Tribal gaming revenues grow as NIGC withdraws one rule, explains another


The National Indian Gaming Commission recently released a brief report on tribal gaming revenues for calendar year 2001. Reported revenues from 290 tribal gaming operations were in excess of $12.7 billion, a 16 percent increase over the $10.9 billion reported from 288 gaming operations for calendar year 2000. The commission compiled the 2001 numbers based upon audit reports received through July 2.

Annual revenues from tribal gaming operations have increased every year since 1997, when 266 operations combined for almost $7.5 billion in revenue. In 1998, 297 gaming operations reported just under $8.5 billion; in 1999, 290 operations tallied just under $9.8 billion.

No special significance should be attached to the fluctuation in gaming operation numbers, a NIGC official told Indian Country Today, as the numbers are simply a reflection of how tribes report their revenues to the regulator.

Tribal gaming revenues are defined as "the amounts wagered less the amounts paid out in prizes."

Withdrawal of Game Classification Rule

July 3 was a busy day for the folks over at the National Indian Gaming Commission. That day, the three commissioners signed a pair of notices that were published in the Federal Register on July 12. One withdrew a proposed rule on game classification, while the other clarified and interpreted proposed rules for environment, health and public safety in tribal gaming operations.

In response to numerous internal and external concerns over the proposed game classification rule, NIGC withdrew the proposal. In explaining their decision, the Commissioners reiterated their commitment to working with tribal regulatory bodies while expressing concerns that continuing advances in game technology could make decisions to properly classify them more difficult and time-consuming.

The rule in question sought to establish formal processes and procedures to determine the proper gaming Class, either II or III, into which an electronic gambling device should be placed.

"Classification is the key feature around which the legal and regulatory framework of tribal gaming is centered," the Commissioners wrote. "Advances in technology [have] produced devices that in the view of the commission blurred the distinction between simple technological aids and electromechanical facsimiles of games of chance, the earlier [Class II] permissible without a compact, the latter [Class III] unlawful without a compact."

This determination is critical, as revealed a few weeks back with Multimedia Games Inc.'s MegaNanza game. The distinction between Class II and Class III is a fine line, but can be boiled down to whether or not an electronic device is an aid to playing a game, or a virtual simulation of the game itself. In the MegaNanza case, the game was determined to be Class III as the machine actually played a bingo game internally before game cards were sold to players. Several gaming tribes offering the game in a Class II environment had to pull it from use. Multimedia has since developed a replacement game that meets Class II criteria.

NIGC noted that it currently has three available means for determining the proper class in which to categorize a gaming device. The first is the standard governmental method of formal notice-and-comment rulemaking, which was faulted as being "slow, cumbersome and insufficiently nimble to be practical for use on a routine basis." The second means is the use of advisory opinions from NIGC's general counsel; yet because such opinions are not born of a formal administrative process they have been accorded limited legal deference in the courts.

The third method is the formal administrative enforcement action. This option was also derided as "cumbersome, time-consuming and resource-intensive for both the Commission and the affected party." Such actions may drag on indefinitely and still wind up in federal court.

"A regulated industry ought not be forced to risk enforcement action in order to obtain a legally binding and judicially reviewable classification opinion," the Commissioners sensibly explained. Thus this option was eliminated as impractical.

Critics of the proposed classification rule had numerous objections; most specifically, many tribal officials criticized the fact that it minimized the role of tribal gaming commissions in ascertaining a game's proper class. Concerns regarding the large number and frequency of new games as well as NIGC's resulting workload were raised and shared by commissioners.

"It is the Commission's view that the proposed rule would have more likely satisfied the concerns of all if there had been greater opportunity for tribal input during its development," the Commissioners wrote. "The expertise and experience of tribal regulators would have greatly aided the Commission's effort to develop a proposal in better alignment with the concerns and needs of tribal governments."

Commissioners Elizabeth L. Homer and Teresa E. Poust signed the order, which included a provision saying that if NIGC decides to revisit this issue, it will establish a tribal advisory committee to provide input and assistance. Chairman Montie R. Deer dissented from the idea of binding a future commission to the creation of such a tribal advisory group. While he said he values the contribution such a body could provide, Deer questioned the current Commission's "power to bind future Commissions to a particular rulemaking process."

Environment, public health and safety

NIGC's other action was the publishing of an "interpretive" rule to explain its "understanding of its oversight authority in the area of environment, public health and safety."

The Indian Gaming Regulatory Act delineates several mandatory provisions that must be contained in tribal gaming ordinances. Specifically, 25 U.S.C. 2710 (b)(2)(E) requires a provision that ensures: "the construction and maintenance of the gaming operation, and the operation of that gaming is conducted in a manner that adequately protects the environment and the public health and safety."

This provision, according to NIGC, makes it "clear that Congress intended the Commission to exercise at least some degree of general oversight authority with respect to whether or not a gaming facility is being operated in compliance with the Congressionally mandated provisions in tribal gaming ordinances."

The critical question, of course, is the level or amount of oversight that NIGC exercises, and the Commission indeed recognizes tribal governmental sovereignty over internal affairs, including "matters pertaining to tribal lands and the health and welfare of the people and the community."

In November 1999, an advisory committee containing tribal leaders and NIGC staff members was formed to examine the issue and develop an appropriate oversight role for the Commission. This committee realized that the "widely varying circumstances and geographic dispersion of Indian gaming operations" required a flexible approach to oversight. Furthermore, the committee construed Congressional intent as mandating a "narrow role" for the Commission in terms of environmental oversight.

During the rule's comment period, many tribes indicated that the proposed rule was "burdensome and intrusive" and questioned NIGC's authority to promulgate such regulations. Some state and local governments attempted to enter the fray, requesting input into tribal regulations. Thus NIGC sought to reassure Indian country that "regulatory primacy and primary responsibility for ensuring compliance with the environment, public health and safety provision rests with the tribal government."

"The Commission does not agree that it is without authority or responsibility altogether; it does accept Congress intended the Commission to play a limited, rather than expansive role," the Commissioners wrote in their interpretive ruling. They added that IGRA "explicitly" gives NIGC a role in ensuring compliance with the Act's provisions, including those pertaining to environment, public health and safety issues.

Because "tribal governmental powers are inherent and not derived from the federal government," the Commissioners said that, "Federal statutes affecting Indian affairs require broad construction when the rights of Indians are established or preserved and narrow construction when the rights of Indians are limited or restricted."

In the end, NIGC correctly determined that "the particular manner in which compliance with tribal environment, public health and safety standards is enforced is not so important. The key objective is to confirm that standards and enforcement systems are in place."

Why is this important? It proves that the regulatory framework for Indian gaming is working. The tribes can provide input and advice and the regulator listens. In this case, the regulator, while properly asserting limited oversight authority, wisely chose to give tribes considerable leeway in their development and enforcement of environmental, public health and safety regulations.