National Indian Gaming Commission 

Philip N. Hogen, Chairman 

Testimony before the House Natural Resources Committee 

Oversight Field Hearing 

Northeastern Oklahoma A & M College 

February 20, 2008 

Good morning Congressmen Boren and Cole and members of the Committee. 

My name is Philip Hogen, and I am a member of the Oglala Sioux Tribe from South 

Dakota. I have had the privilege of Chairing the National Indian Gaming Commission 

(NIGC) since December of 2002. Currently the NIGC has two Commissioners, myself 

and Vice Chairman Norman DesRosiers, who is here with me today. Thank you for the 

opportunity to testify about regulations affecting economic development in Indian 

Country. 

In the late 1970’s and early 1980’s, Indian tribes began to employ bingo and some other 

forms of gambling as an economic development tool. Despite challenges from some state 

governments and elsewhere, this tool proved successful. Following an era of litigation, 

Congress brought some finality to the structure of Indian gaming with the enactment, 

twenty years ago, of the Indian Gaming Regulatory Act (IGRA), rightfully reciting a 

principal purpose of enhancing economic development for Indian tribes. 

Among other things, Congress created the National Indian Gaming Commission (NIGC) 

to promulgate federal standards to implement the IGRA, and to provide some federal 

oversight of that Indian gaming. NIGC’s role, then, is to foster the economic 

development IGRA intended. This is best done by ensuring that there is integrity in the 

operation and regulation of tribal gaming and that fidelity to the language and spirit of 

IGRA is maintained. 
What is abundantly clear to me from a study of IGRA’s language and legislative history 

is that Congress intended to distinguish between Class II and Class III gaming. Class II 

games may be played with electronic aids and require no compact with the state; Class III 

games include electronic facsimiles and can be played only pursuant to a compact with 

the state. However, evolving technology-- not known at the time of IGRA’s adoption-- 

has clouded the distinction between the two classes of gaming. So long as there is 

confusion between what constitutes Class II games played electronically and Class III 

games that require compacts, the long-term success of economic development for tribes 

through gaming will be threatened. Tribes that cannot distinguish the two risk installing 

machines that will later be subject to enforcement actions or criminal sanctions. More 

ominously, operating as Class II games that are properly Class III has the potential to 

attract a legislative effort by the Congress to curtail Indian gaming or greatly expanded 

commercial competition from the states, something we are already beginning to see. This 

is what we are striving to avoid. NIGC has thus promulgated a set of regulations with 

which it intends to bring needed clarity to this issue and thus to ensure Indian gaming’s 

long-term success while maintaining the distinction mandated by IGRA’s statutory 

language. 

Recent Historical Background 

The present regulatory effort did not arise out of nothing. Rather, it arose against a 

background of a proliferation of uncompacted Class III games here in Oklahoma. In 

January of 1999, Montie Deer, my predecessor as NIGC Chairman, began a series of 

enforcement actions in an attempt to halt this spread. He was successful to a large extent. 

Most tribes ceased operating uncompacted Class III games in the face of NIGC 

enforcement. Some tribes, however, continued to play uncompacted games. With those 

tribes, NIGC engaged in protracted administrative litigation – for the tribes, an expensive 

proposition in its own right – and at the end of that litigation, some tribes had their 

gaming operations shut down, received multi-million dollar fines, or both. The burden of 

the illegal activity fell upon the tribal membership, the very people whom IGRA was 

designed to help. In that sense, then, the enforcement actions were not a success. 

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When I became NIGC Chairman, I picked up the process of bringing enforcement actions 

against uncompacted Class III games where Chairman Deer had left off. After a time, 

however, I realized that the effort was unsuccessful in another way. By its nature, the 

enforcement actions were brought against a particular tribe for playing particular 

uncompacted Class III games. I discovered that after all of the litigation was said and 

done, as soon as NIGC succeeded in demonstrating that a particular machine was in fact a 

Class III gambling machine, a machine with similar operating characteristics but a 

different name and cosmetic appearance would show up, and we would have to begin all 

over again with expensive and time consuming litigation. This employed lawyers, but it 

didn’t help the tribes. The solution, then, not only for fencing out uncompacted Class III 

games but also for providing a clear dividing line between Class II games played with 

electronic aids and Class III facsimiles is a uniform set of standards that would have 

nationwide application and upon which tribes could rely when choosing which machines 

to place in their gaming operations. 

Regulatory Approach 

In writing and proposing the proposed classification rule, the Commission has been 

mindful of the language of IGRA, Congress’s intent, IGRA’s legislative history, relevant 

court cases, and the essential need of the tribes for a broad, flexible and legally 

sustainable scope of Class II gaming. Class II was the basis on which Indian gaming was 

built. Since the enactment of IGRA in 1988, Indian gaming has grown into a $26 billion 

business, far eclipsing the industry that Congress could have envisioned. Although an 

estimated 90% of this gross gaming revenue is generated by compacted Class III gaming, 

Class II remains significant to tribes throughout the country. 

Tribes play Class II games for a variety of reasons. For some tribes with Class III 

gaming compacts, Class II is a vital supplement, long enjoyed and preferred by some 

clientele. In other cases, some states refuse to compact with their tribes for Class III play, 

even though they allow Class III gaming activities elsewhere within those states or 

tolerate wide-spread illegal Class III activities in non-Indian gaming facilities. Tribes in 

that situation are left to make the most of Class II gaming and have operations that are, or 

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were, places where the distinction between Class II and Class III has become the most 

blurred and where clarity is most needed. Further, as tribes negotiate with states for Class 

III compacts, they and the states need to know that there are viable Class II games that 

tribes may utilize if no agreement is reached. 

Unfortunately, the statutory language of IGRA lacks clarity when it makes “computer 

and electronic and technologic aids” Class II but places “electronic facsimiles of games 

of chance” in Class III. However, some of the IGRA’s legislative history sheds light upon 

Congress’s intended goal. 

In the House and Senate floor debates, several proponents of the legislation described the 

distinction as that between “bingo” (Class II) and “casino gaming” (Class III). While 

“casino gaming” likewise lacks a crystal-clear definition, those who spoke associated the 

term with gambling halls filled with slot machines, venues separate and distinct from the 

bingo halls of the 1980’s. 

It further appears from the debates that a basis for making this the dividing line between 

Class II and Class III was the complexity and regulatory difficulties associated with slot 

machines and casino gaming. Some argued that only states— then the only governments 

experienced with the conduct and regulation of such activity—were up to the task of 

regulating casino gaming, and thus casino gaming needed to be compacted. 

Much has changed, of course, since those debates in 1988, not the least of which is the 

sophistication and excellence of the tribes’ own gaming regulation. Tribes spend 

hundreds of millions of dollars annually regulating their gaming, both directly through 

their own commissions, and indirectly by funding the regulation done by states and the 

NIGC. Nonetheless, the distinctions and classifications established in IGRA in 1988 still 

bind the Commission, and the proposed rules seek to identify and clarify the line 

Congress intended to draw between Class II and Class III. I believe that if that line is not 

clear and identifiable, Congress’s intent will not be fulfilled. 

Since IGRA’s adoption in 1988, the world has changed, and computerization has 

transformed whole sectors of our economy and society, including gaming. These 

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technological advances challenge the legislative language that pre-dates them. 

Nevertheless, the language of IGRA continues to govern Indian gaming today. Unless or 

until that language or the mission of the NIGC—in part to promulgate standards for 

Indian gaming—is changed, the Commission’s must uphold that language. 

IGRA is not the only legislation governing Indian gaming. The other legislation, of 

course, which applies to the use of gambling equipment on Indian lands, is the Johnson 

Act. Since it was enacted in 1953, the Johnson Act has provided that there could be no 

“gambling devices” in Indian Country, and the term “gambling devices” has been broadly 

interpreted. 

The passage of IGRA in 1988 changed this in two ways. “Gambling devices” could be 

used on Indian lands if they were used pursuant to Class III tribal-state compacts, and 

tribes could use computers and electronic and technologic aids in the play of Class II 

bingo and similar games. 

And so developed different interpretations of what constituted “gambling devices” and 

“technologic aids.” When electronic and technologic features were introduced in the 

absence of a tribal-state compact, some federal investigators and prosecutors saw 

“gambling devices.” This view was upheld when the Ninth Circuit held that an allelectronic form of pull tabs to be an electronic facsimile game of chance, notwithstanding 

the argument that players were playing against other players and not against the machine 

they were using. The electronic replication of the traditional Class II pull tab game was 

deemed a Class III electronic facsimile and hence prohibited on Indian lands in the 

absence of a compact. See Sycuan Band of Mission Indians v. Roach, 54 F.3d 535 (9th 

Cir. 1995). 

By contrast, in a series of decisions involving an electronic bingo game called 

MegaMania, courts considered electronic, computerized player stations, which 

interconnected a minimum of 12 players and displayed bingo cards and bingo balls to 

them. Each game took from two to three minutes to play. Again, those responsible for 

enforcement of the Johnson Act challenged the player stations as “gambling devices” 

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requiring a compact for play. These challenges failed. Accordingly, the player stations 

were indeed only “aids” to the play of bingo, which Congress provided for in IGRA as 

Class II, and not electronic facsimiles of a game of chance. Those courts, however, were 

careful to note that their conclusions were limited to the facts of the cases presented. See

U.S. v. 162 Megamania Gambling Devices, 231 F.3d 713, 725 (10th Cir. 2000), U.S. v. 

103 Electronic Gambling Devices, 223 F.3d 1091 (9th Cir. 2000). 

Similarly, in a series of cases dealing with dispensers of paper pull tabs known as Lucky 

Tab II and Magical Irish, the enforcers of the Johnson Act became concerned when the 

manufacturers of these machines added video displays to the machines. The displays 

interpreted winning and losing pull tabs by depicting slot machine-type reels and showing 

winning and losing combinations. These dispensers, it was said, were “gambling devices” 

and could only be played in a compacted Class III arrangement. The courts disagreed. 

Notwithstanding the use of the entertaining displays to show slot machine-like results, 

those displays were not essential to the game. The play of the game was “in the paper” – 

it was the pull tabs themselves, and only the pull tabs, that determined the outcome of the 

game. Thus, these courts concluded, the electronic dispensers were only aids to the play 

of the game of pull tabs and permissible without a Class III compact. Again, the courts 

limited their holdings to circumstances before them. See Diamond Game Enterprises v. 

Reno, 230 F.3d 365 (D.C. Cir. 2000), Seneca-Cayuga Tribe of Okla. v. NIGC, 327 F.3d 

1019, 1031 (10th Cir. 2003). 

Thereafter, these technologies—interconnected bingo player stations and slot machinetype video displays (not determinative of results)—were coupled, and currently most 

electronic bingo systems employ such technology. Most such systems display the results 

of the bingo game in an electronic bingo card on the equipment’s video display. 

Such technological advances have greatly increased the speed with which bingo is played 

and have made the experience of playing very similar to the experience of playing 

conventional slot machines. In adopting IGRA, Congress observed that while computers, 

electronic and technologic aids may assist the play of Class II games, a Class III facsimile 

results if those electronic aids incorporate all of “the fundamental characteristics” of the 

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Class II games. This, the Commission believes, is precisely the issue raised by the 

proliferation of so-called “one touch games” -- inter-connected electronic bingo player 

stations with which players initiate and complete play of a bingo game with the single 

touch of the screen or a button. Such games are why the Commission has issued the 

proposed rules: to make clear that the play of a Class II bingo game with technologic aids 

differs from play of a Class III slot machine. 

In such instances, the equipment has ceased to be an “aid” to the play of the game, and 

has become one of those “electronic facsimiles of games of chance” which Congress 

placed in Class III. When the equipment automatically, electronically automates the play 

of the game and the players’ participation in the game, the Commission believes that the 

play is no longer “outside” the equipment and that the electronic equipment can no longer 

be characterized as merely an aid. All player attention, discretion, and interface have been 

automated by the equipment. 

Beyond this, the full electronic automation of bingo creates distortions in the way bingo 

is played. There is considerable significance to being the first player to “win” the bingo 

game by getting a “bingo” or the game-ending pattern. Many current, fully electronic 

games, however, often place minimum significance on this important characteristic of 

bingo and rather award the principal prizes to interim or consolation patterns and 

winners. There is less competition among players -- a fundamental characteristic of bingo 

-- for these interim prizes than there is for the game-ending prize. If multiple players hit 

the game-ending prize simultaneously, the common practice is to split the prize among 

them. By contrast, it is often the case that players who hit interim prizes are awarded the 

full prize, without regard to the number of other players who have also hit it. 

Economic Impact 

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Finally, I would like to say a few words about the economic impact study the 

Commission released to the public at the beginning of this month. In particular, I’d like to 

address what the study is and what it is not. 

When we first started this exercise three and some years ago, we did not foresee a large 

economic impact. After we proposed our first set of classification regulations in May of 

2006, however, a number of commenters asked us to take a specific look at the economic 

impact of the proposed rules because they thought it would be considerable. We agreed 

and contracted with an economic analyst to evaluate the economic impact of the proposed 

regulations. We published the analyst’s report in November of 2006. The size of the 

economic impact was one of the reasons the Commission withdrew that first set of 

proposed rules. When we published the current proposed rules in October of 2007, we 

commissioned an update of the previous economic study, and that update is what we 

published this month. 

The study attempts to quantify the economic impact of the proposed classification and 

technical standards on a national level. As the Committee is aware, and as the study itself 

says, there is a tremendous diversity in Indian gaming. There is a diversity in the size of 

operations, in their geography, in games they offer, and in the political acceptance with 

which they are greeted by state and local governments. 

Thus, the study, by design, does not attempt to “drill down” and measure the economic 

impact of the proposed rule at the local levels, for to do so nationwide would be 

prohibitively time consuming and expensive. To measure the impact on local 

communities in Oklahoma, where there are many gaming operations, where some are 

close by one another, and where the tribes have compacted with the state and thus have 

the option of switching to Class III games, would be an analysis unto itself. That analysis 

would be quite different than the analysis for tribal gaming in Alabama, where there is no 

compact and no current Class III option, where there is little Indian gaming, and where 

commercial gaming is a direct competitor. In turn, economic effects in Oklahoma and 

Alabama will be different than effects in South Dakota, where compacts strictly limit the 

number of gaming devices a tribe may employ; in California, where compacts just 

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approved will allow for thousands more slot machines; and in Alaska, where everything 

is remote. 

That said, I would note that the tribes in Oklahoma are insulated from the danger of 

losing gaming revenue under the proposed rules in ways that tribes in some other states 

are not. As the economic study states, the tribes in Oklahoma now have a more-thanviable alternative to Class II gaming because, since November 2004, they have had the 

ability to enter into compacts with the State and offer Class III slot machines for play. In 

fact, the tribes, irrespective of our classification efforts I believe, have been moving full 

steam ahead toward Class III gaming. We understand from the State of Oklahoma that by 

the end of 2007 the tribes were operating over 25,000 compacted electronic games, 

approximately half of the electronic devices in the state – and that up from nothing just 

two and a half years ago. 

In any event, Class III slot machines earn more than Class II games do industry-wide. In 

Oklahoma, the economic impact study finds that Class III games, on average, earn $145 

per day and Class II games $125. That $20-a-day difference is significant. Our own 

calculations show that a tribe that converts 20% of its Class II games to Class III games 

each year for the next five years will be millions of dollars ahead, even counting the retail 

cost of new equipment and additional revenue sharing with the State. 

In this same vein, I would venture to say also that a large percentage of the economic loss 

predicted by the economic study may already be moot. The study reports that California, 

Florida, and Oklahoma account for approximately 84% of all Class II machines in play. 

Four of the six tribes in California that operate approximately 75% of the Class II 

machines in that state have new compacts that allow them 17,000 additional Class III 

machines, and they are rapidly replacing their Class II machines with the machines. In 

Oklahoma, as I just noted, Class III games make up half of the machines in the state, with 

only more to come. In Florida, the recently compacted Seminole Tribe is rapidly 

replacing its 8,615 Class II machines with Class III machines. 

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From this, one can reasonably conclude that within a reasonably short time, over 50% of 

the adverse economic impact cited in the study will be mooted. In fact many of the tribes 

in the states cited above will enhance their economic status by moving from Class II 

gaming to Class III devices. 

All of this is not to say that the Commission is not interested in local effects. To the 

contrary, the more information we have about these proposed rules, and the more 

comments we receive, the better able we are to make an informed decision about them. If 

any representatives of local government here, or elsewhere in the country, wish to 

provide us with information we do not have, we welcome this. The comment period for 

the proposed rules is open until March 9, 2008. 

Finally, this economic study is not the end of our process and not the end of the 

consideration the Commission is giving to the economics of the proposed rules. Rather, 

the study is a necessary step along the way to a final decision. Now that we know the 

proposed rules will have a significant economic impact, we are obligated by law to 

undertake a cost-benefit analysis of them. We are in the process of contracting for that 

now. That study will, as its name suggests, examine both the costs and the benefits of the 

proposed rules. That study, together with this economic study and all of the comments we 

have received and will receive, will all inform the Commission’s final decision about 

these proposed rules. Our minds are not made up. We have listened to all of the 

comments we have received in this long process, and we will continue to do so.