Gaming lawyers eye gray areas of casino-based nightclubs

By Richard N. Velotta (contact)

Fri, Sep 18, 2009 (3 a.m.)

courtesy photo

A view inside Prive at Planet Hollywood.

When state Gaming Control Board investigators uncovered violations at Prive nightclub at Planet Hollywood in July, it didn’t take long for the issue to take center stage in the court of public opinion.

Why are gaming regulators picking on a nightclub? Prive doesn’t even have any slot machines, some observers argued.

Others countered: If laws are being broken routinely, why not just shut down the place and revoke Planet Hollywood’s gaming license?

In the legal world, rarely is any issue black and white. On monitoring behavior in a business that operates independently, but on the premises of a licensed gaming establishment, there are plenty of gray areas.

Gaming Control Board member Randall Sayre distributed an industrywide letter inviting gaming companies to discuss several issues, including concerns about what was happening in nightclubs. The meeting was scheduled for Sept. 16, after In Business Las Vegas’ deadline.

But three leading gaming lawyers weighed in on several topics related to nightclub management and how it affects gaming companies.

Regulators were tipped off about activity at Prive when a former employee wrote a letter describing a scene of illegal drug use, of managers allowing underage patrons into the club and serving alcohol to those underage guests.

The yearlong investigation led to Planet Hollywood being fined $500,000 and Sayre scheduling an open forum to discuss a licensee’s responsibility over an independent operator and other gray-area topics.

“I applaud the approach Randy Sayre has taken,” said Bob Faiss, a lawyer with Lionel Sawyer & Collins and one of the state’s most respected gaming lawyers. “He wants to make sure the industry understands the conclusions they reached and give it the opportunity to talk about them.”

Faiss considers it an educational opportunity.

“It’s all about being fully cognizant of industry practices and procedures,” he said. “He (Sayre) wants to head off any misunderstandings.”

Scott Scherer, a partner with Holland & Hart in Carson City and a former member of the Control Board, said problems arise when the opening of on-property nightclubs — a relatively new industry designed to attract a young, hip generation of gamblers to casinos — developed a new level of competitiveness.

“All nightclubs have this desire to be the hippest, coolest joint in town,” Scherer said. “They want to portray that image to the customer. I don’t think it’s a matter of them saying, ‘Let’s create a buzz about our club as being the wildest, craziest place in town and that the rules don’t matter.’

“I don’t think the regulators are saying don’t have a good time,” he said. “I think they’re saying, ‘Let’s have some appropriate safeguards in place.’ ”

Scherer said he thinks gaming regulators are getting involved to head off misconceptions about the industry that gain traction with critics when a high-profile case makes headlines.

“There are all sorts of myths about the industry,” Scherer said. “The idea is we don’t want to feed into those myths. One of them is that casinos bring in more crime. This is one of those instances where I think there is a misperception that critics would use.”

He noted that in Planet Hollywood’s case, Prive is operated by a third party, the Opium Group, and regulators want to be sure that the licensee steps up its oversight of the independent operator.

“They wanted to put the industry on notice without handing out the ultimate punishment, (a license revocation),” Scherer said.

He said regulators want licensees to be more involved in crowd control and security and possibly use advanced technology to keep underage patrons from getting into clubs.

“There are 609 different types of drivers’ licenses issued in North America and that isn’t something you can really expect an individual to be able to keep track of,” Scherer said. “But there is technology out there that helps you monitor IDs. It’s a scanning unit that has all the security features of the various IDs in a database. One of the issues at Planet Hollywood involved serving underage customers, so knowing about the technology could be of value to it.”

Anthony Cabot, a partner at Lewis & Roca, said even the best regulated establishments may have some regulatory problems.

“I think one of the things (regulators) will be looking at is the approach properties take toward monitoring their partners,” Cabot said. “What the casinos can’t afford to do is put their heads in the sand.”