Vol. 3, No. 10, October 2007
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A Watchful Eye
The regulation of gaming in Nevada allows the industry to prosper
Violations of the gaming prohibition were felonies, and law enforcement officials were authorized to “break down doors” and seize and destroy gaming equipment. The laws were relaxed somewhat in 1915, when the state government allowed slot machines and a handful of other games on the condition that play be for prizes—cigars, drinks, etc.—not exceeding $2 in value. The state also permitted games in which the deal changed after each hand. Operators of these newly allowed games were required to have licenses, but without solid regulatory oversight, the number of illegal operations increased, and state and local governments started to notice a rapidly diminishing income from license fees.
In 1931, gaming as we know it today was legalized. The 1931 legislation established a schedule of license fees and assigned to state, county and municipal governments a portion of the proceeds. The argument for regulation was similar to the one being espoused now for regulating the online gaming industry. “There is a strong sentiment, particularly in Southern Nevada, that some state or municipal revenue should be derived from the games which now run on every hand with apparent sanction of public sentiment,” the Nevada State Journal stated prior to the passage of the bill.
Nevada’s gaming industry developed slowly until about 1941, when it started to grow rapidly. This rapid growth led to the need for more rules and regulations to monitor the industry, and prompted lawmakers to pass legislation in 1955 establishing the Nevada Gaming Control Board. In addition to its role as the enforcement and investigative unit of the Tax Commission, the board was also charged with the task of keeping undesirable elements out of the gaming industry. As revenues from gaming continued to climb, the legislature was called to action once again. To ensure the integrity of the industry vital to the success of the state, lawmakers passed the Nevada Gaming Control Act of 1959. This legislation removed the Tax Commission from its role in gaming, and replaced it with the newly established Nevada Gaming Commission. The Nevada Gaming Control Board was designated the auditing, investigative and administrative adjunct of the commission.
Two Bodies, One Goal
The Nevada Gaming Commission is comprised of five members who are appointed by the governor and serve in a part-time capacity. Commissioners have the final authority in licensing matters, having the authority to approve, restrict, deny, revoke or suspend gaming licenses. The commission primarily acts upon the recommendations of the Gaming Control Board.
The Nevada Gaming Control Board consists of three-members appointed to four-year terms by the governor. The board members, each with a separate area of expertise, oversee seven divisions employing about 450 individuals. Those divisions include investigations, corporate securities, technology, audit, tax and license enforcement and administration.
In addition to licensing matters, the board and commission work together when the board is looking to bring disciplinary action against a license holder. In these situations, the board acts as prosecutor and the commission acts as judge, determining if any violations have occurred and what punishment the licensee will face.
The licensing process is one of the main ways through which the two bodies protect the integrity of Nevada’s gaming industry. There are two kinds of licenses available in Nevada: restricted and unrestricted. A restricted license applies to individuals looking to operate only 15 or fewer gaming machines at a single location. Non-restricted licenses are granted for the operation of properties with more than 16 machines, table games, race and sports wagering, slot routes, inter-casino linked systems or mobile gaming systems.
“Part of the Gaming Control Act requires we ensure the industry remain free from criminal and corrupt elements as far as individuals are concerned,” explained Dennis Neilander, gaming board chairman. “Qualifications call for a person to be have possess a character, honesty, integrity; we look at prior activities, recreations and habits to make sure they do not pose a threat to the public interest of the state.”
The investigation process is more in-depth for non-restricted licenses, but the processes are generally the same.
“The license seeker starts by filling out an application providing information about their personal history and personal financial background,” Neilander said. “The board’s investigations division then conducts an interview of the applicant and begins its investigation. Once concluded, the staff prepares an investigative report. Gaming board members then go through the information and hold a public hearing on the pertinent issues in the report. They make a recommendation on whether the individual should be licensed and if any conditions should be placed on the license, and then the commission makes the final decision.”
New Issues
When any industry experiences the success and growth that the gaming industry in Nevada is enjoying, there are bound to be some issues that arise that haven’t previously been addressed by the board. The biggest issue facing Nevada’s gaming industry, in Neilander’s opinion, is technology. Advances in server-based gaming and mobile gaming technology, have operators pushing for approval of these new devices.
“The licensees see this is a way to be competitive going into the future,” Neilander said. “They feel it creates a better overall gambling experience for the public, and can also save them money. But we need to make sure it doesn’t compromise the integrity of the devices.”
Server-based gaming—a system through which a number of wagering terminals are controlled by a central computer—is the farthest along. The board is monitoring field trials for server-based games and a number of regulations have already been adopted. Operators aren’t allowed to make changes to the machines while they are in use by players, protecting against claims by customers that a casino changed a game because they were winning. Casinos are also only permitted to make changes on the terminals in the same manner they make other changes on the floor; that is, they can only perform approved changes and use games that have been tested and approved. And, the board will audit the machines the same way it audits slot machines.
Neilander said the board is also getting ready to start testing mobile gaming devices, for which regulations are also in place. Nevada was the first state to adopt regulations covering these new devices that allow customers access to a number of games from any public location in a casino.
The other major issue right now is private equity buyouts. Four private equity transactions have been approved—involving Harrah’s, Station Casinos, the Sahara and New Frontier. The deals have already been approved, but Neilander said the board will continue to monitor the companies to see if any regulatory changes are necessary.
One thing the board doesn’t have to worry about much is responsible gaming. The board does have some requirements in place, but they are primarily base-level guidelines.
“We found that the operators were already doing various things to address responsible gaming that went above and beyond what we require,” Neilander said.
The baseline standards the board requires is that the number of brochures for the Nevada Council on Problem Gambling be visible throughout a casino floor; that casino employees who regularly interact with customers are trained to identify problem gamblers and direct them to help; and that people be allowed to request from casinos that they not be allowed to cash checks, be issued credit or receive marketing materials.
With both the Nevada Gaming Commission and State Gaming Control Board working to protect the industry, and ultimately the state, Neilander believes the regulatory system is what has allowed the remarkable growth the state is seeing today.
“I think gaming control is part and parcel in the success of the industry,” Neilander said. “In Nevada, we’ve created a regulatory system that strikes a fine balance between public trust and, at the same time, provides for strict regulations. It’s created a stable environment that has allowed the growth we’re seeing, and that growth has greatly benefited the state.”
Legal Language
Nevada’s Public Policy on Gaming
(Nevada Revised Statute 463.1029(1)
1. The legislature hereby finds, and declares to be the public policy of this state, that:
(a) The gaming industry is vitally important to the economy of the State and the general welfare of the inhabitants.
(b) The continued growth and success of gaming is dependent upon public confidence and trust that licensed gaming and the manufacture, sale and distribution of gaming devices and associated equipment are conducted honestly and competitively, that establishments which hold restricted and non-restricted licenses where gaming is conducted and where gambling devices are operated do not unduly impact the quality of life enjoyed by residents of the surrounding neighborhoods, that the rights of the creditors of licensees are protected and that gaming is free from criminal and corruptive elements.
(c) Public confidence and trust can only be maintained by strict regulation of all persons, locations, practices, associations and activities related to the operation of licensed gaming establishments, the manufacture, sale or distribution of gaming devices and associated equipment and the operation of inter-casino linked systems.
(d) All establishments where gaming is conducted and where gaming devices are operated, and manufacturers, sellers and distributors of certain gaming devices and equipment, and operators of inter-casino linked systems must therefore be licensed, controlled and assisted to protect the public health, safety, morals, good order and general welfare of the inhabitants of the state, to foster the stability and success of gaming and to preserve the competitive economy and policies of free competition of the state of Nevada.
(e) To ensure that gaming is conducted honestly, competitively and free of criminal and corruptive elements, all gaming establishments in this state must remain open to the general public and the access of the general public to gaming activities must not be restricted in any manner except as provided by the legislature.
