Class II Revival

With federal objections to Class II game style removed, electronic bingo proliferates

For years, there was a cloud on the horizon for Native American tribes operating Class II electronic bingo. Nowadays, the sun is shining brightly.

The cloud was related to the ongoing battle over the nature of Class II electronic bingo, an issue initiated and sustained by Phil Hogen, the former chairman of the National Indian Gaming Commission. Hogen’s NIGC formed study panels on Class II and promulgated rules that most Class II operators thought could eliminate the classification by slowing down game play and making the games tedious to play.

Hogen always said he initiated the process because Class II slots were too similar to Class III slots, and because he feared the U.S. Department of Justice would declare Class II illegal if he didn’t take action to draw what he called a “bright line” between the nature of Class II and Class III games.

Attorneys for tribes operating Class II casinos steadfastly maintained that the Indian Gaming Regulatory Act of 1988 already had drawn that “bright line” in its definition of bingo, and that the electronic version represented by Class II was within those rules.

“The bright line issue was made up by the prior NIGC chair,” says Judy Shapiro, a Washington, D.C., attorney who was at the center of the NIGC controversy. “The statute draws the line.”

Shapiro, who has practiced Native American law for nearly 30 years, says there is still work to do on the minimum internal control standards, or MICS, proposed by Hogen’s team, which she says were created without enough input from Class II operators. She says the team Hogen assembled only included one tribal member with Class II experience, and the proposal for internal standards ended up too similar to Class III standards. “Class II is different—you have to look at the internal controls differently than Class III,” she says.

According to Shapiro, tribal members are ready to resume working with the NIGC to formulate a new MICS plan, and she lauds the new commission for awaiting tribal input before formulating them. “There’s work to be done, and I think the commission is wise in taking a breath, asking where we need to go, and asking the tribes what needs to be done,” she says.

As far as the basic nature of Class II that was at issue under Hogen—who wanted larger bingo cards on the face of each machine, more touches for each play and other changes that tribes said would have ruined the game—Shapiro says those issues died with the end of Hogen’s time at the commission.

With no more danger that current games will be altered or removed, there has been a burst of creativity from Class II suppliers—and a revival of sorts for Class II games in the field, even in some jurisdictions where Class III is permitted.

“There were a few years where Class II was a little suspect because of the potential rule changes,” says Mick Roemer, senior vice president of sales for longtime Class II supplier Multimedia Games. “Since that seems to be cleared up, we’re seeing a resurgence in interest.”

Multimedia is one of a handful of slot manufacturers—others include Cadillac Jack, International Game Technology, Bally Technologies, WMS Gaming and American Gaming Systems (AGS)—that produce both Class II and Class III slot machines.

Paul Lofgren, vice president of business development for AGS, agrees that the specter of rule changes torpedoing Class II growth is gone. “The ‘bright line’ stuff could be resurrected, so you always have to be mindful of what can happen,” he says, “but I do believe there is no appetite to move that forward. The market will definitely grow. There are now pockets in Class II where casinos can look to expand, and some of them are just beginning to understand that.”

Mauro Franic, vice president of product management and marketing for Cadillac Jack, says the shutdown in charitable gaming in Alabama has led to a significant spike in Class II sales there, but the new growth trend in Class II is much broader than that. “Oklahoma, for example, was a traditional Class II market that brought Class III in,” Franic says. “The trends has been reversing, as tribes purposely put Class II back in to replace Class III, because of the tax advantage and the leverage they get with the state.”

       Since tribes are not required to share revenue on Class II games with states, Franic says their ability to replace Class III slots with Class II electronic bingo puts tribal leaders in a better bargaining position when compacts are negotiated.

In many cases, the growth of Class II has less to do with revenue sharing and sovereignty than with simple regulatory requirements. “Many compacts limit the number of Class III devices, and to meet demand, the tribes will look to Class II devices,” says Harold Zeitz, senior vice president of core and specialty products at IGT. “Some established tribes with Class III gaming are placing Class II devices as supplemental product when their Class III allocations have reached their limits.”

 

Better Games

One huge reason tribes are now putting Class II games back into jurisdictions where Class III games are permitted is an advance in Class II technology.

“At the WinStar Casino in Oklahoma, Cadillac Jack recently placed 200 Class II machines,” says Franic, “and the reason is not only the sense of empowerment Class II gives the tribe, but also that in the last year and a half, Class II has made a quantum leap in quality.”

Franic says dual-screen platforms are just one of those technological advances. “The integration of content between the main screen and the top screen creates a more inclusive experience for the player,” he says. “The same content and attract modes traditionally offered to Class III players can now be offered in Class II. Most manufacturers have integrated their platforms, and if you look at Class II now, the features, the finish of the cabinets and fully integrated interactive bonusing make the games very competitive with Class III.”

Franic says another important technological improvement relates to the math of the bonus games. “In the past, the outcome of bonuses was determined on the main game in Class II,” he explains. “In other words, when a player went into a bonus round, the outcome had already been determined by the pattern on the bingo card on the main screen. Players always knew they were going to get a certain outcome, so the bonus was less attractive. Now, each bonus event has its own bingo card, its own outcome, its own electronic ball draw. The player can’t predict the outcome of the bonus—it’s completely random, and players are hooked on it.”

“In the past, players could definitely tell a Class II product,” says Bradley Johnson, vice president of product management at Multimedia Games. “You could see why, when they were placed together, Class III gained a lot of traction. Now, players are getting the same quality of experience on a Class II game as on a Class III game. That leaves the door open for a lot of casinos to put Class II games on the floor. Even though one is bingo-related and the other reel-related, the gaming experience is similar. There are some differences, but they are much fewer than in the past.”

A good example of the closing gap between the playability of Class II and Class III games can be found in Oklahoma, where Lofgren from AGS says some tribal customers are even asking the company to make Class III games look more like Class II. “We’ve been asked, ‘even if it’s a Class III game, can you keep a bingo card on it?’” Lofgren says. “There is a customer base that’s very core to Class II, and wants to keep that. Some facilities are even removing Class III and going completely Class II. That’s a minority of the casinos, but you never saw that trend before; tribes wanted to convert everything to Class III. Now, they’re rethinking that.”

“Most of the recent improvements have been in the integration of the player interface,” says IGT’s Zeitz. “This allows for a more entertaining display for the outcomes of the bingo games.”

 

Earning Power

The technological advances have increased the earning power of Class II games, and the improvements in display have enabled the manufacturers to bring the same high-profile themes to electronic bingo that have driven traditional Class III slots for years.

“We no longer start out manufacturing a game to be a Class II or Class III product,” says Multimedia’s Johnson. “Our mentality in creating our products is that we create the best game, and then we use that content to make a Class II product, a Class III product, and a product we take over into our lottery markets as well. When we have a great game in Class III, the same game can be a great game in Class II.”

Roemer says Multimedia’s biggest Class II hits are also the manufacturer’s biggest Class III hits, and in markets where both are present, Class II and Class III are earning comparable numbers. “In Oklahoma, our three-reel mechanical Class II game is one of the highest-earning on the floor,” he says. “Other big hits include Wild Rain Forest, Invasion from Outer Space and Smokin’ Hot Devils, all of which we produce in Class II and Class III. Customers will seek out the game that provides the right kind of dynamic, whether it’s Class II or Class III.”

“Some advancements that IGT has brought to the market include migrating all of our game titles to our latest platforms using the AVP technology,” says Zeitz. “This allows us to use our latest MLD( Multi-Layer Display) technology for stunning 3D graphics as well as offer five new cabinet models. A new bingo player interface has been designed to accommodate the new platforms. We have also migrated our licensed titles to our Class II offerings, such as the very successful Sex and The City, to add more fun to the game of bingo.”

“Content is better, and more properties are looking at that,” says Lofgren at AGS, who says the company’s Class II business is continuing to grow in Oklahoma and in South Florida, where AGS has a lot of product at the Miccosukee tribe’s Class II casino in Miami. “We have a couple of games down there that are just lights-out,” Lofgren says. “Our Diamond Lotto game is just off the charts, and that’s a game that can be either Class II or Class III. A platform we’re introducing shortly, Road Runner, will accelerate the growth in both Class II and Class III. There’s really growth in both classes, so companies with both are in a good position.”

For Cadillac Jack, the strongest new Class II products have been in the 40-line series of games. “It’s a free-game style of slot, with a little higher volatility than our 20-line series,” says Franic. “At the same time, we’re continuing to add themes to our family of 20-line games, which players overall in Class II have liked the best, and we’re going into 2011 with a third generation of 50-line games, and a new family of 100-line games.”

All of the manufacturers say these new Class II games are stacking up to their Class III offerings in earnings, and the tribal casinos are responding with new orders. “A year ago, Wisconsin was 100 percent Class III,” says Franic. “We placed about 200 Class II games in the Dejope casino (in Madison) a year ago, and they are performing as good or higher than the Class III games. That’s causing a lot of attention from the other tribes in the state, who now realize they can get the Class II benefits and still have performance very competitive to Class III.”

“The new MICS will ensure that Class II remains viable, and support for Class II will continue,” says Multimedia’s Roemer. “There are tribal casinos like the Poarch Creek facility in Alabama and others where Class II revenue numbers are equal to Class III. It makes sense to keep them around, and to keep them viable.”

Adds Lofgren at AGS, “There also are properties that can benefit from new Class II product where operators are mired in the old thinking. Tribal casinos in states like California and Washington should really look at Class II more closely. There’s still room for growth.”

Frank Legato
Frank Legato is editor of Global Gaming Business magazine. He has been writing on gaming topics since 1984, when he launched and served as editor of Casino Gaming magazine. Legato, a nationally recognized expert on slot machines, has served as editor and reporter for a variety of gaming publications, including Public Gaming, IGWB, Casino Journal, Casino Player, Strictly Slots and Atlantic City Insider. He has an B.A. in journalism and an M.A. in communications from Duquesne University in Pittsburgh, PA. He is the author of the recently published book on gaming, How To Win Millions Playing Slot Machines... Or Lose Trying.  

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