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Amusement Industry Rallies To Stop Indian Gaming Comm. Rule

Posted On: 3/25/2000

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TULSA, OK - The amusement industry's top guns , the AMOA, AAMA, and IALEI , have joined together in an effort to prevent the National Indian Gaming Commission from setting a potentially damaging precedent by classifying certain amusement games as gaming devices.

The NIGC, which regulates gaming for Native Americans across the country, is looking to set up a formal process to determine whether amusement games played for prizes violate federal law. Such a procedure would supposedly help the NIGC to close a loophole that has allowed certain tribes to operate gaming equipment illegally.

While that alone would not be cause for concern, what is troubling for the amusement industry is that such a process would require the NIGC to decide on a case-by-case basis whether a particular game is a game of chance or a game of skill.

According to Thomas Fricke, a St. Louis-based attorney retained to represent the AMOA, AAMA, and IALEI in a NIGC field hearing held here on January 24, there is no regulator, state or federal, which evaluates games played for prizes in the skill/chance context. With limited exceptions, Fricke said that such a task is left entirely to law enforcement agencies, the courts, the criminal justice system and the discretion of prosecutors.

With no other rulings on which to rely, Fricke said the concern is that any decision the NIGC makes will undoubtedly be referred to by law enforcement agencies, governmental agencies and others across the country, which could be devastating to certain manufacturers as well as an impossible dilemma for operators.

What's more, because the NIGC's proposed regulations do not spell out the standards with which skill games must comply, it would be virtually impossible for manufacturers and operators to assure beforehand that their equipment does not get classified as a gaming device.

Another concern of the allied associations is that in absence of prior rulings, the NIGC might rely on the preferences of law enforcement agencies, not the rulings of the courts. According to their attorney, these might boil down to an "impossibly restrictive" application of one line from the Johnson Act, which prohibits prizes awarded by any element of chance: By the operation of which a person may become entitled to receive, as a result of the operation of any element of chance, any money or property.

While such a standard might be suitable for the criminal justice system when applied with discretion by prosecutors and the courts, he said that a more rigid interpretation by the NIGC could result in an alarming number of games being classified as gaming devices.

"It is not necessary to eliminate all chance to avoid a violation of the Johnson Act or the law of most states," he explained. "Only substantial chance constitutes a violation of the Johnson Act, and even substantial chance may be present so long as skill is the predominant dimension of the game." As an example, Fricke cited the game of chess, which begins with the random determination of which player has the advantage of going first. Under the current proposal, he said, there would be nothing to stop the NIGC for the "absurd" ruling that chess is a game of chance, because of the coin toss at the beginning of the game.

While it may appear that the amusement/game industry is being targeted, the allied associations believe that the industry appears to be caught the cross-fire of a long-running dispute between the NIGC and the Indian tribes whose gaming operations it regulates.

The current situation, their spokesman explains, can be traced to the Indian Gaming Regulatory Act (IGRA) of 1988, which established that all Indian tribes across the country are subject to the NIGC's jurisdiction with respect to gaming. The NIGC classifies gaming under two main categories: Class II and Class III. Class II includes bingo and a couple of other games, while Class III includes all other gaming, including slot machines, blackjack and roulette, he explained.

While every tribe has the right to operate Class II games, Fricke said a tribe can't participate in Class III unless it has signed a compact with the state in which its lands are located. For the amusement game industry, the concern is that skill-based games and tournament games could be wrongly classified under Class III.

Over the years, there has been a great deal of controversy over Class II and Class III gaming, Fricke said. The running battle over Class II stems from the fact that the IGRA originally authorized bingo with or without technologic aids , electronic devices used in connection with bingo.

"There has been a great deal of controversy, most of it fought out in the courts, about how much you can do with a technologic aid for the play of bingo, because certain tribes have been trying to get as close to slot machine play as possible through pushing the envelope of the concept of technologic aid," he said.

When it comes to Class III, Fricke said that many tribes have been frustrated in their attempt to obtain compacts with the states that surround their lands, which is a requirement under Class III guidelines.

"It's really been a new trail of tears for them because so many states have been unwilling to negotiate in good faith with the tribes. Some tribes, especially those in California, have resorted to defiance of the laws of the state and federal government that prohibit unlicensed gambling by simply putting in slot machines," he said. "In 1997, some suppliers started coming in saying, 'We have eight-liners for you, and see these buttons here, they are skill-stops, and that means they are skill games.'"

With no formal process to evaluate such devices, the NIGC has simply issued notices of violation, and the issues have been argued in an adversary proceeding within the Department of the Interior.

"Their idea is, rather than use this proceeding, we will establish a formal process so that we can determine if an eight-liner or a skill-stop violates the criminal laws that prohibit unlicensed gambling. "That's how it came about," Fricke said. "Unfortunately, our industry would be affected by any formal determination if it's a determination of a governmental agency."

It's conceivable, Fricke noted, that tournament operators everywhere, not just on Indian lands, could lose sponsors, or that local prosecutors and alcohol beverage regulators could use the rulings to block amusement devices from being installed.

"In satisfying your local prosecuting attorney or your local state liquor authority, the fact that your crane game, or your pusher game, or your eight-liner has been found to be a gambling device, that is a game of chance by the NIGC's interpretation, is going to materially compromise your chances of negotiating the outcome that you want," he explained.

A major problem in the eyes of the allied associations is that the NIGC will inevitably consult with the Department of Justice. The DOJ, not being a regulatory agency but a law enforcement agency, will most likely advise the NIGC that it views any game that isn't obviously all skill and no chance as a gaming device. They have said this before, according to their attorney.

"The NIGC will be led by this law enforcement agency, and the applicant will not even have a chance to tell his side of the story to the DOJ," he said, noting that the main concern is that no one knows for sure what the NIGC will base its decisions on.

"They may refer to the one line in the Johnson Act, or state law, we don't even know what law they will refer to or what interpretations they will rely on," he said. "Under federal law, not only does the Johnson Act apply, but the state law also applies, because state criminal laws that cover gambling devices are also the standard on Indian land."

In some states, the state law basically says that games played for prizes are prohibited, including Oklahoma, where the majority of recognized tribes have their lands. That could spell trouble for video game tournaments, dart tournaments, as well as other equipment there, Fricke explained.

"The NIGC would likely say that these products are gaming devices for tribes in Oklahoma, because of the state law there," he said.

Not only that, under the current proposal, if the commission issued an opinion that a dart tournament system is a gambling device, a manufacturer would not have standing to appeal it, and even if the manufacturer had standing, the decision of the NIGC would be presumed by the court to be valid. On appeal, neither the manufacturer nor the tribe could obtain a reversal of such a determination unless they established that the Commission had abused its discretion, Fricke said.

"The allied associations' proposal to them is that the manufacturer be given standing and that if there is an appeal to the federal district court there be no presumption whatsoever," he said. "Instead, the operator or manufacturer would start even with the NIGC in a de novo court proceeding."

During the NIGC's field hearing on the issue on January 24, Fricke presented the associations' objections to many of these provisions. Then on February 24, the three associations jointly submitted a single set of detailed written objections and comments to the proposed rule. Unfortunately, despite the potential impact Of the NIGC's rule making proposal, these comments and objections might be the extent of the amusement game industry's input.

"We are of course not alone in our concerns," Fricke added. "Twenty-four tribal governments also submitted comments to this proposal. As you would expect, they're none too happy about it. Now that the deadline for comment has expired, by law the NIGC must consider all comments submitted, but that's as far as it goes," he said. "They still enjoy broad discretion once they've read the comments to reject them, so long as the final rule is not contrary to law."

While there is no provision from this point on to have any more input, Fricke said the battlefield is now within the political arena.

"The tribes appear likely to hire a lobbyist in an attempt to influence this rulemaking through a political strategy. My concern is that they may not gather their forces sufficiently and that they'll focus on the technologic aid issue and not the Johnson Act standards issue," he explained. "With respect to the AMOA, AAMA, and IALEI, they have not decided whether to lobby or not. Short of a political strategy, we might have already done everything we can do. Even so, what they've done through joint, cooperative action makes for good representation of their membership in the councils of government, and a positive contribution to the federal rulemaking process. My impression is that before the associations weighed in, the folks at the NIGC had no idea that their proposed rule would so significantly affect such a large industry that is not focused on Indian gaming."

Copies of the rule making proposal and the associations' comments as submitted to the NIGC are available on request from any of the associations, from Fricke's office (314-361-6672.