Casino Enterprise Management

Last month, CEM ran part 1 of our Networked Gaming Guide looking at Class II gaming. This month, we’re at it again. In part 2, we’ve gathered even more experts, including operators and suppliers, to discuss all the issues surrounding Class II.

This article and related podcast highlight the advances in Class II gaming technology, its history, including the Indian Gaming Regulatory Act, how both operators and players view Class II, its network and communication abilities, what can be done to stay on top of all the issues, and much more.

The conversation was held via conference call, and the discussion was highly open, relevant and interesting. Below is the lineup of those who participated in the discussion. On the following pages, you’ll read the conversation exactly as it happened. It’s one everybody in the industry needs to listen to. We hope you find it insightful.

The Line-Up:

Moderator:

Matthew Morgan
Gaming Commissioner Chickasaw Nation

Panelists:

Christina Abate
Systems Product Manager
Bally Technologies

Jamie Hummingbird
Director
Cherokee Nation Gaming Commission

Brad Johnson
VP of Product Development
Multimedia Games

Knute Knudson Jr.
VP of Native American Development
IGT

Marc McDermott
Director, Jurisdictional Engineering
Cadillac Jack

Matthew Morgan: Good morning everyone. We’re talking about Class II gaming technology, and for readers who might not be familiar with it, can someone start off by explaining what Class II gaming is and why it is true server-based gaming?

Jamie Hummingbird: Class II gaming, as we know it, is simply a linking of multiple game terminals back to a central server where the game being played is a traditional form of bingo, but in electronic form. The way the game works is simply following the same mechanics of a traditional bingo game, in the terms that the games that are hooked back into the server require, at minimum, two people to play against each other, so this is player against player rather than player versus machine. No game can be conducted and no game can be won without the presence of two or more players. Those players are following the traditional rules of bingo, in that the balls are being called electronically, the numbers are being displayed electronically and covered electronically, as well as all wins being claimed electronically. The server itself is the environment in which the game is played with all the gaming activity being displayed in a format that is both in traditional bingo, a card format, as well as an entertaining display represented by your Class III reels.

Knute Knudson: I think you did a terrific job of describing the actual electronic mechanics of bingo being played in Class II systems. And obviously the depth of your experience through the years with Class II is evident in your ability to give that Class II explanation. I also think it’s important to note that Congress, the courts and the National Indian Gaming Commission (NIGC), in bulletins and in public statements, have also now, in adopted rules, agreed along the way with definitions that support everything that Jamie said. We have a unified presence from all levels of the regulatory regime that exists in Indian country. With those three elements essentially agreeing with the tribal gaming commissions—the tribal gaming commissions having been in it from the very beginning—subsequent to the passage of Indian Gaming Regulatory Act (IGRA) in 1988. Tribal gaming commissions were way out front in terms of defining, in rule form, the methodology of play of electronic bingo. They essentially emphasized what Congress said, and then were in agreement with the courts and eventually by the NIGC. Jamie, you were out there from the beginning, and should be complimented on all of your effort and energy in that arena. Jamie has described the way the game plays, and I’m just describing the way the regulatory regime out there agrees with Jamie.

Marc McDermott: Server-based traditionally means that the game outcomes are determined by a central server or central computer. This definition has been around for a while, and it’s really been confusing to the point that I would imagine most people don’t have a good idea of what it is. In a most basic sense, Class II is server-based gaming, because it’s based on bingo, which relies on a central ball draw. When it’s put into electronic form, the central ball draw is the central server, and bingo balls, which are the outcome of the bingo game, are sent to the gaming machine. The server, i.e. the electronic bingo ball draw device, actually determines the outcome of the game. As far as true server-based gaming, Class II really fits that definition pretty squarely.

M Morgan: We’ve heard that term, “server-based gaming,” bantered about a lot in the last three to five years on what’s coming down the road. Who wants to address the common misperception of how complex Class II gaming can be and why the math and technology are so different from our Class III electronic games?

M McDermott: Class II gaming is actually more complex than Class III. It has more requirements to actually make a play. Class II requires more communication and has more difficult math. Where the complexity really comes in is that all the pieces must work together to present the player with a fluid, entertaining experience. For example, in Class II, every time a player pushes a button, the games have to ask the server for a set of bingo balls—because it’s centrally determined, the server generates a set of balls, sends it to the game, then the game evaluates the ball draw against the bingo and finally the game outcome is presented to the player, both on the bingo card and on the screen. When you compare this with Class III, which has a random number generator—the game picks a number, it represents it as a card or reel and it puts it on the screen—you see that Class II is really complex. With Class II, you have all of the complications associated with security, accounting and integrity that’s involved in Class III, but with the extra work—extra communications and the entire bingo game functionality added on.

KK: Marc has defined it very well, and the essential element that the courts and IGRA landed on in providing language to give direction to tribal gaming commissions was that with Class III gaming you’re playing against the house, and in Class II gaming with electronic bingo, like Jamie said, there must be two or more players in a pool playing against each other. The math must accommodate these two essential elements of the game. The language Marc and Jamie used to describe that process sets up those two different math models.

Christina Abate: A lot of the complexity came from rolling out the electronic devices for bingo terminals joined to a server. The number one was performance. We, as vendors, had to find a way to get enough players to get a game started almost instantaneously. To do that, we had to have our bingo game allow players at different personalities of terminals join in the same game. So I can have one person playing a 1-cent 95 percent game, and another person playing a $1, 98 percent game, in the same bingo game. I have to be able to put it together with an award structure that will reflect the payback for those games. Both players can win, which means you can have a tie. How do you create a math model that allows multiple players to get into games instantaneously in multiple locations? You may not have two players in one property. That’s where we saw initial challenges, I think all of us, in building the network infrastructure to do that.

M Morgan: I think that as we went through some of our past rule-making with the NIGC, and Jamie—I think you were on some of these tribal advisory committees, and your capacity as director of the Cherokee Gaming Commission—do you feel like there’s still a sense that Class II gaming bingo machines are less complex, easier for the players to learn than a Class III system that’s been looked at as a traditional Las Vegas, Atlantic City-type technology? I think some of the math and the technology has really taken a hold now. Do you see us having to continue in our educational efforts for Class II gaming or do you think it’s pretty widely accepted now?

JH: I think the efforts are going to continue. As we went through the process of developing technical standards and internal controls for Class II games, it became evident to our federal counterparts that once they started to take a look at the bingo math that is used to create our Class II games, it was not what they expected. I believe they expected it to be a little bit simpler than it was. Not necessarily to our Class III model, but something similar. Once we start putting out there that the math that was previously described is much more complex than a Class III setting, they begin to understand that Class II is a little bit more complex than they anticipated. That was just for that group of federal regulators. I think that message has been received by others within the NIGC, but there are still others out on the state level that will need to have access to the same information and probably will receive the same type of education.

KK: I agree with Jamie that the educational effort must go forward. It’s a very good question, particularly in light, for example, of where you and I are working in the Class II work group on minimum internal control standards that met at Tulalip in Washington for three days. And also the efforts of the work group over several years, prior to this go-around on MICS, that were directed toward the technical standards and that were adopted by the NIGC some time ago. The new work group does fully intend, I believe, to submit comments in both categories, technical standards and minimum internal control standards, as part of this ongoing continuing education that is necessary. That’s all part of this overall consultation being conducted by this new panel of NIGC commissioners under the direction of Chairwoman Stevens and the other two members, Stephanie Cochran and Dan Little. In the context of what’s going on at the national level with the consultation and the work group, the ongoing educational process is absolutely still necessary, somewhat at the federal level, and absolutely very much at the state level.

M Morgan: Let’s change gears a little bit. We’ve been talking a lot about the history of Class II and IGRA and how we got here and some policy implications. Let’s talk about some of the technology that’s on our floor right now with Class II. Brad, what do you think is some of the best technology that we are currently utilizing in Class II, that some people may not realize is available in the Class II sense?

Brad Johnson: Well, I think the most important part for Class II games, especially in states like Oklahoma and parts of California where we’re mixing Class II and Class III on the same floor, is that the Class II machines are able to have similar functionality as the Class III machines, as far as hooking into SAS and player tracking systems. And adding features like progressives can make it competitive and create the same entertainment value as Class III games. In the past, I think everyone looked at Class II as a lesser quality product. The key for us going forward, especially at Multimedia, is to make the bingo game equal to a Class III game, and let the most entertaining game win.

CA: When you talk about what’s the most advanced technology currently being used in Class II gaming that separates that from Class III, the future technology that customers are looking for is download and configuration. This is a hot topic, and some Class II vendors have been using a proprietary technology for a long time to do exactly that.

KK: I would just say, it’s difficult to judge the various systems that exist from other manufacturers in terms of how robust they are and how capable they are of embracing the latest technologies in the systems world. But I think you can say that most of these systems can embrace the latest technologies, with the obvious goal being wonderful, entertaining displays for the end user. I also think that, in addition to security, as all the terminals are linked to a central system, they can provide extremely effective reporting and game- play tracking tools, which are obviously very useful to the operator and regulators.

M McDermott: Another big thing about Class II is the network. Since the actual outcome has to get to the game for each play, the network has to really scream. This is just now becoming an important aspect of Class III in order to communicate with and keep track of the player, using a windowing technology that requires a high speed network, which Class II has had for some number of years, maybe since its inception. It’s far ahead of Class III as far as communication capabilities go.

M Morgan: What I keep hearing from you—and I’ve heard a couple speakers say this before—is when you say Class II gaming, it does not mean a second-class game, and I think that is the perception that some have out there. Who can talk about some of the options and availabilities, such as what Marc brought up on service windows, that you would traditionally associate with Class III? And can you find those technologies on a Class II player station as well?

CA: The idea of a service window is not limited to a game category, Class II or Class III. It’s only a limitation of how the system vendor deploys it and the game vendor’s technology. Some of the system vendors are going to use G2S, game to system, the GSA standard, to deploy the service window. The only limitation of that approach is that it will require an investment in new machines, and not all vendors, especially in the Class II market, have a G2S solution. Bally took a different approach with our iVIEW Display Manager™ product. What we do with iVIEW DM is we use video input on the EGM to share the monitor for a picture-in-picture technology. IVIEW DM doesn’t require new development by the game vendor, and it’s quickly evolved from how we saw it being used, which was just displaying player account information and marketing content. Customers are using it to deliver custom marketing messages at the point of play. They use it for self-service interface for the players to order beverages, and request services. They’re using it for second-chance-to-win bonusing and tournament events without interrupting the actual vendor’s game. It’s not unique to Class II or Class III; it’s just a video splitter technology. As long as you have a monitor in your game, we could deploy a DM solution.

M Morgan: So you’re not limited by the type of gaming you’re doing. You’re more limited in the technology you have in your facility and maybe how new that technology is.

KK: Yes. This is really separate from a Class II definition in the sense that this really takes the technology to a new level. With the player in mind, these systems can offer service windows, media managers and other items targeted to the player to enhance the player experience, and there are virtually no limitations.

M McDermott: I would like to second what Christina said. She is absolutely correct. The technology isn’t limited by class. There are some items, such as supporting a windowing technology, that Class II already has. Class II does not have to scramble to upgrade the capabilities of their communication network. Also, when we’re looking at the future, the new technology associated with community gaming is almost a natural for Class II, as the entire game of bingo is, in essence, a community game—player-versus-player. This may be an area that, like software download, Class II is already doing and where Class II may be the driver, instead of Class III. This is what I believe Christina was leading to—the technology for Class II, or for any class, is only limited by what people design, by the imagination of the developers, and by what the operators are willing to put on their floor.

JH: I would concur with everything that’s been said so far. Class II environments do have a leg up on the Class III environments in that we’ve already had a facility-wide network established for a number of years, and Class III facilities are not quite there in terms of being able to hook up to a server-based or server-assisted environment. From a regulatory point of view, it would be a matter for us to look at what is hoped to be accomplished over the network for these service windows. Are they going to be used for purely informational purposes, marketing purposes, other game play purposes? It will depend on management and the vendors to figure out exactly how they want to use this and if their investment will be made worthwhile by these service windows.

CA: I think something else that we really haven’t said loudly enough, as we talk about the high-speed network and network performance within a gaming operation, is that Class II vendors are doing it across multiple gaming operations. Although Class III is looking at a high-speed network within the property, Class II has been doing server-based gaming to a national network of the Native American tribes for years. You can take this service window and tournament games to that same level because the infrastructure already exists. Jamie, how many properties do you have now?

JH: We have nine properties now.

CA: They could do a tournament game across the wide-area network that they already have in place to all nine properties based on their marketing department’s content.

M Morgan: That’s very exciting. Brad, what can you expect from Multimedia in the future if you can speak, on Class II in general, that might change the way the operators and the players view a Class II game?

BJ: We’ve touched a little bit on it, since we’ve linked players together for years with electronic bingo, I think there’s a real opportunity to expand on that system with some innovative new bingo games. We’re in a very competitive situation when we get out on the casino floor and our games have to provide the same or better win per unit as any game on the floor, no matter if it is Class II or Class III, so we need to be continually innovating to keep the players’ attention. Our slot tournament system, TournEvent, is a prime example of bringing an innovative approach to Class II, by revamping an old idea of running slot tournaments and doing it in a way that drives players to casinos and creates a special experience when playing in the tournament.

M Morgan: Marc, was it you that talked about that you’re only limited by your imagination? What are we imagining coming in the future in terms of technology, coming to our gaming floors?

M McDermott: As far as imagination goes, I can say community gaming. We’re already doing download and wide area progressives. Windowing technology is really a big thing and relies on incredibly fast communication and the ability to move data back and forth from the system to the game. Class II already supports that. There’s really no limit, provided that you’re thinking outside of the box enough, to what you’re going to be able to come up with to add to the experience of Class II. Absolutely, the games need to be as entertaining as Class III, perhaps even more entertaining than Class III. Many of the games we’re developing at Cadillac Jack easily rival anything that I’ve seen from a Class III game. Beautiful cabinets, cutting edge graphics, strong performance and player interaction have closed the gap between Class II and Class III. Now and in the future, I don’t believe you will see much differentiation aside from whichever game is the newest, Class II or Class III, will perhaps be the coolest.

BJ: That’s sort of been the difference in the past. Class II, in my opinion, was behind Class III in the look of their cabinets and their graphics, and the presentation of the game really wasn’t up to Las Vegas or Atlantic City standards, and that’s changed over the last two or three years. Now that they’re competing head to head, everything is changed on that side of it. You would have a hard time telling a difference from a cabinet perspective or a look at the animations or sound on the game.

KK: We at IGT continually strive to provide that meaningful player experience at the player interface station. As such, we’re continuing to focus on this by developing and bringing licensed titles such as Sex and the City, Wheel of Fortune and many others to the game of bingo, along with the elements such as progressives and bonusing to the game of bingo. We also continually focus on bringing the latest and greatest visual and sound effects to that player interface station to enhance the gaming experience.

CA: Everyone’s talking about the player experience at the game. But what will change for the operators? The biggest thing we’re seeing and what the buzz has been about is download and configuration. A lot of the Class II vendors have had that in a proprietary form for their games and systems. We see that becoming a single console, available for your entire floor—and the ability to change not only hold percentages or denominations, but to actually manage the game themes, the peripheral firmware versions and other software components through a single console offers significant advantages. The game and system vendors are working together to provide solutions, but this does require G2S-enabled cabinets. One of the biggest hurdles we need to overcome—and we’re working with IGT on it—is managing licensing for the game vendor. Once we get past that point and you have G2S-enabled cabinets on your floor, you’ll be able to go to a single console and update your bill validator firmware instead of going to every single machine. This is where you’re going to see the real return on investment for the soft-button decked machines and the LCD monitors versus the game glass.

M Morgan: Jamie, from a regulator’s point of view, when you hear all these people talking about this technology that’s coming down the road, what is your regulatory body doing to stay on top of some of these technology changes that we’re facing?

JH: One thing that I’ve done here to address is what I see as a non-stop progression in Class II technology and hiring qualified IT professionals to help me keep track of everything that’s going on. We’ve seen such a change in Class II since I started with the commission 12 years ago, when we were running Multimedia Games, the old MegaMania to what we have today. The technology is not going to slow down. We are monitoring not only any new developments that happen within the sphere of information technology, but we’re also making investments in our staff, whether they be true IT professionals, auditors or even compliance staff to help keep track of everything that happens within the Class II environment.

M Morgan: You have to work hand-in-hand with not only your operations now, but your manufacturers and your independent testing laboratories as well, on a daily basis with some of this coming through. Are regulators equipped for it? Are we looking at a big learning curve? Or is that something that we just have to be ready to tackle as some of these technologies come down the road?

JH: It used to be an environment where you had four different silos between operators, labs, manufacturers and regulators. Those days are long gone. We’re having to all find ways to work together, because if we don’t it’s really going to severely hamper the development and progression of Class II games, or any gaming for that matter.

M Morgan: As we’ve seen Class II gaming grow, I’ve heard a lot of people use the term that it’s an industry, Class II gaming, and there are lots of locations that only run Class II, and there are more locations that run only Class III games. No offense intended to our Class III only operators, but since we’re on Class II gaming technology, what do you think some of our Class III operators or more traditional manufacturers are learning or have to learn from our Class II products?

M McDermott: Just like you can’t have a computer that’s too fast on your desk, Class II shows Class III that you can’t have a communication line that’s too fast. Class III has been trying to deal with this now for a while—easily five years—whereas Class II has had this down from inception. Also Class III can learn that Class II games are easily as entertaining, as graphically intensive, and just as much fun to play.

BJ: Another thing that makes Class II a little bit unique and interesting is that in Class II, you can change your bingo card. The player actually can pick their favorite bingo card numbers. This type of interaction makes the bingo game more fun for the player. Players are starting to want to participate more in their winning at the game than ever before, so Class II has an advantage in this area.

M McDermott: Also one thing that hasn’t come up in the technology discussion is that Class II games are more than just a game to the Native American market. They represent a very important right of Native Americans, and Class II gaming has played a tremendous part in the success of Native American gaming as a whole. Class II speaks to the sovereignty of the tribes and the right to operate these games without intervention.

KK: I agree with everything that’s been said in terms of what Class III can learn from Class II. Class III has learned an enormous amount from Class II. Class II has always been on the cutting edge. Class II brought all systems networking into the gaming environment and did so years ahead of the traditional Class III gaming elements. I would predict that Class II will continue to be the innovator and continue to bring innovative player experiences to the player interface station and do so in the confines of the sovereign tribal regulatory environment. It sets up a really different approach to what can be done within a casino. Tribes are in more control of what can be done within a casino, for the fundamental reason that the primary regulator in Class II is the tribal gaming commission without the interference of the sovereign state or without the interference—at least from this commission—of the NIGC.

M Morgan: We’ve talked a lot today about technology and policy and some of the differences that have come from not only where Class II got its start, but the differences that we see today in how they communicate, the network, the communication abilities. What do you think are the advantages of putting Class II products on a gaming floor, especially addressing some of these jurisdictions that are purely Class III? Is it purely a financial decision? Is it a technology decision? We’ve talked a lot about the technology today in terms of you might have to place some resources into purchasing of it, but what are some of the advantages or disadvantages you might see with a mixed floor?

CA: Jamie may be the best person on this call that can address it, because it’s truly an operator question. I think the deployment of Class II or Class III usually involves a legal environment or a tax structure. For Native American tribes, Class II encourages the independence of the nation—its sovereignty. It puts regulation of the gaming operation completely under the oversight of the tribe and not an external regulator, which I think is attractive. Or if you come to your compacted environment, you can have 2,000 machines and your market can withstand more, you can expand the floor with Class II. Jamie?

JH: You’ve pretty much listed the primary benefits, but speaking a little bit more to the financial side of it, given that we in Oklahoma, where most of the tribes are in a situation where we have a mixed floor, the Class II machines offer a greater return, if you will. None of the revenues that we derive from Class II have to be shared with the state. Given the fact that we also have Class II machines that go toe-to-toe with their Class III counterparts, that means quite a bit for tribes in a sense that the revenues themselves are that much greater. The other benefits that you mentioned are equally important. Class II is something that we as tribes have been very cognizant of, even prior to the passage of the Indian Gaming Regulatory Act. We have since then proven that we have taken what was intended through Congress’ act in 1988 to provide for basically an economic development generating tool, taking that and using it to its maximum potential. We can see that Class II games are pretty much vital to the continuation of Indian gaming and it will be something that tribes will continually monitor and protect, and advocate for its continuance.

KK: I’d like to echo what’s been in the last two set of comments and add just a little bit of data. What Jamie said there was so important. We all realize that IGRA was a restriction of tribal sovereignty. That said, IGRA sets up a process by which a sovereign tribe negotiates with a sovereign state on how Class III gaming can be conducted in the confines of that state. Presently, the major leverage that sovereign tribes have in those negotiations is the use of Class II gaming. You don’t need a Class III compact to conduct gaming utilizing the Class II system. Over the next very few years, two thirds of the existing compacts in the U.S. are going to be renegotiated. As those renegotiations continue within those jurisdictions, Class II gaming will provide sovereign tribal government with the leverage they need in those compact negotiations. They will be able to walk away from compact negotiations if state demands are too onerous, both in the types of games, the limitations on games or on terms of the revenue share that Jamie referenced. So in the context of the future, Class II gaming is really leverage to defend tribal sovereignty as far as tribal gaming is concerned.

M McDermott: Building on what Knute said about the compacts, I would bet that the last time that they were reviewed, Class II was not as technologically advanced as it is now. There may have been a distinction between Class II and Class III in the past, however, from an entertainment value and capability, that difference has gone away. It would be hard to tell, from an entertainment point of view, the difference, except for the bingo patterns appearing on the screen. That gives a huge advantage to the Class II side.

M Morgan: From my point of view, I keep coming back to the language in the committee report that talks about maximum flexibility for our Class II gaming. Some of the things that our manufacturers have developed over the last few decades are just amazing, and I congratulate you guys on thinking outside of the box and coming up with ways to have a viable Class II product that is so very important to us in Oklahoma, in that we continue to think outside of that box and develop new and exciting technologies for our players. That’s great, guys. Is there anything else anyone would like to add?

JH: I’m not sure if it’s a pertinent question for today, but it kind of goes back to our discussion about future technologies. Before I ask the question, I’d like to preface it by saying I’m not looking to complicate my life any, and if I’ve missed this technology please correct me, but has anybody looked at any type of Class II game being on a wireless device?

CA: You mean like an iTouch?

JH: Yes, or any type of mobile device that you can take just like a Class III game that we see running around these days?

CA: No one’s going to ‘fess up’ if they have it yet; you’re talking to competitors here.

JH: I’m just curious, because if those technologies aren’t coming down the pipe, just like the Class III counterparts, the regulatory concerns are going to be many in that not only are we going to have to worry about the security of it, but we’re going to have to wonder how we’re going to get a wireless and a wired network. Maybe it’s easier than I’m thinking, but how all of that can be hooked in and connected.

M McDermott: I would just go as far as to say that I don’t know of an existing regulation or a technical standard that would preclude wireless.

M Morgan: As we saw in the early ‘90s, when Multimedia, as you referenced earlier, had MegaMania in the Oklahoma market and we saw those big satellite session bingo games, I would very much be looking at those session games to try to forecast where we’re going and look at some of their handhelds that they are using.

CA: We also did get approval in the 2000s, where a few of the system vendors were using handheld devices on a wireless network for ticket redemption, on the slot system in Class III. So wireless can be achieved and meet regulatory requirements.

KK: In at least two tribal casinos in California, wireless gaming is being conducted on-site on iPads. Presently, those are Class III games and slot machines. But a conversion process to Class II would not be that technically difficult. I think your question is timely and also points to the direction Class II will take in the future.

BJ: We actually have a system in Ontario where it’s regular bingo, but we also offer video displays located at several of the player stations where the player can choose one of several video bingo games to play at the same time as the paper bingo game is going on or between sessions. Casino personnel with handheld tablets walk around and load credits on to these video displays. Those video bingo displays could easily be a handheld tablet as well. Moving that into the Class II world here in the U.S. doesn’t seem like a huge jump, and we’ve shown that we can do it in a secure and easy-to-use way.

M Morgan: I do appreciate everyone’s time today and I want to thank you all for your insight. It’s just amazing to me what we’ve accomplished, and I say “we” because it truly is working hand in hand. We need the whole gaming community engaged to make sure that we have a successful product to put on the floor. When you look back to what tribal governments do with those proceeds is when you truly grasp the meaning of what we do on a day-to-day basis.