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Let the Games Begin: Court rejection clarifies Class II

Class II Indian gaming got a shot in the arm on March 1 when the U.S. Supreme Court rejected the latest attempt by the Department of Justice to prohibit the use of certain electronic gaming devices that resemble traditional slot machines.

Justice petitioned the court to review U.S. v. Santee Sioux Tribe of Nebraska, and Ashcroft v. Seneca-Cayuga Tribe of Oklahoma, seeking to overturn to two lower court rulings. In both these cases the 8th and 10th circuits, respectively, ruled that that using an electronic aid to play a pull-tab game does not violate the 1951 Johnson Act, making the devices legitimate Class II games.

The court did not rule on the merits of either case - they instead refused to revisit either of them, in effect upholding the lower court decisions.

"The Supreme Court's decision to let stand the decisions of the Courts of Appeal in these significant cases ? brings further clarity to an issue important to gaming in Indian Country and its thorough regulation," said Phil Hogen, NIGC Chairman, in a March 1 statement. "Those earlier decisions formed the basis of regulatory steps NIGC has taken recently to distinguish Class II devices that tribes can use in the absence of compacts. Further progress in this area can now be made, and hopefully soon the controversies in this area will be put to rest."

"For the immediate future significant legal uncertainty has been eliminated concerning [the] ability to continue to offer Class II games played with the assistance of technological aids," agreed Multimedia Games Inc., an Austin, Texas-based gaming device maker. The company made the statement in a document filed with the Securities and Exchange Commission on March 1.

Government attorneys argued that the disputed machines, "Magical Irish Instant Bingo Dispenser System and the "Lucky Tab II," are "gambling devices" which are prohibited without a tribal-state gaming compact. Because these machines resemble in both appearance and play, the Justice Department asserted that they are Class III and thus illegal.

Although from the outside the machines may look like traditional "one-armed bandits" that's where any similarity ends. The machines in question are souped-up dispensers of pull-tab tickets from a preprinted roll. The player purchases a ticket from the machine and pulls off a paper tab to find out what prize, if any, has been won.

The distinction is crucial - it's not what the machine looks like, but what it does. The disputed machines were ruled to be "electronic aids" in playing a game, not games in and of themselves. In Class III, the slot machine is the game.

Pull-tab games could just as easily be dispensed from the same kind of machine that spits out time tickets at parking garages. But how much fun is that? Machine makers "jazz up" their games with "bells and whistles" to make them more attractive to players. But that doesn't change their function which is to dispense games, not be the game.

In its March 1 statement, Multimedia noted that further action on this matter by the Justice Department "would run counter to ? the weight of authority of five U.S. District Court rulings as affirmed by five U.S. Circuit Court opinions [and] now a rejection of review by the U.S. Supreme Court. Four U.S. Circuit Courts of Appeal in five different case opinions have consistently rejected attempts by the DOJ to have Class II games that are played using technologic aids declared illegal."

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In the end, the old maxim is true - outward appearance doesn't matter, it's what's inside that counts.

Taking stock

The court's decision had considerable affect on the daily stock prices of several gaming device manufacturers that build machines potentially affected by the ruling.

Besides Multimedia, shares of International Game Technology (Reno, Nev.), Alliance Gaming Corp. (Las Vegas), GTECH Holdings Corp. (West Greenwich, R.I.) reached to all-time highs, according to Reuters news service.

Meanwhile, shares of New York City-based Scientific Games Corp.'s stock rose to their highest level in over nine years while shareholders of Waukegan, Ill.-based WMS Industries Inc. enjoyed their greatest single-day gain in six months, Reuters said.

Gaming growth in Oklahoma

The expansion of Class II gaming in the State of Oklahoma appears to be on track. On Feb. 26, the Oklahoma House of Representatives approved S. 553 by a 52-47 tally, one more vote than needed. The measure passed the state Senate on Feb. 18 by 30-18.

The bill allows a few of the state's pari-mutuel horse tracks to open "racinos" containing a total of 1,150 video lottery terminals, giving Oklahoma's 82 Class II Indian casinos their first direct commercial competition. It also deems legal some specific gaming devices that had been the subject of a heated "Class II v. Class III" Indian gaming dispute, and allows certain non-house banked card games at Indian casinos. In exchange, the tribes agreed to limited state regulation and revenue sharing.

Proponents say the bill will raise more than $70 million in education funds while saving 50,000 jobs in the state's horse industry and giving the state a role in tribal casino regulation. Many credit its successful passage of the House, where it never got to the floor in 2003, to the combined efforts of the state's gaming tribes and horsemen, who lobbied hard for its passage.

On March 1, the Legislature released S. 553 to Governor Brad Henry (D), who has said he will sign it. Rep. Forrest Claunch, R-Midwest City, indicated on Feb. 27 that he is considering a petition drive to set up a statewide vote on the bill. He would need to gather a minimum of 51,781 signatures to force a referendum on S. 553, a prospect deemed unlikely by many observers of Oklahoma politics.