Question of the Day - 11 May 2023

Former California gambling regulator and Nevada casino executive Richard Schuetz gets the ball rolling.

“The process and criteria for licensing depend, to a degree, on the state,” he explains. "A key license in Nevada involves a complete background investigation, including criminal and civil issues. There is also a deep dive into the applicant's finances, looking for sources and uses of funds. This is generally a tough forensic audit. I've submitted about 120 license applications in my career and it's intrusive and a pain.”

In Nevada, anyone owning 10% or more of a casino has to go through the licensing process (though wily attorneys have tried to lower that percentage over the years). As long as your ownership stake isn't above 9.99%, you generally won't trigger that ownership audit.

Also, at least in some cases, you might not have to be in good financial standing. The new Aladdin, for rexample, was allowed to open in 1999 despite serious concerns being raised at the licensing hearings about the solidity of its funding, concerns that proved to be all too well-founded.

For the nitty-gritty on what you must do to obtain a casino license, we must look to state regulation 463.160. As Schuetz indicated, regulators probe “the activities of all privately held business entities seeking a gaming license or registration in the State of Nevada.” 

The procedure is such a proctologist’s exam that then-Harrah's Entertainment CEO Gary Loveman said it was the worst experience of his life. To put this into context, Loveman had been a faculty member of Harvard University. And the fact that being poked and prodded by the state of Nevada was worse than sitting through department meetings, the bane of an academic’s existence, is really saying something.

How far up one’s biographical sphincter do state investigators shine the proverbial flashlight?

“The Investigations Division provides and receives all application forms and ensures each application is properly completed and all necessary forms are filed in accordance with statutory and regulatory requirements. The division also collects all required application fees. The Agency Liaison responds to requests for information from governmental agencies around the world. … Actions affecting the industry, such as changes in control, public offerings, involvement in foreign gaming, and recapitalization plans are scrutinized and reported to the Board.”

The end product is a report that's submitted to the Control Board and Commission for their approval or (in very rare instances) disapproval.

A detailed explanation of the approval process has been kindly provided by veteran gaming attorney and UNLV Distinguished Fellow Anthony Cabot. 

“Nevada uses a process where the regulators have a great deal of discretion in granting gaming licenses. Three major areas are reviewed: personal suitability, finances for the project, and experience for the position. ‘Personal suitability’ concerns whether the person is honest, has a good reputation and a clean criminal history, and is likely to comply with all the gaming laws and regulations. Denials based on character issues may include:

* arrest or conviction of a crime involving violence, gambling, or moral turpitude;
* an unexplained pattern of arrests;
* arrest for cause for a gaming crime;
* association with organized crime or unsuitable persons;
* failure to list negative information on the application;
* poor business ethics as shown by civil cases, such as for fraud, and government action, such as for securities violations;
* sustained or current illegal drug use;
* discovery of unsuitable business practices such as bribes, tax evasion etc..; and
* failure to provide truthful and complete answers to the gaming agents.

"Denials based on regulatory compliance may include:

* prior unsuitable operation of a casino or other gaming business;
* poor, absent, or incorrect record keeping;
* a pattern of regulatory violations, whether or not intentional;
* lack of diligence in completing the gaming application; and
* failure to timely respond to the agents during the investigation.

"Financial capability means having enough funding from a suitable source to fund, for example, the proposed casino or tavern.

"Finally, the applicant must have (or hire persons with) the experience to successfully run the licensed business and to comply with the myriad of gaming laws and regulations.”

Finally, for a look at the licensing process from an investigator's perspective, our book Joe's Dash has a 32-page chapter on the procedures, politics, and a number of memorable personal interactions with applicants from Joe Dorsey's years at the Gaming Control Board.