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February 23, 2012

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Crossing the line cost Hard Rock Hotel

Illegal drug sales at resort’s hot spot draw $650,000 fine — a high-profile example of state regulators getting tough with the modern image of Vegas, as they did decades ago with the mob

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Sunday, Feb. 20, 2011 | 2 a.m.

Rehab party at Hard Rock (2008)

A UCLA law student, Carrie Richeu, nibbles strawberries poolside with friends during a Rehab in late June. Launch slideshow »

Hard Rock Casino

A view of the Hard Rock hotel-casino at Paradise Road and Harmon Avenue on Tuesday, Jan. 25, 2011. Launch slideshow »

Hard Rock fine

Hard Rock fine

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KSNV coverage of $650,000 fine levied against Hard Rock, Jan. 27, 2011.

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Map of Hard Rock Hotel & Casino

Hard Rock Hotel & Casino

4455 Paradise Road, Las Vegas

Undercover detectives had little problem scoring pot, cocaine and Ecstasy from employees at the Hard Rock Hotel’s Vanity nightclub last year. For money, a Hard Rock host even arranged the purchase of 7.2 grams of cocaine in the casino’s parking garage.

At the time of the cocaine deal in June, the Hard Rock had been notified of a sting operation that uncovered other drug sales.

So it was no wonder that Nevada regulators fined the resort $650,000 — the largest casino fine in state history for drug violations.

In fact, the Hard Rock — the bad boy of Las Vegas casinos and the target of previous fines — dodged a bullet. The property, struggling after a poorly timed buyout and $750 million expansion that began in 2007 when the market peaked, could have lost its gaming license. Still, it serves as a cautionary tale for the entire gaming industry: Times have changed. Make a wrong move and you’re in state regulators’ cross hairs. And it demonstrates the shifting challenges of regulators. A half-century ago, they forced out the mob. Now their target is the notorious and raunchy party scene.

•••

Nevada’s broadly worded casino laws, passed to scrub the industry clean of the mob, empower regulators to strip licenses of casinos that fail to protect “the public health, safety, morals, good order and general welfare of the people of ... Nevada” or “reflect discredit upon the state or its gaming industry.”

Regulators didn’t close the Hard Rock, nor have they forced a management change at a big casino since the days when the mob skimmed profits.

Shutting down casinos could damage Nevada’s business-friendly image as the state with the fewest restrictions on obtaining a casino license and effectively ban implicated employees from its chief industry. It would throw thousands of people into unemployment in a state with the nation’s highest jobless rate.

It could also backfire, threatening regulatory decision-making if a casino challenged that authority in court.

Across town, Palms owner George Maloof called the drug sales an “incredible” risk for the Hard Rock.

Maloof, who recently took over direct management of his night-life operations, said he roots out illegal activity by walking through his resort and talking to workers.

“I’ve gotten more tips from people who are down on the floor, from people saying, ‘I’m concerned about something,’ than from management,” he said. Maloof said he tips off regulators to bad behavior rather than hope they don’t notice.

“We’re not perfect. But when you know something and don’t do something about it, that’s a problem.”

•••

The Hard Rock’s fine will further hobble an insolvent casino that’s expected to change hands soon.

After spending its cash reserves last year, the Hard Rock can’t afford to make payments on $1.4 billion in debt and was unable to pay off a $1 billion loan due Feb. 9, according to court records and financial statements. To make last month’s payroll, lenders say the casino took money from its casino cage — money typically used to pay gamblers — and payments intended for vendors.

Fining the Hard Rock wasn’t a simple decision.

Unlike targeting mob skim, curbing raunch isn’t cut and dry.

In fact, some regulators wondered whether they were on a slippery slope. Allowing drugs and prostitution are out of bounds. But do you hold a casino responsible when customers remove clothing beyond the watchful eyes of its security? Nightclubs, after all, are fertile ground for people determined to bend or break the law — or simply overindulge. A drunken tourist drowned last year in the Hard Rock’s shallow pool.

The Hard Rock fine, the second strike against a Nevada casino for its nightclub, came with the harshest warning to date for regulators grown exasperated with activities that appeared to have gained acceptance in nightclubs: Casinos will pay for the actions of rogue employees or vendors — with their casino license, regulators said.

The challenge for casinos is whether they can toe the line while promoting their anything-goes image in what has become a world capital for nightclubs. Party venues generate profits rivaling gambling.

Despite the constant threat of Nevada’s moralistic casino regulations, Las Vegas is known as a place where people can do what they can’t get away with at home. For some tourists, that means asking their casino host or valet for hookers and drugs — offers that employees are trained to refuse with a smile.

Although tourists may go to other states to gamble, “people still come to Las Vegas to party,” said Maloof, whose resort caters to a similar clientele as the Hard Rock.

“We want to encourage people to have a good time. The message isn’t to prohibit their fun, but to control it,” he said.

But as the Hard Rock’s attorney put it at a recent hearing, it would be an “impossible task” for casinos with nightclub and pool venues for young adults to eliminate illegal drugs that are “part of our current culture.”

Still, Randall Sayre, a former state Gaming Control Board member whose expertise was enforcement during the club scene’s biggest growth spurt, said he had to start cracking heads.

•••

Nevada casinos are regulated by two bodies, the Control Board, which conducts background investigations and files complaints against casinos, and the Nevada Gaming Commission, which issues licenses, levies fines and makes policy decisions.

The supersized clubs were “out of control,” Sayre said.

And it wasn’t harmless fun.

“When you start talking about underage drinking, drugs and women being dumped into cabs or alleyways with no protection, you’re taking a significant risk” with customers’ safety as well as the industry’s global reputation and financial health, Sayre said.

“There is life after this recession, and we need to come through it with our heads held high.”

Without naming names, Sayre and other regulators say casinos had grown complacent about their clubs, partly because many were operated by third parties. Although state law says otherwise, some casino companies felt they weren’t directly responsible for the behavior of vendors and customers.

“Nobody had ever taken a stand on this before, to say ‘enough is enough,’ ” Sayre said. “The industry had never been held accountable. They lost their way.”

He circulated two warning letters and held workshops on casinos’ liabilities.

The first letter, in 2006, included a list of problems with the club scene, including “incidences of excessive inebriation, drug distribution and abuse, violence, the involvement of minors and the handling of those individuals who became incapacitated while at the club.” A follow-up letter in 2009 added to that list “overt sexual acts in public areas, acts deemed lewd, indecent or obscene ... date rape, extortion ... and prostitution.”

Apparently, some casinos weren’t getting the message. They weren’t monitoring clubs with the same attention they give gambling operations, said Sayre, whose Control Board term expired in December.

Exhibit A was Planet Hollywood’s Prive, a now-shuttered club where employees approached regulators and local law enforcement with accusations that management hosted known drug dealers and pimps. The club’s lease prevented casino security from entering without an escort. A $500,000 fine against Planet Hollywood in 2009 for incidents at Prive such as drug use, dumping intoxicated customers outside the club, sexual assault and alcohol consumption by minors got the industry’s attention. In response, some casinos rewrote contracts to allow management and police into the clubs, acknowledging direct liability for nightclub tenants.

“That was a sea change,” said Jeff Silver, a Las Vegas attorney who formerly represented the Hard Rock.

The written word only goes so far, though, when management isn’t monitoring the clubs daily, Sayre said.

Some casinos avoided fines, and public embarrassment, by fixing problems that weren’t as serious as those at Planet Hollywood and Hard Rock, said Jerry Markling, chief of the Control Board’s enforcement division. He declined to name the clubs.

Undercover investigations and interviews with current and past Hard Rock employees revealed an underground drug trade that lived up to the property’s sex, drugs and rock ’n’ roll image: “The direct involvement of Hard Rock Hotel ... employees and/or agents including supervisory employees and/or agents in the sale of controlled substances,” according to the Control Board’s complaint.

It seemed a fitting outcome for the maverick Hard Rock, the first major Las Vegas resort to capitalize on the young party crowd.

For those willing to pay up to $100 to enter the party and more than $1,000 for a cabana, the Hard Rock’s “Rehab” parties offer the summer’s day version of a raucous nightclub scene, with barely there swimsuits and booze in oversized squeeze bottles.

The Hard Rock’s lucrative party trade has since been copied by casinos and nongambling hotels nationwide.

The Nevada Gaming Commission fined the Hard Rock in 2002 for allowing public sex acts by nightclub customers and in 2004 for suggestive advertising, including the message “Get ready to buck all night” on a billboard showing a woman’s panties around her ankles and a print ad stating, “(W)e believe in your Monday night rights: large quantities of prescription stimulants (and) having wives in two states ... Tell your wives you are going; if they are hot, bring them along.”

That fine was another first, enforcing long-standing regulations that came as a surprise to many Nevadans and that require casino advertising and public relations be handled with “decency, dignity, good taste, honesty and inoffensiveness ...”

“The Hard Rock is a difficult brand to have in a gaming environment,” said Jeff Voyles, a UNLV casino management professor and industry consultant. “I think they have pushed the limits on what’s appropriate. It’s been a thorn in (regulators’) side for a long time.

“Gaming has been working at improving its image for 100 years to the point that it is respected by Wall Street and society at large,” Voyles said. The Hard Rock’s fine “kicks (the casino industry) back a few notches” in its progress toward mainstream respectability.

•••

Planet Hollywood and Hard Rock weren’t the only casinos where regulators found indiscretions after sting operations that began in 2008.

Many infractions were resolved confidentially, and regulators won’t elaborate on these problems. Control Board complaints prosecuted by the attorney general’s office involve acts regulators believe to be egregious, consistent or willful — misdeeds that require punishment through bad publicity and fines.

Nongambling entertainment has been the main attraction at the off-Strip Hard Rock, which opened in 1995 with a 30,000-square-foot casino and 646 rooms — both small by Las Vegas standards. For the nine months ending Sept. 30, 40 percent of its revenue came from food and beverages — compared with 24 percent from gambling and 22 percent from hotel rooms.

Hard Rock officials say they have tightened control of the nightclub by removing complacent managers, conducting random drug tests, hiring secret shoppers to monitor the club and threatening employees with termination if they fail to report bad behavior. After the Hard Rock was notified of the sting in May, it hired an outside company, Angel Management Group, to market its party and night-life venues in a further attempt to remove bad apples.

The Hard Rock “has always sought to maintain strong policies and procedures to avoid these issues,” Hard Rock spokeswoman Jessie Pound said. “The violations in question were caused by a few low-level, rogue employees who are no longer with the company.”

Gaming Commissioner Tony Alamo said the property failed its duty because upper management didn’t walk the property — a failure, he said, that extends beyond the Hard Rock to many of Las Vegas’ corporate-owned casinos.

“(T)hese gentlemen tend to work Monday through Friday, 9 to 5, and renegotiate debts and look at their costs ... but I don’t see the men on the ground,” Alamo said at a meeting. “The things you can see are not necessarily on surveillance but you can see the vibe, you can try to intercede before something happens.”

“If management can’t stop it from happening, maybe we ... go back to just a casino with games,” Gaming Commission Chairman Peter Bernhard said. “It is much easier to operate but it is also not in tune with what the industry needs” to compete in the global marketplace.

The law is clear, Voyles said: Casinos that can’t control nightclubs need to shut them down rather than fighting their way upstream using attorneys and carefully worded contracts.

County officials, rather than state regulators, shut down Prive after pulling the club’s liquor license. Management removed rapper Jay-Z’s 40/40 club from the Palazzo after less than a year and replaced it with a tamer venue: a combined sports book and lounge. Business reasons rather than regulatory concerns fueled the decision, however, Las Vegas Sands spokesman Ron Reese said.

“Sands makes it clear to all nightclub operations that there’s zero tolerance for any behavior that would jeopardize our license,” he said.

The Hard Rock’s “Rehab” reality TV show on truTV featuring frequent dust-ups with inebriated customers and exhibitionists was another source of heartburn for regulators. “Rehab” was canceled after Hard Rock was sued by the East Coast-based owners of the Hard Rock brand, who claimed the show tarnished the brand by portraying “drunken debauchery, acts of vandalism, sexual harassment, violence and criminality.”

Regulators didn’t shut down the show, which did not have the blessing of the Control Board. Still, it “didn’t do them any favors” by broadcasting that debauchery worldwide, Sayre said.

Meanwhile, the Hard Rock is still nurturing its party image.

The property hosted the 25th season of “Real World,” a reality show airing on MTV next month.

On its website, MTV says the show centers on “seven strangers living in a city defined by pleasure, temptation and the excitement of youth.”

Discussion: 13 comments so far…

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  1. By BorisR (Boris Radtke)
    Feb. 20, 2011
    4:37 a.m.
    Flag

    Without this little "extra" kick the entire Hard Rock Casino idea will probably fail. Although I believe that taking the white powder is widely done in every other casino , it's tough once the officials get to notice that as they have to take action on the particular casino. In this case, it hit the Hard Rock.
    I will even go that far to assume that even employees will do this from time to time. Not all of them, but there's a high probability. Especially at the Hard Rock. Who can stand such loud music and think normal 8 hours a day, 5 days a week, 300 days a year????

    When I was at the players club the other night I had to scream over to the lady behind the counter to make her understand what I want. And she also had difficulties to understand what I was saying, and that's not because of my poor English, ladies and gentlemen! I then asked her how she can handle to work under such terrible work conditions. I know, it's a tough question when there are no alternatives, but there should be a law that says how loud the music can be in a place where people will have to work, too.

    I refuse to play at the Hard Rock, along with many many other people, and I do that for a good reason. When they moved the poker room more towards the center of the old casino I knew that I will not play there anymore.

    From Switzerland

  2. By yesitsme (Camille Pagnotta)
    Feb. 20, 2011
    5:41 a.m.
    Flag

    ...gee do you think...drugs...wow....Im shocked....every hotel in Vegas has a drug dealer....every street corner....breath in.. breath out...its that easy....so whats new.....

  3. By Tom Gorman (Staff)
    Feb. 20, 2011
    7:42 a.m.
    Flag

    mslv,

    As to the NYTimes story on proposed cutbacks of state funding of gambling addiction programs in Nevada, here's what the Sun's columnist, J. Patrick Coolican, had to say:

    http://www.lasvegassun.com/news/2011/feb...

  4. By SunJon (Jon Becker)
    Feb. 20, 2011
    7:54 a.m.
    Flag

    "Most tourists do not come to Sin City to find religion." Very True.

    Remember that Howard Hughes hired Mormons to protect and take care of him at the Desert Inn. Howard was never without enough morphine and illegal drugs to keep him out of pain.

    It's more correct to say in this case, that Religion found Sin, which is part and parcel of doing the work of the Lord. In doing so, Sin has built more then one Temple in this country and with luxurious interiors at that.

  5. By derekwashington (Derek Washington)
    Feb. 20, 2011
    8:03 a.m.
    Flag

    I watched a few episodes of "Rehab" and that told me that I had no need to go back to the Hard Rock. If that kind of party is going on regularly, then drugs, sex (probably some date rape)and music up way too loud is par for the course.

  6. By KillerB
    Feb. 20, 2011
    9:48 a.m.
    Flag

    "Times have changed. Make a wrong move and you're in state regulators' cross hairs. And it demonstrates the shifting challenges of regulators. A half-century ago, they forced out the mob. Now their target is the notorious and raunchy party scene."

    That the company was fined instead of the actual "criminals" confirms the truth behind all this -- the state is a predator, with its police actively on the hunt actively on the hunt for money, however they can get it. That's why it went after the deep pockets. Meantime this struggling company goes under a bit more, more jobs are lost and the local economy weakens a bit more. For what besides making consenting adults behave?? Time to reprogram the police.

    "It's more correct to say in this case, that Religion found Sin, which is part and parcel of doing the work of the Lord."

    SunJon -- ain't it peculiar how with religion, like government, it always comes down to the same thing, getting the money?

    "If that kind of party is going on regularly, then drugs, sex (probably some date rape)and music up way too loud is par for the course."

    derekwashington -- seems you have some old lady in you. As long as it's consensual and in private how is any of it any of your business?

    Welcome to "We the people of the Police State of Nevada Grateful to the Police for whatever freedom the Police allow us in order to secure its blessings, insure domestic tranquility, and form a more perfect Government, do establish this Constitution."

  7. By KillerB
    Feb. 20, 2011
    10:20 a.m.
    Flag

    "...admission law enforcement personnel are actively engaged in the same illicit/criminal activities they arrest/detain others for..."

    Harley -- excellent post! The herd mooing here just can't seem to pick up on that point.

    "In a government of laws, existence of the government will be imperiled if it fails to observe the law scrupulously. Our government is the potent, the omnipresent teacher. For good or for ill, it teaches the whole people by its example. Crime is contagious. If the government becomes a lawbreaker, it breeds contempt for law; it invites every man to become a law unto himself; it invites anarchy. To declare that in the administration of the criminal law the end justifies the means - to declare that the government may commit crimes in order to secure the conviction of a private criminal - would bring terrible retribution." -- Olmstead v. United States, 277 U.S. 438 (1928), Justice Brandeis dissenting

  8. By mred
    Feb. 20, 2011
    10:59 a.m.
    Flag

    Get rid of the drugs, alcohol and problem gambling and the "markers" and you may as well declare Vegas a ghost town. The family vacation crap went out with Chevy Chase and the National Lampoon.

    Stay in California, smoke pot and take peyote at the "Native Casinos."

    These goody two shoes Metro and Gambling control people will have no tax dollars to fund their activities as time goes on.

    And as mentioned above, it is obiviously entrapment by a bunch of people partying on the taxpayers dime, as "undercover" creeps"

  9. By KillerB
    Feb. 20, 2011
    11:12 a.m.
    Flag

    "The family vacation crap went out with Chevy Chase and the National Lampoon."

    mred -- well said!

    "SO what if casinos are close for illegal activities and unemployement goes up."

    express445 -- I have the perfect quote for you.

    "The Fuhrer is always right." -- Joachim von Ribbentrop, the 1939 Konigsberg address

  10. By ssenjo (Scott Senjo)
    Feb. 20, 2011
    11:13 a.m.
    Flag

    The Control Board fine clearly seems arbitrary, and as some posts noted, hypocritical. But with cases of a drowning, rape, and alcohol poisoning, doing nothing may be worse than an arbitrary fine. The regulatory state will never be perfect, but has been helpful in quite a few areas of public policy.

  11. By BorisR (Boris Radtke)
    Feb. 20, 2011
    11:52 a.m.
    Flag

    They all want luxury, great pool atmosphere, music, a life like in wonderland with drinks and drugs and hot babes, but nobody ever thinks of how this whole enchillada is being financed. If nobody goes to the HRH for gambling but everybody goes there for sniffing coca cola and having party time then it's obvious the casino will face rough weathers head.

    From Switzerland

  12. By mbags (mike bags)
    Feb. 20, 2011
    6:38 p.m.
    Flag

    there is nothing wrong with 'rehab'. they just need a little tweeking.

    first: make it a topless option. they charge as much or more than the topless pools in the city already.

    next: if alcohol didnt cost as much as illegal drugs then the propensity for illegal drug may lessen.

    have security monitor the employees as well as the customers. if a drug deal/use is witnessed: immediate dismisal (employee) or immediate hold for metro.

    not to condone prostitution (unless legalized) but have some pool level rooms/cabanas for rent by the 1/2 hour. if a couple wants to 'hook-up' charge them a reasonable rate (30 bucks a 1/2 hour) to use a room removed from the public. people of all ages are going to have sex so lets just make a private area available to them. the regular employees will know who the working girls are just by them showing up every week. give them a 'bonus' (say $100) for reporting them & have them put in a 'black book' for prostitution just like the card counters & cheats. an employee would rather earn an honest buck than an illegal kick back.

    the employees will do a better job of maintaining a good work environment if they have the backing of management & a financial incentive.

    im an old man but would love to go to a rehab party if i could just sit poolside & watch a bunch of young people have fun. if the girls were topless that would be a bonus. i guess that makes me a dirty old man but when the party is over im going into the casino & will gamble for a few hours & they will get their money from me then.

  13. By Bakersfield (Joe Stormont)
    Feb. 21, 2011
    12:38 p.m.
    Flag

    mred, there are still some of us who take normal "family" vacations, whether it's a day at Disneyland, or a 2 week cross country drive in the family wagon. Even when visiting Las Vegas, I don't care to see drugs, prostitutes or other illegal activities going on. One has to expect to see the occasional drunk or rowdy customer now and then, and just deal with it, but if illegal activity is rampant, it will keep folks like me from coming back. Not all of us come to Las Vegas for the illegal vices some seem to think they're entitled to. If a property has a bad reputation, count me out.

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