By the end of this week, Nevada is expected to be the first state in the nation to have regulations in place for Internet poker play.
It’s historic. It’s indicative of the state’s leadership role in the gaming industry.
And some say it will be a big step toward bringing new technology companies to the state.
Of course, it would be much more meaningful if online poker play weren’t against the law in the United States. Federal law enforcement officers haven’t been picking on players who participate in online card games. But they have clamped down on banks that handle the financial transactions and operators of poker websites.
Nevada and other states are gearing up to regulate it only if and when federal lawmakers approve legislation removing those barriers.
In the weeks leading up to consideration of the new regulations, Nevada has received lots of attention for its leadership role. A recent Internet gambling conference in Las Vegas referred to Nevada as “the gold standard of gaming regulation.”
But is it?
Since Nevada legalized casino gambling in 1931, 21 states have followed suit, with most of them joining the club between 1989 and 2008. Not only is Nevada the oldest commercial casino jurisdiction in the country — New Jersey, at No. 2, first legalized gaming operations in 1976 — it’s also the largest by far, with 256 casinos and gross gaming revenue of $10.4 billion in the 2010 fiscal year.
Colorado has the second most casinos, with 37, while New Jersey had the second highest gross gaming revenue at $3.56 billion in 2010, according to the American Gaming Association.
But do size and experience create a regulatory gold standard?
Industry leaders say size no, but experience yes.
“If you talk to government officials around the world, they still look to Nevada for guidance,” said Dennis Neilander, an attorney with Kaempfer Crowell Renshaw Gronauer & Fiorentino in Carson City and a former chairman of the state Gaming Control Board.
Neilander said as a regulator, he communicated with gaming jurisdictions from around the world. Nevada is almost always the first stop for states and countries considering the legalization of gambling or for regulators considering changes in how they oversee the industry.
“It’s usually an exchange of ideas,” Neilander said. “They’ll ask about the structure of the agency or about best practices. How the industry is regulated differs around the world. Some things that work well in Nevada may not work as well in Singapore, Australia or Canada or among the various states.”
Neilander said the conversation generally starts with him saying, “Here’s what works for us in Nevada. It may not work exactly like that for you or you may need to modify it, but it’s served us well.” Or, “Here’s what hasn’t worked for us.”
I. Nelson Rose, an attorney and a distinguished senior professor at the Whittier Law School in Costa Mesa, Calif., said the state’s experience and history qualified it to be the premier regulatory body.
“I think Nevada has always been considered the gold standard,” Rose said. “It’s the only state that has had legal gambling for more than half a century.”
Rose, an expert in gaming law and an aficionado of industry history, said Nevada built its reputation as a regulatory authority when the Nevada Legislature formed the Nevada Gaming Commission and the Gaming Control Board in the late 1950s in the wake of Sen. Estes Kefauver’s Senate committee investigating organized crime.
“Back then, most of the people who had any experience running casinos were criminals,” Rose said. “As their children and grandchildren grew up, they became involved in the industry. In Nevada, it was decided that the regulators were not going to look into some of the past bad deeds of fathers and grandfathers.”
As the industry matured, the mob’s influence in the casinos subsided. As corporate America began seeing casinos and resorts as investment opportunities, publicly traded companies entered the scene, and companies like Del Webb Corp. were the first to build casinos and hotels.
But New Jersey didn’t share most of those mob roots, and Rose explained that when the state moved to build an East Coast casino industry, it didn’t want to be the same as Nevada — it wanted to be better. The state strived to have tougher, higher standards than Nevada. Atlantic City looked to Las Vegas for some basic oversight ideas, but enacted several rules viewed as tougher than Nevada’s.
Daniel Heneghan, a spokesman for the New Jersey Casino Control Commission, said the state initially didn’t develop casinos to raise revenue for the state government. The goal was to redevelop Atlantic City and bring conventions to the state.
State regulations required casino licensees to build hotels with a minimum of 500 rooms, restaurants, live entertainment theaters and convention space. Showrooms were required to have live entertainment every night. State inspectors were directed to be in casino count rooms to observe the process.
“Every count room had two locks, one for the house and one for the state,” Heneghan said. “One couldn’t go in without the other.”
That requirement became too expensive to maintain, and the state’s around-the-clock inspectors are gone. Also gone is the requirement to build convention centers and showrooms, but most casinos include them to be competitive.
As the industry grew, regulators made it a practice to learn from the states with experience.
“There’s a constant dialogue with regulators from other jurisdictions,” said Mark Lipparelli, the Nevada Gaming Control Board’s current chairman. “I get phone calls weekly from other regulators who say, ‘We’re thinking about doing this. What do you think? Do you have any experience with it?’”
Clarence Greeno, assistant deputy director of the Missouri Gaming Commission, said many gaming jurisdictions looked to Nevada because of its experience with technological innovations in the industry.
“They’re very competent, and I think every jurisdiction may consider them to be the gold standard,” Greeno said. “They’re often looked to by the manufacturers, so they usually get the first look at things like wireless technology on the casino floor, ticket in-ticket out and online gaming. The way we look at it is why reinvent the wheel?”
Neilander said communications with other jurisdictions traditionally has been a domestic dialogue. Now, regulators and operators from around the world make inquiries with Nevada about how it does business. Tribal casinos also weigh in with the state.
Neilander said in general, a new gaming jurisdiction will examine Nevada’s system, then add regulatory elements that are important to that region. The two casinos in Singapore, for example, are required to charge local residents an admission fee. Singapore also prohibits gambling by any citizen receiving public assistance, unemployment benefits or welfare. People are stopped at the front entrance. Foreign visitors pass through a gate, while local residents submit their identification, which is cross-checked against a database.
“That works for Singapore because it’s a little easier for them to enforce that,” Neilander said. “They can check everyone who comes in the door. You can’t do that here when you have 1,600 licensees (including restricted licensees who have slot machines in convenience stores, taverns and supermarkets.)”
Usually, a jurisdiction will start out with tough restrictions, then find through experience that its efforts are cost-prohibitive or ineffective. Missouri, for example, established a lifetime self-exclusion list as a means of addressing problem gambling. But what regulators found was an increasing number of people had second thoughts about being on the list over time, once they were on it. They also found that people who should have been on the list avoided listing themselves because they didn’t want to commit to a lifetime ban.
Last week, Missouri regulators overturned the lifetime ban and made it a five-year ban that would grow to lifetime if renewed.
Because different states have different standards and differing historical perspectives, the public often views some states as having stronger and tougher regulation.
Many consider Nevada to have been a regulatory lightweight in its licensing of Pansy Ho, MGM Resorts International’s partner in the operation of its casino in Macau.
Ho, a daughter of Macau gambling kingpin Stanley Ho, received $90 million from her father, Rose said. When gaming regulators in the United States looked at the suitability of licensing her, the question became: Was that money a gift from a wealthy father to a daughter, or was it designed to influence her decisions in the operation of the casino? Stanley Ho was suspected of but never arrested or convicted of associating with Chinese mobsters.
“Both states had the same information, yet Nevada chose to license her and New Jersey made it clear she would not be licensed,” Rose said. “In essence, it forced MGM to choose between operating in New Jersey or operating in Macau.”
The licensing question never came to a vote by New Jersey regulators, and MGM is now in the process of divesting its Atlantic City holdings, a half stake in the highly successful Borgata resort that it shares with Boyd Gaming.
“Basically, Nevada’s response was, ‘OK, that hypothetical is always possible. So if we see any influence by Stanley Ho whatsoever, we will pull MGM’s license,’ ” Rose said.
There are other decisions industry observers have questioned.
At what point, for example, should regulators step in to prevent big companies from owning too many properties on the Strip? The Control Board and the commission had the conversation when MGM acquired Mirage Resorts in 2000 and the Mandalay Resort Group in 2004. In early 2010, they considered it again in when Harrah’s Entertainment — now Caesars Entertainment — bought Planet Hollywood.
Currently, Caesars owns nine Southern Nevada properties and MGM has 12. Is that enough to create antitrust concerns for casino ownership? It wasn’t for the Justice Department, and the Federal Trade Commission and gaming regulators were able to follow suit.
Contrast that with the Mississippi Gaming Commission, which required Harrah’s to divest itself of a property in Tunica before it could acquire another.
Regulators don’t talk publicly about active investigations, leading some to question how thoroughly the agency reviews questionable activity. In a 2009 case, high-roller Terrence Watanabe owed $14.9 million to casinos in gambling losses and accused Harrah’s officials of supplying him with alcohol and prescription painkillers as his debts climbed.
Control Board agents may have investigated the matter, but no public statements were issued and criminal and civil cases were dropped following a confidential settlement.
Although some observers are skeptical of the process, the Control Board is guided by a series of principles that emphasize honesty and the confidentiality of information.
“We are committed to protecting the confidentiality of all information entrusted to us by applicants, licensees and other stakeholders,” the board principles say. “Our objectivity, independence and impartiality are beyond reproach. We avoid all personal or professional circumstances or conflicts that would call these into question.”
Because of the large number of licensees in Nevada — 2,875 counting restricted and non-restricted properties, slot routes and manufacturers — and a staff of 437 employees, much of the oversight is through self-reporting.
Gaming licenses are viewed as a valuable, privileged commodity and the Control Board relies on licensees to be honest and accurate with stiff fines and the threat of a license revocation held over their heads.
The Control Board staff includes 123 enforcement officers and 96 for audits, two of the three largest divisions within the department. The board devotes resources to the front end of the regulatory process for investigations, its second largest division. Investigations are comprehensive, and the complicated applications often take more than a year to complete.
There are different levels of investigations based on the type of license being sought. Applicants often remark to the board in their appearances that it is the most detailed process they’ve ever encountered. Lipparelli said a multilevel license application is about 75 pages long.
Some gaming jurisdictions have even contemplated approving licensees automatically if they’ve made it through a Nevada licensing investigation.
After all, they say, isn’t Nevada’s system the gold standard?