State eases licensing requirements for gaming companies eyeing Nevada
Sun File Photo
6 July 2011
VEGAS INC Coverage
A Pennsylvania-based casino chain was looking for a way to crack the Las Vegas market, but that proved tricky.
That’s because the process for obtaining a gaming license was long and tortuous.
So Penn National Gaming bought 1 percent of a small manufacturer of slot machines.
In truth, Penn had little interest in making slots. Rather, it was trying to speed along the purchase of M Resort by complying with a 1980s state law intended to prioritize license applicants already doing business in Nevada’s casinos over outsiders with more speculative plans.
That has changed.
Under a new state law, companies and individuals are no longer required to run a gaming company in Nevada or to have a purchase agreement to acquire a casino in the state to file for a license. Removing the requirement is expected to increase investment in Nevada’s struggling gaming industry, regulators and legal experts say. That’s one reason for the legislation recently signed into law by Gov. Brian Sandoval.
Installed during the speculative frenzy of Las Vegas’ Wall Street-financed building boom, the old rule allowed regulators to focus limited resources on deals that seemed more certain. But with no new resort construction expected for a decade, regulators think the drawbacks of the old law outweighed any potential benefits for the state. By allowing quicker purchase of casinos and gaming companies, industry experts say the change could attract more diverse investors willing to shore up troubled casinos or, eventually, build resorts.
“Uncertainty and time delay is never good for someone who wants to make a potential investment,” Gaming Control Board Chairman Mark Lipparelli said. “This change potentially reduces that uncertainty and creates more flexibility.”
The new law, supported by regulators and the gaming industry, allows a “preliminary finding of suitability” without any previous casino interest or deal in the works.
Over the years, the regulation has worked against investors seeking to enter the market, with sellers in time-sensitive deals preferring established companies to as-yet unlicensed entities.
Some companies overcame that barrier through cumbersome deals with third parties to manage the casino for a fee while buyers went through the licensing process.
That’s how New York hotelier Morgans Hotel Group acquired the Hard Rock Hotel from Peter Morton in 2007, a deal announced in 2006 when Las Vegas was booming. Golden Gaming, a company better known for its PT’s Pubs, stepped in to run the casino using employees rented from Morgans while Morgans underwent licensing. Regulators licensed Morgans in January 2008, the year Wall Street collapsed and tourism fell. Lenders picked up the Hard Rock from Morgans this year after filing a foreclosure notice.
Third-party management deals “aren’t ideal” for operators or regulators because they involve so many moving parts and managers who fill in during the licensing process, Lipparelli said.
Penn’s purchase of M Resort this year took only a few months because the company had previously passed the lengthy background check required of all newcomers. That process might otherwise have taken more than a year had Penn filed its license application after agreeing to buy the resort. As Penn and its executives had been vetted already, the acquisition required a less extensive examination.
The finding of suitability has all the legitimacy of a regular gaming license except it expires after two years, but can be renewed in two-year increments. Like the traditional casino license, regulators typically take a year to 18 months to complete a thorough background check.
The suitability finding removes uncertainty about whether companies or individuals will obtain a license, said Mark Clayton, a former regulator and gaming attorney. Executives don’t have to worry about being rejected for a license after a promotion because they can receive the suitability finding before they make the big purchase, he said. Likewise, he said, investors don’t have to worry that a deal will dissolve a year after they sign a purchase agreement because a problem crops up during the background investigation.
Clayton’s law partner, Bob Faiss, helped draft the legislation along with law students at UNLV, where Faiss is an adjunct professor.
The Nevada Gaming Commission is expected to adopt regulations covering the new licensing law, beginning with a public hearing July 28.
The new rules may mean more work for regulators at a time when the boom-era buying frenzy has been replaced by casino bankruptcies, foreclosures and other forced asset sales. Lipparelli said he doesn’t expect it to be an undue burden, however.
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