but to replace existing Class II machines with inferior compliant 

devices. 

 

131 Discussions with industry participants. 

132 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 133 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 134 NIGC staff and a tribal representative. 

135 These gaming devices at commercial facilities currently remain under legal challenge. Source: Tribal representative. 

136 State of Texas v. United States of America, et al., United States Court of Appeals, Fifth Circuit, “Appeal from the United 

States District Court for the Western District of Texas,” filed August 17, 2007 and revised September 13, 2007 (see footnote 

2 on p. 11 of the Court’s decision). 

137 State of Texas v. United States of America, et al., United States Court of Appeals, Fifth Circuit, “Appeal from the United 

States District Court for the Western District of Texas,” filed August 17, 2007 and revised September 13, 2007 (see p. 41 of 

the Court’s decision). 

35 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

Washington 

In 2006, there were 22 tribes primarily operating Class III gaming in 29 gaming facilities in 

Washington.138 The total statewide machine count at these facilities was 20,006,139 with 

1,771 being Class II machines (nine percent).140 As is the case with other Class III states, 

tribes have been supplementing their Class III gaming with Class II machines.141 This was 

due to the fact that gaming compacts limit the maximum number of Class III devices and 

gaming facilities tribes can have.142 Tribes also have to pay a small amount of revenue 

sharing (0.5 percent) on Class III devices, commonly referred to as Tribal Lottery Systems. 

In early 2007, Washington tribes renegotiated their gaming compacts to allow for an increase 

in the number of Class III gaming machines, as well as fewer restrictions on gaming (e.g., 

allowance of cash-operated machines; allowance of one-touch machines; no-limit betting on 

table games, and no restrictions on gaming facility hours of operations). Thus, if the 

proposed Class II regulations were enacted, tribes could swap out existing Class II machines 

for improved Class III machines. However, as in Arizona, California, and Oklahoma, this 

would result in an increase in revenue-sharing costs. Not only would the tribes have to pay 

up to 0.5 percent of Class III machine revenue per their original gaming compacts, they 

would also have to pay an additional 0.26 percent of Class III machine revenue to the State 

per the compact amendments.143

It should be noted that Washington tribes may not be able to swap Class II machines for 

Class III machines at some point in the future if they reach their new increased Class III 

machine caps. And while the total number of Class II machines being operated in 

Washington in 2007 is still less than the total number of additional Class III machines 

allowed per the new gaming compact amendments, tribes have been continuing to add new 

Class II machines.144

Wisconsin 

In 2006, 11 Wisconsin tribes operated a total of 15,682 gaming machines in 26 facilities.145 Of 

this total, 361 (two percent) were Class II.146 All of these Class II machines were operated in 

one gaming facility, Dejope Bingo and Entertainment, which was operated by the Ho-Chunk 

Nation. Per an amendment to its compact, the Tribe can only operate Class III gaming at this 

 

138 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 

139 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 140 Source: NIGC, October/November 2006. Due to data limitations, it was assumed that the number of Class II machines 

at the end of 2006 was equal to that in October/November 2006. 

141 Source: NIGC, October/November 2006. Due to data limitations, it was assumed that the percentage of Class II 

machines relative to total machines in October/November 2006 was applicable to the end of 2006. 

142 Based upon discussions with industry participants, the vast majority of Class II machines are being used to supplement 

Class III machines. 

143 Appendix X2 to the Tribal-State of Washington Class III Gaming Compacts, 2007. 

144 It should be noted that the full features of the new Class III machines allowed under the compact amendments have 

not been fully available as of yet given that they are still awaiting approval from the State. It is expected that new Class 

III machines will far outperform existing Class II and Class III machines. Source: Discussions with industry participants. 145 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 

146 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 

36 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

facility if the Governor of Wisconsin is given authorization by voter referendum or passage 

of a local city council resolution.147

Given that the Dejope facility has not received the required approval, it remains a Class IIonly facility. Therefore, if the NIGC’s proposed Class II regulations are enacted, the Tribe 

would have no choice but to replace existing Class II machines with compliant devices. 

Wyoming 

The Northern Arapaho Tribe was the only gaming tribe in Wyoming in 2006.148,149 Up until 

September 2005, when Secretarial Procedures were approved by the Department of the 

Interior, the Tribe was only able to offer Class II gaming. However, Secretarial Procedures 

allowed the Tribe to operate Class III gaming without directly entering into a gaming 

compact with the State of Wyoming, which had refused to negotiate with the Tribe. While 

the Tribe introduced Class III machines into its two facilities in 2006, there were still 94 Class 

II devices in operation (21 percent of all machines).150

If the NIGC’s proposed Class II regulations are enacted, the Tribe would be able to replace 

all of its Class II machines with Class III devices. 

Aggregate Methodology for Estimating Lost Gaming Revenue 

In order to estimate aggregate lost gaming revenue as a result of the October 2007 proposed 

regulations, I calculate the difference between actual gaming revenue generated by existing 

Class II gaming machines and estimated gaming revenue generated by Class II gaming 

machines under the proposed regulations. 

Actual Gaming Revenue 

The first step in calculating lost gaming revenue is computing actual Class II machine 

revenue under existing practices. Actual Class II machine revenue is simply a summation of 

all Class II machine revenue at Indian gaming facilities in 2006, the last year for which tribal 

financial information and machine counts were available. To compute revenue per machine 

per day, a commonly-used industry metric, I divide the actual Class II machine revenue by 

the actual number of Class II machines, and then divide again by 365 days. 

 

147 Second Amendment to the Wisconsin Winnebago Tribe, Now Known as the Ho-Chunk Nation, and the State of 

Wisconsin Gaming Compact of 1992. 

148 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 

149 The Eastern Shoshone Tribe, which shares a reservation with the Northern Arapaho Tribe, will be able to offer Class III 

gaming in the near future now that it has a gaming compact. Following the approval of Secretarial Procedures for the 

Northern Arapaho Tribe, the State of Wyoming entered into a gaming compact with the Eastern Shoshone Tribe. 

150 Source: NIGC, October/November 2006. Due to data limitations, it was assumed that the number of Class II machines 

at the end of 2006 was equal to that in October/November 2006. 

37 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

Estimated Gaming Revenue Under the October 2007 Proposed Regulations 

The second step in calculating lost gaming revenue is the estimation of expected Class II 

machine revenue under the October 2007 proposed regulations. Expected Class II machine 

revenue is calculated by multiplying the expected revenue per Class II machine by the 

expected number of Class II machines. Because the proposed regulations reflect a 

hypothetical situation that is very different than the actual world, both expected revenue per 

Class II machine and expected number of Class II machines must be estimated. 

For expected revenue per Class II machine in my study of the May 2006 proposed 

regulations (see Appendix G), I undertook a comparables analysis. Based upon my review 

of various gaming systems and independent discussions with various industry participants, 

I concluded that MegaMania was the Class II system that most closely resembled the 

requirements of those proposed regulations. In light of the similarities, I assumed that Class 

II machines under the proposed regulations would perform similar to MegaMania. 

Specifically, revenue per machine per day for compliant Class II machines was assumed to 

be equal to that of MegaMania, after adjusting for inflation. MegaMania’s average revenue 

per machine per day from 1997 through 2001 was approximately $58.151 After adjusting for 

inflation, the average revenue per machine per day for MegaMania equated to $69.152 This 

was approximately 64 percent lower than the actual 2006 nationwide revenue per Class II 

machine, which was $191.153 This estimated decrease in Class II machine revenue was 

corroborated by an independent simulation analysis conducted for the NIGC by BMM North 

America, Inc. (BMM), a global gaming industry test lab.154 The results of BMM’s 

simulations related to the May 2006 proposed regulation are reproduced in Appendix D. 

Under the October 2007 proposed regulations, it is likely that Class II machines would 

perform somewhat better than under the May 2006 proposed regulations. As previously 

noted, Class II machines would not be as slow and cumbersome to play given a reduction in 

time delays and required daubing. However, Class II machines will still be slower, more 

cumbersome, and less appealing than what is being operated in Class II gaming facilities 

 

151 MegaMania generated revenue of $20.5 million from 950 machines in fiscal year 1997, $49.5 million from 2,140 

machines in fiscal year 1998, $73.1 million from 3,600 machines in fiscal year 1999, $79.2 million from 3,870 machines in 

fiscal year 2000, and $73.6 million from 3,432 machines in fiscal year 2001. Thus, MegaMania’s weighted average revenue 

per machine per day = Σ (MegaMania revenue) / Σ (Number of MegaMania machines) / Number of Days in the Year = 

($20.5 million+$49.5 million+$73.1 million+$79.2 million+$73.6 million) / (950+2,140+3,600+3,870+3,432) / 365 = $57.94. 

Although MegaMania machines were in the market in fiscal year 1996, that year was excluded from the analysis because 

it was a startup year. Years following 2001 were also excluded because 2001 was the last year before Multimedia’s next 

generation of Class II machines, MegaNanza, began to replace MegaMania. In addition, 2001 was the first year that 

significant competition entered into the Class II gaming machine market against Multimedia. Sources: Multimedia 

Games, Inc., Form 10-KSBs/10Ks, For the Fiscal Years Ended September 30, 1997, 1998, 1999, 2000, and 2001; discussions 

with industry participants. 

152 Actual revenue per machine per day values (i.e., the year in which they occurred) were converted to constant 2006 

values using the Consumer Price Index (CPI-U). Source: U.S. Department of Labor Statistics, Bureau of Labor Statistics. 

Thus, MegaMania’s weighted average revenue per machine per day = ($25.8 million+$61.2 million+$88.5 million+$92.7 

million+$83.8 million) / (950+2,140+3,600+3,870+3,432) / 365 = $68.91. 

153 Decrease in revenue per Class II machine = (MegaMania’s revenue per machine – actual 2006 revenue per Class II 

machine)/actual 2006 revenue per Class II machine = ($69-$191)/$191 = – 63.9%. Actual 2006 revenue per Class II 

machine is based upon an analysis of tribal financial data provided by the NIGC. 154 BMM North America, Inc., Comparison of Various Class II Configuration Options – Analysis II, October 15, 2007. 

38 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

today. In addition, remaining inconsistencies in the performance of compliant games under 

the October 2007 proposed regulations will still likely lead to confusion among players. In 

fact, MegaMania still seems to be the most comparable Class II system for which useable 

performance data are available.155 As shown in Table 3, MegaMania machines had nearly 

all of the key features required by the newly proposed classification standards.156

Given that there are no other comparables available for the analysis of the October 2007 

proposed regulations, it is not possible to do a comparables analysis like I conducted in my 

study of the May 2006 proposed regulations.157 However, given that the October 2007 

proposed classification standards are a less restrictive version of the May 2006 proposed 

regulations,158 the decrease in machine performance under the May 2006 proposed 

regulations served as the upper bound for the potential gaming revenue loss (or the 

percentage decrease in revenue per machine per day). And as previously noted above, the 

average revenue per machine per day for the May 2006 comparables analysis (i.e., 

MegaMania) was $69 after adjusting for inflation. This reflected a 64 percent decrease from 

the actual 2006 nationwide revenue per Class II machine. 

From this starting point, I considered the incremental impact of the changes made from the 

May 2006 proposed regulations to the October 2007 proposed regulations. As noted before, 

the most dramatic of these incremental changes was the increase in the allowable speed of 

Class II games. While the speed of games is important to players, as well as casino 

operators, it is not the only important feature of Class II machines. In fact, it may not even 

be the most important feature. According to discussions with industry participants, various 

game features contribute to the success of Class II gaming machines, including the perceived 

chance of winning (i.e., the math), visual appeal (i.e., graphics and game titles), 

entertainment value, and speed of the game. However, unlike other game features, game 

speed does not necessarily attract players. In fact, game speed can be more of potential 

detractor (if too slow) than an attractor (if fast). No matter how fast a gaming machine is, if 

casino patrons do not view it as entertaining and/or perceive there to be a decent chance of 

winning, then they will not play it. On the other hand, a slower machine may still be 

successful as long as casino patrons view it as entertaining and/or perceive there to be a 

decent chance of winning. 

In any case, it is difficult, if not impossible, to quantifiably measure what part of Class II 

machine performance is attributable to each particular feature of the machines. However, 

using simulation analysis, it is possible to measure and compare the isolated effect of game 

speed on machine performance under the May 2006 and October 2007 proposed regulations. 

 

155 Based upon discussions with industry participants and the NIGC. 

156 Multimedia Games, Inc., Form 10-KSB/10Ks, For the Fiscal Years Ended September 30, 1996, 1999, and 2005; 

discussions with industry participants. 

157 Using MegaMania as the comparable for the analysis of the October 2007 proposed regulations would merely yield the 

same results as the analysis of the May 2006 proposed regulations. 

158 In terms of the changes to the classification standards, which are the driving force behind the gaming revenue losses, 

the NIGC started with the May 2006 version and made modifications to arrive at the October 2007 version. The facsimile 

definition may also contribute to gaming revenue losses, but only if the proposed regulations renders Class II systems 

unlawful or technologically unfeasible. 

39 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

Table 3. Comparison of MegaMania Features to the October 2007 Proposed Classification Standards

Bingo Game Features1 MegaMania

9

9

9

9

9

9

9

9

9

9

9

9

9

9

9

9

9

9

9

9

9

9

9

9

9

9

 Notes:

1.

2.

3.

4.

5.

6.

 Sources: 

"Residual credit removal" is not permitted.

"Free games" are permitted as a marketing tool as long as all players participating in the game that led to 

the free games receive the same number of free games.

The use of a paytable for determining prizes is permitted.

Pre-designated interim prizes may be offered but all players in a game must be competing for the same 

set of prizes.

"Stand-alone progressives" and "mystery jackpots" are not permitted.

A "gamble feature" is not permitted.

A game-winning prize must be awarded in every game.

Gaming-winning prizes may be less than the amount wagered, provided they are no less than one cent.6

Prizes must be based on events directly related to the game.

All prizes, except for progressive prizes, must be fixed in amount or established by formula and be 

disclosed to all players in the game.

Numbers must be randomly drawn (without replacement) in real time or very near real time to the actual 

play of the game.

Different entry wagers are permitted.

The prizes in the game may be increased or progressive prizes offered based upon a different entry 

wager.

Game-winning prizes must be based upon achieving pre-designated winning patterns common for all 

players.

An "ante-up" format is permitted.

An "auto-daub" feature is not permitted; thus, players must take overt action to daub numbers at least 

one time in each round after numbers are drawn.

The minimum time for players to daub numbers is two seconds, unless all players have daubbed.5

A game is won by the first person covering the pre-designated game-winning pattern.

There must be one or more release of numbers before a game-winning pattern is created.

Each card played in a game must have an equal chance of obtaining any game-winning pattern.

The game must prominently display a message that it is a game of bingo or game similar to bingo.

A two inch by two inch bingo card must be displayed at all times.3

Game results may be presented in alternative technologic displays (e.g., game theme graphics, spinning 

reels, or other imagery) as long as the game results on the electronic bingo card are always shown.4

Players must compete against one another.

A game can begin with a minimum of two players if six players do not enter a game within two seconds 

after the first player enters.2

Bingo cards must be used; however, those cards may be electronic.

Bingo cards must be provided to players before numbers are drawn.

Proposed Rule, 25 CFR Part 502, Definition for Electronic or Electromechanical Facsimile, Federal Register 71 (101), 

May 25, 2006; Proposed Rule, 25 CFR Part 502 and 546, Classification Standards, Class II Gaming, Bingo, Lotto, et 

al., Federal Register 71 (101), May 25, 2006; Multimedia Games, Inc., Form 10-KSB, For the Fiscal Year Ended 

September 30, 1996; Multimedia Games, Inc., Form 10-K, For the Fiscal Year Ended September 30, 1999; Multimedia 

Games, Inc., Form 10-K, For the Fiscal Year Ended September 30, 2005; discussions with industry participants.

Game features are set forth in the proposed Class II regulations.

MegaMania could not begin with less than 12 players.

In MegaMania, the bingo card took up 1/3 to 1/4 of the screen; the rest showed other game information.

MegaMania had no alternative technological displays; the bingo card and other game information took up the entire 

screen.

MegaMania had a 15-second time delay between ball drops.

MegaMania's game-winning prizes were approximately 85% of the amount wagered.

The result of this comparison would assume that game speed is the only factor that matters 

in determining machine performance. However, as previously discussed, the October 2007 

proposed regulations still pose restrictions on other important machine features, such as the 

perceived chance of winning, visual appeal, and entertainment value. Thus, the isolated 

40 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

effect of game speed would serve as the lower bound for the potential gaming revenue loss 

under the October 2007 proposed regulations. 

In light of the foregoing, I asked BMM to run simulations reflecting the estimated game 

speeds under the May 2006 and October 2007 proposed regulations.159 The results of these 

As was expected, due to reduction

simulations are shown in Table 4. 

s in required time delays, the Class II machine operating 

under the October 2007 proposed regulations clearly outperformed the machine operating 

g 

d that 

oposed 

using the results of the comparables analysis for the May 2006 proposed regulations 

and the incremental speed analysis for the October 2007 proposed regulations, we have a 

 

Table 4. Potential Increase in the Performance of the October 2007 Proposed Regulations

BMM Simulation Results

Version of Regulations Games Coin In Games Coin In Games Coin In Games Coin In

May 2006 4.44 4,863.86 4.80 15,778.65 4.67 18,001.83 4.64 12,881.45

October 2007 9.22 10,146.63 10.87 35,849.00 10.18 39,018.16 10.09 28,337.93

Percentage Increase in Performance 107.7% 108.6% 126.5% 127.2% 118.0% 116.7% 117.6% 120.0%

 Notes:

1. The duration of each simulation was 12 hours.

2. Simulation 1 is based upon the assumption that there are only 2 active players.

3. Simulation 2 is based upon the assumption that there are always 6 active players.

4.

 Source: BMM North America, Inc., Comparison of Various Class II Configuration Options - Analysis II, October 15, 2007.

Simulation 3 is based upon the assumption that a random number of players between 2 and 12 will participate in each game.

Average

Machine Performance (Rate Per Minute)1

1st Simulation2 2nd Simulation3 3rd Simulation4

under the May 2006 proposed regulations. In fact, in terms of coin in, it yielded a 120 

percent increase over the May 2006 proposed regulations. Thus, if speed were the only thin

that mattered in terms of the performance of a Class II machine, then it could be inferre

Class II machines operating under the October 2007 proposed regulations would yield an 

average revenue per machine per day that is 120 percent greater than that for the 

comparable relied upon in my analysis of the May 2006 proposed regulations. Given that 

MegaMania generated an average of $69 per machine per day, the October 2007 pr

regulations would be estimated to yield approximately $152 per machine per day,160 which

is about 21 percent less than the actual 2006 nationwide revenue per Class II machine of 

$191. 

Thus, 

very reliable range for the likely impact of the October 2007 proposed regulations (21 to 64 

percent decrease in revenue per Class II machine per day). However, the endpoints of this

range are unlikely to be realistic given that a number of factors, including game speed, 

determine machine performance. Furthermore, this range is somewhat large. This was 

159 According to BMM (BMM North America, Inc., Comparison of Various Class II Configurations Options – Analysis II, 

October 15, 2007), the October 2007 proposed regulations were a 60 to 75 percent improvement in speed over the May 

2006 proposed regulations. Existing one-touch and two-touch Class II machines were estimated to play in approximately 

three seconds and five seconds, respectively. Machines compliant with the May 2006 and October 2007 proposed 

regulations were estimated to play in approximately 13 seconds and seven seconds, respectively. 160 Potential revenue per machine per day for the October 2006 proposed regulations = (revenue per machine per day for 

the May 2006 proposed regulations) x [1+(percent increase from May 2006 to October 2007 proposed regulations)] = ($69) 

x [1+1.2] ≈ $152. 

41 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

confirmed by an informal survey of industry participants, including Class II system 

manufacturers and design consultants, where game speed was deemed to contribute 

between 25 and 75 percent of the success of Class II gaming machines. Despite this 

somewhat large range, the median response was 50 percent and the mean response w

percent.

as 45 

 slower game speed caused 50 percent of the total negative impact of the May 

2006 proposed regulations, then the expected decrease in revenue per Class II machine per 

r 

hine 

rcent of the total negative impact 

of the May 2006 proposed regulations, then the expected decrease in machine performance 

ental changes made to the May 2006 proposed regulations, including an 

increase in speed, and the restrictions that still remain in the October 2007 proposed 

cent. 

regulations, it is likely that Indian gaming facilities would initially modify or replace all 

us, 

able 

en a 

 

161

If in fact the

day under the October 2007 proposed regulations would be the midpoint of the 

aforementioned 21 to 64 percent range, or 42 percent. And this would represent revenue pe

machine per day of approximately $110,162 which is a 60 percent increase in mac

performance over the May 2006 proposed regulations.163

However, if the slower game speed caused less than 50 pe

under the October 2007 proposed regulations would be even greater than 42 percent, in fact,

somewhere between 42 and 64 percent. This range would reflect revenue per machine per 

day of $69 to $110, or alternatively 0 to 60 percent increase over the May 2006 proposed 

regulations. 

Given the increm

regulations, I have concluded that best point estimate for the expected decrease in Class II 

gaming machine performance under the October 2007 proposed regulations is 42 per

For the expected number of Class II machines in 2006 under the October 2007 proposed 

existing Class II machines in order to be compliant with the proposed regulations.164 Th

the expected number of machines would remain at the actual 2006 level. For reference, T

2 sets forth the number of Class II machines by state in 2006. Given the availability of floor 

space in the absence of existing Class II machines and the uncertainty regarding the viability 

of compliant Class II machines, this would be a reasonable starting point for a gaming 

facility. However, if the compliant Class II machines are sufficiently less appealing to 

patrons such that there is not sufficient demand for the existing number of machines, th

161 These survey results should not necessarily be considered to have any statistical significance due to the informal nature 

of the survey and a small sample size. However, the results do corroborate the choice of 50 percent as a reasonable 

estimate for the portion of the decrease in Class II machine performance under the May 2006 proposed regulations that is 

due to reduced game speed. 

162 Revenue per machine per day under the October 2007 proposed regulations = (revenue per machine per day under the 

existing practices) X (percentage decrease in revenue per machine going from existing Class II machines to those 

compliant with the October 2007 proposed regulations) = $191 x (1-0.42) ≈ $110. 163 Percentage increase from May 2006 proposed regulations = (revenue per machine per day under the October 2007 

proposed regulations – revenue per machine per day under the May 2006 proposed regulations)/revenue per machine 

per day under the May 2006 proposed regulations = ($110-$69)/$69 ≈ 60%. 164 Based upon discussions with various casino operations personnel. 

42 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

decrease in the machine count might be in order. From an economic perspective, gaming 

facilities would only remove a machine when the marginal cost exceeds the marginal benefit. 

Lost Gaming Revenue 

The third step in calculating lost gaming revenue is taking the difference between actual 

ons 

f 

Results of the Aggregate Methodology for Estimating Lost Gaming Revenue 

As in my updated report regarding the May 2006 proposed regulation (see Appendix G), lost 

Scenario 1: All Class II machines are replaced or modified to make them compliant 

Scenario 2A: All Class II machines without viable alternatives are replaced or modified 

 

gaming revenue and estimated gaming revenue generated by Class II gaming machines 

under the proposed regulations. This computation needs to be made for the first year in 

which gaming revenue would be lost. Assuming that the October 2007 proposed regulati

would be effective January 2008 and given the five-year grandfathering period (i.e., January 

2008 through December 2012), the first full year of lost gaming revenue would be calendar 

year 2013. Given that actual and estimated gaming revenue, and thus lost gaming revenue,

are in 2006 dollars, I calculate lost gaming revenue in 2013 by growing the 2006 value at the 

10-year (1997-2006) compound annual growth rate for gaming revenue at Indian gaming 

facilities, which is 14.6 percent.165 In order to convert this 2013 value to current dollars 

(2008),166 I discount it using a discount rate of 9.38 percent, which is the estimated cost o

capital for the gaming industry.167

gaming revenue is calculated for four scenarios: 

with the proposed regulations. 

to make them compliant with the proposed regulations. 

165 Source for compound annual growth rate: Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: 

Casino City Press. Note that the general growth rate for all of Indian gaming may underestimate the potential growth of 

Class II machine gaming because Class II gaming has tended to grow faster than Class III gaming or Indian gaming in 

general. However, growth rates for Class II machine gaming were not available. Also, the 10-year average rate, which 

includes historical rates that are generally higher than more current rates, may overestimate future growth rates. 

However, the 10-year rate is likely to be a more stable representation of potential growth than the rate for a single recent 

year. Also, any overestimation caused by using a 10-year rate would be offset to some degree by the underestimation 

caused by using a general Indian gaming growth rate. 166 Technically, if the midpoint discounting convention is used, there is a little over six months difference between the date 

of this report and the midpoint of the first year of lost gaming revenue. This partial year difference would have the effect 

of reducing the 2013 values slightly more in order to bring them back to current dollars. However, it should be noted that 

2006 tribal financial data, which are the basis for the lost gaming revenue analysis, were for tribal fiscal year 2006. This 

means that the 2006 tribal financial data actually represent a one-year period that starts before calendar year 2006 starts 

and ends before calendar year 2006 ends. Based upon my review of the 2006 tribal financial data, the large majority of 

tribes have fiscal years ending September. Thus, if the 2006 data were to actually represent the period of October 2005 

through September 2006, the 2006 lost gaming revenue estimates in this report technically should be grown an additional 

three months (more if the average fiscal year end date is earlier than September). In order to avoid all of these partial year

calculations, both in terms of growth and discounting, I used full calendar year periods for my analysis. 167 The discount rate is the median Weighted Average Cost of Capital (CAPM) for U.S. SIC Code 7999, which includes the 

gaming industry. Source: Ibbotson Associates, Cost of Capital 2006 Yearbook, 2006. 

43 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

44 Report Submitted to the

 National Indian Gaming Commission

Scenario 2B: All Class II machines without viable alternatives are shut down because the 

proposed regulations render them unfeasible. 

Scenario 3: All Class II machines without viable alternatives and which are not 

considered by the NIGC to be “illegal” are replaced or modified to make 

them compliant with the proposed regulations. 

For each scenario except Scenario 2B, I calculate lost gaming revenue using 64 percent, 42 

percent, and 21 percent decreases in revenue per Class II machine per day. Scenario 2B 

assumes a 100 percent decrease in revenue per Class II machine per day. Note that all actual 

2006 market statistics (e.g., Class II machine revenue, number of Class II machines, and 

revenue per Class II machine per day) were recalculated for each scenario based upon the set 

of gaming facilities included in that scenario. 

Scenario 1 

Scenario 1 assumes that all gaming facilities operating Class II machines would suffer a 

decrease in gaming revenue as a result of the enactment of the proposed Class II regulations. 

See Appendix C for a list of all gaming facilities with Class II machines in 2006. In my expert 

opinion, this scenario is likely to overstate lost gaming revenue under the proposed 

regulations because some tribes have viable alternatives to compliant Class II machines. 

Thus, I present Scenario 1 merely as a starting point for Scenarios 2A, 2B, and 3. 

As shown in Table 5, revenue per Class II machine per day was $191 for the base model in 

Scenario 1. Given that there were 50,924 Class II machines, this equates to actual 2006 Class 

II machine revenue of approximately $3.551 billion. If actual revenue per Class II machine 

decreases 42 percent under the October 2007 proposed regulations, it would yield average 

revenue per Class II machine per day of approximately $110. Applying this figure to the 

50,924 Class II machines over 365 days yields expected 2006 Class II machine revenue of 

approximately $2.049 billion. 

Therefore, lost 2006 gaming revenue would be the difference between actual 2006 Class II 

machine revenue ($3.551 billion) and expected 2006 Class II machine revenue ($2.049 billion), 

which is approximately $1.501 billion. For 2013, the first year in which losses would be 

incurred, the present value (2008) of lost gaming revenue is estimated to be approximately 

$2.494 billion. 
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

Table 5. Lost Gaming Revenue

Scenario 1

Percentage Decrease Under New Regulations 21% 42% 64% 

Actual1

Revenue/Class II Machine/Day $191 $191 $191

Number of Class II Machines 50,924 50,924 50,924

Days Per Year 365 365 365

Class II Machine Revenue (2006 $ Millions) $3,550.7 $3,550.7 $3,550.7

Percentage Decrease Under New Regulations2

Revenue/Class II Machine/Day 21% 42% 64%

Under Class II Regulations3

Revenue/Class II Machine/Day under Old Regulations $69 $69 $69

Percent Increase in Performance 120% 60% 0%

Revenue/Class II Machine/Day under New Regulations $152 $110 $69

Number of Class II Machines 50,924 50,924 50,924

Days per Year 365 365 365

Class II Machine Revenue (2006 $ Millions) $2,817.8 $2,049.4 $1,280.9

Lost Gaming Revenue (2006 $ Millions) $732.9 $1,501.3 $2,269.8

Lost Gaming Revenue (Current $ Millions)4 $1,217.6 $2,494.3 $3,771.0

Notes:

1.

2.

3.

4.

Sources:

NIGC data; Indian Gaming Industry Report; Analysis Group estimates; Ibbotson Cost of Capital 

2006 Yearbook.

The 64% decrease assumes that the October 2007 regulations would not materially alter the 

performance of Class II machines compliant with the May 2006 regulations. The 21% 

decrease assumes that the speed increases in the October 2007 regulations would directly 

increase on a 1-percent-to-1-percent basis the performance of Class II machines compliant 

with the May 2006 regulations. The 42% decrease is the midpoint between the 64% and 21% 

decreases.

Current dollars (2008) are estimated by growing 2006 values to 2013, the first year following 

the grandfathering period assuming the proposed regulations are enacted January 2008, and 

then discounting the 2013 values back to 2008. The 2006 values are grown at the 10-year 

compound annual growth rate for Indian gaming, which is 14.6%. The 2013 values are 

discounted using a discount rate of 9.38%, which is the median Weighted Average Cost of 

Capital (CAPM) for U.S. SIC Code 7999, which includes the gaming industry.

Actual values are for 2006, the last year for which data are available.

For comparison to Actual, values for Under Class II Regulations are also for 2006.

45 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

Scenario 2 

Scenario 2 deviates from Scenario 1 in that it excludes Class II machines for which there are 

viable alternatives, such as Class III machines. Thus, Scenario 2 yields the gaming revenue 

loss after excluding the Class II machine revenue losses that are expected to be fully 

mitigated by Class III machine revenue gains. As a result, it is my opinion that the base 

model in Scenario 2 is the best estimate of the aggregate gaming revenue loss as a result of 

the proposed Class II regulations. 

Per the state-by-state review set forth earlier in this report, the states excluded from this 

scenario but not Scenario 1 are: Arizona; California (except for the Lytton Band’s gaming 

facility); Oklahoma; Washington; and Wyoming. Therefore, the states that remain in 

Scenario 2 are: Alabama; Alaska; California (only the Lytton Band’s gaming facility); 

Florida; Minnesota; Montana; Nebraska; New York; South Dakota; Texas; and Wisconsin. 

See Appendix E for a list of all gaming facilities included in Scenario 2. 

There are two variations of Scenario 2. Scenario 2A assumes that compliant Class II 

machines will be feasible gaming devices. Scenario 2B assumes that compliant Class II 

machines will not be feasible gaming devices. The latter scenario reflects some industry 

participants’ beliefs that the proposed regulations will render Class II machines unlawful or 

technologically unfeasible. If this is the case, then lost gaming revenue would be equal to all 

Class II machine revenue where there are no viable alternatives to compliant Class II 

machines. 

As shown in Table 6, assuming a 42 percent decrease in machine performance under the 

October 2007 proposed regulations, the present value of lost gaming revenue in 2013 is 

estimated to be approximately $1.180 billion in Scenario 2A.168

 

168 Note that lost tribal government revenue that results from lost gaming revenue (set forth in Table 5) and associated lost 

non-gaming revenue (set forth in Table 9) would equate to $556.5 million. Note that lost tribal government revenue is not 

additive with lost gaming and non-gaming revenues given that lost tribal government revenue is derived from lost 

gaming and non-gaming revenues. In order to measure the decrease in tribal government revenue, I took the ratio of 

Class II machine-related tribal government revenue to Class II machine-related casino revenue (i.e., the amount of tribal 

government revenue generated for each dollar of Class II machine-related casino revenue generated, including both 

gaming and non-gaming revenue) and applied it to the loss in gaming and non-gaming revenue. The proportion of tribal 

government revenue that was attributable to Class II machines was assumed to be equal to the ratio of Class II machine 

revenue to total gaming revenue. According to aggregate tribal financial data, tribal government revenue was 

approximately 34 percent of total casino revenue (i.e., gaming revenue plus non-gaming revenue) in 2006. For Indian 

gaming facilities with Class II machines, the contribution was much less at 20 percent of total casino revenue. Assuming 

that the October 2007 proposed regulations would be effective January 2008 and given the five-year grandfathering 

period (i.e., January 2008 through December 2012), the first full year of lost tribal government revenue would be calendar 

year 2013. Given that lost Class II machine-related casino revenue and the ratio of tribal government revenue to Class II 

machines-related casino revenue, and thus lost tribal government revenue, are in 2006 dollars, I calculate lost tribal 

government revenue in 2013 by growing the 2006 value at the 5-year (2002-2006) compound annual growth rate for tribal 

government revenue for all of Indian gaming, which is approximately 16.7 percent. In order to convert this 2013 value to 

current dollars (2008), I discount it using a discount rate of 9.38 percent, which is the estimated cost of capital for the 

gaming industry. The discount rate is the median Weighted Average Cost of Capital (CAPM) for U.S. SIC Code 7999 

(Source: Ibbotson Associates, Cost of Capital 2006 Yearbook), which includes the gaming industry. 

46 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

Table 6. Lost Gaming Revenue

Scenario 2A

Percentage Decrease Under New Regulations 21% 42% 64% 

Actual1

Revenue/Class II Machine/Day $292 $292 $292

Number of Class II Machines 15,765 15,765 15,765

Days Per Year 365 365 365

Class II Machine Revenue (2006 $ Millions) $1,679.5 $1,679.5 $1,679.5

Percentage Decrease Under New Regulations2

Revenue/Class II Machine/Day 21% 42% 64%

Under Class II Regulations3

Revenue/Class II Machine/Day under Old Regulations $105 $105 $105

Percent Increase in Performance 120% 60% 0%

Revenue/Class II Machine/Day under New Regulations $232 $168 $105

Number of Class II Machines 15,765 15,765 15,765

Days per Year 365 365 365

Class II Machine Revenue ($ Millions) $1,332.9 $969.4 $605.9

Lost Gaming Revenue (2006 $ Millions) $346.7 $710.2 $1,073.6

Lost Gaming Revenue (Current $ Millions)

4 $575.9 $1,179.8 $1,783.7

Notes:

1.

2.

3.

4.

Sources:

NIGC data; Indian Gaming Industry Report; Analysis Group estimates; Ibbotson Cost of Capital 

2006 Yearbook.

Actual values are for 2006, the last year for which data are available.

The 64% decrease assumes that the October 2007 regulations would not materially alter the 

performance of Class II machines compliant with the May 2006 regulations. The 21% 

decrease assumes that the speed increases in the October 2007 regulations would directly 

increase on a 1-percent-to-1-percent basis the performance of Class II machines compliant 

with the May 2006 regulations. The 42% decrease is the midpoint between the 64% and 21% 

decreases.

For comparison to Actual, values for Under Class II Regulations are also for 2006.

Current dollars (2008) are estimated by growing 2006 values to 2013, the first year following 

the grandfathering period assuming the proposed regulations are enacted January 2008, and 

then discounting the 2013 values back to 2008. The 2006 values are grown at the 10-year 

compound annual growth rate for Indian gaming, which is 14.6%. The 2013 values are 

discounted using a discount rate of 9.38%, which is the median Weighted Average Cost of 

Capital (CAPM) for U.S. SIC Code 7999, which includes the gaming industry.

As shown in Table 7, assuming a 100 percent decrease in machine performance under the 

October 2007 proposed regulations, the present value of lost gaming revenue in 2013 is 

estimated to be approximately $2.790 billion in Scenario 2B.169

 

169 Note that lost tribal government revenue associated with this amount of lost gaming revenue (set forth in Table 6) and 

associated lost non-gaming revenue (set forth in Table 9) would equate to $1.3 billion. Again, note that lost tribal 

government revenue is not additive with lost gaming and non-gaming revenues given that lost tribal government 

revenue is derived from lost gaming and non-gaming revenues. 

47 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

Table 7. Lost Gaming Revenue

Scenario 2B

Percentage Decrease Under New Regulations 100%

Actual1

Revenue/Class II Machine/Day $292

Number of Class II Machines 15,765

Days per Year 365

Class II Machine Revenue (2006 $ Millions) $1,679.5

Percentage Decrease Under New Regulations2

Revenue/Class II Machine/Day 100%

Under Class II Regulations3

Revenue/Class II Machine/Day $0

Number of Class II Machines 15,765

Days per Year 365

Class II Machine Revenue (2006 $ Millions) $0.0

Lost Gaming Revenue (2006 $ Millions) $1,679.5

Lost Gaming Revenue (Current $ Millions)

4 $2,790.3

Notes:

1.

2.

3.

4.

Sources:

NIGC data; Indian Gaming Industry Report; Analysis Group estimates; 

Ibbotson Cost of Capital 2006 Yearbook.

Actual values are for 2006, the last year for which data are 

available.

The 100% decrease assumes that the October 2007 regulations 

would render Class II machines unlawful or technologically. In this 

situation, all Class II machine gaming revenue would be lost.

For comparison to Actual, values for Under Class II Regulations 

are also for 2006.

Current dollars (2008) are estimated by growing 2006 values to 

2013, the first year following the grandfathering period assuming 

the proposed regulations are enacted January 2008, and then 

discounting the 2013 values back to 2008. The 2006 values are 

grown at the 10-year compound annual growth rate for Indian 

gaming, which is 14.6%. The 2013 values are discounted using a 

discount rate of 9.38%, which is the median Weighted Average 

Cost of Capital (CAPM) for U.S. SIC Code 7999, which includes the 

gaming industry.

48 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

Scenario 3 

Scenario 3, which was solely developed at the request of the NIGC, reflects the NIGC’s view 

that some Class II gaming machines are “illegal” and therefore should not be included in the 

calculation of lost gaming revenue.170 The NIGC considers gaming machines to be “illegal” 

if they do not comport with game classification or advisory opinions issued by the Office of 

the General Counsel at the NIGC. For the purposes of this report, the NIGC considered all 

one-touch Class II machines to be illegal.171

In total, 52 percent of all Class II machines in operation nationwide in 2006 were considered 

“illegal” by the NIGC. According to the NIGC, “illegal” Class II machines were being 

operated in the following states and are thus excluded from Scenario 3: Arizona; Florida (in 

part); Montana; New York (in part); Oklahoma (in part); South Dakota; Texas (in part); and 

Washington (in part). Some of the aforementioned states with illegal Class II machines, 

namely Arizona, Oklahoma, and Washington, are already excluded from Scenario 2.172 

Thus, using Scenario 2 as a starting point, the following states were then excluded: Florida 

(in part); Montana; New York (in part); South Dakota; and Texas (in part). This left the 

following states in Scenario 3: Alabama; Alaska; California (only the Lytton Band’s gaming 

facility); Florida (in part); Minnesota; Nebraska; New York (in part); Texas (in part); and 

Wisconsin. See Appendix F for a list of all gaming facilities included in Scenario 3. 

As shown in Table 8, assuming a 42 percent decrease in machine performance under the 

October 2007 proposed regulations, the present value of lost gaming revenue in 2013 is 

estimated to be approximately $481.9 million in Scenario 3. 

Other Important Considerations 

It should be reiterated that if the revenue loss to any gaming facility were large enough, it 

could put them out of business. Although such individualized outcomes cannot be 

predicted by the aggregate analysis required in this report, it is a realistic possibility for 

some tribes given the magnitude of the expected revenue loss. And if lost revenue is 

significant enough to force a gaming facility to shut down, then lost gaming revenue would 

equal all Class II machine revenue. 

 

170 Scenario 3 does not reflect my opinion on the likely economic impact of the proposed Class II regulations. Moreover, it 

is my opinion that any decrease in Class II machine revenue, whether illegal or not, fundamentally has a negative 

economic impact on a gaming facility and its respective tribe because that revenue is used to pay employees, purchase 

goods and services, fund tribal government operations and programs, provide for the general welfare of tribal members, 

and promote tribal economic development. Aside from this theoretical issue, rather than excluding all illegal machines in 

their entirety, it may be more appropriate to only exclude the incremental benefits gained by using illegal machines as 

opposed to legal machines. Also, I have no opinion on the legality of existing Class II machines. 171 The NIGC was only aware of the number of touches for Class II machines as of October/November 2006. However, 

the Scenario 3 analysis was based upon machine counts for the end of 2006. Therefore, it was assumed that the 2006 yearend proportion of one-touch machines to total Class II machines for each facility or tribe was the same as the 

October/November 2006 proportion. 

172 Although Wyoming did not have illegal Class II machines in 2006, it was excluded from Scenario 3 given that it was 

already excluded from Scenario 2. 

49 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

Table 8. Lost Gaming Revenue

Scenario 3

Percentage Decrease Under New Regulations 21% 42% 64% 

Actual1

Revenue/Class II Machine/Day

2 $301 $301 $301

Number of Class II Machines3 6,246 6,246 6,246

Days Per Year 365 365 365

Class II Machine Revenue (2006 $ Millions) $686.1 $686.1 $686.1

Percentage Decrease Under New Regulations4

Revenue/Class II Machine/Day 21% 42% 64%

Under Class II Regulations5

Revenue/Class II Machine/Day under Old Regulations $109 $109 $109

Percent Increase in Performance 120% 60% 0%

Revenue/Class II Machine/Day under New Regulations $239 $174 $109

Number of Class II Machines 6,246 6,246 6,246

Days per Year 365 365 365

Class II Machine Revenue (2006 $ Millions) $544.5 $396.0 $247.5

Lost Gaming Revenue (2006 $ Millions) $141.6 $290.1 $438.6

Lost Gaming Revenue (Current $ Millions)6 $235.3 $481.9 $728.6

Notes:

1.

2.

3.

4.

5.

6.

Sources:

Actual values are for 2006, the last year for which data are available.

The 64% decrease assumes that the October 2007 regulations would not materially alter 

the performance of Class II machines compliant with the May 2006 regulations. The 21% 

decrease assumes that the speed increases in the October 2007 regulations would directly 

increase on a 1-percent-to-1-percent basis the performance of Class II machines 

compliant with the May 2006 regulations. The 42% decrease is the midpoint between the 

64% and 21% decreases.

Number of Class II Machines is equal to the total number of legal machines. For details on 

NIGC's determination of legal machines, see the text on Scenario 3. 

NIGC data; Indian Gaming Industry Report; Analysis Group estimates; Ibbotson Cost of 

Capital 2006 Yearbook.

Revenue/Class II Machine/Day is based upon all facilities with legal Class II Machines. For 

details on NIGC's determination of legal machines, see the text on Scenario 3.

Current dollars (2008) are estimated by growing 2006 values to 2013, the first year 

following the grandfathering period assuming the proposed regulations are enacted 

January 2008, and then discounting the 2013 values back to 2008. The 2006 values are 

grown at the 10-year compound annual growth rate for Indian gaming, which is 14.6%. The 

2013 values are discounted using a discount rate of 9.38%, which is the median Weighted 

Average Cost of Capital (CAPM) for U.S. SIC Code 7999, which includes the gaming 

industry.

For comparison to Actual, values for Under Class II Regulations are also for 2006.

50 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

LOST NON-GAMING REVENUE 

If the enactment of the October 2007 proposed regulations results in a reduction in gaming 

revenue, there would likely be a reduction in non-gaming revenue as well. 

Methodology 

In order to measure the decrease in non-gaming revenue, I took the ratio of Class II machinerelated non-gaming revenue to Class II machine revenue (i.e., the amount of non-gaming 

revenue generated for each dollar of Class II machine revenue generated) and applied it to 

the previously estimated gaming revenue loss. As noted in Chapter 4, the proportion of 

non-gaming revenue that was attributable to Class II machines was assumed to be equal to 

the ratio of Class II machine revenue to total gaming revenue. 

Assuming that the October 2007 proposed regulations would be effective January 2008 and 

given the five-year grandfathering period (i.e., January 2008 through December 2012), the 

first full year of lost non-gaming revenue would be calendar year 2013. Given that lost 

gaming revenue and the ratio of non-gaming revenue to gaming revenue, and thus lost nongaming revenue, are in 2006 dollars, I calculate lost non-gaming revenue in 2013 by growing 

the 2006 value at the 5-year (2002-2006) compound annual growth rate for non-gaming 

revenue for all of Indian gaming, which is approximately 17.8 percent.173 In order to convert 

this 2013 value to current dollars (2008), I discount it using a discount rate of 9.38 percent, 

which is the estimated cost of capital for the gaming industry.174

Results 

Using the methodology set forth above, lost non-gaming revenue is calculated for the four 

scenarios defined in the Lost Gaming Revenue analysis. For Scenarios 1, 2A, and 3, I 

calculate lost non-gaming revenue based upon 64 percent, 42 percent, and 21 percent 

decreases in revenue per Class II machine per day. Scenario 2B assumes a 100 percent 

decrease in revenue per Class II machine per day. Note that all market statistics (e.g., the 

ratio of non-gaming revenue to gaming revenue) were recalculated for each scenario based 

upon the set of gaming facilities included. 

As shown in Table 9, assuming a 42 percent decrease in machine performance under the 

October 2007 proposed regulations, the present value of lost non-gaming revenue in 2013 is 

estimated to be approximately $126.9 million in Scenario 2A and $300.2 million in Scenario 

2B. For Scenarios 1 and 3, the present value of lost non-gaming revenue in 2013 is estimated 

to be approximately $131.6 million and $52.5 million, respectively. 

 

173 Analysis of NIGC data. Note that only five years of data were readily available for non-gaming revenue. 

174 The discount rate is the median Weighted Average Cost of Capital (CAPM) for U.S. SIC Code 7999, which includes the 

gaming industry. Source: Ibbotson Associates, Cost of Capital 2006 Yearbook, 2006. 

51 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

Table 9. Lost Non-Gaming Revenue

Percentage Decrease Under New Regulations1 21% 42% 64% 

Scenario 1

Lost Gaming Revenue (2006 $ Millions) $732.9 $1,501.3 $2,269.8

Ratio of Non-Gaming to Gaming Revenue2 4.3% 4.3% 4.3%

Lost Non-Gaming Revenue (2006 $ Millions) $31.8 $65.2 $98.6

Lost Non-Gaming Revenue (Current $ Millions)3 $64.2 $131.6 $198.9

Scenario 2A

Lost Gaming Revenue (2006 $ Millions) $346.7 $710.2 $1,073.6

Ratio of Non-Gaming to Gaming Revenue2 8.9% 8.9% 8.9%

Lost Non-Gaming Revenue (2006 $ Millions) $30.7 $62.9 $95.1

Lost Non-Gaming Revenue (Current $ Millions)3 $62.0 $126.9 $191.9

Scenario 2B4

Lost Gaming Revenue (2006 $ Millions) n/a n/a $1,679.5

Ratio of Non-Gaming to Gaming Revenue2 n/a n/a 8.9%

Lost Non-Gaming Revenue (2006 $ Millions) n/a n/a $148.8

Lost Non-Gaming Revenue (Current $ Millions)3 n/a n/a $300.2

Scenario 3

Lost Gaming Revenue (2006 $ Millions) $141.6 $290.1 $438.6

Ratio of Non-Gaming to Gaming Revenue2 9.0% 9.0% 9.0%

Lost Non-Gaming Revenue (2006 $ Millions) $12.7 $26.0 $39.4

Lost Non-Gaming Revenue (Current $ Millions)

3 $25.6 $52.5 $79.4

Notes:

1.

2.

3.

4. The Percentage Decrease for Scenario 2B is assumed to be 100%.

Sources:

NIGC data; Indian Gaming Industry Report; Analysis Group estimates; Ibbotson Cost of 

Capital 2006 Yearbook.

The 64% decrease assumes that the October 2007 regulations would not materially alter 

the performance of Class II machines compliant with the May 2006 regulations. The 

21% decrease assumes that the speed increases in the October 2007 regulations would 

directly increase on a 1-percent-to-1-percent basis the performance of Class II 

machines compliant with the May 2006 regulations. The 42% decrease is the midpoint 

between the 64% and 21% decreases.

See Chapter 4 for further discussion on calculation of Ratio of Non-Gaming to Gaming 

Revenue. The Ratio varies by Scenario due to the set of gaming facilities included.

Current dollars (2008) are estimated by growing 2006 values to 2013, the first year 

following the grandfathering period assuming the proposed regulations are enacted 

January 2008, and then discounting the 2013 values back to 2008. The 2006 values are 

grown at the 5-year (2002-2006) compound annual growth rate for Non-Gaming 

Revenue, which is 17.8%. The 2013 values are discounted using a discount rate of 

9.38%, which is the median Weighted Average Cost of Capital (CAPM) for U.S. SIC 

Code 7999, which includes the gaming industry.

52 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

INCREASED REVENUE-SHARING COSTS 

If in response to the proposed regulations, some tribes replace existing Class II machines 

with Class III machines (where possible), significant revenue-sharing costs may be incurred 

for the operation of the additional Class III machines. 

Methodology 

For the most part, it is difficult to anticipate revenue-sharing costs, especially when expected 

Class III revenue is uncertain and if there is no existing revenue sharing. Expected revenue 

is based on a variety of factors, including the state of gaming prior to revenue sharing, the 

types of machines to be operated, facility locations, and competition. Furthermore, expected 

revenue sharing rates are derived through unique negotiations and would be based on 

factors that could vary widely depending on the circumstances of each situation. However, 

in Arizona, California, Oklahoma, and Washington, increased revenue-sharing costs can be 

generally estimated because revenue sharing for Class III machines has already been agreed 

upon in existing gaming compacts or gaming compact amendments recently renegotiated. 

As noted in the state-by-state analysis earlier in this chapter, tribes operating Class II 

machines in these states are likely to shift to Class III machines if the proposed regulations 

are enacted. However, there are increased revenue-sharing costs associated with the 

operation of additional Class III machines. Thus, the total increase in revenue-sharing costs 

in each state can be estimated by multiplying the expected increase in Class III machine 

revenue by the appropriate revenue sharing rate. 

The relevant inputs to the revenue sharing analysis for each state are as follows:175

 Arizona: Revenue sharing with the state is one to eight percent of Class III machine 

net win.176 Given available data,177 I estimate the 2006 statewide average revenue 

sharing rate to be approximately 5.3 percent and the 2006 statewide average revenue 

per Class III machine to be approximately $366. 

 California: Based upon the most recent compacts, incremental revenue sharing with 

the state is 15 percent of gaming machine net win for the first 3,000 machines and 25 

 

175 Note that the revenue sharing calculations are based upon statewide average figures. It is uncertain whether these 

averages will hold true for the specific tribes with Class II machines converting to Class III machines. However, these are 

the best data available at this time. 

176 Model Tribal-State Gaming Compact, Arizona, 2003. 

177 The 2006 Arizona statewide average revenue per Class III machine was calculated as statewide gaming revenue 

multiplied by the ratio of total machine revenue to total gaming revenue, multiplied by the ratio of Class III machine 

revenue to total machine revenue, divided by the statewide number of Class III machines, divided by 365 days in the year 

[($1.892 billion x 89.7% x 99.7%) / (12,713 – 56) / 365 = $366]. Sources: NIGC for statewide gaming revenue; State of 

Arizona, Department of Gaming for revenue sharing figures and Class II machine counts; Joseph Eve, The 2007 Indian 

Gaming Cost of Doing Business Report, for the ratio of total machine revenue to total gaming revenue; analysis of NIGC data 

and discussions with Class II system manufacturers for the nationwide ratio of Class III machine revenue to total machine 

revenue; Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition for total machine counts. 

53 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

percent of gaming machine net win for an additional 2,500 machines.178 Because 

each California tribe with Class II machines had less than 3,000 of them in 2006, I use 

the revenue sharing rate of 15 percent. Given available data,179 I estimate the 2006 

statewide average revenue per Class III machine to be approximately $308. 

 Oklahoma: Revenue sharing with the state is four to six percent of Class III machine 

net win.180 Given available data,181 I estimate the 2006 statewide average revenue 

sharing rate to be approximately 5.3 percent and the 2006 statewide average revenue 

per Class III machine to be approximately $145. 

 Washington: Tribes pay: up to 0.5 percent of Class III machine revenue to local 

governments; 0.13 percent of Class III machine revenue for problem gambling 

education, awareness, and treatment; and 0.13 percent of Class III machine revenue 

for smoking cessation, prevention, education, awareness, and treatment.182 Thus, 

total revenue sharing is 0.76 percent. Based upon available data,183 I estimate the 

2006 statewide average revenue per Class III machine to be approximately $181. 

Assuming that the October 2007 proposed regulations would be effective January 2008 and 

given the five-year grandfathering period (i.e., January 2008 through December 2012), the 

first full year of lost gaming revenue would be calendar year 2013. Given that revenuesharing costs are in actual dollars,184 I calculate revenue-sharing costs in 2013 by growing 

the 2006 value at Indian gaming’s 10-year (1997-2006) compound annual growth rate for 

gaming revenue, which is approximately 14.6 percent.185 In order to convert this 2013 value 

 

178 Amendments to the Tribal-State Compacts Between the State of California and the Agua Caliente Band of Cahuilla 

Indians, Morongo Band of Mission Indians, the Pechanga Band of Luiseño Indians, Sycuan Band of the Kumeyaay 

Nation, and San Manuel Band of Mission Indians (all of these compact amendments were executed in 2006 and ratified by 

the State Legislature in 2007). Incremental revenue sharing as measured in this report does not include: fixed annual 

payments to the State; fixed annual payments to the Revenue Sharing Trust Fund, which is redistributed to non-gaming 

tribes in the state; or any local revenue sharing. 

179 The 2006 California statewide average revenue per Class III machine was calculated as statewide gaming revenue 

multiplied by the ratio of total machine revenue to total gaming revenue, multiplied by the ratio of Class III machine 

revenue to total machine revenue, divided by the statewide number of Class III machines, divided by 365 days in the year 

[($7.675 billion x 89.7% x 95.4%) / (62,732 – 4,215) / 365 = $308]. Sources: NIGC for statewide gaming revenue and Class 

II machine counts; Joseph Eve, The 2007 Indian Gaming Cost of Doing Business Report, for the ratio of total machine revenue 

to total gaming revenue; analysis of NIGC data and discussions with Class II system manufacturers for the nationwide 

ratio of Class III machine revenue to total machine revenue; Meister, Alan, Indian Gaming Industry Report, 2007-2008 

Edition for total machine counts. 

180 Model Tribal Gaming Compact, Oklahoma, 2005. 

181 Analysis based upon data gathered by the State of Oklahoma, Office of State Finance. 

182 Appendix X2 to the Tribal-State of Washington Class III Gaming Compacts, 2007. Note that payments to charitable 

organizations and tribal government programs are not included in the revenue sharing calculations. 183 The 2006 Washington statewide average revenue per Class III machine was calculated as statewide gaming revenue 

multiplied by the ratio of total machine revenue to total gaming revenue, multiplied by the ratio of Class III machine 

revenue to total machine revenue, divided by the statewide number of Class III machines, divided by 365 days in the year 

[($1.433 billion x 89.7% x 93.9%) / (20,006 – 1,771) / 365 = $181]. Sources: NIGC for statewide gaming revenue and Class 

II machine counts; Joseph Eve, The 2007 Indian Gaming Cost of Doing Business Report, for the ratio of total machine revenue 

to total gaming revenue; analysis of NIGC data and discussions with Class II system manufacturers for the nationwide 

ratio of Class III machine revenue to total machine revenue; Meister, Alan, Indian Gaming Industry Report, 2007-2008 

Edition for total machine counts. 

184 Arizona, California, and Washington revenue-sharing costs are in 2006 dollars, while Oklahoma revenue-sharing costs 

are in 2007 dollars. 

185 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 

54 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

to current dollars (2008), I discount it using a discount rate of 9.38 percent, which is the 

estimated cost of capital for the gaming industry.186

Results 

As shown in Table 10, the present value of increased revenue sharing in Arizona, California, 

Oklahoma, and Washington in 2013, the first year these incremental costs would be incurred, 

is estimated to be approximately $213.9 million if tribes with Class II machines in these states 

switch to Class III machines.187

INCREASED CAPITAL, DEPLOYMENT, AND COMPLIANCE COSTS 

As a result of the need to replace or modify all Class II gaming systems to bring them into 

compliance with the October 2007 proposed regulations, there will be significant capital, 

deployment, and compliance costs. 

Methodology 

Given their technological expertise and experience with developing Class II gaming systems, 

Class II system manufacturers are in the best position to estimate the capital, deployment, 

and compliance costs. Thus, I surveyed manufacturers regarding these costs. Specifically, I 

requested information on only the incremental costs that would be incurred as a result of the 

October 2007 proposed regulations. Based upon input from most of the major 

manufacturers of Class II gaming systems, the manufacturers as a group provided industrywide cost estimates.188

For capital and compliance costs, data were provided for the three general components of 

Class II gaming systems: software, player interfaces, and titles. Capital costs were also 

estimated for card minders, which are handheld electronic aids used in session bingo games. 

For deployment costs, data were only provided for Class II systems on the whole. 

 

186 The discount rate is the median Weighted Average Cost of Capital (CAPM) for U.S. SIC Code 7999, which includes the 

gaming industry. Source: Ibbotson Associates, Cost of Capital 2006 Yearbook. 

187 As noted in Chapter 3, it is uncertain whether these increased costs would be entirely offset by the increase in Class III 

machine revenue. This would depend on how much more revenue Class III machines generate relative to Class II 

machines, as well as other costs (e.g., capital, deployment, compliance, regulatory, training, and financing costs) that may 

be incurred by tribes to switch from Class II to Class III machines. 188 In addition to increased capital costs, Class II system manufacturers included in their estimates lost capital investment 

(i.e., the value of existing equipment) for player interfaces and card minders that will need to be wholly replaced. 

However, lost capital investment is not included in this report. First, some of the capital investment would not really be 

lost given that some removed Class II gaming equipment could be re-sold/re-leased in other markets (e.g., charitable 

gaming or international markets). (Source: Discussions with various Class II system manufacturers) Second, capital 

investment is a sunk cost (i.e., a fixed cost already incurred and which cannot be avoided). Third, it would be doublecounting to include both the lost investment cost (the cost of existing equipment) and the expected capital cost (the cost of 

new equipment, which is included in the above analysis) to tribes. Lastly, given that most Class II systems are leased by 

tribes, any lost investment cost would be incurred by Class II system manufacturers. And my assignment was to measure 

the economic impact of the proposed regulations on tribes, not manufacturers. 

55 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

Table 10. Revenue-Sharing Costs

Arizona

Estimated Revenue/Class III Machine/Day $366

Class II Machines to be Converted to Class III Machines 56

Days Per Year 365

Class III Machine Revenue (2006 $ Millions)1 $7

Average Revenue-Sharing Rate 5.3%

Arizona Revenue-Sharing Costs (2006 $ Millions) $0.4

Arizona Revenue-Sharing Costs (Current $ Millions)2 $0.7

California

Estimated Revenue/Class III Machine/Day $308

Class II Machines to be Converted to Class III Machines 3,195

Days Per Year 365

Class III Machine Revenue (2006 $ Millions)1 $359

Expected Revenue-Sharing Rate 15.0%

California Revenue-Sharing Costs (2006 $ Millions) $53.8

California Revenue-Sharing Costs (Current $ Millions)2 $89.4

Oklahoma

Estimated Revenue/Class III Machine/Day $145

Class II Machines to be Converted to Class III Machines 30,044

Days Per Year 365

Class III Machine Revenue (2007 $ Millions)1 $1,586

Average Revenue-Sharing Rate 5.3%

Oklahoma Revenue-Sharing Costs (2007 $ Millions) $84.4

Oklahoma Revenue-Sharing Costs (Current $ Millions)3 $122.3

Washington

Estimated Revenue/Class III Machine/Day $181

Class II Machines to be Converted to Class III Machines 1,771

Days Per Year 365

Class III Machine Revenue (2006 $ Millions)1 $117

Actual Revenue-Sharing Rate 0.76%

Washington Revenue-Sharing Costs (2006 $ Millions) $0.9

Washington Revenue-Sharing Costs (Current $ Millions)2 $1.5

Total Revenue-Sharing Costs (Current $ Millions) $213.9

Notes:

1.

2.

3.

Sources: 

Class III Machine Revenue only reflects revenue from Class III machines. It 

does not reflect the net gain in total gaming revenue (i.e., it does not net out 

the loss of Class II machine revenue or the increase in other costs).

Indian Gaming Industry Report, 2007-2008 Edition; NIGC data; Tribal-State 

Compacts between Arizona tribes and the State of Arizona, California tribes 

and the State of California, Oklahoma tribes and the State of Oklahoma, and 

Washington tribes and the State of Washington; State of Arizona, Department 

of Gaming; State of Oklahoma, Office of State Finance; Washington State 

Gaming Commission; Analysis Group estimates; Ibbotson Cost of Capital 

2006 Yearbook.

Current dollars (2008) are estimated by growing 2006 values to 2013, the first 

year following the grandfathering period assuming the proposed regulations 

are enacted January 2008, and then discounting the 2013 values back to 

2008. The 2006 values are grown at the 10-year compound annual growth 

rate for Indian gaming, which is 14.6%. The 2013 values are discounted using 

a discount rate of 9.38%, which is the median Weighted Average Cost of 

Capital (CAPM) for U.S. SIC Code 7999, which includes the gaming industry.

Current dollars (2008) are estimated by growing 2007 values to 2013, the first 

year following the grandfathering period assuming the proposed regulations 

are enacted January 2008, and then discounting the 2013 values back to 

2008. The 2007 values are grown at the 10-year compound annual growth 

rate for Indian gaming, which is 14.6%. The 2013 values are discounted using 

a discount rate of 9.38%, which is the median Weighted Average Cost of 

Capital (CAPM) for U.S. SIC Code 7999, which includes the gaming industry.

56 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

Given that some costs, particularly those for the development of software and titles, are 

passed through by manufacturers to tribes in the form of participation fees, they were only 

estimated as the total development costs incurred by manufacturers. These are good 

estimates of the increased costs to tribes assuming that such costs are passed through to 

tribes. Based upon discussions with many of the manufacturers, I understand that most, if 

not all, of these costs will need to be passed through to tribes in order to stay in the Class II 

gaming machine market. 

Results 

As shown in Table 11, capital, deployment, and compliance costs would total approximately 

$347.9 million for Scenario 2, where tribes switch from Class II machines to viable 

alternatives where possible. This assumes that all capital, deployment, and compliance costs 

can be passed through to tribes. Assuming that manufacturers use all five years of the 

grandfathering period to replace and/or modify all Class II systems, then the cost estimate is 

a five-year total. Thus, average annual capital, deployment, and compliance costs would be 

approximately $70 million. 

For Scenarios 1 and 3, capital, deployment, and compliance costs are estimated to total 

approximately $654.3 million and $267.2 million, respectively. Assuming these are five-year 

totals, average annual capital, deployment, and compliance costs are estimated to be 

approximately $130.9 million and $53.4 million, respectively. 

57 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

Table 11. Capital, Deployment, and Compliance Costs

Scenario 1 Scenario 2 Scenario 3

Capital Costs

Class II Software Development Costs

Cost Per Development Hour $65 $65 $65

Number of Employees per Manufacturer 40 40 40

Hours Per Month 170 170 170

Number of Months for Development 18 18 18

Software Cost Per Manufacturer $7,956,000 $7,956,000 $7,956,000

Number of Class II Manufacturers to Make Compliant Class II Systems 11 11 11

Total Class II Software Development Costs $87,516,000 $87,516,000 $87,516,000

Class II Player Interface Replacement Costs

Total Number of Class II Player Interfaces1 56,017 17,341 6,870

Percentage of Player Interfaces to be Replaced 50% 50% 50%

Number of Player Interfaces to be Replaced 28,008 8,671 3,435

Cost Per New Player Interface2 $10,000 $10,000 $10,000

Total Class II Player Interface Replacement Costs $280,083,891 $86,705,208 $34,351,217

Class II Player Interface Upgrade Costs

Total Number of Class II Player Interfaces1 56,017 17,341 6,870

Percentage of Player Interfaces to be Upgraded 50.0% 50.0% 50.0%

Number of Player Interfaces to be Upgraded 28,008 8,671 3,435

Cost Per Player Interface Upgrade2 $5,000 $5,000 $5,000

Total Class II Player Interface Upgrade Costs $140,041,946 $43,352,604 $17,175,609

Card Minder Replacement Costs

Number of Card Minders to be Replaced 25,000 25,000 25,000

Cost Per Card Minder2 $2,000 $2,000 $2,000

Total Card Minder Replacement Costs $50,000,000 $50,000,000 $50,000,000

Class II Title Conversion Costs

Cost Per Development Hour $65 $65 $65

Number of Employees Per Title 6 6 6

Hours Per Day 8 8 8

Number of Days for Development/Testing/Certification 45 45 45

Cost Per Title Conversion $140,400 $140,400 $140,400

Number of Titles to be Converted 500 500 500

Total Class II Title Conversion Costs $70,200,000 $70,200,000 $70,200,000

Total Capital Costs $627,841,837 $337,773,813 $259,242,826

Deployment Costs

Average Deployment Cost Per Class II System3 $20,000 $20,000 $20,000

Average Number of Class II Systems Per Facility 5 5 5

Number of Facilities with Class II Machine Gaming 160 45 36

Total Deployment Costs $16,000,000 $4,500,000 $3,600,000

Compliance Costs4

Compliance Cost Per System $250,000 $250,000 $250,000

Number of Manufacturers 11 11 11

Total Software Compliance Costs $2,750,000 $2,750,000 $2,750,000

Compliance Cost Per Player Interface $125 $125 $125

Number of Player Interfaces 56,017 17,341 6,870

Total Player Interface Compliance Costs $7,002,097 $2,167,630 $858,780

Compliance Cost Per Title $1,500 $1,500 $1,500

Number of Titles 500 500 500

Total Title Compliance Costs $750,000 $750,000 $750,000

Total Compliance Costs $26,502,097 $10,167,630 $7,958,780

Total Capital, Deployment, and Compliance Costs $654,343,934 $347,941,443 $267,201,606

Notes:

1.

2. Includes peripheral equipment.

3. Deployment costs include travel, per diem, transportation, and installation/removal/upgrade costs.

4.

Sources:

Data from Class II gaming machine manufacturers.

Includes Player Interface inventory, which is estimated to be approximately 10% of the total number of player interfaces (i.e.,

Class II gaming machines) in operation under each scenario.

Includes test lab fees for ensuring the software, player interfaces, and titles are compliant with the October 2007 proposed 

regulations.

58 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

LOST TRIBAL MEMBER JOBS 

Depending on the magnitude of decreases in gaming and non-gaming revenues, tribes may 

find it necessary to scale back their gaming facilities and reduce the size of their gamingrelated workforces (e.g., gaming and non-gaming employees at Indian gaming facilities), 

which typically include tribal members. In addition, a decrease in tribal government 

revenue that results from gaming and non-gaming revenue losses may lead to reductions in 

the number of non-gaming jobs, such as those supporting tribal government operations, 

programs, and other business enterprises. 

Methodology 

Previous research has shown that there is a strong correlation between gaming revenue and 

the number of gaming-related employees.189 In fact, output per worker, a commonly-used 

measure of labor productivity, makes use of this relationship. In order to measure the total 

number of gaming-related jobs that are lost as a result of the decreases in gaming and nongaming revenue, I also use this relationship. Specifically, total lost gaming-related jobs were 

calculated as the sum of lost gaming and non-gaming revenue as calculated in the 

corresponding sections above, divided by the average gaming revenue per worker for the 

U.S. commercial casino industry. 

Assuming that the October 2007 proposed regulations would be effective January 2008 and 

given the five-year grandfathering period (i.e., January 2008 through December 2012), the 

first full year of lost tribal member jobs would be calendar year 2013. Given that lost gaming 

revenue and lost non-gaming revenue in current dollars (2008), the 2006 average revenue per 

worker ($87,627) was also calculated in current dollars (2008) by growing the 2006 value 

($87,627) by the 5-year (2002-2006) compound annual growth rate for the average revenue 

per worker, which is approximately 5.7 percent.190 With lost gaming revenue, lost nongaming revenue, and revenue per worker now all in current dollars, total lost gamingrelated jobs are measured as current values. 

In order to calculate the proportion of the total lost gaming-related jobs that are held by 

tribal members, I multiply the total number of lost gaming-related jobs by the nationwide 

percentage of Indian gaming facility employees who are tribal members, which is 25 

percent.191 It should be noted that if tribes give preferential employment status to tribal 

members over non-tribal members and thus terminate non-tribal member jobs before tribal 

member jobs, then the proportion of lost tribal jobs could be less than 25 percent. 

 

189 For example, see Analysis Group, The Economic and Fiscal Benefits of Indian Gaming in California, July 6, 1998. 

190 Data underlying the various editions of the Indian Gaming Industry Report (2003-2004; 2004-2005; 2005-2006; 2006-2007; 

2007-2008). 

191 In some areas of the country with high unemployment, the percentage of tribal employees is up to 80 percent at 

gaming facilities. Source: National Indian Gaming Association, website (www.indiangaming.org/library/indiangaming-facts/index.shtml), accessed November 5, 2007. 

59 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

Unfortunately, there are no available data on the correlation between gaming revenue and 

non-gaming tribal jobs. Thus, non-gaming job losses are excluded from this analysis. 

However, such losses are likely to occur where Class II gaming revenue derives a large 

proportion of tribal government revenue. 

Results 

Using the methodology set forth above, lost tribal member jobs is calculated for the four 

scenarios defined in the Lost Gaming Revenue analysis. For Scenarios 1, 2A, and 3, I 

calculate lost tribal member jobs based upon 64 percent, 42 percent, and 21 percent decreases 

in revenue per Class II machine per day. Scenario 2B assumes a 100 percent decrease in 

revenue per Class II machine per day. 

As shown in Table 12, assuming a 42 percent decrease in machine performance under the 

October 2007 proposed regulations, lost tribal member jobs in 2013, the first year losses 

would be incurred, is estimated to be approximately 3,336 in Scenario 2A and 7,890 in 

Scenario 2B. For Scenarios 1 and 3, the number of lost tribal member jobs in 2013 would be 

approximately 6,704 and 1,365, respectively. 

60 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

Table 12. Lost Tribal Member Jobs

Percentage Decrease Under New Regulations1 21% 42% 64% 

Scenario 1

Lost Gaming Revenue (Current $ Millions) $1,217.6 $2,494.3 $3,771.0

Lost Non-Gaming Revenue (Current $ Millions) $64.2 $131.6 $198.9

Total Lost Casino Revenue (Current $ Millions) $1,281.8 $2,625.8 $3,969.9

Revenue Per Worker (Current $)

2 $97,919 $97,919 $97,919

Lost Gaming Facility Jobs 13,090 26,816 40,542

Percent of Gaming Facility Workers Who Are Tribal Members3 25% 25% 25%

Lost Tribal Member Jobs 3,273 6,704 10,136

Scenario 2A

Lost Gaming Revenue (Current $ Millions) $575.9 $1,179.8 $1,783.7

Lost Non-Gaming Revenue (Current $ Millions) $62.0 $126.9 $191.9

Total Lost Casino Revenue (Current $ Millions) $637.9 $1,306.7 $1,975.6

Revenue Per Worker (Current $)

2 $97,919 $97,919 $97,919

Lost Gaming Facility Jobs 6,514 13,345 20,176

Percent of Gaming Facility Workers Who Are Tribal Members3 25% 25% 25%

Lost Tribal Member Jobs 1,629 3,336 5,044

Scenario 2B4

Lost Gaming Revenue (Current $ Millions) n/a n/a $2,790.3

Lost Non-Gaming Revenue (Current $ Millions) n/a n/a $300.2

Total Lost Casino Revenue (Current $ Millions) n/a n/a $3,090.5

Revenue Per Worker (Current $)2 n/a n/a $97,919

Lost Gaming Facility Jobs n/a n/a 31,562

Percent of Gaming Facility Workers Who Are Tribal Members3 n/a n/a 25%

/ / / / Lost Tribal Member Jobs n/a n/a 7,890

Scenario 3

Lost Gaming Revenue (Current $ Millions) $235.3 $481.9 $728.6

Lost Non-Gaming Revenue (Current $ Millions) $25.6 $52.5 $79.4

Total Lost Casino Revenue (Current $ Millions) $260.9 $534.5 $808.1

Revenue Per Worker (Current $)

2 $97,919 $97,919 $97,919

Lost Gaming Facility Jobs 2,664 5,458 8,252

Percent of Gaming Facility Workers Who Are Tribal Members3 25% 25% 25%

Lost Tribal Member Jobs 666 1,365 2,063

Notes:

1.

2.

3.

4.

Sources: 

The 64% decrease assumes that the October 2007 regulations would not materially alter the 

performance of Class II machines compliant with the May 2006 regulations. The 21% decrease 

assumes that the speed increases in the October 2007 regulations would directly increase on a 1-

percent-to-1-percent base the performance of Class II machines compliant with the May 2006 

regulations. The 42% decrease is the midpoint between the 64% and 21% decreases.

Revenue Per Worker (Current $) was estimated by growing 2006 values at the 5-year (2002-2006) 

compound annual growth rate for the U.S. commercial casino industry, which is 5.7%. The 2006 

value for Revenue Per Worker was $87,627.

Per the National Indian Gaming Association website, accessed November 5, 2007.

NIGC data; Indian Gaming Industry Report; Analysis Group estimates.

The Percentage Decrease for Scenario 2B is assumed to be 100%.

61 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

6. Conclusions 

While, the NIGC’s October 2007 proposed Class II gaming regulations would have a 

significant negative impact on Class II gaming and the tribes that operate Class II facilities, 

the magnitude of the impact would vary widely from state to state and tribe to tribe 

depending on the legal landscape, political environment, existing market conditions, and the 

availability of viable alternatives to Class II devices. And although the impact may be 

significant in some cases, it may be small or non-existent in others. However, given the 

confidentiality of the data upon which this report is based, when the economic impact was 

quantifiable, it was computed on an aggregate basis. 

There are a number of different types of negative economic impacts on Indian gaming 

facilities with Class II machines and tribes that operate them. Assuming that Class II 

machines compliant with the October 2007 proposed regulations are feasible and the 

regulations are legally enforceable (Scenario 2A), I concluded that the October 2007 

proposed regulations would be expected to yield the following economic impacts: 

 Decreased gaming revenue: $1.2 billion; 

 Decreased non-gaming revenue: $126.9 million; 

 Decreased variety and quality of Class II gaming machines; 

 Gaming facility closures; 

 Increased regulatory, training, and financing costs; 

 Increased revenue-sharing costs: $213.9 million; 

 Increased capital, deployment, and compliance costs: up to $347.9 million; 

 Decreased tribal member jobs: 3,336 jobs; and 

 Decreased innovation in the Class II gaming machine market. 

If the October 2007 proposed regulations render compliant Class II machines unlawful or 

unfeasible (Scenario 2B), I concluded that the aforementioned quantifiable impacts would be 

expected as follows: 

 Decreased gaming revenue: $2.8 billion; 

 Decreased non-gaming revenue: $300.2 million; 

 Increased revenue-sharing costs: $213.9 million; and 

 Increased capital, deployment, and compliance costs: up to $347.9 million; 

 Decreased tribal member jobs: 7,890 jobs. 

There are also other broader economic impacts on the Indian gaming industry, including: 

62 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

 A decrease in leverage that tribes would have in the negotiation/renegotiation of 

Class III gaming compacts with states; 

 Restriction of new entry into the Class II machine market; and 

 A change in the degree of competition experienced by Class III gaming facilities as 

Class II machines become less desirable substitutes for Class III games in the eyes of 

consumers and as more Class III gaming is introduced.

While a number of the aforementioned economic impacts were not quantifiable at this time, 

they should still be considered qualitatively alongside the quantified impacts. 

63 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

Appendix A: About the Author 

Dr. Meister is an economist specializing in the application of economic analysis to complex 

business issues, commercial litigation, and regulatory matters. His areas of expertise include 

economic issues related to Indian gaming, public policy analysis, strategic planning, 

statistics, antitrust, regulation, and the calculation of economic damages. 

Dr. Meister has extensive experience analyzing economic issues related to Indian gaming. 

His work has included economic and fiscal impact analyses, industry and market analyses, 

assessments of regulatory policies, analyses of Tribal-State gaming compacts and revenue 

sharing, feasibility studies, surveys, and expert testimony in litigation and regulatory 

matters. He has also conducted years of independent, academic research on Indian gaming 

and authored a number of publications, most notably his annual study, the Indian Gaming 

Industry Report, which has received national recognition. His Indian gaming work is 

regularly cited by the press and relied upon by the gaming industry, governments, and the 

investment community. Dr. Meister’s research and analyses have also been relied upon 

before the United States Supreme Court and a panel of the World Trade Organization. He 

has also presented his work at various academic, professional, and industry conferences, and 

testified before the California State Senate. 

In his public policy and strategic planning work, Dr. Meister has used economic and fiscal 

impact studies, industry and market analyses, feasibility studies, and surveys to identify and 

measure the effects of introductions, expansions, and closures of businesses and industries; 

the infusion of capital into a region; events; and changes in regulations and laws. His 

projects have involved casinos, hotels, resorts, sporting and entertainment events, retail 

establishments, medical research, publicly funded projects, low-income mixed use 

developments, and ballot initiatives. 

With regards to his statistics work, Dr. Meister has developed and implemented statistical 

analyses in a wide range of contexts. He has served as an expert regarding the use of 

statistics in the study of racial profiling, forensic analysis, and skill versus chance game 

assessments. Dr. Meister also has designed and implemented surveys. Prior to joining 

Analysis Group, Dr. Meister worked for a market research firm that implemented surveys 

for the motion picture industry. In addition, he was a teaching assistant for five years at the 

University of California, Irvine, where he taught courses on statistics, probability, 

econometrics, and survey design. 

Dr. Meister has broad experience providing litigation consulting services. He has provided 

assistance to attorneys on all phases of pretrial and trial practice, including assistance with 

discovery, development of economic, financial, and statistical models, expert testimony, and 

critique of analyses by opposing experts. Dr. Meister has conducted damages assessments in 

a wide variety of cases, including anticompetitive conduct, patent, trademark, and trade 

dress infringement, misappropriation of trade secrets, breach of contract, labor disputes, 

fraud, and business interruption. 

64 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

Appendix B: About Analysis Group, Inc. 

Analysis Group provides economic, financial, and business strategy consulting to 

corporations, law firms, and government entities. We advise corporate and government 

clients on a range of business issues that require expert interpretation of economic and 

financial data. We help organizations create strategies for growth by analyzing market 

dynamics and organizational capabilities, enhancing innovation in current products and 

services, and identifying new market opportunities. We also assist law firms with all aspects 

of litigation. 

Analysis Group, which was founded in 1981, has over 350 professional staff members, most 

with degrees in economics, finance, statistics, accounting, and business. We also work 

closely with an extensive network of experts at leading universities who help us develop 

state-of-the-art analyses and compelling insights for our clients. The academic rigor 

imposed by these relationships, coupled with our commitment to teamwork, ensures that 

our clients receive the highest caliber work product and service. Furthermore, Analysis 

Group is committed to the long-term satisfaction and success of our clients. We focus on 

developing long-term relationships based on mutual trust and dynamic collaboration. 

Analysis Group's practice areas include accounting litigation services, antitrust, commercial 

litigation and damages, economic impact studies, energy, entertainment and media, 

environmental economics, financial institutions, growth and innovation, health care 

economics, intellectual property, labor and employment economics, mergers and 

acquisitions, real estate, securities & financial instruments, telecommunications, transfer 

pricing, and valuation. 

Analysis Group has offices in Boston, Chicago, Dallas, Denver, Los Angeles, Menlo Park, 

Montreal, New York, San Francisco, and Washington, DC. 

65 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

Appendix C: Indian Gaming Facilities Operating Class II 

Machines in 2006 

State Tribe Gaming Facility 

Alabama Poarch Band of Creek Indians Creek Entertainment Center

Alabama Poarch Band of Creek Indians Riverside Entertainment Center

Alabama Poarch Band of Creek Indians Tallapoosa Entertainment Center

Alaska Metlakatla Indian Community Metlakatla Indian Community Bingo

Arizona Ak Chin Indian Community Harrah's Phoenix Ak-Chin Casino Resort

Arizona Tohono O'odham Nation Golden Ha:sañ Casino

California Lytton Rancheria of California San Pablo Lytton Casino

California Morongo Band of Mission Indains Casino Morongo

California Morongo Band of Mission Indains Morongo Casino Resort & Spa

California Morongo Band of Mission Indains Morongo Travel Center

California Pechanga Band of Luiseno Mission Indians Pechanga Resort & Casino

California Rincon Band of Luiseno Mission Indians Harrah's Rincon Casino and Resort

California San Manuel Band of Serrano Mission Indians San Manuel Indian Bingo & Casino

California Sycuan Band of the Kumeyaay Nation Sycuan Casino & Resort

Florida Miccosukee Tribe of Indians of Florida Miccosukee Resort & Gaming Center

Florida Seminole Tribe of Florida Big Cypress Casino

Florida Seminole Tribe of Florida Seminole Casino Brighton

Florida Seminole Tribe of Florida Seminole Casino Coconut Creek

Florida Seminole Tribe of Florida Seminole Casino Hollywood

Florida Seminole Tribe of Florida Seminole Casino Immokalee

Florida Seminole Tribe of Florida Seminole Hard Rock Hotel & Casino Hollywood

Florida Seminole Tribe of Florida Seminole Hard Rock Hotel & Casino Tampa

Minnesota White Earth Band of Chippewa Indians Berry's Bar

Minnesota White Earth Band of Chippewa Indians Callaway Municipal Liquor Store

Minnesota White Earth Band of Chippewa Indians Cedar Crest Resort

Minnesota White Earth Band of Chippewa Indians D & G Lounge

Minnesota White Earth Band of Chippewa Indians Doc's Den

Minnesota White Earth Band of Chippewa Indians Elbow Lake Store

Minnesota White Earth Band of Chippewa Indians M & W Service Center

Minnesota White Earth Band of Chippewa Indians Mahnomen American Legion Bingo

Minnesota White Earth Band of Chippewa Indians Naytahwaush Village Store

Minnesota White Earth Band of Chippewa Indians Ogema Fire House

Minnesota White Earth Band of Chippewa Indians Pinehurst Resort

Minnesota White Earth Band of Chippewa Indians Shooting Star Casino and Hotel

Minnesota White Earth Band of Chippewa Indians Tulably Lake Inn

Minnesota White Earth Band of Chippewa Indians Wild Rice Lounge

Montana Assiniboine and Sioux Tribes of the Fort Peck Indian Reservation Silver Wolf Casino

Montana Blackfeet Tribe Discovery Lodge Casino

Montana Blackfeet Tribe Glacier Peaks Casino

Montana Chippewa-Cree Indians of the Rocky Boy’s Reservation Bear Paw Casino and Four C's Cafe

Montana Confederated Salish & Kootenai Tribes Best Western KwaTaqNuk Resort

Montana Crow Tribe Little Bighorn Casino

Montana Northern Cheyenne Tribe Charging Horse Casino & Bingo

Nebraska Omaha Tribe of Nebraska Lucky 77 Casino

Nebraska Winnebago Tribe of Nebraska Native Star Casino

Nebraska Santee Sioux Tribe of Nebraska Ohiya Casino & Bingo

Nebraska Winnebago Tribe of Nebraska Iron Horse Bar & Casino

New York Seneca Nation of Indians Seneca Gaming and Entertainment

New York Seneca Nation of Indians Seneca Gaming and Entertainment 1

New York St. Regis Mohawk Tribe Mohawk Bingo Palace

Oklahoma Absentee Shawnee Tribe of Oklahoma Thunderbird Wild Wild West Casino

Oklahoma Apache Tribe of Oklahoma Silver Buffalo Casino

Oklahoma Cherokee Nation Cherokee Casino - Fort Gibson

Oklahoma Cherokee Nation Cherokee Casino - Roland

Oklahoma Cherokee Nation Cherokee Casino - Sallisaw

Oklahoma Cherokee Nation Cherokee Casino - West Siloam Springs

Oklahoma Cherokee Nation Cherokee Casino Resort

Oklahoma Cherokee Nation Cherokee Casino Tahlequah

Appendix C. Indian Gaming Facilities that Operated Class II Machines in 2006

66 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

State Tribe Gaming Facility 

Oklahoma Cherokee Nation Cherokee Nation Outpost Tobacco Shop

Oklahoma Cherokee Nation West Siloam Springs Smoke Shop

Oklahoma Cheyenne-Arapaho Tribes of Oklahoma Feather Warrior Casino

Oklahoma Cheyenne-Arapaho Tribes of Oklahoma Lucky Star Casino - Clinton

Oklahoma Cheyenne-Arapaho Tribes of Oklahoma Lucky Star Casino - Concho

Oklahoma Chickasaw Nation Ada Gaming Center

Oklahoma Chickasaw Nation Ada Travel Stop

Oklahoma Chickasaw Nation Black Gold Casino

Oklahoma Chickasaw Nation Cash Springs Gaming Center

Oklahoma Chickasaw Nation Chisholm Trail Casino

Oklahoma Chickasaw Nation Davis Trading Post

Oklahoma Chickasaw Nation Gold Mountain Casino

Oklahoma Chickasaw Nation Goldsby Gaming Center

Oklahoma Chickasaw Nation Madill Gaming Center

Oklahoma Chickasaw Nation Newcastle Gaming Center I

Oklahoma Chickasaw Nation Riverwind Casino

Oklahoma Chickasaw Nation Texoma Gaming Center

Oklahoma Chickasaw Nation Thackerville Travel Plaza

Oklahoma Chickasaw Nation Treasure Valley Casino

Oklahoma Chickasaw Nation Washita Gaming Center

Oklahoma Chickasaw Nation WinStar Casino

Oklahoma Choctaw Nation of Oklahoma Choctaw Casino - Broken Bow

Oklahoma Choctaw Nation of Oklahoma Choctaw Casino - Grant

Oklahoma Choctaw Nation of Oklahoma Choctaw Casino - Idabel

Oklahoma Choctaw Nation of Oklahoma Choctaw Casino - McAlester

Oklahoma Choctaw Nation of Oklahoma Choctaw Casino - Pocola

Oklahoma Choctaw Nation of Oklahoma Choctaw Casino - Stringtown

Oklahoma Choctaw Nation of Oklahoma Choctaw Casino Bingo

Oklahoma Choctaw Nation of Oklahoma Choctaw Inn - Durant

Oklahoma Choctaw Nation of Oklahoma Choctaw Casino Too

Oklahoma Choctaw Nation of Oklahoma Choctaw Coliseum

Oklahoma Choctaw Nation of Oklahoma Durant Travel Plaza East

Oklahoma Choctaw Nation of Oklahoma Durant Travel Plaza West

Oklahoma Choctaw Nation of Oklahoma Idabel Travel and Smoke Shop

Oklahoma Choctaw Nation of Oklahoma Pocola Travel and Smoke Shop

Oklahoma Citizen Potawatomi Nation Baby Grand Casino

Oklahoma Citizen Potawatomi Nation FireLake Casino

Oklahoma Citizen Potawatomi Nation FireLake Grand Casino

Oklahoma Comanche Nation Comanche Nation Casino

Oklahoma Comanche Nation Comanche Red River Casino

Oklahoma Comanche Nation Comanche Spur Smoke Shop and Casino

Oklahoma Comanche Nation Comanche Star Casino and Smoke Shop

Oklahoma Delaware Nation Gold River Casino

Oklahoma Eastern Shawnee Tribe of Oklahoma Border Town Casino

Oklahoma Eastern Shawnee Tribe of Oklahoma Eastern Shawnee Travel Plaza

Oklahoma Fort Sill Apache Tribe of Oklahoma Fort Sill Apache Casino

Oklahoma Kaw Nation Kaw Southwind Casino

Oklahoma Kickapoo Tribe of Oklahoma Kickapoo Casino

Oklahoma Kickapoo Tribe of Oklahoma Kickapoo Conoco Station

Oklahoma Miami Tribe of Oklahoma Miami Tribe Entertainment

Oklahoma Modoc Tribe of Oklahoma/Miami Tribe of Oklahoma The Stables Casino

Oklahoma Muscogee (Creek) Nation Bristow Indian Casino

Oklahoma Muscogee (Creek) Nation Checotah Indian Community Bingo

Oklahoma Muscogee (Creek) Nation Creek Nation Casino Eufaula

Oklahoma Muscogee (Creek) Nation Creek Nation Casino Okemah

Oklahoma Muscogee (Creek) Nation Creek Nation Casino Okmulgee

Oklahoma Muscogee (Creek) Nation Creek Nation Casino Tulsa

Oklahoma Muscogee (Creek) Nation Creek Nation Casino Muscogee

Appendix C. Indian Gaming Facilities that Operated Class II Machines in 2006

67 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

State Tribe Gaming Facility 

Oklahoma Muscogee (Creek) Nation Creek Nation Travel Plaza

Oklahoma Muscogee (Creek) Nation Duck Creek Casino

Oklahoma Muscogee (Creek) Nation Muscogee Travel Plaza

Oklahoma Osage Nation Osage Million Dollar Elm Casino - Hominy

Oklahoma Osage Nation Osage Million Dollar Elm Casino - Sand Springs

Oklahoma Osage Nation Osage Million Dollar Elm Casino - Pawhuska

Oklahoma Osage Nation Osage Million Dollar Elm Casino - Tulsa

Oklahoma Otoe-Missouria Tribe of Indians 7 Clans Paradise Casino

Oklahoma Otoe-Missouria Tribe of Indians Lil Bit of Paradise Casino

Oklahoma Ottawa Tribe of Oklahoma High Winds Casino

Oklahoma Peoria Tribe of Indians of Oklahoma Buffalo Run Casino

Oklahoma Peoria Tribe of Indians of Oklahoma Peoria Gaming Center

Oklahoma Ponca Tribe of Oklahoma Blue Star Gaming and Casino

Oklahoma Quapaw Tribe of Oklahoma Quapaw Casino

Oklahoma Sac & Fox Nation of Oklahoma Sac and Fox Casino

Oklahoma Sac & Fox Nation of Oklahoma Sac and Fox Casino - Stroud

Oklahoma Seminole Nation of Oklahoma Mystic Winds Casino

Oklahoma Seminole Nation of Oklahoma Seminole Nation Trading Post

Oklahoma Seneca-Cayuga Tribe of Oklahoma Grand Lake Casino

Oklahoma Thlopthlocco Tribal Town Golden Pony Casino

Oklahoma Wyandotte Nation Lucky Turtle Casino

South Dakota Crow Creek Sioux Tribe Lode Star Casino and Hotel

South Dakota Flandreau Santee Sioux Tribe Royal River Casino & Hotel

Texas Kickapoo Traditional Tribe of Texas Kickapoo Lucky Eagle Casino

Washington Confederated Tribes and Bands of the Yakama Nation Yakama Nation Legends Casino

Washington Confederated Tribes of the Chehalis Reservation Lucky Eagle Casino

Washington Confederated Tribes of Colville Reservation Coulee Dam Casino

Washington Confederated Tribes of Colville Reservation Mill Bay Casino

Washington Jamestown S'Klallam Tribe 7 Cedars Casino

Washington Muckleshoot Indian Tribe Muckleshoot Casino

Washington Nooksack Indian Tribe Nooksack River Casino

Washington Puyallup Tribe of Indians BJ's Bingo

Washington Quinault Indian Nation Quinault Beach Resort and Casino

Washington Shoalwater Bay Indian Tribe Shoalwater Bay Casino

Washington Skokomish Indian Tribe The Lucky Dog Casino

Washington Squaxin Island Tribe Little Creek Casino Resort

Washington Stillaquamish Tribe Angel of the Winds Casino

Washington Suquamish Tribe Clearwater Casino

Washington Swinomish Indian Tribal Community Swinomish Northern Lights Casino

Washington Tulalip Tribes Tulalip Bingo

Washington Upper Skagit Indian Tribe Skagit Valley Casino Resort

Wisconsin Ho-Chunk Nation Dejope Bingo and Entertainment

Wyoming Northern Arapaho Tribe Little Wind Casino

Wyoming Northern Arapaho Tribe Wind River Casino

Appendix C. Indian Gaming Facilities that Operated Class II Machines in 2006

68 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

Appendix D: Table 4 of Report on May 2006 Proposed 

Regulations 

Games Coin In Games Coin In Games Coin In

Three-Touch Class II Machines 7.04 7,735.31 7.04 23,276.76 7.04 27,184.23

Class II Machines Compliant with Proposed Regulations 4.44 4,863.86 4.80 15,778.65 4.67 18,001.83

Percentage Decrease 36.93% 37.12% 31.82% 32.21% 33.66% 33.78%

Two-Touch Class II Machines 10.87 11,957.71 10.86 35,789.65 10.87 41,591.30

Class II Machines Compliant with Proposed Regulations 4.44 4,863.86 4.80 15,778.65 4.67 18,001.83

Percentage Decrease 59.15% 59.32% 55.80% 55.91% 57.04% 56.72%

One-Touch Class II Machines 17.05 18,804.68 17.04 56,273.26 17.04 64,957.05

Class II Machines Compliant with Proposed Regulations 4.44 4,863.86 4.80 15,778.65 4.67 18,001.83

Percentage Decrease 73.96% 74.13% 71.83% 71.96% 72.59% 72.29%

Weighted Average Percentage Decrease5 63.27% 63.45% 60.27% 60.44% 61.36% 61.12%

 Notes:

1. The duration of each simulation was 12 hours.

2. Simulation 1 is based upon the assumption that there are only 2 active players.

3. Simulation 2 is based upon the assumption that there are always 6 active players.

4.

5.

 Source: BMM North America, Inc., Comparison of Various Class II Configuration Options - Analysis II, October 15, 2007; NIGC.

Simulation 3 is based upon the assumption that a random number of players between 2 and 12 will participate in each game.

The Weighted Average Percentage Decrease represents the actual mix of machines in operation in 2006. Thus, because 

approximately 16.3% (8,278/50,924) of all machines are Three-Touch Class II Machines, 31.5% (16,064/50,924) are TwoTouch Class II Machines, and 52.2% (26,582/50,924) are One-Touch Class II Machines, the Weighted Average Percentage 

Decrease is calculated as [(.163)x(Percentage Decrease for Three-Touch Class II Machines)]+[(0.315)x(Percentage Decrease 

for Two-Touch Class II Machines)]+[(.522)x(Percentage Decrease for One-Touch Class II Machines)]. The number of touches 

per machine were provided by NIGC regional staff (see Scenario 3 in the Results section of this report).

Appendix D

Expected Decrease in Performance of Compliant Class II Machines

BMM Simulation Results 

(Table 4 of Report on the May 2006 Proposed Regulations)

1st Simulation2 2nd Simulation3 3rd Simulation4

Machine Performance (Rate Per Minute)1

69 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

Appendix E: Indian Gaming Facilities Operating Class II 

Machines in Scenarios 2A and 2B 

State Tribe Gaming Facility 

Alabama Poarch Band of Creek Indians Creek Entertainment Center

Alabama Poarch Band of Creek Indians Riverside Entertainment Center

Alabama Poarch Band of Creek Indians Tallapoosa Entertainment Center

Alaska Metlakatla Indian Community Metlakatla Indian Community Bingo

California Lytton Rancheria of California San Pablo Lytton Casino

Florida Miccosukee Tribe of Indians of Florida Miccosukee Resort & Gaming Center

Florida Seminole Tribe of Florida Big Cypress Casino

Florida Seminole Tribe of Florida Seminole Casino Brighton

Florida Seminole Tribe of Florida Seminole Casino Coconut Creek

Florida Seminole Tribe of Florida Seminole Casino Hollywood

Florida Seminole Tribe of Florida Seminole Casino Immokalee

Florida Seminole Tribe of Florida Seminole Hard Rock Hotel & Casino Hollywood

Florida Seminole Tribe of Florida Seminole Hard Rock Hotel & Casino Tampa

Minnesota White Earth Band of Chippewa Indians Berry's Bar

Minnesota White Earth Band of Chippewa Indians Callaway Municipal Liquor Store

Minnesota White Earth Band of Chippewa Indians Cedar Crest Resort

Minnesota White Earth Band of Chippewa Indians D & G Lounge

Minnesota White Earth Band of Chippewa Indians Doc's Den

Minnesota White Earth Band of Chippewa Indians Elbow Lake Store

Minnesota White Earth Band of Chippewa Indians M & W Service Center

Minnesota White Earth Band of Chippewa Indians Mahnomen American Legion Bingo

Minnesota White Earth Band of Chippewa Indians Naytahwaush Village Store

Minnesota White Earth Band of Chippewa Indians Ogema Fire House

Minnesota White Earth Band of Chippewa Indians Pinehurst Resort

Minnesota White Earth Band of Chippewa Indians Shooting Star Casino and Hotel

Minnesota White Earth Band of Chippewa Indians Tulably Lake Inn

Minnesota White Earth Band of Chippewa Indians Wild Rice Lounge

Montana Assiniboine and Sioux Tribes of the Fort Peck Indian Reservation Silver Wolf Casino

Montana Blackfeet Tribe Discovery Lodge Casino

Montana Blackfeet Tribe Glacier Peaks Casino

Montana Chippewa-Cree Indians of the Rocky Boy’s Reservation Bear Paw Casino and Four C's Cafe

Montana Confederated Salish & Kootenai Tribes Best Western KwaTaqNuk Resort

Montana Crow Tribe Little Bighorn Casino

Montana Northern Cheyenne Tribe Charging Horse Casino & Bingo

Nebraska Omaha Tribe of Nebraska Lucky 77 Casino

Nebraska Winnebago Tribe of Nebraska Native Star Casino

Nebraska Santee Sioux Tribe of Nebraska Ohiya Casino & Bingo

Nebraska Winnebago Tribe of Nebraska Iron Horse Bar & Casino

New York Seneca Nation of Indians Seneca Gaming and Entertainment

New York Seneca Nation of Indians Seneca Gaming and Entertainment 1

New York St. Regis Mohawk Tribe Mohawk Bingo Palace

South Dakota Crow Creek Sioux Tribe Lode Star Casino and Hotel

South Dakota Flandreau Santee Sioux Tribe Royal River Casino & Hotel

Texas Kickapoo Traditional Tribe of Texas Kickapoo Lucky Eagle Casino

Wisconsin Ho-Chunk Nation Dejope Bingo and Entertainment

Appendix E. Indian Gaming Facilities that Operated Class II Machines in 2006: Scenarios 2A and 2B

70 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

Appendix F: Indian Gaming Facilities Operating Class II 

Machines in Scenario 3 

State Tribe Gaming Facility 

Alabama Poarch Band of Creek Indians Creek Entertainment Center

Alabama Poarch Band of Creek Indians Riverside Entertainment Center

Alabama Poarch Band of Creek Indians Tallapoosa Entertainment Center

Alaska Metlakatla Indian Community Metlakatla Indian Community Bingo

California Lytton Rancheria of California San Pablo Lytton Casino

Florida Miccosukee Tribe of Indians of Florida Miccosukee Resort & Gaming Center

Florida Seminole Tribe of Florida Big Cypress Casino

Florida Seminole Tribe of Florida Seminole Casino Brighton

Florida Seminole Tribe of Florida Seminole Casino Coconut Creek

Florida Seminole Tribe of Florida Seminole Casino Hollywood

Florida Seminole Tribe of Florida Seminole Casino Immokalee

Florida Seminole Tribe of Florida Seminole Hard Rock Hotel & Casino Hollywood

Florida Seminole Tribe of Florida Seminole Hard Rock Hotel & Casino Tampa

Minnesota White Earth Band of Chippewa Indians Berry's Bar

Minnesota White Earth Band of Chippewa Indians Callaway Municipal Liquor Store

Minnesota White Earth Band of Chippewa Indians Cedar Crest Resort

Minnesota White Earth Band of Chippewa Indians D & G Lounge

Minnesota White Earth Band of Chippewa Indians Doc's Den

Minnesota White Earth Band of Chippewa Indians Elbow Lake Store

Minnesota White Earth Band of Chippewa Indians M & W Service Center

Minnesota White Earth Band of Chippewa Indians Mahnomen American Legion Bingo

Minnesota White Earth Band of Chippewa Indians Naytahwaush Village Store

Minnesota White Earth Band of Chippewa Indians Ogema Fire House

Minnesota White Earth Band of Chippewa Indians Pinehurst Resort

Minnesota White Earth Band of Chippewa Indians Shooting Star Casino and Hotel

Minnesota White Earth Band of Chippewa Indians Tulably Lake Inn

Minnesota White Earth Band of Chippewa Indians Wild Rice Lounge

Nebraska Omaha Tribe of Nebraska Lucky 77 Casino

Nebraska Winnebago Tribe of Nebraska Native Star Casino

Nebraska Santee Sioux Tribe of Nebraska Ohiya Casino & Bingo

Nebraska Winnebago Tribe of Nebraska Iron Horse Bar & Casino

New York Seneca Nation of Indians Seneca Gaming and Entertainment

New York Seneca Nation of Indians Seneca Gaming and Entertainment 1

New York St. Regis Mohawk Tribe Mohawk Bingo Palace

Texas Kickapoo Traditional Tribe of Texas Kickapoo Lucky Eagle Casino

Wisconsin Ho-Chunk Nation Dejope Bingo and Entertainment

Appendix F. Indian Gaming Facilities that Operated Class II Machines in 2006: Scenario 3

71 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the October 2007 Proposed Class II Gaming Regulations 

Appendix G: Update to November 2006 Study 

Set forth in this Appendix is the update to the November 3, 2006 study entitled “The 

Potential Economic Impact of Proposed Changes to Class II Gaming Regulations,” which 

analyzed the May 2006 proposed classification regulations. The updated report contained 

herein is entitled “The Potential Economic Impact of the May 2006 Proposed Class II Gaming 

Regulation.” It was updated to include new gaming market information and the most 

current tribal financial data available, both of which were relied upon in the main report to 

which this is an appendix. 

72 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 

Proposed Class II Gaming Regulations 

Submitted to: 

National Indian Gaming Commission 

Submitted by: 

Alan Meister, Ph.D. 

Analysis Group, Inc. 

601 S. Figueroa Street, Suite 1300 

Los Angeles, CA 90017 

213-896-4500 (phone) 

213-623-4112 (fax) 

ameister@analysisgroup.com 

Originally Prepared: 

November 3, 2006 

Revised: 

February 1, 2008 
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

Executive Summary 

In May 2006, the National Indian Gaming Commission (NIGC) proposed regulations of 

Class II Indian gaming.1 The proposed regulations, which include game classification 

standards and a revision to the definition of “electronic or electromechanical facsimile,” are 

intended to more clearly distinguish Class II gaming from Class III gaming.2 Generally, the 

proposed regulations are expected to be more restrictive than existing practices and likely to 

limit the types of gaming machines that would be considered to be Class II devices.3,4

I was commissioned by the NIGC to conduct an independent study of the potential 

economic impact of the May 2006 proposed Class II regulations on Indian tribes. 

Specifically, I was asked to identify the potential economic impacts and, to the extent 

possible, quantify them on an aggregate nationwide basis. Due to the confidentiality of 

tribal financial data, analyses cannot be presented on facility-by-facility, tribe-by-tribe, or 

state-by-state bases. For the purposes of this study, I have assumed that the proposed Class 

II regulations would go into effect in January 2008 and be legally enforceable. I have no 

opinions in these regards. 

Given the information considered, I have arrived at the following conclusions: 

1) In general, the NIGC’s proposed Class II gaming regulations would have a 

significant negative impact on Indian tribes. 

2) The magnitude of the negative impact would vary widely from state to state, tribe to 

tribe, and facility to facility depending on the legal landscape, political environment, 

existing market conditions, and the availability of viable alternatives to Class II 

machines. 

3) There would be a variety of negative economic impacts on Indian gaming facilities 

with Class II machines and tribes that operate them: 

 A decrease in gaming revenue; 

 A decrease in non-gaming revenue; 

 

1 In February 2007, after careful considerable criticism from industry participants regarding the potential economic 

hardship that would be incurred by tribes and Class II system manufacturers, the NIGC withdrew these proposed 

regulations. Furthermore, on October 24, 2007, the NIGC published new proposed regulations. This revised study 

updates my November 2006 study to include new gaming market information and the most current tribal financial data 

available. It also serves as a comparison for my analysis of the October 2007 proposed regulations, to which this report is 

an appendix. 

2 In August 2006, the NIGC also proposed technical standards, which did not previously exist. These proposed 

regulations were also withdrawn by the NIGC in February 2007. 

3 It is important to recognize that Class II machine gaming is conducted in the context of a gaming system that includes 

software, player interfaces, and titles. 

4 It is the NIGC’s position that not all of the systems currently operated by tribes meet the statutory definition of Class II 

games or comport with game classification advisory opinions issued by the NIGC’s Office of General Counsel. Thus, the 

NIGC considers such systems to be “illegal” (i.e., they are Class III games). I have no opinions in these regards. 

i Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

 A decrease in the variety and quality of Class II gaming machines; 

 Gaming facility closures; 

 An increase in capital, deployment, compliance, regulatory, training, revenuesharing, and financing costs; 

 A decrease in the number of tribal member jobs; and 

 A decrease in innovation in the Class II gaming machine market. 

4) There are also other broader economic impacts on Indian gaming: 

 A decrease in leverage that tribes would have in the negotiation/renegotiation of 

Class III gaming compacts with states; 

 Restriction of new entry into the Class II machine market; and 

 A change in the degree of competition experienced by Class III gaming facilities 

as Class II machines become less desirable substitutes for Class III games in the 

eyes of consumers and as more Class III gaming is introduced.

Although all of the aforementioned economic impacts are rooted in economic theory, some 

are difficult to quantify and/or lack sufficient data for a quantitative analysis. Given these 

limitations, I have estimated the magnitude of the economic impacts that are readily 

quantifiable: lost gaming revenue; lost non-gaming revenue; increased revenue-sharing 

costs; and lost tribal member jobs. 

Lost Gaming Revenue

 Class II machines would generate lower revenue under the proposed regulations 

than existing practices. Tribes with Class II machines in 2006 included: Alabama, 

Alaska, Arizona, California, Florida, Minnesota, Montana, Nebraska, New York, 

Oklahoma, South Dakota, Texas, Washington, Wisconsin, and Wyoming. 

 Tribes that are able to shift from Class II machines to viable alternatives (e.g., Class 

III machines) would be able to mitigate their Class II gaming revenue losses with 

gains in other gaming revenue (e.g., Class III machine revenue). These tribes include 

all of those in Arizona, Oklahoma, Washington, and Wyoming, and most in 

California. 

 Using MegaMania as a benchmark for the performance of Class II machines under 

the proposed regulations, it is estimated that the average revenue per compliant 

Class II machine would be approximately 64 percent lower than the actual average 

revenue per existing Class II machine. 

ii Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

 Given a 64 percent decrease in revenue per day for each Class II machine remaining 

in operation after the regulations go into effect, it is estimated that the annual 

gaming revenue loss would be approximately $1.4 billion.5

 Note that if the proposed regulations render Class II machines unlawful or 

technologically unfeasible, as has been suggested by some industry participants, 

then lost gaming revenue would be equal to actual Class II machine revenue where 

there are no viable alternatives to compliant Class II machines. In this situation, lost 

gaming revenue would be approximately $2.2 billion. 

Lost Non-Gaming Revenue

 The $1.4 billion annual loss of gaming revenue would result in lost non-gaming 

revenue of approximately $132.1 million per year. 

 If the proposed regulations render Class II machines unlawful or unfeasible and 

there are no viable alternatives to compliant Class II machines, the $2.2 billion annual 

loss of gaming revenue would result in lost non-gaming revenue of approximately 

$206.7 million per year. 

Increased Revenue-Sharing Costs

 While tribes in Arizona, California (excluding the Lytton Band), Oklahoma, and 

Washington would be able to shift from existing Class II machines to Class III 

machines and thus potentially generate higher revenue per machine if the proposed 

regulations were enacted, the tribes would also incur higher revenue-sharing costs of 

approximately $169.1 million per year. It is uncertain whether these increased costs 

would be entirely offset by the increase in Class III machine revenue. This would 

depend on how much more revenue Class III machines generate relative to Class II 

machines, as well as other costs (e.g., capital, deployment, compliance, regulatory, 

training, and financing costs) that may be incurred by tribes to switch from Class II 

to Class III machines. 

Lost Tribal Member Jobs

 The annual revenue losses and increased costs at Indian gaming facilities operating 

Class II machines would result in approximately 3,939 lost tribal member jobs. 

 If the proposed regulations render Class II machines unlawful or unfeasible and 

there are no viable alternatives to compliant Class II machines, the annual revenue 

 

5 It is the NIGC’s view “illegal” Class II machines, as identified by the NIGC (see footnote 4), are not Class II games, and 

therefore should not be included in the calculation of lost gaming revenue. If “illegal” Class II machines are excluded 

from the analysis, lost gaming revenue would be approximately $576.3 million per year. This scenario was developed 

solely at the request of the NIGC and does not reflect my opinion regarding the likely economic impacts of the proposed 

regulations. 

iii Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

losses and increased costs at Indian gaming facilities operating Class II machines 

would result in approximately 6,163 lost tribal member jobs per year. 

While it is my opinion that the scenarios summarized above represent the most likely 

outcomes if the proposed Class II regulations are enacted, alternative scenarios and 

sensitivity analyses are provided within this report to test how the economic impact varies 

given different assumptions. 

iv Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

Table of Contents 

Executive Summary .............................................................................................................................i

1. Introduction................................................................................................................................... 1

Qualifications................................................................................................................................. 1

Assignment .................................................................................................................................... 1

Information Considered ............................................................................................................... 2

2. Background.................................................................................................................................... 3

Indian Gaming............................................................................................................................... 3

Class II Machine Gaming ............................................................................................................. 4

Existing Class II Regulatory Environment ................................................................................ 7

2006 Proposed Class II Gaming Regulations............................................................................. 8

3. Qualitative Review of the Potential Economic Impact of the Proposed Class II 

Gaming Regulations.................................................................................................................. 11

The Impact on Class II Gaming Machines ............................................................................... 11

Options for Tribes Operating Existing Class II Gaming Machines ...................................... 12

The Direct Economic Impact on Class II Gaming Facilities and their Respective Tribes.. 13

Lost Gaming Revenue ......................................................................................................................... 13

Lost Non-Gaming Revenue ................................................................................................................ 14

Decreased Variety and Quality of Class II Machines...................................................................... 15

Gaming Facility Closures.................................................................................................................... 15

Increased Costs..................................................................................................................................... 17

Lost Tribal Member Jobs..................................................................................................................... 18

Decreased Innovation in the Class II Gaming Machine Market.................................................... 18

The General Economic Impact on Indian Gaming ................................................................. 19

Decreased Leverage in Class III Compact Negotiations/Renegotiations .................................... 19

Restriction of New Entry into the Class II Machine Market .......................................................... 19

Changes in Competition for Class III Gaming................................................................................. 20

4. Data............................................................................................................................................... 21

5. Quantitative Analysis of the Potential Economic Impact of the Proposed Class II 

Gaming Regulations.................................................................................................................. 24

Lost Gaming Revenue ................................................................................................................ 24

State-By-State Review of Class II Machine Gaming........................................................................ 24

Alabama.........................................................................................................................................24

Alaska ............................................................................................................................................25

Arizona ..........................................................................................................................................26

California.......................................................................................................................................26

Florida............................................................................................................................................28

Minnesota ......................................................................................................................................29

Montana.........................................................................................................................................30

Nebraska........................................................................................................................................31

New York ......................................................................................................................................31

Oklahoma ......................................................................................................................................31

South Dakota.................................................................................................................................32

Texas ..............................................................................................................................................33

Washington ...................................................................................................................................34

Wisconsin ......................................................................................................................................34

v Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

Wyoming .......................................................................................................................................35

Aggregate Methodology for Estimating Lost Gaming Revenue ................................................... 35

Actual Gaming Revenue .............................................................................................................35

Estimated Gaming Revenue Under the May 2006 Proposed Regulations ...........................36

Lost Gaming Revenue..................................................................................................................40

Results of the Aggregate Methodology for Estimating Lost Gaming Revenue .......................... 40

Scenario 1.......................................................................................................................................41

Scenario 2.......................................................................................................................................43

Scenario 3.......................................................................................................................................46

Other Important Considerations........................................................................................................ 46

Lost Non-Gaming Revenue ....................................................................................................... 48

Methodology ........................................................................................................................................ 48

Results ................................................................................................................................................... 48

Increased Revenue-Sharing Costs............................................................................................. 49

Methodology ........................................................................................................................................ 49

Results ................................................................................................................................................... 52

Lost Tribal Member Jobs ............................................................................................................ 52

Methodology ........................................................................................................................................ 52

Results ................................................................................................................................................... 54

6. Conclusions ................................................................................................................................. 56

Appendix A: About the Author..................................................................................................... 58

Appendix B: About Analysis Group, Inc..................................................................................... 59

Appendix C: Indian Gaming Facilities Operating Class II Machines in 2006 ..................... 60

Appendix D: Indian Gaming Facilities Operating Class II Machines in Scenarios 2A 

and 2B ........................................................................................................................................... 63

Appendix E: Indian Gaming Facilities Operating Class II Machines in Scenario 3 ........... 64

vi Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

1. Introduction 

QUALIFICATIONS 

I am a Manager at Analysis Group, Inc., an economic, financial, and strategy consulting firm. 

I am an economist specializing in the application of economics to complex business issues, 

commercial litigation, and regulatory matters. I hold a Ph.D., Master of Arts (M.A.), and 

Bachelor of Arts (B.A.) in Economics from the University of California, Irvine. One of my 

areas of expertise is Indian gaming. I have consulted tribal and non-tribal governments on a 

wide array of economic issues related to Indian gaming. My work has included economic 

impact analyses, industry and market analyses, assessments of regulatory policies, analyses 

of Tribal-State gaming compacts and revenue sharing, feasibility studies, surveys, and expert 

testimony in litigation and regulatory matters. I have also conducted years of independent, 

academic research and authored numerous publications on Indian gaming, most notably my 

annual economic study of Indian gaming, the Indian Gaming Industry Report, which is widely 

cited and relied upon by governments, the gaming industry, and the investment community. 

Further background on myself and Analysis Group is set forth in Appendices A and B, 

respectively. 

ASSIGNMENT 

I was commissioned by the National Indian Gaming Commission (NIGC) to conduct an 

independent study of the potential economic impact of the May 2006 proposed Class II 

regulations on Indian tribes.6 Specifically, I was asked to identify the potential economic 

impacts and, to the extent possible, quantify them on an aggregate nationwide basis. Due to 

the confidentiality of tribal financial data, I am unable to present analyses on facility-byfacility, tribe-by-tribe, or state-by-state bases. 

In 2006, when I was originally commissioned to conduct my independent study, I was asked 

to review and analyze the facsimile definition and classification standards proposed in May 

2006 (hereafter referred to as the “May 2006 proposed regulations”).7 My original study of 

the May 2006 regulations was completed in November 2006.8

The present study updates my November 2006 report to include new gaming market 

information and the most current tribal financial data available.9 For the purposes of this 

 

6 Unless otherwise noted, the opinions set forth herein are those of the author and do not necessarily represent those of 

the NIGC. Furthermore, nothing in this report should be construed as a legal opinion or conclusion. 7 Proposed Rule, 25 CFR Part 502, Definition for Electronic or Electromechanical Facsimile, Federal Register 71 (101), May 

25, 2006; Proposed Rule, 25 CFR Part 502 and 546, Classification Standards, Class II Gaming, Bingo, Lotto, et al., Federal 

Register 71 (101), May 25, 2006. I was not asked to review or analyze the technical standards in my November 2006 report 

(Proposed Rule, 25 CFR Part 547, Technical Standards for ‘‘Electronic, Computer, or Other Technologic Aids’’ Used in the 

Play of Class II Games, Federal Register 71 (155), August 11, 2006). 8 My original study of the May 2006 proposed regulations was entitled “The Potential Economic Impact of Proposed 

Changes to Class II Gaming Regulations” and was submitted to the NIGC on November 3, 2006. 

9 As in my original report, I was not asked to review or analyze the August 2006 technical standards in the present report. 

1 Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

study, I have assumed that the May 2006 proposed Class II regulations would go into effect 

in January 2008 and be legally enforceable.10 I have no opinions in these regards. 

INFORMATION CONSIDERED 

In conducting my assignment, I relied upon my knowledge of economics and Indian 

gaming. I also relied upon industry data confidentially provided to me by the NIGC. These 

data included gaming revenue, total casino revenue, tribal government revenue from Indian 

gaming, and Class II gaming machine counts.11 Gaming machine count data were 

supplemented by information from state gaming regulatory agencies and my previouslyconducted research, including the Indian Gaming Industry Report. 

In addition, input was provided by representatives of tribes, casinos, Class II system 

manufacturers, state gaming regulatory officials, and NIGC staff. This input was drawn 

from comments submitted to the NIGC and was supplemented by conversations during the 

course of my assignment.12

 

10 Proposed Rule, 25 CFR Part 502, Definition for Electronic or Electromechanical Facsimile, Federal Register 71 (101), May 

25, 2006; Proposed Rule, 25 CFR Part 502 and 546, Classification Standards, Class II Gaming, Bingo, Lotto, et al., Federal 

Register 71 (101), May 25, 2006. I was not asked to review or analyze the technical standards in my November 2006 report 

(Proposed Rule, 25 CFR Part 547, Technical Standards for ‘‘Electronic, Computer, or Other Technologic Aids’’ Used in the 

Play of Class II Games, Federal Register 71 (155), August 11, 2006). 11 It is important to recognize that Class II machine gaming is conducted in the context of a gaming system that includes 

software, player interfaces, which are referred to in this report as gaming machines, and game titles. 12 Comments were communicated to the NIGC verbally (at government-to-government consultation meetings) and in 

writing (letters and statements) (http://www.nigc.gov/ClassIIGameClassificationStandards/tabid/620/Default.aspx). 

Telephone calls were made between August 14, 2006 and January 9, 2008. 

2 Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

2. Background 

INDIAN GAMING 

In the United States, gaming is conducted by Indian tribes as an exercise of their inherent 

sovereign rights as independent nations.13 And while Indian tribes have operated gaming 

facilities since the late 1970s/early 1980s, it was not until the passage of the Indian Gaming 

Regulatory Act (IGRA) by the United States Congress in 1988 that larger-scale Indian 

gaming began to emerge. Per IGRA, gaming serves as a means of “promoting tribal 

economic development, self-sufficiency, and strong tribal governments.”14 Toward these 

ends, tribes may only use gaming profits to: 

1) Fund tribal government operations or programs; 

2) Provide for the general welfare of their members; 

3) Promote tribal economic development; 

4) Donate to charitable organizations; and 

5) Help fund operations of local government agencies.15

In accordance with the first three uses, tribes have used gaming profits to support a variety 

of tribal programs and services, such as health care, housing development, schools, youth 

centers, scholarships, elderly care, child care, vocational training, environmental services, 

police and fire protection, water and sewer services, transportation, and cultural 

preservation, as well as to fund the development of other tribal enterprises. Also, some 

tribes (about 34 percent) distribute per capita payments to tribal members.16 With regards 

to the fourth and fifth uses, tribes make donations to charities and revenue sharing payments 

to state and local governments.

Per IGRA, there are three distinct classes of Indian gaming:17

 Class I gaming refers to “social games for prizes of minimal value or traditional 

forms of Indian gaming engaged in by individuals as part of, or in connection with, 

tribal ceremonies or celebrations.” 

 Class II gaming refers to “(i) the game of chance commonly known as bingo 

(whether or not electronic, computer, or other technologic aids are used in 

 

13 Light, Steven A., Kathryn R.L. Rand, and Alan Meister, 2005, Spreading the Wealth: Indian Gaming and Revenue 

Sharing Agreements, North Dakota Law Review, 80:4. 

14 Indian Gaming Regulatory Act, 25 U.S.C. § 2702. 

15 Indian Gaming Regulatory Act, 25 U.S.C. § 2710. 

16 In 2002, per capita payments were distributed to tribal members in 73 tribes (Source: National Indian Gaming 

Association, Indian Gaming Facts, accessed November 5, 2007 [http://www.indiangaming.org/library/indian-gamingfacts/index.shtml]). In that same year, there were 216 gaming tribes (Source: Meister, Alan, Indian Gaming Industry 

Report, 2007-2008 Edition, Newton: Casino City Press). Thus, approximately 34 percent (73/216) of gaming tribes 

distributed per capita payments in 2002. 

17 Indian Gaming Regulatory Act, 25 U.S.C § 2703. 

3 Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

connection therewith) – (I) which is played for prizes, including monetary prizes, 

with cards bearing numbers or other designations, (II) in which the holder of the card 

covers such numbers or designations when objects, similarly numbered or 

designated, are drawn or electronically determined, and (III) in which the game is 

won by the first person covering a previously designated arrangement of numbers or 

designations on such cards, including (if played at the same location) pull-tabs, lotto, 

punch boards, tip jars, instant bingo, and other games similar to bingo; and (ii) card 

games that – (I) are explicitly authorized by the laws of the State, or (II) are not 

explicitly prohibited by the laws of the State and are played at any location in the 

State ...” Class II gaming “does not include (i) any banking card games ... or (ii) 

electronic or electromechanical facsimiles of any game of chance or slot machine of 

any kind.” 

 Class III gaming refers to “all forms of gaming that are not Class I or Class II 

gaming.” This includes slot machines, other video and electronic games of chance, 

craps, roulette, pari-mutuel wagering, and house-banked card games like blackjack. 

CLASS II MACHINE GAMING 

Although Class II gaming includes traditional paper bingo and pull-tabs, it is largely 

dominated by electronic bingo and pull-tab machines.18 As shown in Table 1, 72 tribes 

operated 50,924 gaming machines as Class II devices in 160 Indian gaming facilities in 2006 

(see Appendix C for a list of facilities).19 These facilities generated total Class II machine 

revenue of approximately $3.6 billion and associated non-gaming revenue of approximately 

$154.2 million.20,21

 

Tribes 72

Facilities 160

Class II Machines 50,924

Gaming Revenue ($ Millions) $3,550.7

Non-Gaming Revenue ($ Millions) $154.2

Table 1. 2006 Class II Gaming Machine Market 

Sources: Indian Gaming Industry Report and NIGC data.

18 It is the NIGC’s view that some gaming machines operated by tribes as Class II machines fail to meet the existing Class 

II classification standards and are thus Class III games. See the Scenario 3 results in the Lost Gaming Revenue section of 

Chapter 5 for further discussion. 

19 NIGC; Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 20 Tribal government revenue resulting from Class II machine gaming revenue and associated non-gaming revenue was 

approximately $733.5 million. 

21 Derived via analysis of tribal financial data provided by the NIGC and data underlying the Indian Gaming Industry 

Report. See Chapter 4 for background on these data. 

4 Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

As shown in Table 2, there were 15 states with Class II machines in 2006: Alabama, Alaska, 

Arizona, California, Florida, Minnesota, Montana, Nebraska, New York, Oklahoma, South 

Dakota, Texas, Washington, Wisconsin, and Wyoming. It is important to note that while 

Class II machine gaming is operated in various states across the country, it is highly 

concentrated in two states: Oklahoma and Florida. Combined, these two states account for 

76 percent of the total number of Class II machines. Oklahoma alone has 59 percent of the 

machines. After Oklahoma and Florida, California, Alabama, and Washington have the 

largest number of Class II devices. 

State Tribes Facilities Machines 

Machines 

% of Total

Alabama 1 3 2,101 4.1% 

Alaska 1 1 30 0.1% 

Arizona 2 2 56 0.1% 

California 6 8 4,215 8.3% 

Florida 2 8 8,615 16.9% 

Minnesota 1 14 113 0.2% 

Montana 6 7 535 1.0% 

Nebraska 3 4 314 0.6% 

New York 2 3 1,287 2.5% 

Oklahoma 27 87 30,044 59.0% 

South Dakota 2 2 64 0.1% 

Texas 1 1 1,325 2.6% 

Washington 16 17 1,771 3.5% 

Wisconsin 1 1 361 0.7% 

Wyoming 1 2 94 0.2% 

Total 72 160 50,924 100.0% 

Sources: Indian Gaming Industry Report and NIGC data.

Table 2. 2006 Class II Gaming Machine Market by State

These statistics in Tables 1 and 2 reflect substantial growth over time. In fact, the Class II 

gaming machine segment of the Indian gaming industry has been growing at a much faster 

rate than Class III gaming.22 This growth of Class II machine gaming can be attributed to 

two key factors.23 First, Class II gaming machines have been evolving rapidly. 

Technological advances have allowed Class II machines to more closely mimic the look and 

feel of Class III machines. Relative to their predecessors, current Class II machines are 

generally more advanced, visually appealing, and capable of generating greater revenue. 

The second factor leading to the dramatic growth of Class II machine gaming has been the 

fact that some gaming markets in Class II-only states are in the early stages of development. 

Many of these states are smaller markets, often with only a few tribes and/or facilities and 

little or no local competition. Thus, there have been opportunities to expand existing 

facilities and/or develop additional facilities in these markets. 

 

22 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 

23 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 

5 Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

Despite its impressive growth, Class II machine gaming only represents a small portion of 

the total Indian gaming industry. In 2006, it represented approximately 14 percent of total 

gaming revenue generated at Indian gaming facilities.24 While the contribution of Class II 

machine gaming to the Indian gaming industry is small relative to that of Class III gaming, it 

is not insignificant or inconsequential. It plays an important role in the industry. First, Class 

II gaming machines are extremely important to tribes: 

 Where Class III gaming is not permitted, Class II machines have provided tribes 

viable gaming devices. In 2006, this was the case in the states of Alabama, Alaska, 

California (only for the Lytton Band of Pomo Indians), Florida, Nebraska, and 

Texas.25

 Where Class III gaming is permitted, Class II machines have been used to 

supplement Class III machines. This may be desirable for tribes that have 

restrictions on allowable Class III gaming (e.g., caps on the number of Class III 

machines that can be operated; a limit on the number of Class III gaming facilities 

that can be operated by a tribe; revenue sharing associated with Class III machines; 

and restrictions on the type and/or quality of Class III machines that can be 

operated). In 2006, Class III machines were supplemented with Class II machines in 

Arizona, California (for all tribes except the Lytton Band of Pomo Indians), 

Minnesota, Montana, New York, Oklahoma, South Dakota, Washington, Wisconsin, 

and Wyoming. 

 Whether or not Class III gaming is currently permitted, Class II machines may 

provide some leverage in future Class III compact negotiations or renegotiations. 

Current Class II machine gaming represents a potential fallback position for a tribe 

should a state refuse to negotiate/renegotiate a compact or not negotiate in good 

faith. The strength of the bargaining position of any particular tribe is affected by the 

quality of allowable Class II machines. 

Class II machine gaming is also important to the casino gaming market. In geographic areas 

where casino gaming is otherwise non-existent, Class II machines provide casino patrons a 

local gaming option. In geographic areas where casino gaming is limited or some distance 

away from patrons, Class II machines may provide some degree of competition. 

Competition between Class II and Class III machines is likely to be greater when there is less 

of a difference between the quality and performance of Class II and Class III machines 

and/or when Class II machine gaming is located closer to patrons than Class III machine 

gaming. 

 

24 Class II machine revenue as a percentage of total gaming revenue at all Indian gaming facilities = $3.551 billion / $ 

24.886 billion = 14.3 percent. Source: Analysis of NIGC data for fiscal year 2006. Note that total gaming revenue at all 

Indian gaming facilities is slightly lower than the amount publicly reported by the NIGC in June 2007. This is a result of 

adjustments made by the NIGC following that date. 

25 For a discussion of the situation in Florida, see the State-By-State Review of Class II Machine Gaming in the Lost 

Gaming Revenue section of Chapter 5. 

6 Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

EXISTING CLASS II REGULATORY ENVIRONMENT 

IGRA established a framework for the regulation of Indian gaming.26 By design, regulatory 

authority differed depending on the Class of gaming being conducted. In particular, Class II 

gaming was maintained within the jurisdiction of Indian tribes and also subject to the 

provisions of IGRA, which include the NIGC’s power to promulgate regulations and 

guidelines it deems appropriate to implement the provisions of IGRA.27

While the classification of Class II games was broadly defined in IGRA, the NIGC adopted 

regulations that included specific definitions of terms used in IGRA’s game classification 

framework. Because IGRA recognized the right of tribes to use “electronic, computer, or 

other technologic aids” but not “electronic or electromechanical facsimiles” to conduct Class 

II gaming, the definitions of these terms has become critical. In 1992, the NIGC defined these 

terms as follows:28

§ 502.7 Electronic, computer or other technologic aid. 

(a) Electronic, computer or other technologic aid means any machine or device that: 

(1) Assists a player or the playing of a game; 

(2) Is not an electronic or electromechanical facsimile; and 

(3) Is operated in accordance with applicable Federal communications law. 

(b) Electronic, computer or other technologic aids include, but are not limited to, 

machines or devices that: 

(1) Broaden the participation levels in a common game; 

(2) Facilitate communication between and among gaming sites; or 

(3) Allow a player to play a game with or against other players rather than with 

or against a machine. 

(c) Examples of electronic, computer or other technologic aids include pull tab 

dispensers and/or readers, telephones, cables, televisions, screens, satellites, 

bingo blowers, electronic player stations, or electronic cards for participants in 

bingo games. 

 

26 Indian Gaming Regulatory Act, 25 U.S.C. § 2710. 

27 Indian Gaming Regulatory Act, 25 U.S.C. § 2710(a)(2). 

28 25 Code of Federal Regulations (CFR) Parts 502.7 and 502.8; 57 FR 12392, Apr. 9, 1992, as amended at 67 FR 41166, June 

17, 2002. 

7 Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

§502.8 Electronic or electromechanical facsimile. 

Electronic or electromechanical facsimile means a game played in an electronic or 

electromechanical format that replicates a game of chance by incorporating all of the 

characteristics of the game, except when, for bingo, lotto, and other games similar to 

bingo, the electronic or electromechanical format broadens participation by allowing 

multiple players to play with or against each other rather than with or against a 

machine. 

2006 PROPOSED CLASS II GAMING REGULATIONS 

Over time, the interpretation of the aforementioned terms has been the subject of much 

debate. Thus, in May 2006, the NIGC “determined that it [was] in the best long term interest 

of Indian gaming to issue classification standards clarifying the distinction between 

‘electronic, computer, and other technologic aids’ used in the play of Class II games and 

other technologic devices that are ‘electronic or electromechanical facsimiles of a game of 

chance.’”29 In doing so, the NIGC also decided that a further revision to the definition of 

“electronic or electromechanical facsimile” was needed.30 In addition, in August 2006, the 

NIGC proposed technical standards “to provide a means for tribal gaming regulatory 

authorities and tribal operators to ensure that the integrity of Class II games played with the 

use of electronic, computer, or other technologic aids, is maintained; that the games and aids 

are secure; and that the games and aids are fully auditable.”31

Generally, these proposed regulations were expected to be more restrictive than existing 

practices and likely to limit the types of gaming machines that would operate as Class II 

devices.32 According to the proposed regulations,33 Class II games using electronic, 

computer, and other technologic aids would have had to meet the following requirements:34

 For bingo or other games similar to bingo: 

• Players must compete against one another. 

• Although the NIGC encourages play with six or more participants, a game can 

begin with a minimum of two players if six players do not enter a game within 

two seconds after the first player enters. 

 

29 Proposed Rule, 25 CFR Part 502 and 546, Classification Standards, Class II Gaming, Bingo, Lotto, et al., Federal Register

71 (101), May 25, 2006. 

30 Proposed Rule, 25 CFR Part 502, Definition for Electronic or Electromechanical Facsimile, Federal Register 71 (101), May 

25, 2006; Proposed Rule, 25 CFR Part 502 and 546, Classification Standards, Class II Gaming, Bingo, Lotto, et al., Federal 

Register 71 (101), May 25, 2006. 

31 Proposed Rule, 25 CFR Part 547, Technical Standards for ‘‘Electronic, Computer, or Other Technologic Aids’’ Used in 

the Play of Class II Games, Federal Register 71 (155), August 11, 2006. As noted in the Assignment section, I was not asked 

to review or analyze the technical standards in my report on the May 2006 proposed regulations. 

32 In February 2007, after careful considerable criticism from industry participants regarding the potential economic 

hardship that would be incurred by tribes and Class II system manufacturers, the NIGC withdrew the May and August 

2006 proposed regulations. Furthermore, on October 24, 2007, the NIGC published new proposed regulations. 

33 Proposed Rule, 25 CFR Part 502, Definition for Electronic or Electromechanical Facsimile, Federal Register 71 (101), May 

25, 2006; Proposed Rule, 25 CFR Part 502 and 546, Classification Standards, Class II Gaming, Bingo, Lotto, et al., Federal 

Register 71 (101), May 25, 2006. 34 This list is not intended to be a complete list of requirements, but rather a summary of the key classification standards. 

For a complete list of the standards, see the Proposed Rules. Not included or addressed in this report are technical 

standards proposed by the NIGC. As noted in the Assignment section of Chapter 1, I was not asked to review or analyze 

the technical standards in this report or my November 2006 report to which the present report is an update. 

8 Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

• Bingo cards must be used; however, those cards may be electronic. 

• Bingo cards must be provided to players before numbers are drawn. 

• Each card played in a game must have an equal chance of obtaining any winning 

pattern. 

• Technologic aids are permitted but they must prominently display using two 

inch letters a message that it is a game of bingo or game similar to bingo. 

• One-half of the screen must display the bingo game at all times. 

• Alternative technologic displays of game results (e.g., game theme graphics, 

spinning reels, or other imagery) are permitted as long as the game results on the 

electronic bingo card are always shown. 

• Numbers must be randomly drawn (without replacement) in real time or very 

near real time to the actual play of the game. 

• Different entry wagers are permitted. 

• An "ante-up" format is permitted. 

• An "auto-daub" feature is not permitted; thus, players must take overt action to 

daub (i.e., cover) numbers at least one time in each round after numbers are 

drawn. 

• The minimum time for players to daub numbers must be two seconds. 

• There must be at least two releases of numbers before a game-winning pattern is 

created. 

• The minimum time for each number release must be two seconds. 

• A game-winning prize must be awarded in every game. 

• A game is won by the first person covering the pre-designated game-winning 

pattern. 

• The prizes in the game may be increased or progressive prizes offered based 

upon a higher entry wager. 

• All prizes must be based upon achieving pre-designated winning patterns 

common for all players. 

• Gaming-winning prizes must be at least 20 percent of the amount wagered and 

have a minimum value of one cent. 

• Prizes may not be based on an event not directly related to the game. 

• All prizes must be fixed in amount or established by formula and be disclosed to 

all players in the game. 

• The use of a paytable for determining prizes is permitted. 

• Pre-designated interim prizes may be offered but all players in a game must be 

competing for the same set of prizes. 

• "Stand-alone progressives" and "mystery jackpots" are not permitted. 

• A "gamble feature" is not permitted. 

• "Residual credit removal" is not permitted. 

• "Free games" are permitted as a marketing tool as long as all players 

participating in the game that led to the free games receive the same number of 

free games. 

 For pull-tabs: 

9 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

• The game must exist in a tangible format (e.g., paper) and be readily accessible to 

the player at the player station. 

• The tangible pull-tab must contain the information necessary to determine if a 

player won a prize. 

• Technologic aids are permitted but they must prominently display using two 

inch letters a message stating that it is a game of pull-tabs. 

• Alternative displays of game results (e.g., game theme graphics, spinning reels, 

or other imagery) are permitted as long as the game results are always shown 

along with important player information. 

• The game may not accumulate credits. 

• The player station may not pay out winnings, or dispense vouchers or receipts 

representing such winnings. 

10 Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

3. Qualitative Review of the Potential Economic Impact of 

the Proposed Class II Gaming Regulations 

If the proposed Class II regulations are enacted and legally enforceable,35 they are generally 

expected to have a significant negative economic impact on Class II machines and tribes that 

operate them. The proposed regulations will also have a broader economic impact on Indian 

gaming. 

This chapter provides a qualitative review of the potential economic impacts of the proposed 

Class II gaming regulations. Each of these potential impacts is independently reviewed 

below. However, note that the impacts are not necessarily additive (i.e., the actual total 

impact may be less than or greater than the sum of the individual impacts).36 In fact, some 

impacts are likely to be captured in the quantification of other impacts.37 Overall, it is 

difficult to determine the cumulative effect a priori. Chapter 5 of this report estimates the 

magnitude of the quantifiable economic impacts. 

THE IMPACT ON CLASS II GAMING MACHINES 

Based upon my review of the May 2006 proposed regulations, comments from industry 

participants, and discussions with NIGC staff,38 I understand that the proposed Class II 

regulations are restrictive in nature. In achieving the NIGC’s goal of further differentiating 

Class II gaming from Class III gaming, the proposed regulations would also make newly 

compliant Class II machines inferior to existing Class II machines. Specifically, Class II 

machines would become: 

 Slower – Additional delays would be required between and during games. 

 More cumbersome to play – Additional daubing and wait time would be introduced 

into the games. 

 Confusing – Inconsistencies in the speed of a machine would be created due to 

varying lengths of time delays. Additional daubing within a game would at least 

 

35 Based upon my discussions with tribes, casinos, and Class II system manufacturers during the course of my assignment, 

I understand that it is likely that various tribes and Class II system manufacturers will file lawsuits against the NIGC over 

the legality of the proposed Class II regulations, if enacted. I have no opinions regarding the legality and enforceability of

the proposed regulations. 

36 The total economic impact would be equal to the sum of the lost profits from the non-duplicative portions of each 

impact set forth in this chapter of the report (see the direct impacts numbered one through seven below and the broader 

impacts numbered one through three below). However, as noted later in this report, a number of the economic impacts 

were not quantifiable. Furthermore, sufficient industry-wide cost data other than that set forth in this report were not 

available for computing lost profit. 37 For example, at least some of the effects of decreased variety and quality of Class II machines, as well as gaming facility 

closures, are likely to be captured in lost gaming revenue. 

38 Proposed Rule, 25 CFR Part 502, Definition for Electronic or Electromechanical Facsimile, Federal Register 71 (101), May 

25, 2006; Proposed Rule, 25 CFR Part 502 and 546, Classification Standards, Class II Gaming, Bingo, Lotto, et al., Federal 

Register 71 (101), May 25, 2006; comments by tribes and Class II system manufacturers; telephone conversations with 

tribes, Class II system manufacturers, and NIGC staff during the course of my assignment. 

11 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

initially introduce some confusion. The confusion and inconsistency in game 

operation may also create the appearance of unfairness to players. 

 Less diverse – Requirements of common winning patterns, payback percentages, and 

probabilities of winning would limit the variety of machines that could be made 

available to patrons on a gaming floor. 

Given these problems, newly compliant Class II machines would be less appealing to 

patrons and generate less gaming revenue than existing Class II machines. This decrease 

would result from two effects. First, fewer total visits would likely be made to Class II 

gaming facilities. Some patrons may make fewer visits to Class II gaming facilities, while 

others may stop visiting altogether. The effect is especially dependent upon gaming 

alternatives that are available to patrons. Second, when patrons do visit, some may decrease 

their spending. This can result from a decrease in the appeal of the machines and/or a 

decrease in the amount of time that machines are available for play (e.g., if utilization of 

machines is 100 percent and the machines are slower, fewer plays of the machines can be 

made). 

OPTIONS FOR TRIBES OPERATING EXISTING CLASS II GAMING MACHINES 

Under the proposed regulations, there would be three potential options for tribes operating 

Class II gaming machines: 

(1) Adopt compliant gaming machines – If a tribe wants to continue operating Class II 

gaming machines and it has no other viable alternative, then it must adopt gaming 

machines compliant with the proposed regulations. 

(2) Adopt an alternative – If a tribe has an alternative that would be more profitable 

than compliant gaming machines, then it would surely shift to the alternative. 

Furthermore, if the alternative turned out to be more profitable than existing Class II 

machines (e.g., Class III machines), then a tribe would be better off than its existing 

situation. One may argue that if the alternative would make a tribe better off, it 

would have already been doing that alternative. However, this is not necessarily the 

case. Alternatives may only become available as a result of the proposed Class II 

regulations (e.g., a tribe may choose to enter into a compact or renegotiate a compact 

when it otherwise would not do so; the Department of the Interior may consider 

granting requests for Secretarial Procedures more often and/or more quickly; a tribe 

may discover an existing alternative that it was not previously aware of; tribes 

and/or Class II system manufacturers may develop new alternatives). If an 

alternative were more profitable than compliant gaming machines but less profitable 

than existing Class II machines, then a tribe would still choose the alternative but be 

worse off. 

Note that if a tribe offering Class II machines is able to introduce Class III gaming or 

add more Class III machines as an alternative to Class II machines, then it could just 

continue operating the Class II machines, which would then be considered Class III 

12 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

machines under the proposed regulations. Of course, traditional Class III machines 

are likely to be much better revenue generators than Class II machines reclassified as 

Class III machines. 

In theory, an alternative could be something other than gaming. However, in most 

cases, non-gaming alternatives are not likely to be as viable as gaming alternatives. 

(3) Shut down – If a facility were no longer able to generate sufficient revenue to cover 

its variable costs of operation, a tribe may shut down the facility. In the short run, it 

seems likely that tribes without a viable alternative would try to work with whatever 

is allowed under the proposed regulations. However, in the long run, if gaming 

revenue losses at some gaming facilities are too large, those facilities may be forced 

to shut down. Indeed, given the large expected decrease in revenue (see Chapter 5), 

it is likely that some smaller Indian gaming facilities that are only marginally 

profitable would have to shut down. Unfortunately, in the aggregate analyses set 

forth in this report, there is no way to identify these cases. 

THE DIRECT ECONOMIC IMPACT ON CLASS II GAMING FACILITIES AND 

THEIR RESPECTIVE TRIBES 

In light of the effects of the proposed Class II regulations and the options available to tribes 

operating Class II gaming machines, there would be several negative economic impacts on 

Class II gaming facilities and the tribes that operate them: 

(1) Lost gaming revenue; 

(2) Lost non-gaming revenue; 

(3) Decreased variety and quality of Class II machines; 

(4) Gaming facility closures; 

(5) Increased capital, deployment, compliance, regulatory, training, revenue-sharing, 

and financing costs; 

(6) Lost tribal member jobs; and 

(7) Decreased innovation in the Class II gaming machine market. 

Lost Gaming Revenue 

Because the proposed regulations will slow down Class II gaming machines, make them 

more cumbersome and confusing to play, and cause them to be less appealing to patrons in 

comparison to existing Class II machines, there would likely be a decrease in gaming 

revenue from Class II machines. First, a slowdown of machines reduces the amount of time 

available for play. Thus, fewer dollars can be generated by a machine when it is utilized 100 

percent of the time or when patrons are time constrained (i.e., patrons have a limited amount 

of time to gamble). Second, a less appealing, more cumbersome, and potentially confusing 

Class II machine could also decrease consumer demand. Patrons may come less often, 

13 Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

maybe not at all, or go somewhere else instead (e.g., a Class III Indian gaming facility, a 

commercial casino, or a racino). 

The decrease in gaming revenue may vary widely from state to state, tribe to tribe, and 

facility to facility depending on the legal landscape, political environment, existing market 

conditions, and the availability of viable alternatives to Class II machines. In terms of the 

latter reason, if tribes have an alternative to Class II machines, there may be little or no 

decrease in gaming revenue. The impact depends on how well the alternative ultimately 

performs. If the alternative does at least as well as existing Class II machines,39 then there is 

no gaming revenue loss. If the alternative does not perform as well as existing Class II 

machines, then the gaming revenue loss would be equal to the revenue generated by existing 

Class II machines minus that generated by the alternative. 

Also, note that if the proposed regulations render Class II machines unlawful or 

technologically unfeasible,40 as has been suggested by some industry participants, then lost 

gaming revenue would be equal to the entirety of Class II machine revenue where there are 

no viable alternatives to compliant Class II machines. 

If tribes do not have a viable alternative to Class II machines, they would have to adopt 

lower revenue-generating Class II machines that comply with the proposed regulations. In 

the extreme, if the gaming revenue loss to an Indian gaming facility were large enough, it 

could put them out of business. Although such individualized outcomes cannot be 

predicted by an aggregate economic model, such as that used in Chapter 5, it is a realistic 

possibility for some tribes given the magnitude of the expected lost gaming revenue (see 

Chapter 5 for further details). And if lost gaming revenue is significant enough to force a 

facility to shut down, then lost gaming revenue for that facility would equal actual gaming 

revenue. For this reason, lost gaming revenue estimated in Chapter 5 is likely to be 

conservative. 

Overall, a decrease in gaming revenue may be reflected by a decrease in revenue per 

machine and/or a decrease in the number of gaming machines in operation.41

Lost Non-Gaming Revenue 

If there is a decrease in gaming revenue, there is also likely to be an associated decrease in 

non-gaming revenue. Many Indian gaming facilities now offer on-site non-gaming 

amenities such food and beverages, lodging, retail, and entertainment. While historically 

many Class II facilities have not had much in the way of non-gaming amenities except some 

food and beverages, this has been changing. In recent years, the general trend in the Indian 

gaming industry has been towards the addition or expansion of non-gaming amenities. This 

 

39 If an alternative requires revenue sharing (e.g., Class III machines), it must outperform existing Class II machines by a 

margin equal to its revenue sharing. 

40 I have no opinion regarding the technological feasibility of the proposed regulations. 

41 For further discussion, see the Methodology section under Lost Gaming Revenue in Chapter 5. 

14 Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

has occurred for two reasons. First, they often generate a revenue stream of their own. 

According to aggregate tribal financial data, non-gaming revenue was approximately 13 

percent of gaming revenue at all Indian gaming facilities nationwide (including Class II and 

Class III facilities) in 2006.42 For facilities with Class II machines, the contribution is much 

less at approximately four percent of gaming revenue. The second reason for the trend 

towards more non-gaming amenities is the positive impact they tend to have on gaming 

revenue. Good quality amenities tend to draw people from farther distances, encourage 

them to stay longer, and spend more money. 

Decreased Variety and Quality of Class II Machines 

The enactment of the proposed regulations is likely to change the landscape of the Class II 

system manufacturing market, which in turn will have an impact on tribes that continue to 

offer Class II machines. As previously noted, the proposed regulations are likely to decrease 

demand for Class II machines. Thus, tribes with Class II machines will either convert to 

compliant Class II machines, which are likely to be less appealing to patrons and generate 

less revenue, or shift to available alternatives (e.g., Class III gaming). Given economies of 

scale inherent in the manufacture of gaming machines (i.e., lower per unit costs as more 

units are manufactured),43 a decrease in demand may result in higher costs per Class II 

machine. On the whole, some Class II system manufacturers may no longer find it profitable 

to stay in the market.44 And a decrease in competition among manufacturers would likely 

lead to a decrease in the variety and/or quality of Class II machines, as well as an increase in 

prices of Class II gaming equipment (for a further discussion of price increases, see the 

Increased Costs section). 

While the proposed regulations would likely have a negative impact on the Class II system 

manufacturing market, and thus tribes that operate compliant Class II machines, the 

proposed regulations could benefit the Class III machine manufacturing market as there 

would be an increase in demand as a result of some gaming operations shifting from Class II 

to Class III machines.45

Gaming Facility Closures 

Given that no existing Class II machines meet the proposed regulations, tribes would be 

required to remove, modify, or replace every existing Class II machine in operation. This 

 

42 Analysis of NIGC data. 

43 For example, product research and development costs are spread over more machines as the number of manufactured 

machines increases. 

44 Some major manufacturers, such as IGT and Bally Technologies, have entered the Class II system manufacturing 

market in the past few years as a result of the increasing demand for Class II machines. If this demand is eliminated or 

reduced by the proposed Class II regulations, it is likely that a number of manufacturers will leave the market because of 

a likely decrease in profitability. As a matter of fact, at least one manufacturer has unequivocally said that it would not 

continue making Class II machines if the May 2006 proposed regulations were enacted. Other manufacturers have stated 

they are unsure whether they would remain in the market. Source: Discussions with Class II system manufacturers. 45 For the manufacturers that make both Class II and Class III machines, the loss in the Class II market may be offset to 

some degree by a gain in the Class III market if they earn some of the shift in business. 

15 Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

could take some time as compliant Class II gaming systems must be developed, tested, 

certified by independent laboratories, and installed/modified in gaming facilities across the 

country. In mid to late 2006, Class II system manufacturers were estimating that it could 

take more than a year, even up to 24 months, to accomplish these tasks.46 The actual 

timeline would depend on how many machines ultimately need to be replaced or modified, 

how many manufacturers are left in the market, which manufacturers remain, how close a 

manufacturer’s existing machines are to meeting the proposed regulations, a manufacturer’s 

engineering capabilities, possible backlogs at gaming machine laboratories, and how quickly 

issues can be resolved after machines have been submitted to a lab and/or the NIGC.47

Initially, the proposed regulations would give tribes six months to become compliant.48 If 

this is not sufficient time and good cause is shown, then tribes may request one or more sixmonth extension periods. Based upon discussions with the NIGC staff, they have 

acknowledged that up to two or three such extension periods may be warranted in order for 

some tribes to become fully compliant. If compliant gaming devices are not ultimately ready 

within whatever time tribes are allowed by the NIGC, tribes will have to temporarily shut 

down non-compliant Class II machines until they are compliant. Temporary shut downs 

would likely cause major business disruptions, particularly if Class II machines comprise a 

large proportion of a gaming facility’s revenue generation capabilities (e.g., in a Class II-only 

facility). 

The physical replacement and/or modification of all Class II machines in a gaming facility 

may also result in some temporary and/or partial closures. This is particularly relevant 

where there is a large number of existing Class II machines. If there is not enough time to 

replace and/or modify all machines on a gradual basis, gaming facilities may find 

themselves rushing to complete the process at the last minute and be forced to replace 

and/or modify everything simultaneously. And this could result in complete facility 

closures. 

Lastly, as previously noted, there may also be permanent closures of entire Indian gaming 

facilities or portions thereof. If a Class II-only facility does not have a viable alternative to 

existing Class II machines and compliant Class II machines do not generate sufficient 

revenue to cover the variable cost of operations, a tribe may have to shut down a facility. In 

such cases, lost gaming revenue would equal total gaming revenue. If Class II machines in a 

Class III facility are no longer profitable and there is no viable alternative, a tribe may have 

to shut down those machines altogether. Thus, in these situations, lost gaming revenue 

would equal Class II machine revenue. 

 

46 Based upon phone discussions with several major Class II gaming machine manufacturers and comments from industry 

participants. 

47 If existing Class II systems are modified or replaced with compliant systems, then the timing will depend on the number 

of Class II system manufacturers that remain in the market and their manufacturing/modification capacities. However, if 

some tribes were to switch to Class III gaming, then the timing will depend on the number of Class III machine 

manufacturers and their manufacturing capacities. 

48 Proposed Rule, 25 CFR Part 502 and 546, Classification Standards, Class II Gaming, Bingo, Lotto, et al., Federal Register

71 (101), May 25, 2006. 

16 Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

Increased Costs 

Given that there are no existing Class II gaming machines that would meet the requirements 

of the proposed regulations,49 all existing Class II gaming systems operated by tribes must 

be modified or replaced (either with compliant Class II machines or available alternatives). 

And in doing so there would be significant incremental costs that otherwise would not have 

been incurred: 

(1) Capital costs – costs of modifying or replacing Class II gaming systems,50 including 

software, player interfaces, titles, and other related components if necessary; these 

costs are likely to be passed through to tribes in the form of higher purchase prices if 

Class II systems are purchased by tribes or higher participation fees (i.e., a higher 

percentage of gaming revenue charged by Class II system manufacturers to tribes) if 

Class II systems are leased.51,52

It is my understanding that these capital costs are purely incremental in nature and 

would not be incurred but for the proposed regulations. Due to the smaller size of 

this still-developing Class II machine market and the fundamental nature of Class II 

gaming, the software, player interfaces, and titles are not replaced based on a typical 

Class III machine lifecycle (e.g., five years). Software and player interfaces are 

typically only replaced or modified if they are damaged or switched out with a new 

system, which is not all that often. Also, relative to the number of total player 

interfaces (50,000 plus), there are not a lot of available titles. Thus, titles are not often 

retired or discarded by Class II system manufacturers. In fact, many titles (e.g., 

Rocket Classic from Rocket Gaming Systems, Red Hot Ruby and Mr. Money Bags 

from VGT, and Red White & Blue from IGT) have been around for quite a long 

time.53

(2) Deployment costs – delivery and installation of newly compliant Class II gaming 

systems, including software, player interfaces, titles, and other related components if 

necessary. 

 

49 Based upon comments from tribes, casinos, Class II system manufacturers, and NIGC staff. 

50 Throughout the course of conducting this study and my previous study of the May 2006 proposed regulations, Class II 

system manufacturers have referred to Class II gaming systems as “all components, whether or not technologic aids in 

electronic, computer, mechanical, or other technologic form, that function together to aid the play of one or more Class II 

games ...” The key components of Class II gaming systems are: software, player interfaces, and titles. Software, which 

may reside on centralized servers and/or player interfaces, are the “operational program or programs that govern the 

play, display of results, and/or awarding of prizes or credits of Class II games.” A player interface, also commonly 

referred to as an electronic player station (EPS), bingo player interface (BPI), or “box”, is “any component or components 

... including an electronic or technologic aid ... that directly enables player interaction in a Class II game.” A title, also 

commonly referred to as a game, refers to the game theme or graphical display at the player interface, including both the 

bingo card and alternative displays. Sources: Class II system manufacturers and the October 2007 proposed regulations 

(Proposed Rule, 25 CFR Part 547, Technical Standards for Electronic, Computer, or Other Technologic Aids Used in the 

Play of Class II Games, Federal Register 72 (205), October 24, 2007). 51 If machines are sold rather than leased, which is currently the norm, the risk associated with owning lower-revenue 

generating compliant machines would be shifted from manufacturers to tribes. 

52 There will also be capital costs for tribes that shift from Class II to Class III machines. However, if Class III machines do

in fact perform better than compliant Class II machines, then the gaming revenue gains (and non-gaming revenue gains 

associated with the gaming revenue gains) may offset increased capital costs. 53 Discussions with Class II system manufacturers. 

17 Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

(3) Compliance Costs – test lab fees for ensuring the software, player interfaces, and 

titles are compliant with the proposed regulations. 

(4) Regulatory costs – increased costs of regulating new and/or modified Class II 

systems following the proposed regulations. 

(5) Training costs – increased costs to Indian gaming facilities to acclimate casino 

employees and customers with compliant Class II machines. 

(6) Revenue-sharing costs – increased payments to state and local governments if tribes 

shift from Class II machines to Class III machines as a result of the enactment of the 

proposed regulations; only relevant in states where tribes have revenue sharing 

agreements in their gaming compacts. 

It should be noted that it is uncertain whether these increased costs would be 

entirely offset by the increase in Class III machine revenue. This would depend on 

how much more revenue Class III machines generate relative to Class II machines, as 

well as other costs (e.g., capital, deployment, compliance, regulatory, training, and 

financing costs) that may be incurred by tribes to switch from Class II to Class III 

machines. 

(7) Financing costs – for existing financing, such as for the construction or renovation of 

gaming facilities, a decrease in Class II machine revenue and gaming facility closures 

may trigger additional costs, such as increased interest rates, penalties, and possibly 

even defaults; for future financing, the result may be higher financing costs, inferior 

financing terms, and possibly the inability to obtain financing at all. 

Lost Tribal Member Jobs 

If Indian gaming facilities, and subsequently tribal governments, experience a decrease in 

revenue as a result of the proposed regulations, tribes may find it necessary to reduce the 

size of their workforces, which typically include tribal members. 

Decreased Innovation in the Class II Gaming Machine Market 

Lastly, the proposed regulations are likely to stifle innovation in the Class II machine gaming 

market. First, the proposed regulations would certainly take the industry backwards in 

terms of technological development. I believe there is universal agreement on this. 

However, this seems to be in line with the main goal of the proposed regulations – to draw a 

clearer distinction between Class II and Class III machines. 

Second, there is less incentive to conduct further research and development for Class II 

systems as a result of: tighter regulations; decreased revenue generation capabilities; fewer 

Class II system manufacturers and decreased competition; and increased costs, including 

difficulties in obtaining financing (for both manufacturers to develop Class II systems and 

tribes to purchase/lease Class II systems) and huge investments in non-growth activities 

such as making Class II systems compliant with the proposed regulations.

18 Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

THE GENERAL ECONOMIC IMPACT ON INDIAN GAMING 

The proposed regulations would also have other broader economic impacts on Indian 

gaming, including: 

(1) Decreased leverage in Class III compact negotiations/renegotiations; 

(2) Restriction of new entry into the Class II machine market; and 

(3) Changes in competition for Class III gaming. 

Decreased Leverage in Class III Compact Negotiations/Renegotiations 

In accordance with IGRA, Class III gaming compacts govern the operation of Class III 

gaming. The negotiation/renegotiation of compacts is often a very difficult process. Thus, 

as in most types of negotiations, relative bargaining positions are very important. The party 

that has the stronger bargaining position is more likely to get a favorable outcome on issues 

within the negotiation/renegotiation. In terms of gaming compacts, important issues 

include tribal sovereignty, the degree of state regulatory authority, the types and number of 

games, the number of gaming facilities, revenue sharing, economic benefits conferred upon 

tribes in exchange for revenue sharing (e.g., exclusivity), and voluntary compliance with 

various non-tribal regulations (e.g., environmental and labor). 

In the negotiation/renegotiation of compacts, Class II machine gaming has played an 

important role by serving as leverage for tribes. If states refuse to negotiate/renegotiate 

gaming compacts or do not do so in good faith, tribes can turn to Class II machines, over 

which the state has no say. In essence, Class II machines can serve as a fallback position for 

tribes. 

However, if the viability of Class II machines is diminished (i.e., a decrease in revenue 

and/or an increase in costs), as is expected to be the case with the May 2006 proposed 

regulations, at least some of a tribe’s leverage in negotiating/renegotiating gaming compacts 

would be lost. The degree of the lost leverage ultimately depends on other circumstances, 

such as competition, the types and quantity of gaming contemplated, whether the compact is 

for new gaming or the expansion of existing gaming, and the well-being of both state and 

tribal economies. But if sufficient leverage is lost, the result could be refusals by states to 

negotiate/renegotiate gaming compacts or tribes having to negotiate unfavorable compacts 

(e.g., curtailing of tribal sovereignty or an increase in revenue sharing). 

Restriction of New Entry into the Class II Machine Market 

New entry into the Class II machine market, in the form of new and expanded Class II 

gaming facilities, would likely be restricted under the proposed regulations. The expected 

decrease in revenue and expected increase in costs of operating compliant Class II machines 

(as noted in previous sections of this chapter) would substantially reduce the potential 

profitability of Class II machines. This, in turn, could make it uneconomical to construct 

19 Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

new facilities or renovate existing ones. While this result is likely to limit the extent of future 

competition in Class II machine gaming markets, the benefits of reduced competition would 

accrue to tribes operating compliant Class II machines. However, this impact may not be 

significant if the market potential for compliant Class II machines is small to begin with. 

Changes in Competition for Class III Gaming 

While the proposed Class II regulations may provide greater clarity regarding the distinction 

between Class II and Class III machines,54 they will do so in a way that will likely affect the 

degree of competition in the Indian gaming industry. First, consumers are likely to view 

compliant Class II machines as less desirable substitutes for Class III machines than existing 

Class II machines. This would decrease the ability of Class II machines to compete against 

Class III gaming. Gaming patrons may just participate at alternative locations, including 

Class III gaming facilities. While this would result in a negative impact on Class II machine 

operators, it could have a positive impact on Class III gaming facilities if they garner the 

additional business. 

Second, if the proposed regulations force some tribes to shift from Class II machines to Class 

III machines, this could increase the degree of competition within the Class III machine 

gaming market. 

 

54 If the proposed regulations amend game definitions and classification standards to more clearly define Class II gaming, 

they may help create some sense of stability in the marketplace. In the past, there has been some sense of uncertainty as 

to what is allowed. In fact, the NIGC has had a number of disputes with tribes and Class II system manufacturers over 

what is and what is not a Class II machine. As a result, there has been and continues to be a potential threat by the NIGC 

to fine or close down facilities that it deems not to be in compliance. 

20 Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

4. Data 

As identified below, I have compiled information from what I believe to be reliable sources. 

While third-party data were not independently audited, they were cross-checked with other 

sources wherever possible. 

Data on the number of gaming machines in calendar year 2006 were obtained from a few 

sources. Total machine counts per Indian gaming facility were gathered at the end of 2006 as 

part of my annual Indian gaming study, the Indian Gaming Industry Report.55 For Class IIonly facilities, the Class II machine counts were equal to the total machine counts given that 

there were no other types of machines available. For Class III facilities with Class II 

machines, the total machine counts were equal to the sum of Class II and III machine counts. 

Furthermore, with the exception of Oklahoma, Class II machine counts were not separable 

from the total machine counts. Thus, it was necessary to use Class II machine counts 

provided by the NIGC in October/November 2006. Unfortunately, there were no facility 

counts for Oklahoma. Thus, I calculated the statewide Oklahoma Class II count as the 

statewide total machine count, which was available in the Indian Gaming Industry Report, 

minus the statewide Class III machine count, which was available from the State of 

Oklahoma.56 Note that the use of a statewide Oklahoma Class II machine count required all 

Oklahoma revenue and ratio calculations (e.g., gaming revenue and non-gaming revenue) to 

be done at the statewide level, not on a facility by facility basis, as done for all other states. 

Also, note that for facilities only open a portion of 2006 (i.e., they opened or closed during 

2006), their machine counts were prorated for the portion of the year they were operated. 

Tribal financial information, including gaming revenue and non-gaming revenue, were 

provided confidentially by the NIGC.57 I understand that these data come directly from 

audited financial statements submitted by tribes to the NIGC.58 The most recent year of 

available data is 2006. For a small number of gaming facilities, financial information was 

incomplete in the NIGC data.59 It is my understanding that these data gaps may be the 

result of information not being submitted by tribes on time. While the facilities with missing 

values could not be included in the calculation of market statistics defined below (e.g., 

revenue per machine per day and the ratio of non-gaming to gaming revenue), they were 

still included in the quantifiable impacts.60

Generally, gaming revenue is defined as all amounts wagered minus prizes and payouts. 

Class II machine revenue, which is of primary interest in this report, was not explicitly 

 

55 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 56 State of Oklahoma, Office of State Finance. 

57 As noted in footnote 158, transfers of profits from gaming facilities to tribal governments were also reviewed. 

58 Data were provided in electronic databases. 

59 Gaming revenue was not available for five facilities, including a small subset of gaming facilities with Class II machines 

(three of 158 facilities in 2006). 

60 In terms of lost gaming revenue, these facilities were accounted for in the number of machines to which revenue per 

machine per day was applied. For further discussion of the methodology for calculating lost gaming revenue, see the 

Lost Gaming Revenue section of Chapter 5. 

21 Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

provided in the tribal financial information provided by the NIGC. Therefore, for all 

facilities with Class II machines, Class II machine revenue was calculated as a proportion of 

total gaming revenue.61 Based upon the nationwide Indian gaming data, total machine 

revenue is approximately 90 percent of total gaming revenue.62 For Class II gaming 

facilities, total machine revenue is equal to Class II machine revenue because all machines 

are Class II. For Class III facilities with Class II machines, total machine revenue includes 

revenue from both Class II and Class III machines. Therefore, in order to separate out Class 

II machine revenue, it was assumed to be proportional to the share of Class II machines 

relative to total machines in operation. In other words, total machine revenue was 

multiplied by the ratio of the number of Class II machines to the total number of gaming 

machines. In order to account for the fact that Class III machines have a higher revenue 

generation capability than Class II machines, Class III machines were more heavily weighted 

than Class II machines in this computation. Based upon an analysis of NIGC data and 

discussions with Class II system manufacturers, I have assumed that the nationwide average 

revenue per Class III machine is approximately one and a half times that of the nationwide 

average revenue per Class II machine. Thus, Class III machines were given a weight of one 

and a half times that of Class II machines in the aforementioned ratio. 

Non-gaming revenue is defined as any gaming facility revenue that is not directly generated 

by gaming activities. Non-gaming revenue includes revenue from food and beverages, 

lodging, retail, entertainment, and any other non-gaming operations. In order to estimate 

non-gaming revenue attributable to Class II machines at each facility, it was calculated as a 

proportion of total non-gaming revenue.63 Specifically, total non-gaming revenue was 

multiplied by the ratio of Class II machine revenue to total gaming revenue. 

Market statistics (e.g., revenue per machine per day and the ratio of non-gaming revenue to 

gaming revenue) were calculated using all facilities for which relevant data were available in 

each particular analysis (i.e., Scenarios 1, 2A, 2B, and 3). Revenue per machine per day was 

computed as Class II machine revenue divided by the number of Class II machines in 

operation divided by the number of days in the year. The ratio of non-gaming revenue to 

gaming revenue was computed in relation to Class II machines only. Thus, the ratio of nongaming revenue to gaming revenue was calculated as the sum of non-gaming revenue from 

all relevant facilities, divided by the sum of gaming revenue from all relevant facilities, 

multiplied by the ratio of Class II machine revenue to total gaming revenue. 

 

61 For Oklahoma, given that the Class II machine count was only available on a statewide basis, Class II machine revenue 

was calculated on a statewide basis. Also, given that Class III gaming revenue could be reliably estimated from revenue 

sharing payments, Class II machine revenue was estimated as total gaming revenue minus Class III gaming revenue. 

Source for revenue sharing payment data: State of Oklahoma, Office of State Finance. 62 Analysis of data from Joseph Eve, The 2007 Indian Gaming Cost of Doing Business Report, 2007. 

63 For Oklahoma, given that the Class II machine count was only available on a statewide basis, Class II-related nongaming revenue was calculated on a statewide basis. 

22 Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

Data on output per worker (i.e., gaming revenue per worker) were derived from information 

underlying the Indian Gaming Industry Report.64

The percentage of gaming facility employees that are tribal members comes from the 

National Indian Gaming Association (NIGA).65

 

64 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 

65 NIGA website (http://www.indiangaming.org/library/indian-gaming-facts/index.shtml), accessed November 5, 2007. 

23 Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

5. Quantitative Analysis of the Potential Economic Impact of 

the Proposed Class II Gaming Regulations 

Although all of the potential economic impacts noted in Chapter 3 are rooted in economic 

theory, some are difficult to quantify and/or lack sufficient data for a quantitative analysis. 

Furthermore, when quantifiable, the impacts must be measured on an aggregate nationwide 

in order to protect the confidentiality of individual tribes’ financial data. However, it is 

important to note that the impacts may vary significantly from state to state, tribe to tribe, 

and facility to facility depending on the particular circumstances of each situation. 

Given these limitations, I have estimated the magnitude of the economic impacts that are 

readily quantifiable: lost gaming revenue; lost non-gaming revenue; increased revenuesharing costs; and lost tribal member jobs. While the other potential economic impacts from 

Chapter 3 were not quantifiable at this time, they should be considered qualitatively in 

conjunction with the quantified impacts. 

LOST GAMING REVENUE 

As noted in Chapter 3, the proposed Class II regulations will lead to Class II gaming 

machines that are inferior to existing Class II machines. This would lead to a decrease in 

gaming revenue for tribes that continue operating Class II machines. 

State-By-State Review of Class II Machine Gaming 

In 2006, there were 15 states where Class II gaming machines were operated by tribes: 

Alabama; Alaska; Arizona; California; Florida; Minnesota; Montana; Nebraska; New York; 

Oklahoma; South Dakota; Texas; Washington; Wisconsin; and Wyoming. Each state is 

briefly reviewed below to provide some context for the lost gaming revenue analysis.66 

Appendix C provides a list of the Indian gaming facilities that operated Class II gaming 

machines in 2006. 

Alabama 

In Alabama, the Poarch Band of Creek Indians operates Class II gaming machines. In 2006, it 

operated three gaming facilities with a total of 2,101 Class II machines.67 As reflected by the 

growth of its facilities, the Tribe has experienced success with Class II machines. 

However, the Tribe’s gaming facilities have seen increased competition in the last couple of 

years. First, beginning at the end of 2003, greyhound racetracks in Alabama began operating 

electronic bingo machines that are somewhat faster than existing Class II machines operated 

 

66 Background on each state is based upon input gathered from tribes, casinos, Class II system manufacturers, NIGC staff, 

and state gaming regulatory agencies, as well as my research conducted outside the scope of this assignment. 

67 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 

24 Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

by the Tribe68 Second, in early 2006, new competition came in the form of “sweepstakes 

machines,” which look and sound much like slot machines.69 While the intricacies of these 

sweepstakes machines are beyond the scope of this study, it is my understanding that they 

identify whether or not a patron won a pre-determined sweepstakes.70 Although legally 

challenged at first, a court decision has deemed these devices to be legal under existing law 

and they have subsequently spread throughout the state.71

The increased competition, which would be considered Class III gaming under existing 

game classification advisory opinions issued by the NIGC’s Office of General Counsel, has 

already had a negative impact on the Tribe’s gaming facilities.72 Meanwhile, the Tribe 

believes that is entitled to operate Class III gaming given the type of gaming already 

operated in the state. However, the State of Alabama is unwilling to enter into a gaming 

compact with the Tribe. Therefore, the Tribe has requested Secretarial Procedures in order 

to operate Class III gaming.73 At this time, no significant progress has been made in this 

regard. 

Given the current situation, if the NIGC’s proposed Class II regulations are enacted, the 

Tribe would be forced to replace all of its existing Class II machines with compliant devices. 

In light of the scope of the proposed regulations, any new compliant Class II gaming 

machine would be inferior to the Tribe’s existing devices, as well as competitor’s devices 

(i.e., electronic bingo machines at greyhound racetracks and sweepstakes machines). 

Alaska 

In 2006, there was only one tribe, the Metlakatla Indian Community, operating Class II 

gaming machines in Alaska.74 It operated 30 Class II machines in its single facility,75 which 

is in a remote part of the state. Competition is very limited in the area. There is only 

charitable gaming, which allows bingo and pull-tabs, but only in paper form. 

If the proposed Class II regulations are enacted, the Tribe would have no choice but to 

replace its existing Class II machines with compliant ones. Although, the compliant 

 

68 Based upon discussions with tribal representatives, Class II system manufacturers, and NIGC staff. 

69 Rose, Nelson, “Court Approves Racino’s Non-Slot Machines,” Casino City Times, June 18, 2006 

(http://rose.casinocitytimes.com/articles/27582.html). 

70 I understand that patrons purchase Internet access cards, and that in doing so, they also receive sweepstakes entries. In 

order to determine whether an entry was a winner or not, patrons have to either access an Internet website, call an 800 

number, or use the sweepstakes machine as an electronic reader. 

71 Rose, Nelson, “Court Approves Racino’s Non-Slot Machines,” Casino City Times, June 18, 2006 

(http://rose.casinocitytimes.com/articles/27582.html). 

72 Based upon discussion with a tribal representative and a cursory review of NIGC data. 

73 When a tribe has been unable to negotiate a compact with a state, the Secretary of the Department of the Interior can 

intercede and prescribe procedures under which Class III gaming may be conducted. Secretarial procedures are 

authorized by IGRA (25 U.S.C § 2710(d)(7)(vii)). 

74 While a number of other tribes, Native Villages, and tribal organizations operate bingo and pull-tabs, they are not 

regulated as Class II gaming. They are in fact licensed by the State of Alaska as municipalities and non-profit 

organizations qualified to conduct charitable gaming activities. None of these charitable gaming activities are allowed to 

utilize electronic gaming devices. Source: Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: 

Casino City Press. 

75 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 

25 Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

machines would be inferior to existing gaming machines operated by the Tribe, they would 

still be superior to current charitable gaming. 

Arizona 

In Arizona, tribes primarily offer Class III gaming. In 2006, 15 tribes operated a total of 

12,713 gaming machines in 26 facilities (three of which were only traditional bingo halls).76 

Of these machines, only 56 (less than one percent) were Class II.77 These machines were 

offered at two facilities. One of them had 16 Class II machines alongside 950 Class III 

machines. The other facility was a small Class II-only facility with 40 Class II machines. 

As reflected by the foregoing counts, Class II machines currently play a minor role in 

Arizona. This is a result of how the tribes’ gaming compacts are structured.78 While, 

revenue from Class II machines is not subject to revenue sharing with the State of Arizona 

like revenue from Class III gaming, Class II machines count towards a tribe’s machine cap 

just like Class III machines. 

Therefore, if the proposed Class II regulations were enacted, tribes operating Class II 

machines could shift to Class III machines, which generally generate higher revenue per 

machine, but which would require revenue sharing, which is done on a tiered, sliding scale 

basis of one to eight percent of net win.79

California 

Like tribes in Arizona, California tribes primarily offer Class III gaming. In 2006, 54 tribes 

operated a total of 62,732 gaming machines in 57 facilities.80 Of these machines, 4,215 (seven 

percent) were Class II.81 These machines were offered at eight facilities across the state. 

In seven of those eight facilities, Class II machines were used to supplement Class III 

machines, which were restricted to a machine cap per 1999 gaming compacts.82 These seven 

facilities, which are operated by five tribes (Morongo Band of Mission Indians, Pechanga 

 

76 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. Machine counts at Arizona 

Indian gaming facilities that were open only part of 2006 were prorated. 

77 Arizona Department of Gaming, Status of Tribal Gaming in Arizona as of 1/1/07, January 2007. 

78 Each tribe has an initial gaming machine allocation, which increases every five years in accordance with the growth of 

the state population. On top of this initial allocation, each tribe has an additional gaming machine allocation. This 

additional allocation represents the number of devices that can be acquired from other tribes not operating their full 

initial allocation or from the State if a tribe is unable to acquire devices from another tribe. A tribe may operate up to 40 

Class II machines per gaming facility, but they count against the tribe’s additional allocation. Any Class II machines over 

40 would count against the tribe’s initial allocation. Source: Model Tribal-State Gaming Compact, Arizona, 2003. 

79 One percent of the first $25 million dollars of Class III net win; three percent of the next $50 million dollars; six percent 

of the next $25 million dollars; and eight percent of Class III net win in excess of $100 million dollars. Source: Model 

Tribal-State Gaming Compact, Arizona, 2003. 

80 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 

81 Source: NIGC, October/November 2006. Due to data limitations, it was assumed that the number of Class II machines 

at the end of 2006 was equal to that in October/November 2006. 

82 Some tribes, including one of the six with Class II machines, have even been held below their Class III machine cap as a 

result of the statewide machine cap, which according to the California Gambling Control Commission, has already been 

reached. Tribes have disagreed with this conclusion. 

26 Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

Band of Luiseño Indians, Rincon Band of Luiseño Mission Indians, San Manuel Band of 

Mission Indians, and Sycuan Band of the Kumeyaay Nation), had 3,195 Class II machines in 

2006.83

The other facility with Class II machines was operated by the Lytton Band of Pomo Indians 

(“Lytton Band”). This facility had 1,020 Class II machines in 2006.84 The Lytton Band 

operates Class II machines by necessity because it does not have a gaming compact with the 

State of California. Although a compact was entered into by the Tribe and Governor 

Schwarzenegger in 2004, it did not ultimately receive the required approval from the State 

Legislature. Furthermore, given the current political environment and strong opposition 

facing the Tribe, it seems very unlikely that the Tribe will be able to get a compact approved 

for its urban location. 

If the proposed Class II regulations were enacted, the Lytton Band would be forced to switch 

to compliant Class II machines because it has no other viable gaming option. And there 

would be an identical effect on any other uncompacted tribes that may wish to operate Class 

II machines in the future. 

As for existing gaming tribes that already have compacts, including those tribes operating 

Class II machines within their Class III facilities, they have the ability to increase the number 

of Class III machines they can operate by renegotiating their compacts.85 The ability to do so 

is evidenced by the recent flurry of renegotiated compacts. In 2004, five tribes successfully 

renegotiated their compacts to allow for an increase in the number of Class III machines they 

can operate.86 Also, four of the five tribes operating Class II machines (all but the Rincon 

Band) renegotiated compacts with the Governor in August 2006 and obtained ratification 

from the State Legislature in 2007.87

California tribes not only have the ability to increase their number of Class III machines by 

renegotiating their compacts, they are likely to be better off in terms of gaming revenue too. 

If this were not the case, then the aforementioned tribes with Class II machines would not 

have recently agreed to the renegotiated compacts. 

It is important to note that there are potential drawbacks to adding more Class III machines 

through compact renegotiations (for more details, see Chapter 3 under Decreased Leverage 

 

83 NIGC. 

84 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 

85 Per the most-favored tribe clause in the 1999 compacts, California gaming tribes that have not amended their compacts 

have the right to the same terms and conditions as those tribes that have amended their compacts. 86 In fact, the restriction on the number of machines was eliminated in the 2004 amended compacts. And although the 

tribes can operate as many machines as they want, the revenue-sharing rate increases as the number of machines 

increases. 

87 The gaming compact amendment for the Agua Caliente Band of Mission Indians was also ratified by the California 

State Legislature. However, this Tribe does not have any Class II machines. It is duly noted that four renegotiated 

compacts, namely those for the Agua Caliente Band of Cahuilla Indians, Morongo Band of Mission Indians, the Pechanga 

Band of Luiseño Indians, and Sycuan Band of the Kumeyaay Nation, are being challenged by voter referenda. Racetracks, 

hotel unions, and a couple other Indian tribes are attempting to invalidate these renegotiated compacts via voter 

referenda. 

27 Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

in Class III Compact Negotiations/Renegotiations). The Tribes with recently renegotiated 

compacts had to make some concessions, including increased revenue sharing of 15 to 25 

percent of Class III machine net win, depending on the number of additional Class III 

machines added per tribe. Also, in the long run, substantial increases in the supply of Class 

III machines in the market could reduce profit margins. 

Florida 

There are two tribes with Class II gaming machines in Florida. In 2006, they operated a 

combined total of 8,615 Class II machines in eight facilities.88 While the tribes have wanted 

to operate Class III gaming for some time, they had been unable to get the State of Florida to 

negotiate gaming compacts. Thus, Secretarial Procedures were requested in order to operate 

Class III gaming.89 This process, which began back in 1994, made little progress until 

recently. 

Over the past year or so, the Department of the Interior has been threatening to issue 

Secretarial Procedures for the Tribe’s operation of Class III gaming if a gaming compact is 

not soon negotiated between the State of Florida and the Seminole Tribe of Florida.90 This 

has been encouraging news for the Seminole Tribe. However, in August 2007, the Fifth 

Circuit Court of Appeals ruled that Secretarial Procedures were “invalid and constitute[d] an 

unreasonable interpretation of IGRA.”91 While the decision only directly affects the 

geographic area covered by the Fifth Circuit, it may very well lead to legal challenges in 

other Circuits, including that which has jurisdiction over Florida.92 In fact, I understand that 

the State of Florida has planned to take legal action to impede Secretarial Procedures from 

being enacted if they are issued.93 As of the writing of this report, I understand that the 

Department of the Interior is petitioning the Fifth Circuit Court of Appeals for a 

reconsideration of its recent decision. If the petition fails, the case could go to the U.S. 

Supreme Court. 

Nonetheless, with a new governor stepping in and Secretarial Procedures looming, the State 

began negotiating with the Seminole Tribe in 2007. And finally on November 14, 2007 the 

Seminole Tribe of Florida and the Governor of Florida signed a Class III gaming compact 

that would allow the Tribe to operate Class III gaming machines and some house-banked 

table games (e.g., blackjack and baccarat,).94 While this gaming compact received the 

 

88 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 

89 Statement of the Honorable James E. Billie, Chairman, Seminole Tribe of Florida, before the Senate Committee on Indian 

Affairs, July 21, 1999. 

90 Letter from Dirk Kempthorne, Secretary of the United States Department of the Interior, to Charlie Crist, Governor of 

Florida, June 22, 2007. 

91 State of Texas v. United States of America, et al., United States Court of Appeals, Fifth Circuit, “Appeal from the United 

States District Court for the Western District of Texas,” filed August 17, 2007 and revised September 13, 2007 (see p. 41). 92 Discussion with George Skibine, Acting Principal Deputy Assistant Secretary for Indian Affairs at the Department of 

the Interior, September 26, 2007. 

93 News reports and discussions with industry participants. 94 Compact Between the Seminole Tribe of Florida and the State of Florida, November 14, 2007 (published in the Federal 

Register on January 7, 2008). 

28 Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

required federal approval in early January 2008,95 the Florida State Legislature has filed a 

petition asking the Florida Supreme Court to declare the Seminole Tribe’s compact invalid 

unless and until it is approved by the State Legislature.96 Currently, no decision has been 

rendered by the Court. And it is my understanding that the Seminole Tribe does not plan to 

add any Class III machines until the matter is decided.97 If the gaming compact is found to 

be valid, then the Tribe can offer Class III machines in place of its Class II machines, and 

according to the compact, all Class II machines would need to be converted to Class III 

machines within five years of the effective date of the compact. However, if the gaming 

compact is found to be invalid, then the Tribe would be forced to continue operating Class II 

machines unless and until its gaming compact is ratified by the State Legislature or 

Secretarial Procedures are enacted by the Department of the Interior and found to be legally 

enforceable. And given the current demeanor sentiment of the Legislature, it is uncertain 

whether a compact would be ratified. In any case, aside from the Seminole Tribe, there is 

uncertainty regarding the operation of Class II machines by the Miccosukee Tribe of Indians 

of Florida. “Due to various on-going [sic] legal developments,” the Tribe’s requests for 

Secretarial Procedures and a tribal-state gaming compact have been deferred indefinitely.98

Given all of the uncertainty regarding if and when Class III gaming may be available in 

Florida, it has been assumed that the proposed regulations would force the tribes to switch 

to inferior Class II gaming. 

Minnesota 

Akin to Arizona and California, Minnesota is a Class III gaming state with a relatively small 

amount of Class II gaming. In 2006, 12 tribes operated a total of 20,931 gaming machines in 

35 facilities.99 Of these machines, 113 (less than one percent) were Class II.100 They were 

offered at 14 small Class II-only facilities. All of these facilities are operated on fee lands 

within the reservation of the White Earth Band of Chippewa Indians (“White Earth Band”) 

and some are actually owned by non-tribal members.101

Per its gaming compact, the White Earth Band is not limited in terms of the number of Class 

III gaming machines that can be operated at its Class III gaming facility.102 However, I 

understand that the small gaming operations on fee lands are not covered by the Tribe’s 

 

95 Notice of Deemed Approved Tribal-State Class III Gaming Compact, between the Seminole Tribe of Florida and the 

State of Florida, Federal Register, January 7, 2008, Volume 73, No. 4, p. 1229. 96 Florida House of Representatives, et al. v. Charlie Crist, in his capacity as Governor of Florida, Supreme Court of Florida, 

Petition for Writ of Quo Warranto, November 19, 2007. 

97 Discussions with tribal representatives. 

98 Letter from Counsel for the Miccosukee Tribe of Indians of Florida to the Office of Indian Gaming within the 

Department of the Interior, the U.S. Department of Justice, and the Office of the Governor of Florida, January 9, 2008. 

99 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 

100 Source: NIGC, October/November 2006. Due to data limitations, it was assumed that the number of Class II machines 

at the end of 2006 was equal to that in October/November 2006. 

101 Based upon a discussion with NIGC staff. 

102 Tribal-State Compact, For the Control of Class III Video Games of Chance on the White Earth Band of Chippewa 

Reservation in Minnesota, effective October 3, 1991. 

29 Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

compact and, therefore, they are restricted to Class II gaming.103 Therefore, if the proposed 

regulations went into effect, the White Earth Band would have no choice but to replace 

existing Class II machines with compliant Class II machines. 

Montana 

In 2006, six Montana tribes operated a total of 1,098 gaming machines in 25 facilities.104 Of 

these machines, 535 (49 percent) were Class II.105 They were operated in a total of seven 

facilities, including at least one facility for each gaming tribe in the state. 

The gaming compacts in Montana are very restrictive relative to those in other states in 

terms of gaming machines. The compacts not only cap the number of Class III machines that 

can be operated per facility,106 but they also restrict the type of allowable machines (i.e., only 

video bingo, video keno, and video poker) and their operation (e.g., payouts and hours of 

operations).107 In fact, I understand that Class III machines in Montana may be on par with 

or possibly even inferior to existing Class II machines in terms of performance.108 In 

addition, non-tribal businesses (e.g., taverns and gas stations) located on tribal reservations 

are able to license Class III machine equivalents from the State just like similar businesses 

not located on the reservations.109 Thus, Montana tribes face this unusual source of 

competition on their own land. 

Given the quality of Class III gaming in Montana, tribes have been using Class II machines to 

supplement Class III machines. In fact, two tribes, the Blackfeet Tribe and Confederated 

Tribes of Salish and Kootenai, no longer have Class III gaming compacts with the State. 

Upon their expiration, the tribes chose not to renew their compacts. Thus, they currently 

only operate Class II machines. If the proposed Class II regulations went into effect, existing 

Class II machines for these two tribes would have to switch to compliant Class II machines. 

Also, given that most of the Montana tribes are at or near their machine caps, they would 

have to make their Class II machines compliant with the proposed regulations. 

 

103 Based upon a discussion with NIGC staff. 

104 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 105 Source: NIGC, October/November 2006. Due to data limitations, it was assumed that the number of Class II machines 

at the end of 2006 was equal to that in October/November 2006. 

106 Montana Department of Justice, Gambling Control Division website, accessed September 25, 2006 

(http://doj.mt.gov/gaming/tribalgamingcompacts.asp). 107 Agreement Between the Assiniboine and Sioux Tribes of the Fort Peck Reservation and the State of Montana, July 1, 

1992; Interim Agreement Between the Blackfeet Indian Tribe of the Blackfeet Reservation and the State of Montana, 

October 26, 1996; Amendment to the Interim Compact Between the Chippewa Cree Tribe of the Rocky Boy Reservation 

and the State of Montana, November 21, 2005; Agreement Between the Confederated Salish and Kootenai Tribes of the 

Flathead Nation and the State of Montana, October 12, 2001; Agreement Between the Crow Indian Tribe and the State of 

Montana, June 12, 1998; and Agreement Between the Northern Cheyenne Tribe and the State of Montana, July 19, 2002. 

108 Based upon a discussion with NIGC staff. 

109 Based upon discussions with tribal casino representatives. 

30 Report Submitted to the

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The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

Nebraska 

In 2006, three tribes operated a combined total of 314 Class II machines in four facilities.110 

Approximately 61 percent of these machines were located within one of the four facilities. 

The remainder of the Class II devices were operated in three relatively small facilities. 

The tribes in Nebraska serve relatively small markets with competition in adjacent states, 

namely Iowa and South Dakota, which both offer Class III gaming. While the tribes have 

wanted to operate Class III gaming for some time, they have been unable to get the State of 

Nebraska to negotiate gaming compacts. Thus, Secretarial Procedures were requested 

approximately 10 years ago in order to operate Class III gaming.111 However, the State has 

not been open to this request. 

Therefore, if the NIGC’s proposed Class II regulations were enacted, Nebraska tribes would 

have no choice but to adopt compliant Class II machines. 

New York 

In 2006, three tribes operated a total of 10,907 gaming machines in seven facilities in New 

York.112 Of this total, 1,287 (12 percent) were Class II.113 These Class II machines were 

operated at three gaming facilities. 

All three of the facilities are restricted to Class II gaming as they are not covered by gaming 

compacts. And if the NIGC’s proposed Class II regulations went into effect, these facilities 

would have no choice but to replace existing machines with compliant machines. 

Oklahoma 

Prior to 2005, Oklahoma tribes only offered Class II gaming, including bingo and pull-tab 

machines. However, pursuant to gaming compacts entered into in 2005, tribes began 

offering Class III gaming machines and non-house banked card games.114 In 2006, 31 tribes 

operated a total of 37,760 gaming machines in 94 gaming facilities.115 As of the end of 

calendar year 2006, the majority of gaming machines were still Class II. Twenty-seven tribes 

 

110 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 111 Discussion with tribal representative. 

112 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 113 Source: NIGC, October/November 2006. Due to data limitations, it was assumed that the number of Class II machines 

at the end of 2006 was equal to that in October/November 2006. 

114 These Class III machines, which are referred to as “compacted machines,” include electronic bonanza-style bingo, 

amusement/skill games (e.g., video poker), and instant bingo. Source: Model Tribal Gaming Compact, Oklahoma, 2005; 

Multimedia Games, Inc., Form 10-K, For the Fiscal Year Ended September 30, 2005. 

115 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 

31 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

operated 30,044 machines (about 80 percent of the total number of machines) in 87 

facilities.116 Thus, only 7,716 machines were Class III. 

However, the shift to Class III machines has steadily continued. As of the end of September 

2007, the number of Class III devices jumped to 22,566.117 In fact, some facilities are all Class 

III now.118 In addition, the success of Class III devices has improved significantly. When 

first introduced, Class III machines were not performing as well as Class II machines. 

However, more recently, Class III machines have been outperforming Class II machines.119 

For calendar year 2006, revenue per Class II machine per day was approximately $125.120 

Revenue per Class III machine per day has grown from approximately $128 in September 

2006 to $140 in December 2006, $152 in March 2007, $142 in June 2007, and $145 in September 

2007.121 

Given the above, if the proposed Class II regulations are enacted, tribes would be forced to 

shift to all Class III machines. However, as discussed in the Increased Costs section of 

Chapter 3, the tribes would have to incur additional revenue-sharing costs in order to 

operate more Class III machines. Per their gaming compacts, tribes must pay four to six 

percent of Class III machine net win to the State.122

South Dakota 

In 2006, the nine South Dakota tribes operated a total of 2,209 gaming machines in 12 

facilities.123 These facilities primarily offered Class III gaming. However, Class III machines 

are subject to a cap. As a result, two of the facilities also offered Class II machines to 

supplement their Class III machines. Of the total number of gaming devices, only 64 (three 

percent) were Class II.124

I understand that the tribes have been interested in renegotiating their compacts in order to 

increase their Class III machine caps. However, the State has refused to renegotiate with 

them. Some claim that the State will not renegotiate because it does not want to potentially 

 

116 Sources: Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press; State of 

Oklahoma, Office of State Finance. The Indian Gaming Industry Report counted 94 Indian gaming facilities in Oklahoma, 

while there are only 87 included in this report. One gaming facility, the Keetoowah Cherokee Casino, was excluded from 

this report because it was not considered to be Indian gaming by the NIGC (the facility is not considered to be on “Indian 

lands”). In addition, there were six other gaming facilities excluded from this report because they did not have Class II 

machines (i.e., they were traditional bingo halls or Class III gaming facilities). 117 State of Oklahoma, Office of State Finance. 

118 Based upon discussions with industry participants and NIGC staff. 

119 This finding was confirmed in discussions with industry participants. 120 Analysis Group estimates based upon data from the State of Oklahoma, Office of State Finance. 

121 Analysis Group estimates based upon data from the State of Oklahoma, Office of State Finance. Revenue per Class III 

machine was calculated on a quarterly basis because Class III machine counts were only available on a quarterly basis. 122 For Class III machines, revenue sharing payments are four percent of the first $10 million of Class III machine revenue, 

five percent of the next $10 million, and six percent of Class III machine revenue in excess of $20 million. Source: Model 

Tribal Gaming Compacts, Oklahoma, 2005. 

123 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 

124 Source: NIGC, October/November 2006. Due to data limitations, it was assumed that the number of Class II machines 

at the end of 2006 was equal to that in October/November 2006. 

32 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

hurt its own video lottery revenue.125 Therefore, given the current situation, if the proposed 

Class II regulations went into effect, the tribes would have to switch to compliant Class II 

machines to supplement their Class III gaming. 

Texas 

There is only one tribe, the Kickapoo Traditional Tribe of Texas, operating an Indian gaming 

facility in Texas.126 In 2006, it operated two Class II-only facilities. However, only one of 

them had Class II machines. The other only operated traditional bingo. The total number of 

Class II machines operated by the Tribe in 2006 was 1,325.127 Despite its very rural location 

along the border of Mexico, it has done well and continued to increase its capacity. 

However, over time there has been an increase in competition from commercial facilities 

with gaming machines that pay out low-stakes, non-cash prizes.128 The Tribe has noted that 

it would be at a severe competitive disadvantage if the proposed Class II regulations went 

into effect and forced them to shift to inferior machines.129

Thus, as has been the case for some time, the Tribe would like to operate Class III gaming. 

However, the State of Texas refuses to enter into a gaming compact with the Tribe. 

Therefore, the Tribe has requested Secretarial Procedures. In May 2007, the Tribe received 

some positive news from the Department of the Interior in the form of a preliminary 

decision regarding the scope of gaming that should be allowed by the Tribe.130 According to 

the Department, the next step was to try and bring the State and the Tribe back to the 

negotiating table. However, this positive news was trumped by a recent decision by the 

Fifth Circuit Court of Appeals in which Secretarial Procedures were deemed to be invalid.131 

As of the writing of this report, I understand that the Department of the Interior is 

petitioning the Court for a reconsideration of its decision. However, until and unless there is 

a change in this recent decision, the Department cannot issue Secretarial Procedures in the 

geographic area covered by the Fifth Circuit, including Texas. 

Given the current situation, if the NIGC’s proposed regulations are enacted, the Tribe would 

have no choice but to replace existing Class II machines with inferior compliant devices. 

 

125 Discussions with industry participants. 

126 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 127 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 128 NIGC staff and a tribal representative. 

129 These gaming devices at commercial facilities currently remain under legal challenge. Source: Tribal representative. 

130 State of Texas v. United States of America, et al., United States Court of Appeals, Fifth Circuit, “Appeal from the United 

States District Court for the Western District of Texas,” filed August 17, 2007 and revised September 13, 2007 (see footnote 

2 on p. 11 of the Court’s decision). 

131 State of Texas v. United States of America, et al., United States Court of Appeals, Fifth Circuit, “Appeal from the United 

States District Court for the Western District of Texas,” filed August 17, 2007 and revised September 13, 2007 (see p. 41 of 

the Court’s decision). 

33 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

Washington 

In 2006, there were 22 tribes primarily operating Class III gaming in 29 gaming facilities in 

Washington.132 The total statewide machine count at these facilities was 20,006,133 with 

1,771 being Class II machines (nine percent).134 As is the case with other Class III states, 

tribes have been supplementing their Class III gaming with Class II machines.135 This was 

due to the fact that gaming compacts limit the maximum number of Class III devices and 

gaming facilities tribes can have.136 Tribes also have to pay a small amount of revenue 

sharing (0.5 percent) on Class III devices, commonly referred to as Tribal Lottery Systems. 

In early 2007, Washington tribes renegotiated their gaming compacts to allow for an increase 

in the number of Class III gaming machines, as well as fewer restrictions on gaming (e.g., 

allowance of cash-operated machines; allowance of one-touch machines; no-limit betting on 

table games, and no restrictions on gaming facility hours of operations). Thus, if the 

proposed Class II regulations were enacted, tribes could swap out existing Class II machines 

for improved Class III machines. However, as in Arizona, California, and Oklahoma, this 

would result in an increase in revenue-sharing costs. Not only would the tribes have to pay 

up to 0.5 percent of Class III machine revenue per their original gaming compacts, they 

would also have to pay an additional 0.26 percent of Class III machine revenue to the State 

per the compact amendments.137

It should be noted that Washington tribes may not be able to swap Class II machines for 

Class III machines at some point in the future if they reach their new increased Class III 

machine caps. And while the total number of Class II machines being operated in 

Washington in 2007 is still less than the total number of additional Class III machines 

allowed per the new gaming compact amendments, tribes have been continuing to add new 

Class II machines.138

Wisconsin 

In 2006, 11 Wisconsin tribes operated a total of 15,682 gaming machines in 26 facilities.139 Of 

this total, 361 (two percent) were Class II.140 All of these Class II machines were operated in 

one gaming facility, Dejope Bingo and Entertainment, which was operated by the Ho-Chunk 

Nation. Per an amendment to its compact, the Tribe can only operate Class III gaming at this 

 

132 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 

133 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 134 Source: NIGC, October/November 2006. Due to data limitations, it was assumed that the number of Class II machines 

at the end of 2006 was equal to that in October/November 2006. 

135 Source: NIGC, October/November 2006. Due to data limitations, it was assumed that the percentage of Class II 

machines relative to total machines in October/November 2006 was applicable to the end of 2006. 

136 Based upon discussions with industry participants, the vast majority of Class II machines are being used to supplement 

Class III machines. 

137 Appendix X2 to the Tribal-State of Washington Class III Gaming Compacts, 2007. 

138 It should be noted that the full features of the new Class III machines allowed under the compact amendments have 

not been fully available as of yet given that they are still awaiting approval from the State. It is expected that new Class 

III machines will far outperform existing Class II and Class III machines. Source: Discussions with industry participants. 139 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 

140 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 

34 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

facility if the Governor of Wisconsin is given authorization by voter referendum or passage 

of a local city council resolution.141

Given that the Dejope facility has not received the required approval, it remains a Class IIonly facility. Therefore, if the NIGC’s proposed Class II regulations are enacted, the Tribe 

would have no choice but to replace existing Class II machines with compliant devices. 

Wyoming 

The Northern Arapaho Tribe was the only gaming tribe in Wyoming in 2006.142,143 Up until 

September 2005, when Secretarial Procedures were approved by the Department of the 

Interior, the Tribe was only able to offer Class II gaming. However, Secretarial Procedures 

allowed the Tribe to operate Class III gaming without directly entering into a gaming 

compact with the State of Wyoming, which had refused to negotiate with the Tribe. While 

the Tribe introduced Class III machines into its two facilities in 2006, there were still 94 Class 

II devices in operation (21 percent of all machines).144

If the NIGC’s proposed Class II regulations are enacted, the Tribe would be able to replace 

all of its Class II machines with Class III devices. 

Aggregate Methodology for Estimating Lost Gaming Revenue 

In order to estimate aggregate lost gaming revenue as a result of the proposed regulations, I 

calculate the difference between actual gaming revenue generated by existing Class II 

gaming machines and estimated gaming revenue generated by Class II gaming machines 

under the proposed regulations. 

Actual Gaming Revenue 

The first step in calculating lost gaming revenue is the computation of actual Class II 

machine revenue under existing practices. Actual Class II machine revenue is simply a 

summation of all Class II machine revenue at Indian gaming facilities in 2006, the last year 

for which tribal financial information and machine counts were available. To compute 

revenue per machine per day, a commonly-used industry metric, I divide the actual Class II 

machine revenue by the actual number of Class II machines, and then divide again by 365 

days. 

 

141 Second Amendment to the Wisconsin Winnebago Tribe, Now Known as the Ho-Chunk Nation, and the State of 

Wisconsin Gaming Compact of 1992. 

142 Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: Casino City Press. 

143 The Eastern Shoshone Tribe, which shares a reservation with the Northern Arapaho Tribe, will be able to offer Class III 

gaming in the near future now that it has a gaming compact. Following the approval of Secretarial Procedures for the 

Northern Arapaho Tribe, the State of Wyoming entered into a gaming compact with the Eastern Shoshone Tribe. 

144 Source: NIGC, October/November 2006. Due to data limitations, it was assumed that the number of Class II machines 

at the end of 2006 was equal to that in October/November 2006. 

35 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

Estimated Gaming Revenue Under the May 2006 Proposed Regulations 

The second step in calculating lost gaming revenue is the estimation of expected Class II 

machine revenue under the proposed regulations. Expected Class II machine revenue is 

calculated by multiplying the expected revenue per Class II machine by the expected 

number of Class II machines. Because the proposed regulations reflect a hypothetical 

situation that is very different than the actual world, both expected revenue per Class II 

machine and expected number of Class II machines must be estimated. 

For expected revenue per Class II machine, I undertook a comparables analysis. In this 

effort, I sought out a type of machine and/or time period that would be most similar to the 

hypothetical situation contemplated by the proposed regulations. I considered various types 

of Class II machines that have been operated since the emergence of the industry following 

the passage of IGRA in 1988. It is my understanding that no past or current Class II device 

would qualify as Class II under the proposed regulations.145 However, based upon 

independent discussions with various industry participants, I concluded that the one type of 

machine that most closely resembled the requirements of the proposed regulations was 

MegaMania. When MegaMania was introduced in 1995 by Multimedia Games, it was the 

first interactive bingo game played on gaming terminals within a single gaming facility, and 

later across multiple gaming facilities via a nationwide, broadband telecommunications 

network.146 As shown in Table 3, MegaMania machines had nearly all of the key features 

required by the proposed regulations.147

 

145 Most Class II machines would fail to meet more than one requirement. However, all machines would at least fail to 

meet the requirement that technologic aids prominently display using two inch letters a message that it is a game of bingo 

or game similar to bingo. 

146 Multimedia Games, Inc., Form 10-KSB/10K, For the Fiscal Years Ended September 30, 1996 and 2005. 

147 Multimedia Games, Inc., Form 10-KSB/10Ks, For the Fiscal Years Ended September 30, 1996, 1999, and 2005; 

discussions with industry participants. 

36 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

Table 3. Comparison of MegaMania Features to the Proposed Class II Regulations

Bingo Game Features per the Proposed Class II Regulations1 MegaMania

9

9

9

9

9

9

9

9

9

9

9

9

9

9

9

9

9

9

9

9

9

9

9

9

9

9

9

 Notes:

1.

2.

3.

4.

5.

6.

 Sources: 

Proposed Rule, 25 CFR Part 502, Definition for Electronic or Electromechanical Facsimile, Federal Register 71 

(101), May 25, 2006; Proposed Rule, 25 CFR Part 502 and 546, Classification Standards, Class II Gaming, 

Bingo, Lotto, et al., Federal Register 71 (101), May 25, 2006; Multimedia Games, Inc., Form 10-KSB, For the 

Fiscal Year Ended September 30, 1996; Multimedia Games, Inc., Form 10-K, For the Fiscal Year Ended 

September 30, 1999; Multimedia Games, Inc., Form 10-K, For the Fiscal Year Ended September 30, 2005; 

discussions with industry participants.

Game features are set forth in the proposed Class II regulations.

MegaMania could not begin with less than 12 players.

In MegaMania, the bingo card took up 1/3 to 1/4 of the screen; the rest showed other game information.

MegaMania had no alternative technological displays; the bingo card and other game information took up the 

entire screen.

MegaMania had a 15-second time delay between ball drops.

MegaMania's game-winning prizes were approximately 85% of the amount wagered.

Players must compete against one another.

A game can begin with a minimum of two players if six players do not enter a game within two 

seconds after the first player enters.2

Bingo cards must be used; however, those cards may be electronic.

Bingo cards must be provided to players before numbers are drawn.

Each card played in a game must have an equal chance of obtaining any winning pattern.

The game must prominently display using two inch letters a message that it is a game of bingo or 

game similar to bingo.

One-half of the screen must display the bingo game at all times.3

Game results may be presented in alternative technologic displays (e.g., game theme graphics, 

spinning reels, or other imagery) as long as the game results on the electronic bingo card are 

always shown.4

Numbers must be randomly drawn (without replacement) in real time or very near real time to the 

actual play of the game.

Different entry wagers are permitted.

The prizes in the game may be increased or progressive prizes offered based upon a higher entry 

wager.

All prizes must be based upon achieving pre-designated winning patterns common for all players.

An "ante-up" format is permitted.

An "auto-daub" feature is not permitted; thus, players must take overt action to daub numbers at 

least one time in each round after numbers are drawn.

The minimum time for players to daub numbers must be two seconds.5

A game is won by the first person covering the pre-designated game-winning pattern.

There must be at least two releases of numbers before a game-winning pattern is created.

The minimum time for each release of numbers must be two seconds.

A game-winning prize must be awarded in every game.

Gaming-winning prizes must be at least 20 percent of the amount wagered and have a minimum 

value of one cent.6

Prizes must be based on events directly related to the game.

All prizes must be fixed in amount or established by formula and be disclosed to all players in the 

game.

"Residual credit removal" is not permitted.

“Free games” are permitted as a marketing tool as long as all players participating in the game 

that led to the free games receive the same number of free games.

The use of a paytable for determining prizes is permitted.

Pre-designated interim prizes may be offered but all players in a game must be competing for the 

same set of prizes.

"Stand-alone progressives" and "mystery jackpots" are not permitted.

A "gamble feature" is not permitted.

37 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

In light of the above similarities, I assumed that Class II machines under the proposed 

regulations would perform similar to MegaMania. Specifically, revenue per machine per 

day for compliant Class II machines was assumed to be equal to that of MegaMania, after 

adjusting for inflation. MegaMania’s average revenue per machine per day from 1997 

through 2001 was approximately $58.148 After adjusting for inflation, the average revenue 

per machine per day for MegaMania equates to $69.149 This is approximately 64 percent 

lower than the actual 2006 nationwide revenue per Class II machine, which was $191.150

This estimated decrease in Class II machine revenue is corroborated by an independent 

simulation analysis conducted for the NIGC by BMM North America, Inc. (BMM), a global 

gaming industry test lab.151 In the analysis, a bingo simulator was developed to mimic Class 

II machines. Using that simulator, BMM measured the performance of a Class II machine 

that would be compliant with the proposed regulations and compared it to the performance 

of three types of existing Class II machines: 1) a three-touch Class II machine that is 

considered by the NIGC to be compliant with game classification advisory opinions issued 

by the NIGC’s Office of General Counsel; 2) a two-touch machine that is considered by the 

NIGC to be compliant with game classification advisory opinions issued by the NIGC’s 

Office of General Counsel; and 3) a one-touch Class II machine that is not considered by the 

NIGC to be compliant with game classification advisory opinions issued by the NIGC’s 

Office of General Counsel.152

The results of BMM’s simulations are presented in Table 4. 

 

148 MegaMania generated revenue of $20.5 million from 950 machines in fiscal year 1997, $49.5 million from 2,140 

machines in fiscal year 1998, $73.1 million from 3,600 machines in fiscal year 1999, $79.2 million from 3,870 machines in 

fiscal year 2000, and $73.6 million from 3,432 machines in fiscal year 2001. Thus, MegaMania’s weighted average revenue 

per machine per day = Σ (MegaMania revenue) / Σ (Number of MegaMania machines) / Number of Days in the Year = 

($20.5 million+$49.5 million+$73.1 million+$79.2 million+$73.6 million) / (950+2,140+3,600+3,870+3,432) / 365 = $57.94. 

Although MegaMania machines were in the market in fiscal year 1996, that year was excluded from the analysis because 

it was a startup year. Years following 2001 were also excluded because 2001 was the last year before Multimedia’s next 

generation of Class II machines, MegaNanza, began to replace MegaMania. In addition, 2001 was the first year that 

significant competition entered into the Class II gaming machine market against Multimedia. Sources: Multimedia 

Games, Inc., Form 10-KSBs/10Ks, For the Fiscal Years Ended September 30, 1997, 1998, 1999, 2000, and 2001; discussions 

with industry participants. 

149 Actual revenue per machine per day values (i.e., the year in which they occurred) were converted to constant 2006 

values using the Consumer Price Index (CPI-U). Source: U.S. Department of Labor Statistics, Bureau of Labor Statistics. 

Thus, MegaMania’s weighted average revenue per machine per day = ($25.8 million+$61.2 million+$88.5 million+$92.7 

million+$83.8 million) / (950+2,140+3,600+3,870+3,432) / 365 = $68.91. 

150 Decrease in revenue per Class II machine = (MegaMania’s revenue per machine – actual 2006 revenue per Class II 

machine)/actual 2006 revenue per Class II machine = ($69-$191)/$191 = – 63.9%. Actual 2006 revenue per Class II 

machine is based upon an analysis of tribal financial data provided by the NIGC. 151 BMM North America, Inc., Comparison of Various Class II Configuration Options – Analysis II, October 15, 2007. 

152 For the purposes of this report, the NIGC considered all two-touch and three-touch Class II machines to be compliant 

with existing game classification advisory opinions issued by the NIGC’s Office of General Counsel. 

38 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

Games Coin In Games Coin In Games Coin In

Three-Touch Class II Machines 7.04 7,735.31 7.04 23,276.76 7.04 27,184.23

Class II Machines Compliant with Proposed Regulations 4.44 4,863.86 4.80 15,778.65 4.67 18,001.83

Percentage Decrease 36.93% 37.12% 31.82% 32.21% 33.66% 33.78%

Two-Touch Class II Machines 10.87 11,957.71 10.86 35,789.65 10.87 41,591.30

Class II Machines Compliant with Proposed Regulations 4.44 4,863.86 4.80 15,778.65 4.67 18,001.83

Percentage Decrease 59.15% 59.32% 55.80% 55.91% 57.04% 56.72%

One-Touch Class II Machines 17.05 18,804.68 17.04 56,273.26 17.04 64,957.05

Class II Machines Compliant with Proposed Regulations 4.44 4,863.86 4.80 15,778.65 4.67 18,001.83

Percentage Decrease 73.96% 74.13% 71.83% 71.96% 72.59% 72.29%

Weighted Average Percentage Decrease5 63.27% 63.45% 60.27% 60.44% 61.36% 61.12%

 Notes:

1. The duration of each simulation was 12 hours.

2. Simulation 1 is based upon the assumption that there are only 2 active players.

3. Simulation 2 is based upon the assumption that there are always 6 active players.

4.

5.

 Source: BMM North America, Inc., Comparison of Various Class II Configuration Options - Analysis II, October 15, 2007; NIGC.

Simulation 3 is based upon the assumption that a random number of players between 2 and 12 will participate in each game.

The Weighted Average Percentage Decrease represents the actual mix of machines in operation in 2006. Thus, because 

approximately 16.3% (8,278/50,924) of all machines are Three-Touch Class II Machines, 31.5% (16,064/50,924) are TwoTouch Class II Machines, and 52.2% (26,582/50,924) are One-Touch Class II Machines, the Weighted Average Percentage 

Decrease is calculated as [(.163)x(Percentage Decrease for Three-Touch Class II Machines)]+[(0.315)x(Percentage Decrease 

for Two-Touch Class II Machines)]+[(.522)x(Percentage Decrease for One-Touch Class II Machines)]. The number of touches 

per machine were provided by NIGC regional staff (see Scenario 3 in the Results section of this report).

Table 4. Expected Decrease in Performance of Compliant Class II Machines

BMM Simulation Results

1st Simulation2 2nd Simulation3 3rd Simulation4

Machine Performance (Rate Per Minute)1

In the comparison to three-touch Class II machines, the simulations found that the number 

of games played and coin in for a Class II machine compliant with the proposed regulations 

would be approximately 32 to 37 percent lower.153 In the comparison to two-touch Class II 

machines, the simulations found that the number of games played and coin in for a Class II 

machine compliant with the proposed regulations would be about 56 to 59 percent lower. In 

the comparison to one-touch Class II machines, the simulations found that the number of 

games played and coin in for a Class II machine compliant with the proposed regulations 

would be approximately 72 to 74 percent lower. 

In order to reflect the actual mix of these three types of Class II machines across the country, 

I used a weighted average of the aforementioned results, whereby the weights for each type 

were based upon their percentage of the total number of Class II machines in operation in 

2006. As shown in Table 4, the number of games played and coin in for a compliant Class II 

machine would be approximately 60 to 63 percent lower than the weighted average of 

existing Class II machines.154

For the expected number of Class II machines in 2006 under the proposed regulations, it is 

likely that Indian gaming facilities would initially modify or replace all existing Class II 

 

153 All simulation results were derived by varying different parameters and features of the games. Coin in was defined as 

the number of coins played. 

154 The determination of which Class II machines were and were not compliant with game classification advisory opinions 

issued by the NIGC’s Office of General Counsel was made by the NIGC as noted in Scenario 3 of the Results section 

below. 

39 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

machines in order to be compliant with the proposed regulations.155 Thus, the expected 

number of machines would remain at the actual 2006 level. For reference, Table 2 sets forth 

the number of Class II machines by state in 2006. Given the availability of floor space in the 

absence of existing Class II machines and the uncertainty regarding the viability of 

compliant Class II machines, this would be a reasonable starting point for a gaming facility. 

However, if the compliant Class II machines are sufficiently less appealing to patrons such 

that there is not sufficient demand for the existing number of machines, then a decrease in 

the machine count might be in order. From an economic perspective, gaming facilities 

would only remove a machine when the marginal cost exceeds the marginal benefit. 

Lost Gaming Revenue 

The third step in calculating lost gaming revenue is taking the difference between actual 

gaming revenue and estimated gaming revenue generated by Class II gaming machines 

under the proposed regulations. This computation needs to be made for the first year in 

which gaming revenue would be lost. Assuming that the May 2006 proposed regulations 

would be effective January 2008, the first full year of lost gaming revenue would be calendar 

year 2008. Given that actual and estimated gaming revenue, and thus lost gaming revenue, 

are in 2006 dollars, I calculate lost gaming revenue in 2008 dollars by growing the 2006 value 

at the 10-year (1997-2006) compound annual growth rate for gaming revenue at Indian 

gaming facilities, which is 14.6 percent.156 For simplicity, the 2008 values are considered to 

be current dollars.157

Results of the Aggregate Methodology for Estimating Lost Gaming Revenue 

Using the methodology set forth above, lost gaming revenue is calculated for four scenarios: 

Scenario 1: All Class II machines are replaced or modified to make them compliant 

with the proposed regulations. 

Scenario 2A: All Class II machines without viable alternatives are replaced or modified 

to make them compliant with the proposed regulations. 

Scenario 2B: All Class II machines without viable alternatives are shut down because the 

proposed regulations render them unfeasible. 

 

155 Based upon discussions with various casino operations personnel. 

156 Source for compound annual growth rate: Meister, Alan, Indian Gaming Industry Report, 2007-2008 Edition, Newton: 

Casino City Press. Note that the general growth rate for all of Indian gaming may underestimate the potential growth of 

Class II machine gaming because Class II gaming has tended to grow faster than Class III gaming or Indian gaming in 

general. However, growth rates for Class II machine gaming were not available. Also, the 10-year average rate, which 

includes historical rates that are generally higher than more current rates, may overestimate future growth rates. 

However, the 10-year rate is likely to be a more stable representation of potential growth than the rate for a single recent 

year. Also, any overestimation caused by using a 10-year rate would be offset to some degree by the underestimation 

caused by using a general Indian gaming growth rate. 157 Current dollars are 2008 values given that this report is being completed at the end of 2007, and in light of the 

assumption that the proposed regulations would go into effect in January 2008. 

40 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

Scenario 3: All Class II machines without viable alternatives and which are not 

considered by the NIGC to be “illegal” are replaced or modified to make 

them compliant with the proposed regulations. 

For each scenario except Scenario 2B, I calculate lost gaming revenue using the expected 64 

percent decrease in revenue per Class II machine per day. Scenario 2B assumes a 100 percent 

decrease in revenue per Class II machine per day. In addition, a sensitivity analysis was also 

conducted in order to test how lost gaming revenue varies given different percentage 

decreases in revenue per machine per day. For exposition purposes, I utilized percentage 

decreases of 25 percent, 50 percent, and 75 percent. Note that all actual 2006 market statistics 

(e.g., Class II machine revenue, number of Class II machines, and revenue per Class II 

machine per day) were recalculated for each scenario based upon the set of gaming facilities 

included in that scenario. 

Scenario 1 

Scenario 1 assumes that all gaming facilities operating Class II machines would suffer a 

decrease in gaming revenue as a result of the enactment of the proposed Class II regulations. 

See Appendix C for a list of all gaming facilities with Class II machines in 2006. In my expert 

opinion, this scenario is likely to overstate lost gaming revenue under the proposed 

regulation because some tribes have viable alternatives to compliant Class II machines. 

Thus, I present Scenario 1 merely as a starting point for Scenarios 2A, 2B, and 3. 

As shown in Table 5, revenue per Class II machine per day was $191 for the base model in 

Scenario 1. Given that there were 50,924 Class II machines, this equates to actual 2006 Class 

II machine revenue of approximately $3.551 billion. As discussed above, it is expected that 

revenue per Class II machine would decrease 64 percent under the proposed regulations. 

This decrease would yield average revenue per Class II machine per day of $69. Applying 

this figure to the 50,924 Class II machines over 365 days yields expected 2006 Class II 

machine revenue of approximately $1.281 billion. 

Therefore, lost gaming revenue would be the difference between actual 2006 Class II 

machine revenue ($3.551 billion) and expected 2006 Class II machine revenue ($1.281 billion), 

which is approximately $2.270 billion. In current dollars (2008), lost gaming revenue is 

estimated to be approximately $2.983 billion. 

41 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

Table 5. Lost Gaming Revenue

Scenario 1

Base 

Model Sensitivity Analysis1

Percentage Decrease 64% 25% 50% 75% 

Actual2

Revenue/Class II Machine/Day $191 $191 $191 $191

Number of Class II Machines 50,924 50,924 50,924 50,924

Days Per Year 365 365 365 365

Class II Machine Revenue (2006 $ Millions) $3,550.7 $3,550.7 $3,550.7 $3,550.7

Percentage Decrease3

Revenue/Class II Machine/Day 64% 25% 50% 75%

Under Class II Regulations4

Revenue/Class II Machine/Day $69 $143 $96 $48

Number of Class II Machines 50,924 50,924 50,924 50,924

Days Per Year 365 365 365 365

Class II Machine Revenue (2006 $ Millions) $1,280.9 $2,663.0 $1,775.4 $887.7

Lost Gaming Revenue (2006 $ Millions) $2,269.8 $887.7 $1,775.4 $2,663.0

Lost Gaming Revenue (Current $ Millions)5 $2,982.7 $1,166.5 $2,332.9 $3,499.4

Notes:

1.

2.

3.

4.

5.

Sources:

NIGC data; Indian Gaming Industry Report; Analysis Group estimates.

Current dollars (2008) are estimated by growing 2006 values at the 10-year (1997-2006) 

compound annual growth rate for Indian gaming, which is 14.6%. 

For exposition purposes, the Percentage Decrease in Revenue/Class II Machine/Day is set at 

25%, 50%, and 75%. 

Actual values are for 2006, the last year for which data are available.

In the Base Model, Revenue/Class II Machine/Day under the proposed Class II regulations is 

expected to decrease 64%, which is the percentage decrease from the Actual 2006 

Revenue/Class II Machine/Day to the inflation-adjusted average revenue per machine per day for 

MegaMania from 1997 to 2001. It is also assumed that the number of Class II machines would 

remain at the Actual 2006 level.

For comparison to Actual, values for Under Class II Regulations are also for 2006.

42 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

Scenario 2 

Scenario 2 deviates from Scenario 1 in that it excludes Class II machines for which there are 

viable alternatives, such as Class III machines. Thus, Scenario 2 yields the gaming revenue 

loss after excluding the Class II machine revenue losses that are expected to be fully 

mitigated by Class III machine revenue gains. As a result, it is my opinion that the base 

model in Scenario 2 is the best estimate of the aggregate gaming revenue loss as a result of 

the proposed Class II regulations. 

Per the state-by-state review set forth earlier in this report, the states excluded from this 

scenario but not Scenario 1 are: Arizona; California (except for the Lytton Band’s gaming 

facility); Oklahoma; Washington; and Wyoming. Therefore, the states that remain in 

Scenario 2 are: Alabama; Alaska; California (only the Lytton Band’s gaming facility); 

Florida; Minnesota; Montana; Nebraska; New York; South Dakota; Texas; and Wisconsin. 

See Appendix D for a list of all gaming facilities included in Scenario 2. 

There are two variations of Scenario 2. Scenario 2A assumes that compliant Class II 

machines will be feasible gaming devices. Scenario 2B assumes that compliant Class II 

machines will not be feasible gaming devices. The latter scenario reflects some industry 

participants’ beliefs that the proposed regulations will render Class II machines unlawful or 

technologically unfeasible. If this is the case, then lost gaming revenue would be equal to all 

Class II machine revenue where there are no viable alternatives to compliant Class II 

machines. 

As shown in Table 6, Scenario 2A yields lost gaming revenue of approximately $1.074 

billion, with a sensitivity analysis range of $419.9 million with a 25 percent decrease in 

revenue per Class II machine per day to $1.260 billion with a 75 percent decrease in revenue 

per Class II machine per day. In current dollars (2008), lost gaming revenue is estimated to 

be approximately $1.411 billion, with a sensitivity analysis range of $551.7 million to $1.655 

billion.158

 

158 Note that lost tribal government revenue that results from lost gaming revenue (set forth in Table 5) and associated lost 

non-gaming revenue (set forth in Table 9) would equate to $609.8 million. Note that lost tribal government revenue is not 

additive with lost gaming and non-gaming revenues given that lost tribal government revenue is derived from lost 

gaming and non-gaming revenues. In order to measure the decrease in tribal government revenue, I took the ratio of 

Class II machine-related tribal government revenue to Class II machine-related casino revenue (i.e., the amount of tribal 

government revenue generated for each dollar of Class II machine-related casino revenue generated, including both 

gaming and non-gaming revenue) and applied it to the loss in gaming and non-gaming revenue. The proportion of tribal 

government revenue that was attributable to Class II machines was assumed to be equal to the ratio of Class II machine 

revenue to total gaming revenue. According to aggregate tribal financial data, tribal government revenue was 

approximately 34 percent of total casino revenue (i.e., gaming revenue plus non-gaming revenue) in 2006. For Indian 

gaming facilities with Class II machines, the contribution was much less at 20 percent of total casino revenue. Assuming 

that the proposed regulations would be effective January 2008, the first full year of lost tribal government revenue was 

assumed to be calendar year 2008. Given that lost Class II machine-related casino revenue and the ratio of tribal 

government revenue to Class II machines-related casino revenue, and thus lost tribal government revenue, are in 2006 

dollars, I calculate lost tribal government revenue in 2008 by growing the 2006 value at the 5-year (2002-2006) compound 

annual growth rate for tribal government revenue for all of Indian gaming, which is approximately 16.7 percent. 

43 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

Table 6. Lost Gaming Revenue

Scenario 2A

Base 

Model Sensitivity Analysis1

Percentage Decrease 64% 25% 50% 75% 

Actual2

Revenue/Class II Machine/Day $292 $292 $292 $292

Number of Class II Machines 15,765 15,765 15,765 15,765

Days Per Year 365 365 365 365

Class II Machine Revenue (2006 $ Millions) $1,679.5 $1,679.5 $1,679.5 $1,679.5

Percentage Decrease3

Revenue/Class II Machine/Day 64% 25% 50% 75%

Under Class II Regulations4

Revenue/Class II Machine/Day $105 $219 $146 $73

Number of Class II Machines 15,765 15,765 15,765 15,765

Days Per Year 365 365 365 365

Class II Machine Revenue (2006 $ Millions) $605.9 $1,259.6 $839.8 $419.9

Lost Gaming Revenue (2006 $ Millions) $1,073.6 $419.9 $839.8 $1,259.6

Lost Gaming Revenue (Current $ Millions)5 $1,410.8 $551.7 $1,103.5 $1,655.2

Notes:

1.

2.

3.

4.

5.

Sources:

NIGC data; Indian Gaming Industry Report; Analysis Group estimates.

Current dollars (2008) are estimated by growing 2006 values at the 10-year (1997-2006) 

compound annual growth rate for Indian gaming, which is 14.6%. 

For exposition purposes, the Percentage Decrease in Revenue/Class II Machine/Day is set at 

25%, 50%, and 75%. 

Actual values are for 2006, the last year for which data are available.

In the Base Model, Revenue/Class II Machine/Day under the proposed Class II regulations is 

expected to decrease 64%, which is the percentage decrease from the Actual 2006 

Revenue/Class II Machine/Day to the inflation-adjusted average revenue per machine per day for 

MegaMania from 1997 to 2001. It is also assumed that the number of Class II machines would 

remain at the Actual 2006 level.

For comparison to Actual, values for Under Class II Regulations are also for 2006.

44 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

As shown in Table 7, assuming a 100 percent decrease in machine performance under the 

October 2007 proposed regulations, Scenario 2B yields lost gaming revenue of 

approximately $1.680 billion. In current dollars (2008), lost gaming revenue is estimated to 

be about $2.207 billion.159

 

Table 7. Lost Gaming Revenue

Scenario 2B

Base 

Model

Percentage Decrease 100%

Actual1

Revenue/Class II Machine/Day $292

Number of Class II Machines 15,765

Days per Year 365

Class II Machine Revenue (2006 $ Millions) $1,679.5

Percentage Decrease2

Revenue/Class II Machine/Day 100%

Under Class II Regulations3

Revenue/Class II Machine/Day $0

Number of Class II Machines 15,765

Days per Year 365

Class II Machine Revenue (2006 $ Millions) $0.0

Lost Gaming Revenue (2006 $ Millions) $1,679.5

Lost Gaming Revenue (Current $ Millions)4 $2,207.0

Notes:

1.

2.

3.

4.

Sources:

NIGC data; Indian Gaming Industry Report; Analysis Group 

estimates.

Actual values are for 2006, the last year for which data 

are available.

In the Base Model, Revenue/Class II Machine/Day under 

the proposed Class II regulations is assumed to be $0 

and thus the Percentage Decrease is 100%.

For comparison to Actual, values for Under Class II 

Regulations are also for 2006.

Current dollars (2008) are estimated by growing 2006 

values at the 10-year (1997-2006) compound annual 

growth rate for Indian gaming, which is 14.6%. 

159 Note that lost tribal government revenue associated with this amount of lost gaming revenue (set forth in Table 6) and 

associated lost non-gaming revenue (set forth in Table 9) would equate to $953.9 million. 

45 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

Scenario 3 

Scenario 3, 

that some Cl

which was solely developed at the request of the NIGC, reflects the NIGC’s view 

ass II gaming machines are “illegal” and therefore should not be included in the 

“illegal” Class II machines were being 

and 

a 

38.6 

venue loss to any gaming facility were large enough, it 

ough such individualized outcomes cannot be 

uld 

equal all Class II machine revenue. 

calculation of lost gaming revenue.160 The NIGC considers gaming machines to be “illegal” 

if they do not comport with game classification or advisory opinions issued by the Office of 

the General Counsel at the NIGC. For the purposes of this report, the NIGC considered all 

one-touch Class II machines to be illegal.161

In total, 52 percent of all Class II machines in operation nationwide in 2006 were considered 

“illegal” by the NIGC. According to the NIGC, 

operated in the following states and are thus excluded from Scenario 3: Arizona; Florida (in 

part); Montana; New York (in part); Oklahoma (in part); South Dakota; Texas (in part); 

Washington (in part). Some of the aforementioned states with illegal Class II machines, 

namely Arizona, Oklahoma, and Washington, are already excluded from Scenario 2.162 

Thus, using Scenario 2 as a starting point, the following states were then excluded: Florid

(in part); Montana; New York (in part); South Dakota; and Texas (in part). This left the 

following states in Scenario 3: Alabama; Alaska; California (only the Lytton Band’s gaming 

facility); Florida (in part); Minnesota; Nebraska; New York (in part); Texas (in part); and

Wisconsin. See Appendix E for a list of all gaming facilities included in Scenario 3. 

As shown in Table 8, Scenario 3 yields lost Class II machine revenue of approximately $4

million, with a sensitivity analysis range of $171.5 million to $514.6 million. In current 

dollars (2008), lost gaming revenue is estimated to be approximately $576.3 million, with a 

sensitivity analysis range of $225.4 million to $676.2 million. 

Other Important Considerations 

It should be reiterated that if the re

could put them out of business. Alth

predicted by the aggregate analysis required in this report, it is a realistic possibility for 

some tribes given the magnitude of the expected revenue loss. And if lost revenue is

significant enough to force a gaming facility to shut down, then lost gaming revenue wo

 

160 Scenario 3 does not reflect my opinion on the likely economic impact of the proposed Class II regulations. Moreover, it 

is my opinion that any decrease in Class II machine revenue, whether illegal or not, fundamentally has a negative 

economic impact on a gaming facility and its respective tribe because that revenue is used to pay employees, purchase 

goods and services, fund tribal government operations and programs, provide for the general welfare of tribal members, 

and promote tribal economic development. Aside from this theoretical issue, rather than excluding all illegal machines in 

their entirety, it may be more appropriate to only exclude the incremental benefits gained by using illegal machines as 

opposed to legal machines. Also, I have no opinion on the legality of existing Class II machines. 161 The NIGC was only aware of the number of touches for Class II machines as of October/November 2006. However, 

the Scenario 3 analysis was based upon machine counts for the end of 2006. Therefore, it was assumed that the 2006 yearend proportion of one-touch machines to total Class II machines for each facility or tribe was the same as the 

October/November 2006 proportion. 

162 Although Wyoming did not have illegal Class II machines in 2006, it was excluded from Scenario 3 given that it was 

already excluded from Scenario 2. 

46 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

Table 8. Lost Gaming Revenue

Scenario 3

Base 

Model Sensitivity Analysis1

Percentage Decrease 64% 25% 50% 75% 

Actual2

Revenue/Class II Machine/Day

3 $301 $301 $301 $301

Number of Class II Machines4 6,246 6,246 6,246 6,246

Days Per Year 365 365 365 365

Class II Machine Revenue (2006 $ Millions) $686.1 $686.1 $686.1 $686.1

Percentage Decrease5

Revenue/Class II Machine/Day 64% 25% 50% 75%

Under Class II Regulations6

Revenue/Class II Machine/Day $109 $226 $150 $75

Number of Class II Machines 6,246 6,246 6,246 6,246

Days Per Year 365 365 365 365

Class II Machine Revenue (2006 $ Millions) $247.5 $514.6 $343.0 $171.5

Lost Gaming Revenue (2006 $ Millions) $438.6 $171.5 $343.0 $514.6

Lost Gaming Revenue (Current $ Millions)7 $576.3 $225.4 $450.8 $676.2

Notes:

1.

2.

3.

4.

5.

6.

7.

Sources:

NIGC data; Indian Gaming Industry Report; Analysis Group estimates.

Current dollars (2008) are estimated by growing 2006 values at the 10-year (1997-2006) 

compound annual growth rate for Indian gaming, which is 14.6%. 

For exposition purposes, the Percentage Decrease in Revenue/Class II Machine/Day is set at 

25%, 50%, and 75%. 

In the Base Model, Revenue/Class II Machine/Day under the proposed Class II regulations 

is expected to decrease 64%, which is the percentage decrease from the Actual 2006 

Revenue/Class II Machine/Day to the inflation-adjusted average revenue per machine per 

day for MegaMania from 1997 to 2001. It is also assumed that the number of Class II 

machines would remain at the Actual 2006 level.

For comparison to Actual, values for Under Class II Regulations are also for 2006.

Actual values are for 2006, the last year for which data are available.

Revenue/Class II Machine/Day is based upon all facilities with legal Class II Machines. For 

details on NIGC's determination of legal machines, see the text on Scenario 3. 

Number of Class II Machines is equal to the total number of legal machines. For details on 

NIGC's determination of legal machines, see the text on Scenario 3. 

47 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

LOST NON-GAMING REVENUE 

If the enactment of the proposed Class II regulations results in a reduction in gaming 

revenue, there would likely be a reduction in non-gaming revenue where non-gaming 

amenities exist. 

Methodology 

In order to measure the decrease in non-gaming revenue, I took the ratio of Class II machinerelated non-gaming revenue to Class II machine revenue (i.e., the amount of non-gaming 

revenue generated for each dollar of Class II machine revenue generated) and applied it to 

the previously estimated gaming revenue loss. As noted in Chapter 4, the proportion of 

non-gaming revenue that was attributable to Class II machines was assumed to be equal to 

the ratio of Class II machine revenue to total gaming revenue. 

Given that lost gaming revenue and the ratio of non-gaming revenue to gaming revenue are 

based on 2006 data, lost non-gaming revenue is calculated in 2006 dollars. Thus, in order to 

measure lost non-gaming revenue in current dollars (2008),163 I grew the 2006 value at the 5-

year (2002-2006) compound annual growth rate for non-gaming revenue for all of Indian 

gaming, which is approximately 17.8 percent.164

Results 

Using the methodology set forth above, lost non-gaming revenue is calculated for the four 

scenarios defined in the Lost Gaming Revenue analysis. For Scenarios 1, 2A, and 3, I 

calculate lost non-gaming revenue based upon the expected 64 percent decrease in revenue 

per Class II machine per day. Scenario 2B assumes a 100 percent decrease in revenue per 

Class II machine per day. In addition, a sensitivity analysis was also conducted in order to 

test how lost non-gaming revenue varies given different percentage decreases in revenue per 

Class II machine per day. For exposition purposes, I utilized percentage decreases of 25 

percent, 50 percent, and 75 percent. Note that all market statistics (e.g., the ratio of nongaming revenue to gaming revenue) were recalculated for each scenario based upon the set 

of gaming facilities included. 

As shown in Table 9, Scenario 2A yields lost non-gaming revenue of approximately $95.1 

million, with a sensitivity analysis range of $37.2 million to $111.6 million, and Scenario 2B 

yields lost non-gaming revenue of approximately $148.8 million. In current dollars (2008), 

cenario 2A yields lost non-gaming revenue of approximately $132.1 million, with a 

sensitivity analysis range of $51.7 million to $155.0 million, and Scenario 2B yields lost nonn. For Scenarios 1 and 3, lost non-gaming revenue in 

current dollars was about $136.9 million and $54.7 million, respectively. 

S

gaming revenue of about $206.7 millio

 

163 Current dollars are 2008 values given that this report is being completed at the end of 2007, and in light of the 

assumption that the p

164 Analysis of NIGC da

roposed regulations would go into effect in January 2008. 

ta. Note that only five years of data were readily available for non-gaming revenue. 

48 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

INCREASED REVENUE-SHARING COSTS 

If in response to the proposed regulations, some tribes replace existing Class II machines 

with Class III machines (where possible), significant revenue-sharing costs may be incurred 

for the operation of the additional Class III machines. 

Methodology 

For the most part, it is difficult to anticipate revenue-sharing costs, especially when expected 

enue 

ng, the 

Table 9. Lost Non-Gaming Revenue

 

Base 

Model1 Sensitivity Analysis2

Percentage Decrease 64% 25% 50% 75%

Scenario 1

Lost Gaming Revenue (2006 $ Millions) $2,269.8 $887.7 $1,775.4 $2,663.0

Ratio of Non-Gaming to Gaming Revenue3 4.3% 4.3% 4.3% 4.3%

Lost Non-Gaming Revenue (2006 $ Millions) $98.6 $38.6 $77.1 $115.7

Lost Non-Gaming Revenue (Current $ Millions)4 $136.9 $53.6 $107.1 $160.7

Scenario 2A

Lost Gaming Revenue (2006 $ Millions) $1,073.6 $419.9 $839.8 $1,259.6

Ratio of Non-Gaming to Gaming Revenue3 8.9% 8.9% 8.9% 8.9%

Lost Non-Gaming Revenue (2006 $ Millions) $95.1 $37.2 $74.4 $111

Lost Non-Gaming Revenue (Current $ Millions)4

.6

$132.1 $51.7 $103.4 $155.0

Scenario 2B

Lost Gaming Revenue (2006 $ Millions) $1,679.5 n/a n/a n/a 3

 n/a

Ratio of Non-Gaming to Gaming Revenue 8.9% n/a n/a n/a

Lost Non-Gaming Revenue (2006 $ Millions) $148.8 n/a n/a n/a

Lost Non-Gaming Revenue (Current $ Millions)4 $206.7 n/a n/a 

Scenario 3

Lost Gaming Revenue (2006 $ Millions) $438.6 $171.5 $343.0 $514.6

Ratio of Non-Gaming to Gaming Revenue3 9.0% 9.0% 9.0% 9.0%

Lost Non-Gaming Revenue (2006 $ Millions) $39.4 $15.4 $30.8 $46.2

Lost Non-Gaming Revenue (Current $ Millions)4 $54.7 $21.4 $42.8 $6

Notes:

1. The Percentage Decrease for the Base Model in Scenario 2B is assumed to be 100%.

2. For exposition purposes, the

4.2

 Percentage Decrease in Revenue/Class II Machine/Day in Scenarios 

1, 2A, and 3 is set at 25%, 50%, and 75%. 

3.

4.

Sources:

NIGC data; Indian Gaming Industry Report; Analysis Group estimates.

See Chapter 4 for further discussion on calculation of Ratio of Non-Gaming to Gaming Revenue. 

The Ratio varies by Scenario due to the set of gaming facilities included.

Current dollars (2008) are estimated by growing 2006 values at the 5-year (2002-2006) compound 

annual growth rate for Indian gaming, which is 17.8%. 

Class III revenue is uncertain and if there is no existing revenue sharing. Expected rev

is based on a variety of factors, including the state of gaming prior to revenue shari

49 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

types of machines to be operated, facility locations, and competition. Furthermore, expected 

revenue sharing rates are derived through unique negotiations and would be based on 

factors that could vary widely depending on the circumstances of each situation. However, 

in Arizona, California, Oklahoma, and Washington, increased revenue-sharing costs can be 

generally estimated because revenue sharing for Class III machines has already been agreed 

upon in existing gaming compacts or gaming compact amendments recently renegotiated. 

As noted in the state-by-state analysis earlier in this chapter, tribes operating Class II 

machines in these states are likely to shift to Class III machines if the proposed regulations 

are enacted. However, there are increased revenue-sharing costs associated with the 

operation of additional Class III machines. Thus, the total increase in revenue-sharing costs 

in each state can be estimated by multiplying the expected increase in Class III machine 

revenue by the appropriate revenue sharing rate. The relevant inputs to this analysis for 

each state are as follows:165

 Arizona: Revenue sharing with the state is one to eight percent of Class III machine 

net win.166 Given available data,167 I estimate the 2006 statewide average revenue 

sharing rate to be approximately 5.3 percent and the 2006 statewide average revenue 

per Class III machine to be approximately $366. 

 California: Based upon the most recent compacts, incremental revenue sharing with 

the state is 15 percent of gaming machine net win for the first 3,000 machines and 25 

percent of gaming machine net win for an additional 2,500 machines.168 Because 

each California tribe with Class II machines had less than 3,000 of them in 2006, I use 

 

165 Note that the revenue sharing calculations are based upon statewide average figures. It is uncertain whether these 

averages will hold true for the specific tribes with Class II machines converting to Class III machines. However, these are 

167 The 2006 Arizona statewide average revenue per Class III machine was calculated as statewide gaming revenue 

II machine counts; Joseph Eve, The 2007 Indian 

 to total gaming revenue; analysis of NIGC data 

and discussions with Class II system manufacturers for the nationwide ratio of Class III machine revenue to total machine 

lan, Indian Gaming Industry Report, 2007-2008 Edition for total machine counts. 

he Tribal-State Compacts Between the State of California and the Agua Caliente Band of Cahuilla 

Indians, Morongo Band of Mission Indians, the Pechanga Band of Luiseño Indians, Sycuan Band of the Kumeyaay 

the best data available at this time. 

166 Model Tribal-State Gaming Compact, Arizona, 2003. 

multiplied by the ratio of total machine revenue to total gaming revenue, multiplied by the ratio of Class III machine 

revenue to total machine revenue, divided by the statewide number of Class III machines, divided by 365 days in the year 

[($1.892 billion x 89.7% x 99.7%) / (12,713 – 56) / 365 = $366]. Sources: NIGC for statewide gaming revenue; State of 

Arizona, Department of Gaming for revenue sharing figures and Class 

Gaming Cost of Doing Business Report, for the ratio of total machine revenue

revenue; Meister, A

168 Amendments to t

Nation, and San Manuel Band of Mission Indians (all of these compact amendments were executed in 2006 and ratified by 

the State Legislature in 2007). Incremental revenue sharing as measured in this report does not include fixed annual 

payments to the State; fixed annual payments to the Revenue Sharing Trust Fund, which is redistributed to non-gaming 

tribes in the state; or any local revenue sharing. 

50 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

the revenue sharing rate of 15 percent. Given available data,169 I estimate the 2006 

statewide average revenue per Class III machine to be approximately $308. 

 Oklahoma: Revenue sharing with the state is four to six percent of Class III machine 

net win.170 Given available data,171 I estimate the 2006 statewide average revenue 

sharing rate to be approximately 5.3 percent and the 2006 statewide average revenue 

per Class III machine to be approximately $145. 

 Washington: Tribes pay: up to 0.5 percent of Class III machine revenue to loc

governments; 0.13 percent of Class III machine revenue for problem gambling 

education, awareness, and treatment; and 0.13 percent of Class III machine rev

for smoking cessation, prevention, education, awareness, and treatment.

al 

enue 

Given that increased Class III machine revenue is calculated in actual dollars (2006 for 

Ari

are in a

(2008),1

growth 14.6 percent.175

 

172 Thus, 

total revenue sharing is 0.76 percent. Based upon available data,173 I estimate the

2006 statewide average revenue per Class III machine to be approximately $181. 

zona, California, and Washington; 2007 for Oklahoma), increased revenue-sharing costs 

ctual dollars. In order to measure increased revenue-sharing costs in current dollars

74 I grew the actual values at Indian gaming’s 10-year (1997-2006) compound annual 

 rate for gaming revenue, which is approximately

169 The 2006 California statewide average revenue per Class III machine was calculated as statewide gaming revenue 

multiplied by the ratio of total machine revenue to total gaming revenue, multiplied by the ratio of Class III machine 

revenue to total machine revenue, divided by the statewide number of Class III machines, divided by 365 days in the year 

[($7.675 billion x 89.7% x 95.4%) / (62,732 – 4,215) / 365 = $308]. Sources: NIGC for statewide gaming revenue and Class 

II machine counts; Joseph Eve, The 2007 Indian Gaming Cost of Doing Business Report, for the ratio of total machine revenue 

to total gaming revenue; analysis of NIGC data and discussions with Class II system manufacturers for the nationwide 

ratio of Class III machine revenue to total machine revenue; Meister, Alan, Indian Gaming Industry Report, 2007-2008 

ed by the State of Oklahoma, Office of State Finance. 

Gaming Compacts, 2007. Note that payments to charitable 

ear 

ss 

eport, 2007-2008 

2008 Edition, Newton: Casino City Press. 

Edition for total machine counts. 

170 Model Tribal Gaming Compact, Oklahoma, 2005. 

171 Analysis based upon data gather

172 Appendix X2 to the Tribal-State of Washington Class III 

organizations and tribal government programs are not included in the revenue sharing calculations. 

173 The 2006 Washington statewide average revenue per Class III machine was calculated as statewide gaming revenue 

multiplied by the ratio of total machine revenue to total gaming revenue, multiplied by the ratio of Class III machine 

revenue to total machine revenue, divided by the statewide number of Class III machines, divided by 365 days in the y

[($1.433 billion x 89.7% x 93.9%) / (20,006 – 1,771) / 365 = $181]. Sources: NIGC for statewide gaming revenue and Cla

II machine counts; Joseph Eve, The 2007 Indian Gaming Cost of Doing Business Report, for the ratio of total machine revenue 

to total gaming revenue; analysis of NIGC data and discussions with Class II system manufacturers for the nationwide 

ratio of Class III machine revenue to total machine revenue; Meister, Alan, Indian Gaming Industry R

Edition for total machine counts. 

174 Current dollars are 2008 values given that this report is being completed at the end of 2007, and in light of the 

assumption that the proposed regulations would go into effect in January 2008. This means that the amounts for Arizona, 

California, and Washington were grown two years from 2006 to 2008, while Oklahoma was grown only one year from

2007 to 2008. 

175 Meister, Alan, Indian Gaming Industry Report, 2007-

51 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

Results

As shown in ia, 

Ok o

machin

LOST T

Depend may 

find it n

related

which t

revenu in 

the number of non-gaming jobs, such as those supporting tribal government operations, 

ming revenue and 

the number of gaming-related employees. In fact, output per worker, a commonly-used 

measure of labor productivity, makes use of this relationship. In order to measure the total 

number of gaming-related jobs that are lost as a result of the decreases in gaming and nongaming revenue, I also use this relationship. Specifically, total lost gaming-related jobs were 

calculated as the sum of lost gaming and non-gaming revenue as calculated in the 

corresponding sections above, divided by the average gaming revenue per worker for the 

U.S. commercial casino industry. 

d 

al lost gaming-related jobs are measured as current values. 

Table 10, the present value of increased revenue sharing in Arizona, Californ

lah ma, and Washington would total approximately $169.1 million if tribes with Class II 

es in these states switch to Class III machines.176

RIBAL MEMBER JOBS 

ing on the magnitude of decreases in gaming and non-gaming revenues, tribes 

ecessary to scale back their gaming facilities and reduce the size of their gaming-

 workforces (e.g., gaming and non-gaming employees at Indian gaming facilities), 

ypically include tribal members. In addition, a decrease in tribal government 

e that results from gaming and non-gaming revenue losses may lead to reductions

programs, and other business enterprises. 

Methodology 

Previous research has shown that there is a strong correlation between ga

177

Given that lost gaming revenue and lost non-gaming revenue were already calculated in 

current dollars (2008),178 the 2006 average revenue per worker ($87,627) was also calculate

in current dollars by growing the 2006 value ($87,627) by the 5-year (2002-2006) compound 

annual growth rate for the average revenue per worker, which is approximately 5.7 

percent.179 And with lost gaming revenue, lost non-gaming revenue, and revenue per 

worker all in current dollars, tot

 

176 As noted in Chapter 3, it is uncertain whether these increased costs would be entirely offset by the increase in Class III 

machine revenue. This would depend on how much more revenue Class III machines generate relative to Class II 

machines, as well as other costs (e.g., capital, deployment, compliance, regulatory, training, and financing costs) that 

be incurred by tribes to switch fro

may 

m Class II to Class III machines. 

lying the various editions of the Indian Gaming Industry Report (2003-2004; 2004-2005; 2005-2006; 2006-2007; 

177 For example, see Analysis Group, The Economic and Fiscal Benefits of Indian Gaming in California, July 6, 1998. 178 Current dollars are 2008 values given that this report is being completed at the end of 2007, and in light of the 

assumption that the proposed regulations would go into effect in January 2008. 

179 Data under

2007-2008). 

52 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

Table 10. Incremental Revenue-Sharing Costs

Arizona

Estimated Revenue/Class III Machine/Day $366

Class II Machines to be Converted to Class III Machines 56

Days Per Year 365

Increased Class III Machine Revenue (2006 $ Millions) $7

ing Rate 5.3%

ring Costs (2006 $ Millions) $0.4 1

Average Revenue-Shar

Arizona Revenue-Sha

Arizona Revenue-Sharing Costs (Current $ Millions) $0.5

California

Estimated Revenue/Class III Machine/Day $308

Class II Machines to be Converted to Class III Machines 3,195

Days Per Year 365

Increased Class III Machine Revenue (2006 $ Millions) $359

Expected Revenue-Sharing Rate 15.0%

California Revenue-Sharing Costs (2006 $ Millions) $53.8

California Revenue-Sharing Costs (Current $ Millions)1 $70.7

Oklahoma

Estimated Revenue/Class III Machine/Day $145

Class II Machines to be Converted to Class III Machines 30,044

Days Per Year 365

Increased Class III Machine Revenue (2007 $ Millions) $1,586

Average Revenue-Sharing Rate 5.3%

Oklahoma Revenue-Sharing Costs (2007 $ Millions) $84.4

Oklahoma Revenue-Sharing Costs (Current $ Millions)2 $96.8

Washington

Estimated Revenue/Class III Machine/Day $181

ted to Class III Machines 1,771

Notes:

1.

2.

 State of Arizona, California tribes 

Current dollars (2008) are estimated by growing 2006 values at Indian 

gaming's 10-year (1997-2006) compound annual growth rate for gaming 

revenue, which is 14.6%.

Current dollars (2008) are estimated by growing 2007 values at Indian 

gaming's 10-year (1997-2006) compound annual growth rate for gaming 

Class II Machines to be Conver

Days Per Year 365

Increased Class III Machine Revenue (2006 $ Millions) $117

Actual Revenue-Sharing Rate 0.76%

Washington Revenue-Sharing Costs (2006 $ Millions) $0.9

Washington Revenue-Sharing Costs (Current $ Millions)1 $1.2

Total Revenue-Sharing Costs (Current $ Millions)1 $169.1

Sources: 

Indian Gaming Industry Report, 2007-2008 Edition; NIGC data; Tribal-State 

Compacts between Arizona tribes and the

revenue, which is 14.6%.

and the State of California, Oklahoma tribes and the State of Oklahoma, and 

Washington tribes and the State of Washington; State of Arizona, Department 

of Gaming; State of Oklahoma, Office of State Finance; Washington State 

Gaming Commission; Analysis Group estimates.

53 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

In order t by 

de 

percentage 

percent.

members o re tribal 

Unfortunatel and 

However

proportion 

Results 

Using the m ur 

scenarios 

calculate ue per 

ma ow 

lost tribal me

machine per 50 

percent, and 

Table 1 39 

2B. 

For Scen 965 

and 1,6

o calculate the proportion of the total lost gaming-related jobs that are held

tribal members, I multiply the total number of lost gaming-related jobs by the nationwi

of Indian gaming facility employees who are tribal members, which is 25 

180 It should be noted that if tribes give preferential employment status to tribal

ver non-tribal members and thus terminate non-tribal member jobs befo

member jobs, then the proportion of lost tribal jobs could be less than 25 percent. 

y, there are no available data on the correlation between gaming revenue 

non-gaming tribal jobs. Thus, non-gaming job losses are excluded from this analysis. 

, such losses are likely to occur where Class II gaming revenue derives a large 

of tribal government revenue. 

ethodology set forth above, lost tribal member jobs is calculated for the fo

defined in the Lost Gaming Revenue analysis. For Scenarios 1, 2A, and 3, I 

 lost tribal member jobs based upon the expected 64 percent decrease in reven

Class II machine per day. Scenario 2B assumes a 100 percent decrease in revenue per Class II 

chine per day. In addition, a sensitivity analysis was also conducted in order to test h

mber jobs varies given different percentage decreases in revenue per Class II

day. For exposition purposes, I utilized percentage decreases of 25 percent, 

75 percent. 

1 sets forth the calculation of lost tribal member jobs. For Scenario 2A, about 3,9

tribal member jobs would be lost. This compares with approximately 6,163 in Scenario 

arios 1 and 3, the number of lost tribal member jobs would be approximately 7,

11, respectively. 

 

 areas of the country with high unemployment, the percentage of tribal employees is up to 80 percent

facilities. Source: National Indian Gaming Association, website (www.indiangaming.org/library/indian

acts/index.shtml), accessed November 5, 2007. 

180 In some at 

gaming -

gaming-f

54 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

 

Table 11. Lost Tribal Member Jobs

Base 

Model1 Sensitivity Analysis2

Percentage Decrease 64% 25% 50% 75%

Scenario 1

Lost Gaming Revenue (Current $ Millions) $2,982.7 $1,166.5 $2,332.9 $3,499.4

Lost Non-Gaming Revenue (Current $ Millions) $136.9 $53.6 $107.1 $160.7

Total Lost Casino Revenue (Current $ Millions) $3,119.6 $1,220.0 $2,440.0 $3,660.1

Revenue Per Worker (Current $)3 $97,919 $97,919 $97,919 $97,919

Lost Gaming Facility Jobs 31,859 12,459 24,919 37,378

Percent of Gaming Facility Workers Who Are Tribal Members4 25% 25% 25%

Lost Tribal Member Jobs 7,965 3,115 6,230 9

25%

,345

Scenario 2A

Lost G

Lost N

aming Revenue (Current $ Millions) $1,410.8 $551.7 $1,103.5 $1,655.2

on-Gaming Revenue (Current $ Millions) $132.1 $51.7 $103.4 $155.0

Total Lost Casino Revenue (Current $ Millions) $1,543.0 $603.4 $1,206.9 $1,810.3

18,488

Revenue Per Worker (Current $)3 $97,919 $97,919 $97,919 $97,919

Lost Gaming Facility Jobs 15,758 6,163 12,325

Percent of Gaming Facility Workers Who Are Tribal Members4 25% 25% 25% 25%

Lost Tribal Member Jobs 3,939 1,541 3,081 4,622

Scenario 2B

Lost Gaming Revenue (Current $ Millions) $2,207.0 n/a n/a n/a

Lost Non-Gaming Revenue (Current $ Millions) $206.7 n/a n/a n/a

Total Lost Casino Revenue (Current $ Millions) $2,413.7 n/a n/a n/a

Revenue Per Worker (Current $)3

Lost Gaming Facility Jobs

$97,919 n/a n/a n/a

24,650 n/a n/a n/a

Percent of Gaming Facility Workers Who Are Tribal Members 25% n/a n/a n/a 4

/ / / /a /a /a

Lost Tribal Member Jobs 6,163 n/a n/a n/a

Scenario 3

Lost Gaming Revenue (Current $ Millions) $576.3 $225.4 $450.8 $676.2

Lost Non-Gaming Revenue (Current $ Millions) $54.7 $21.4 $42.8 $64.2

Total Lost Casino Revenue (Current $ Millions) $631.0 $246.8 $493.5 $740.3

Revenue Per Worker (Current $)3 $97,919 $97,919 $97,919 $97,919

Lost Gaming Facility Jobs 6,444 2,520 5,040 7,561

Percent of Gaming Facility Workers Who Are Tribal Members4 25% 25% 25% 25%

Lost Tribal Member Jobs 1,611 630 1,260 1,890

Notes:

1. The Percentage Decrease for the Base Model in Scenario 2B is assumed to be 100%.

2.

3.

4.

Sources: 

NIGC data; Indian Gaming Industry Report; Analysis Group estimates.

Per the National Indian Gaming Association website, accessed November 5, 2007.

Revenue Per Worker (Current $) was estimated by growing 2006 values at the 5-year (2002-2006) compound annual 

growth rate for the U.S. commercial casino industry, which is 5.7%. The 2006 value for Revenue Per Worker was 

$87,627.

For exposition purposes, the Percentage Decrease in Revenue/Class II Machine/Day in Scenarios 1, 2A, and 3 is set 

at 25%, 50%, and 75%. 

55 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

6. Conclusions 

While, the NIGC’s proposed Class II gaming regulations would have a significant negative 

impact on Class II gaming and the tribes that operate Class II facilities, the magnitude of the 

impact would vary widely from state to state and tribe to tribe depending on the legal 

landscape, political environment, existing market conditions, and the availability of viable 

alternatives to Class II devices. And although the impact may be significant in some cases, it 

may be small or non-existent in others. However, given the confidentiality of the data upon 

which this report is based, when the economic impact was quantifiable, it was computed on 

an aggregate basis. 

There are a number of different types of negative economic impacts on Indian gaming 

facilities with Class II machines and tribes that operate them. Assuming that Class II 

machines compliant with the proposed regulations are feasible and the proposed regulations 

are legally enforceable (Scenario 2A), I concluded that the proposed regulations would yield 

the following economic impacts: 

 Decreased gaming revenue: $1.4 billion; 

 Decreased non-gaming revenue: $132.1 million; 

 Decreased variety and quality of Class II gaming machines; 

 Gaming facility closures; 

 Increased capital, deployment, compliance, regulatory, training, and financing costs; 

 Increased revenue-sharing costs: $169.1 million; 

 Decreased tribal member jobs: 3,939 jobs; and 

 Decreased innovation in the Class II gaming machine market. 

If compliant Class II machines are not feasible (Scenario 2B), I concluded that the 

aforementioned quantifiable impacts would be as follows: 

 Decreased gaming revenue: $2.2 billion; 

 Decreased non-gaming revenue: $206.7 million; 

 Increased revenue-sharing costs: $169.1 million; and 

 Decreased tribal member jobs: 6,163 jobs. 

There are also other broader economic impacts on the Indian gaming industry, including: 

 A decrease in leverage that tribes would have in the negotiation/renegotiation of 

Class III gaming compacts with states; 

 Restriction of new entry into the Class II machine market; and 

56 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

 A change in the 

Class II machines become less desirable substi

degree of competition experienced by Class III gaming facilities as 

tutes for Class III games in the eyes of 

consumers and as more Class III gaming is introduced.

While a number of the aforementioned economic impacts were not quantifiable at this time, 

they should still be considered qualitatively alongside the quantified impacts. 

57 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

Ap ep ndix A: About the Author 

Dr. Meister i onomic analysis to complex 

ning, 

statistics, antitrust, regulation, and the calculation of economic damages. 

as extensive experience analyzing economic issues related to Indian gaming. 

His work has included economic and fiscal impact analyses, industry and market analyses, 

assessments of regulatory policies, analyses of Tribal-State gaming compacts and revenue 

sharing, feasibility studies, surveys, and expert testimony in litigation and regulatory 

matters. He has also conducted years of independent, academic research on Indian gaming 

and authored a number of publications, most notably his annual study, the Indian Gaming 

Industry Report, which has received national recognition. His Indian gaming work is 

regularly cited by the press and relied upon by the gaming industry, governments, and the 

investment community. Dr. Meister’s research and analyses have also been relied upon 

before the United States Supreme Court and a panel of the World Trade Organization. He 

has also presented his work at various academic, professional, and industry conferences, and 

testified before the California State Senate. 

In his public policy and strategic planning work, Dr. Meister has used economic and fiscal 

impact studies, industry and market analyses, feasibility studies, and surveys to identify and 

measure the effects of introductions, expansions, and closures of businesses and industries; 

the infusion of capital into a region; events; and changes in regulations and laws. His 

projects have involved casinos, hotels, resorts, sporting and entertainment events, retail 

establishments, medical research, publicly funded projects, low-income mixed use 

developments, and ballot initiatives. 

With regards to his statistics work, Dr. Meister has developed and implemented statistical 

analyses in a wide range of contexts. He has served as an expert regarding the use of 

statistics in the study of racial profiling, forensic analysis, and skill versus chance game 

assessments. Dr. Meister also has designed and implemented surveys. Prior to joining 

Analysis Group, Dr. Meister worked for a market research firm that implemented surveys 

for the motion picture industry. In addition, he was a teaching assistant for five years at the 

University of California, Irvine, where he taught courses on statistics, probability, 

econometrics, and survey design. 

Dr. Meister has broad experience providing litigation consulting services. He has provided 

assistance to attorneys on all phases of pretrial and trial practice, including assistance with 

discovery, development of economic, financial, and statistical models, expert testimony, and 

critique of analyses by opposing experts. Dr. Meister has conducted damages assessments in 

a wide variety of cases, including anticompetitive conduct, patent, trademark, and trade 

dress infringement, misappropriation of trade secrets, breach of contract, labor disputes, 

fraud, and business interruption. 

s an economist specializing in the application of ec

business issues, commercial litigation, and regulatory matters. His areas of expertise include

economic issues related to Indian gaming, public policy analysis, strategic plan

Dr. Meister h

58 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

Appendix B: About Analysis Group, Inc. 

Analysis Group provides economic, financial, and business strategy consulting to 

corporations, law firms, and government entities. We advise corporate and government 

clients on a range of business issues that require expert interpretation of economic an

financial data. We help organizations create strategies for growth by anal

d 

yzing market 

s 

 most 

l 

 Chicago, Dallas, Denver, Los Angeles, Menlo Park, 

dynamics and organizational capabilities, enhancing innovation in current products and 

services, and identifying new market opportunities. We also assist law firms with all aspect

of litigation. 

Analysis Group, which was founded in 1981, has over 350 professional staff members,

with degrees in economics, finance, statistics, accounting, and business. We also work 

closely with an extensive network of experts at leading universities who help us develop 

state-of-the-art analyses and compelling insights for our clients. The academic rigor 

imposed by these relationships, coupled with our commitment to teamwork, ensures that 

our clients receive the highest caliber work product and service. Furthermore, Analysis 

Group is committed to the long-term satisfaction and success of our clients. We focus on 

developing long-term relationships based on mutual trust and dynamic collaboration. 

Analysis Group's practice areas include accounting litigation services, antitrust, commercia

litigation and damages, economic impact studies, energy, entertainment and media, 

environmental economics, financial institutions, growth and innovation, health care 

economics, intellectual property, labor and employment economics, mergers and 

acquisitions, real estate, securities & financial instruments, telecommunications, transfer 

pricing, and valuation. 

Analysis Group has offices in Boston,

Montreal, New York, San Francisco, and Washington, DC. 

59 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

Appendix C: Indian Gaming Facilities Operating Class II 

Machines in 2006 

State Tribe Gaming Facility 

Alabama Poarch Band of Creek Indians Creek Entertainment Center

Alabama Poarch Band of Creek Indians Riverside Entertainment Center

Alabama Poarch Band of Creek Indians Tallapoosa Entertainment Center

Alaska Metlakatla Indian Community Metlakatla Indian Community Bingo

Arizona Ak Chin Indian Community Harrah's Phoenix Ak-Chin Casino Resort

Arizona

Appendix C. Indian Gaming Facilities that Operated Class II Machines in 2006

Tohono O'odham Nation Golden Ha:sañ Casino

California Lytton Rancheria of California San Pablo Lytton Casino

wood

pa

Minnesota White Earth Band of Chippewa Indians Berry's Bar

o

 Chippewa Indians Pinehurst Resort

and of Chippewa Indians Shooting Star Casino and Hotel

Minnesota White Earth Band of Chippewa Indians Tulably Lake Inn

Discovery Lodge Casino

Glacier Peaks Casino

Montana Chippewa-Cree Indians of the Rocky Boy’s Reservation Bear Paw Casino and Four C's Cafe

Montana Confederated Salish & Kootenai Tribes Best Western KwaTaqNuk Resort

Montana Crow Tribe Little Bighorn Casino

Montana Northern Cheyenne Tribe Charging Horse Casino & Bingo

Nebraska Omaha Tribe of Nebraska Lucky 77 Casino

Nebraska Winnebago Tribe of Nebraska Native Star Casino

Nebraska Santee Sioux Tribe of Nebraska Ohiya Casino & Bingo

Nebraska Winnebago Tribe of Nebraska Iron Horse Bar & Casino

New York Seneca Nation of Indians Seneca Gaming and Entertainment

New York Seneca Nation of Indians Seneca Gaming and Entertainment 1

New York St. Regis Mohawk Tribe Mohawk Bingo Palace

Oklahoma Absentee Shawnee Tribe of Oklahoma Thunderbird Wild Wild West Casino

Oklahoma Apache Tribe of Oklahoma Silver Buffalo Casino

Oklahoma Cherokee Nation Cherokee Casino - Fort Gibson

Oklahoma Cherokee Nation Cherokee Casino - Roland

Oklahoma Cherokee Nation Cherokee Casino - Sallisaw

Oklahoma Cherokee Nation Cherokee Casino - West Siloam Springs

Oklahoma Cherokee Nation Cherokee Casino Resort

Oklahoma Cherokee Nation Cherokee Casino Tahlequah

California Morongo Band of Mission Indains Casino Morongo

California Morongo Band of Mission Indains Morongo Casino Resort & Spa

California Morongo Band of Mission Indains Morongo Travel Center

California Pechanga Band of Luiseno Mission Indians Pechanga Resort & Casino

California Rincon Band of Luiseno Mission Indians Harrah's Rincon Casino and Resort

California San Manuel Band of Serrano Mission Indians San Manuel Indian Bingo & Casino

California Sycuan Band of the Kumeyaay Nation Sycuan Casino & Resort

Florida Miccosukee Tribe of Indians of Florida Miccosukee Resort & Gaming Center

Florida Seminole Tribe of Florida Big Cypress Casino

Florida Seminole Tribe of Florida Seminole Casino Brighton

Florida Seminole Tribe of Florida Seminole Casino Coconut Creek

Florida Seminole Tribe of Florida Seminole Casino Hollywood

Florida Seminole Tribe of Florida Seminole Casino Immokalee

Florida Seminole Tribe of Florida Seminole Hard Rock Hotel & Casino Holly

Florida Seminole Tribe of Florida Seminole Hard Rock Hotel & Casino Tam

Minnesota White Earth Band of Chippewa Indians Callaway Municipal Liquor Store

Minnesota White Earth Band of Chippewa Indians Cedar Crest Resort

Minnesota White Earth Band of Chippewa Indians D & G Lounge

Minnesota White Earth Band of Chippewa Indians Doc's Den

Minnesota White Earth Band of Chippewa Indians Elbow Lake Store

Minnesota White Earth Band of Chippewa Indians M & W Service Center

Minnesota White Earth Band of Chippewa Indians Mahnomen American Legion Bing

Minnesota White Earth Band of Chippewa Indians Naytahwaush Village Store

Minnesota White Earth Band of Chippewa Indians Ogema Fire House

Minnesota White Earth Band of

Minnesota White Earth B

Minnesota White Earth Band of Chippewa Indians Wild Rice Lounge

Montana Assiniboine and Sioux Tribes of the Fort Peck Indian Reservation Silver Wolf Casino

Montana Blackfeet Tribe

Montana Blackfeet Tribe

60 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

State Tribe 

Oklahoma Cherokee Nation

Appendix C. Indian Gaming Facilities that Operated Class II Machines in 2006

Gaming Facility 

Cherokee Nation Outpost Tobacco Shop

Oklahoma Cherokee Nation West Siloam Springs Smoke Shop

Oklahoma Cheyenne-Arapaho Tribes of Oklahoma Feather Warrior Casino

Oklahoma Cheyenne-Arapaho Tribes of Oklahoma Lucky Star Casino - Clinton

Oklahoma Cheyenne-Arapaho Tribes of Oklahoma Lucky Star Casino - Concho

Oklahoma Chickasaw Nation Ada Gaming Center

Oklahoma Chickasaw Nation Ada Travel Stop

Oklahoma Chickasaw Nation Black Gold Casino

Oklahoma Chickasaw Nation Cash Springs Gaming Center

Oklahoma Chickasaw Nation Chisholm Trail Casino

Oklahoma Chickasaw Nation Davis Trading Post

Oklahoma Chickasaw Nation Gold Mountain Casino

Oklahoma Chickasaw Nation Goldsby Gaming Center

Oklahoma Chickasaw Nation Madill Gaming Center

Oklahoma Chickasaw Nation Newcastle Gaming Center I

Oklahoma Chickasaw Nation Riverwind Casino

Oklahoma Chickasaw Nation Texoma Gaming Center

Oklahoma Chickasaw Nation Thackerville Travel Plaza

Oklahoma Chickasaw Nation Treasure Valley Casino

Oklahoma Chickasaw Nation Washita Gaming Center

Oklahoma Chickasaw Nation WinStar Casino

Oklahoma Choctaw Nation of Oklahoma Choctaw Casino - Broken Bow

Oklahoma Choctaw Nation of Oklahoma Choctaw Casino - Grant

Oklahoma Choctaw Nation of Oklahoma Choctaw Casino - Idabel

Oklahoma Choctaw Nation of Oklahoma Choctaw Casino - McAlester

Oklahoma Choctaw Nation of Oklahoma Choctaw Casino - Pocola

Oklahoma Choctaw Nation of Oklahoma Choctaw Casino - Stringtown

Oklahoma Choctaw Nation of Oklahoma Choctaw Casino Bingo

Oklahoma Choctaw Nation of Oklahoma Choctaw Inn - Durant

Oklahoma Choctaw Nation of Oklahoma Choctaw Casino Too

Oklahoma Choctaw Nation of Oklahoma Choctaw Coliseum

Oklahoma Choctaw Nation of Oklahoma Durant Travel Plaza East

Oklahoma Choctaw Nation of Oklahoma Durant Travel Plaza West

Oklahoma Choctaw Nation of Oklahoma Idabel Travel and Smoke Shop

Oklahoma Choctaw Nation of Oklahoma Pocola Travel and Smoke Shop

Oklahoma Citizen Potawatomi Nation Baby Grand Casino

Oklahoma Citizen Potawatomi Nation FireLake Casino

Oklahoma Citizen Potawatomi Nation FireLake Grand Casino

Oklahoma Comanche Nation Comanche Nation Casino

Oklahoma Comanche Nation Comanche Red River Casino

Oklahoma Comanche Nation Comanche Spur Smoke Shop and Casino

Oklahoma Comanche Nation Comanche Star Casino and Smoke Shop

Oklahoma Delaware Nation Gold River Casino

Oklahoma Eastern Shawnee Tribe of Oklahoma Border Town Casino

Oklahoma Eastern Shawnee Tribe of Oklahoma Eastern Shawnee Travel Plaza

Oklahoma Fort Sill Apache Tribe of Oklahoma Fort Sill Apache Casino

Oklahoma Kaw Nation Kaw Southwind Casino

Oklahoma Kickapoo Tribe of Oklahoma Kickapoo Casino

Oklahoma Kickapoo Tribe of Oklahoma Kickapoo Conoco Station

Oklahoma Miami Tribe of Oklahoma Miami Tribe Entertainment

Oklahoma Modoc Tribe of Oklahoma/Miami Tribe of Oklahoma The Stables Casino

Oklahoma Muscogee (Creek) Nation Bristow Indian Casino

Oklahoma Muscogee (Creek) Nation Checotah Indian Community Bingo

Oklahoma Muscogee (Creek) Nation Creek Nation Casino Eufaula

Oklahoma Muscogee (Creek) Nation Creek Nation Casino Okemah

Oklahoma Muscogee (Creek) Nation Creek Nation Casino Okmulgee

Oklahoma Muscogee (Creek) Nation Creek Nation Casino Tulsa

Oklahoma Muscogee (Creek) Nation Creek Nation Casino Muscogee

61 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

State Tribe Gaming Facility 

Oklahoma Muscogee (Creek) Nation Creek Nation Travel Plaza

Oklahoma Muscogee (Creek) Nation Duck Creek Casino

Oklahoma Muscogee (Creek) Nation Muscogee Travel Plaza

Oklahoma Osage Nation Osage Million Dollar Elm Casino - Hominy

Oklahoma Osage Nation Osage Million Dollar Elm Casino - Sand Springs

Oklahoma Osage Nation Osage Million Dollar Elm Casino - Pawhuska

Oklahoma Osage Nation Osage Million Dollar Elm Casino - Tulsa

Oklahoma Otoe-Missouria Tribe of Indians 7 Clans Paradise Casino

Oklahoma Otoe-Missouria Tribe of Indians Lil Bit of Paradise Casino

Oklahoma Ottawa Tribe of Oklahoma High Winds Casino

Oklahoma Peoria Tribe of Indians of Oklahoma Buffalo Run Casino

Oklahoma Peoria Tribe of Indians of Oklahoma Peoria Gaming Center

Oklahoma Ponca Tribe of Oklahoma Blue Star Gaming and Casino

Oklahoma Quapaw Tribe of Oklahoma Quapaw Casino

Oklahoma Sac & Fox Nation of Oklahoma Sac and Fox Casino

Oklahoma Sac & Fox Nation of Oklahoma Sac and Fox Casino - Stroud

Oklahoma Seminole Nation of Oklahoma Mystic Winds Casino

Oklahoma Seminole Nation of Oklahoma Seminole Nation Trading Post

Oklahoma Seneca-Cayuga Tribe of Oklahoma Grand Lake Casino

Oklahoma Thlopthlocco Tribal Town Golden Pony Casino

Oklahoma Wyandotte Nation Lucky Turtle Casino

South Dakota Crow Creek Sioux Tribe Lode Star Casino and Hotel

South Dakota Flandreau Santee Sioux Tribe Royal River Casino & Hotel

Texas Kickapoo Traditional Tribe of Texas Kickapoo Lucky Eagle Casino

Washington Confederated Tribes and Bands of the Yakama Nation Yakama Nation Legends Casino

Washington Confederated Tribes of the Chehalis Reservation Lucky Eagle Casino

Washington Confederated Tribes of Colville Reservation Coulee Dam Casino

Washington Confederated Tribes of Colville Reservation Mill Bay Casino

Washington Jamestown S'Klallam Tribe 7 Cedars Casino

Washington Muckleshoot Indian Tribe Muckleshoot Casino

Washington Nooksack Indian Tribe Nooksack River Casino

Washington Puyallup Tribe of Indians BJ's Bingo

Washington Quinault Indian Nation Quinault Beach Resort and Casino

Washington Shoalwater Bay Indian Tribe Shoalwater Bay Casino

Washington Skokomish Indian Tribe The Lucky Dog Casino

Washington Squaxin Island Tribe Little Creek Casino Resort

Washington Stillaquamish Tribe Angel of the Winds Casino

Washington Suquamish Tribe Clearwater Casino

Washington Swinomish Indian Tribal Community Swinomish Northern Lights Casino

Washington Tulalip Tribes Tulalip Bingo

Washington Upper Skagit Indian Tribe Skagit Valley Casino Resort

Wisconsin Ho-Chunk Nation Dejope Bingo and Entertainment

Wyoming Northern Arapaho Tribe Little Wind Casino

Wyoming Northern Arapaho Tribe Wind River Casino

Appendix C. Indian Gaming Facilities that Operated Class II Machines in 2006

62 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

Appendix D: Indian Gaming Facilities Operating Class II 

Machines in Scenarios 2A and 2B 

State Tribe Gaming Facility 

Alabama Poarch Band of Creek Indians Creek Entertainment Center

Alabama Poarch Band of Creek Indians Riverside Entertainment Center

Alabama Poarch Band of Creek Indians Tallapoosa Entertainment Center

Alaska Metlakatla Indian Community Metlakatla Indian Community Bingo

California Lytton Rancheria of California San Pablo Lytton Casino

Florida Miccosukee Tribe of Indians of Florida Miccosukee Resort & Gaming Center

Florida Seminole Tribe of Florida Big Cypress Casino

Florida Seminole Tribe of Florida Seminole Casino Brighton

Florida Seminole Tribe of Florida Seminole Casino Coconut Creek

Florida Seminole Tribe of Florida Seminole Casino Hollywood

Florida Seminole Tribe of Florida Seminole Casino Immokalee

Florida Seminole Tribe of Florida Seminole Hard Rock Hotel & Casino Hollywood

Florida Seminole Tribe of Florida Seminole Hard Rock Hotel & Casino Tampa

Minnesota White Earth Band of Chippewa Indians Berry's Bar

Minnesota White Earth Band of Chippewa Indians Callaway Municipal Liquor Store

Minnesota White Earth Band of Chippewa Indians Cedar Crest Resort

Minnesota White Earth Band of Chippewa Indians D & G Lounge

Minnesota White Earth Band of Chippewa Indians Doc's Den

Minnesota White Earth Band of Chippewa Indians Elbow Lake Store

Minnesota White Earth Band of Chippewa Indians M & W Service Center

Minnesota White Earth Band of Chippewa Indians Mahnomen American Legion Bingo

Minnesota White Earth Band of Chippewa Indians Naytahwaush Village Store

Minnesota White Earth Band of Chippewa Indians Ogema Fire House

Minnesota White Earth Band of Chippewa Indians Pinehurst Resort

Minnesota White Earth Band of Chippewa Indians Shooting Star Casino and Hotel

Minnesota White Earth Band of Chippewa Indians Tulably Lake Inn

Minnesota White Earth Band of Chippewa Indians Wild Rice Lounge

Montana Assiniboine and Sioux Tribes of the Fort Peck Indian Reservation Silver Wolf Casino

Montana Blackfeet Tribe Discovery Lodge Casino

Montana Blackfeet Tribe Glacier Peaks Casino

Montana Chippewa-Cree Indians of the Rocky Boy’s Reservation Bear Paw Casino and Four C's Cafe

Montana Confederated Salish & Kootenai Tribes Best Western KwaTaqNuk Resort

Montana Crow Tribe Little Bighorn Casino

Montana Northern Cheyenne Tribe Charging Horse Casino & Bingo

Nebraska Omaha Tribe of Nebraska Lucky 77 Casino

Nebraska Winnebago Tribe of Nebraska Native Star Casino

Nebraska Santee Sioux Tribe of Nebraska Ohiya Casino & Bingo

Nebraska Winnebago Tribe of Nebraska Iron Horse Bar & Casino

New York Seneca Nation of Indians Seneca Gaming and Entertainment

New York Seneca Nation of Indians Seneca Gaming and Entertainment 1

New York St. Regis Mohawk Tribe Mohawk Bingo Palace

South Dakota Crow Creek Sioux Tribe Lode Star Casino and Hotel

South Dakota Flandreau Santee Sioux Tribe Royal River Casino & Hotel

Texas Kickapoo Traditional Tribe of Texas Kickapoo Lucky Eagle Casino

Wisconsin Ho-Chunk Nation Dejope Bingo and Entertainment

Appendix D. Indian Gaming Facilities that Operated Class II Machines in 2006: Scenarios 2A and 2B

63 Report Submitted to the

 National Indian Gaming Commission
The Potential Economic Impact of the May 2006 Proposed Class II Gaming Regulations 

Appendix E: Indian Gaming Facilities Operating Class II 

Machines in Scenario 3 

State Tribe Gaming Facility 

Alabama Poarch Band of Creek Indians Creek Entertainment Center

Alabama Poarch Band of Creek Indians Riverside Entertainment Center

Alabama Poarch Band of Creek Indians Tallapoosa Entertainment Center

Alaska Metlakatla Indian Community Metlakatla Indian Community Bingo

California Lytton Rancheria of California San Pablo Lytton Casino

Florida Miccosukee Tribe of Indians of Florida Miccosukee Resort & Gaming Center

Florida Seminole Tribe of Florida Big Cypress Casino

Florida Seminole Tribe of Florida Seminole Casino Brighton

Florida Seminole Tribe of Florida Seminole Casino Coconut Creek

Florida Seminole Tribe of Florida Seminole Casino Hollywood

Florida Seminole Tribe of Florida Seminole Casino Immokalee

Florida Seminole Tribe of Florida Seminole Hard Rock Hotel & Casino Hollywood

Florida Seminole Tribe of Florida Seminole Hard Rock Hotel & Casino Tampa

Minnesota White Earth Band of Chippewa Indians Berry's Bar

Minnesota White Earth Band of Chippewa Indians Callaway Municipal Liquor Store

Minnesota White Earth Band of Chippewa Indians Cedar Crest Resort

Minnesota White Earth Band of Chippewa Indians D & G Lounge

Minnesota White Earth Band of Chippewa Indians Doc's Den

Minnesota White Earth Band of Chippewa Indians Elbow Lake Store

Minnesota White Earth Band of Chippewa Indians M & W Service Center

Minnesota White Earth Band of Chippewa Indians Mahnomen American Legion Bingo

Minnesota White Earth Band of Chippewa Indians Naytahwaush Village Store

Minnesota White Earth Band of Chippewa Indians Ogema Fire House

Minnesota White Earth Band of Chippewa Indians Pinehurst Resort

Minnesota White Earth Band of Chippewa Indians Shooting Star Casino and Hotel

Minnesota White Earth Band of Chippewa Indians Tulably Lake Inn

Minnesota White Earth Band of Chippewa Indians Wild Rice Lounge

Nebraska Omaha Tribe of Nebraska Lucky 77 Casino

Nebraska Winnebago Tribe of Nebraska Native Star Casino

Nebraska Santee Sioux Tribe of Nebraska Ohiya Casino & Bingo

Nebraska Winnebago Tribe of Nebraska Iron Horse Bar & Casino

New York Seneca Nation of Indians Seneca Gaming and Entertainment

New York Seneca Nation of Indians Seneca Gaming and Entertainment 1

New York St. Regis Mohawk Tribe Mohawk Bingo Palace

Texas Kickapoo Traditional Tribe of Texas Kickapoo Lucky Eagle Casino

Wisconsin Ho-Chunk Nation Dejope Bingo and Entertainment

Appendix E. Indian Gaming Facilities that Operated Class II Machines in 2006: Scenario 3

64 Report Submitted to the

 National Indian Gaming Commission