Two Way Hard Three | Las Vegas Casino & Design Blog

Jeff's latest column delves into the Hard Rock settlement with the NGC.

Interestingly, in the past few days the Hard Rock has been in the news as it appears it is heading into foreclosure. We'll discuss that story and others on the Vegas Gang this week.

Keep reading after the jump... and yes, I skipped thirteen on purpose.

I doubt anybody was surprised by Thursday's decision by the Nevada Gaming Commission to approve a $650,000 settlement deal with the Hard Rock Hotel over allegations that property security officers and hosts sold ecstasy, cocaine and marijuana to undercover Gaming Control Board agents and Metro police officers. Security officers also were charged with controlling access to a private bathroom where patrons could have sex and use drugs.

As part of the deal the Hard Rock did not have to admit to the violations it was charged with, but hotel executives did have to admit that gaming regulators would likely have been able to prove that the actions listed in the settlement agreement (between the Control Board and the Hard Rock) had taken place.

The $500,000 fine and $150,000 in costs levied against the financially struggling Hard Rock followed a $500,000 settlement in 2009 between regulators and Planet Hollywood over its since-closed Prive nightclub and Living Room ultralounge. Regulators charged the PH clubs, which were managed by an Florida-based club operator, had allowed topless and lewd activity, prostitution-related activity and underage drinking. Club personnel were also charged with physically and sexually assaulting customers. The resort admitted all the activity charged had taken place and to its failure to adequately provide oversight of the clubs. (The Planet Hollywood settlement also called for the hotel to fork over another $250,000 to regulators if the problems weren't straightened out in a year -- a threat that was erased when PH soon closed the clubs.)

I spoke to a top Nevada gaming regulator in 2006 after a strongly worded letter of caution was sent by the GCB to casino operators warning them to make sure they keep a close eye on their nightclubs to prevent illegal activity, and to pay particularly close attention to clubs being run by outside operators. The gaming operators would be held responsible for a failure to apply stringent oversight over their properties' clubs, the regulator told me, promising that gaming enforcement agents would step up their undercover inspections of the clubs.

I spoke to the same official a couple of times in 2009 after he sent a second, even more strongly worded letter to casinos -- and after the Planet Hollywood settlement was announced. Many more casinos were being investigated and the illegal activities had not stopped, he said, predicting that additional enforcement actions were likely -- a prediction proven correct when the Hard Rock allegations and settlement deal were made public.

I wanted to wait until after the Hard Rock settlement was approved to share my thoughts about Nevada gaming regulators and their priorities. I've monitored criticism regulators received for their actions in the Planet Hollywood and Hard Rock cases and for their warning letters to casinos to better prevent illegal activity in their clubs. The public response can broadly be divided into four camps:

1. Those who think regulators acted properly, protecting the state's and gaming industry's images.

2. Those who think regulators have (so far, at least) cracked down only on two single-property operators (Planet Hollywood was an independent property at the time of its settlement) while leaving alone the Strip's big four operators (MGM Resorts, Caesars Entertainment, Wynn Resorts and Las Vegas Sands). Regulators are playing favorites, they say, bowing to the powerful interests who control the biggest casinos.

3. Those who think gaming regulators haven't been tough enough. They believe everyone knows these things take place in casino clubs and that a real crackdown would reveal many more instances of illegal activity in clubs. The clubs need to be cleaned up and the Gaming Control Board hasn't done enough to do so, they say.

4. Those who think regulators should confine their oversight to the casino floor and that winking at drug use, lewd behavior and prostitution is a long-time Las Vegas tradition. "Quit spoiling it for people wanting to party and have a good time," they say.

In general I approve of the recent enforcement actions by Nevada gaming regulators. The most egregious violations, to me, were the cases where resort employees engaged in criminal activity: Employees selling drugs and assaulting customers is not OK, and casinos need to make sure those things don't happen. I'm less concerned about whether casinos crack down on customers enjoying themselves, particularly if they aren't hurting anyone, but I wouldn't mind if casino security would use discretion and one-time warnings ("Sir, would you please put out that joint," or "Ma'am, would you please not pull your top up and expose yourself") rather than referring all offenders to Metro for prosecution.

I disagree with those who want regulators to wink at and ignore illegal activity taking place in Las Vegas gaming resorts, particularly when employees participate in it or explicitly allow it. I don't mean that resorts should have a zero-tolerance policy for folks who, in their rooms, smoke marijuana or engage in consensual activity with prostitutes. I really don't care much about those activities. (The last time I stayed at Aria my hallway smelled like an Amsterdam coffee shop -- and not like coffee.) But resort employees shouldn't be selling drugs, referring customers to drug dealers, pimping prostitutes or referring customers to prostitutes.

Public sex or lewd activity in clubs is a gray area for me. It is illegal in Clark County (and most anywhere else) and that is the standard regulators use, and I don't object to that. But clubs allowing consenting adults to use a private bathroom for sex means it really isn't public. In my mind it is closer to a Las Vegas pool cabana, enclosures where there may have been one or a million instances of private - or semi-private sex. And women lifting up their tops? Sounds like Mardi Gras to me -- I just don't care.

Channeling my inner-Andy Rooney, I don't think regulators are out of bounds focusing on illegal activity in clubs. Many young, club-going people seem to think the gaming regulators cracking down on clubs are just old people who don't understand their scene. Leave us alone, they say. Only if you behave yourself, I (as Rooney) say. Left unchecked, today's excess will become tomorrow's norm.

The last objection to the crackdown, that it has targeted only smaller, independent operators while avoiding the big boys, is hard to argue with. I have no way of knowing whether it is true, or isn't, but if the next place targeted is the Palms or Cosmopolitan rather than one of the bigger players' joints, the argument that there is favoritism and selective prosecution becomes even more persuasive.

Finally, I'd like to share what I think should be gaming regulators' top priorities. (I included the Nevada statute that lists their legal priorities at the end of the column.) First, in my opinion, should be protecting the integrity of the gaming floor. That means making sure the games are absolutely square and making sure that marketing pitches, slot clubs and other promotions that have a gaming-related component are fair. Gambling consumers should be protected from tricky marketing pitches and games should have clearly stated and understood rules. In fact, I would go a lot further than regulators now do in several areas. I would require odds on all games to be posted; slot payouts and perfect-play video poker payouts should be posted on each game screen.

Second should be keeping organized crime and other improper influences from ownership of casino resorts and from employment on casino floors. And third should be protecting the reputation of Nevada and its casino business, a priority that includes making sure that nightclubs aren't nests of illegal activity.

Another top priority, one that has been ignored in recent years but needs to be resurrected, is stricter oversight of operators' financial resources and, separately, their monopolistic practices. I think regulators, in their desire to make Nevada as investment friendly as possible, have ceded some of their authority in those areas. They need to take it back.

Here is part of a Nevada law which covers regulators' responsibilities:

NRS 463.0129 Public policy of state concerning gaming; license or approval revocable privilege.

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 nonrestricted 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.
2. No applicant for a license or other affirmative commission approval has any right to a license or the granting of the approval sought. Any license issued or other commission approval granted pursuant to the provisions of this chapter or chapter 464 of NRS is a revocable privilege, and no holder acquires any vested right therein or thereunder.
3. This section does not:
(a) Abrogate or abridge any common-law right of a gaming establishment to exclude any person from gaming activities or eject any person from the premises of the establishment for any reason; or
(b) Prohibit a licensee from establishing minimum wagers for any gambling game or slot machine.
[13:429:1955]--(NRS A 1959, 434; 1967, 1597; 1969, 633; 1977, 1428; 1979, 333; 1983, 1205; 1987, 1273; 1991, 968, 2144; 1997, 1709; 1999, 949, 1412)

- Jeff Simpson, February 2011


Read archived comments (6 so far)
February 2, 2011 1:10 PM Posted by parchedearth

Excellent piece. Both the PHo and HR fines had a significant impact on the clubs at those properties (closure and change of management, respectively). I am not sure any property can prevent all such activity in their clubs and still have them be viable.

It is interesting that action had to be taken by the GCB/NGC and not police/vice. I suppose a fine is much preferable to prosecution and jail sentences, but the police could also issue citations for finable offenses.

Your point about more financial oversight is spot on. Anti-trust regulations are very difficult to enforce, but they could certainly regulate debt/capital levels in the same way the FDIC regulates capital leverage for banks. They already mandate how much operating cash a casino must have on-hand at all times. If debt levels got too high, they could block any acquisitions or even force divestiture of properties.

Also of note is the number of financial institutions which now own (equity, not just debt) all or part of multiple properties (DB, DLJ, GS, Apollo, Texas Pacific, Colony, etc...) Shouldn't there be a regulation that any entity owning (not just managing/operating) more than 5-10% of a casino property needs to be licensed?

February 2, 2011 1:55 PM Posted by Chris77

My understanding of the Hard Rock's current situation is that one of its lenders has filed a notice of foreclosure, and that Hard Rock has not filed for Ch.11 bankruptcy as of yet (which could theoretically protect them from foreclosure actions).

In regards to Jeff Simpson's article, I tend to agree that the GCB is acting as fairly as they can. This was not Hard Rock's first violation, and despite essentially a 100% turnover in ownership and management over the years, their nightclubs have been in trouble in the past. They paid a $100,000 fine as far back as 2002 for very similar allegations of employees being involved in drugs and sex at Baby's: (

I don't know that the big operators are getting preferential treatment, I think they just take the issues a little more seriously, and have more resources to keep their own houses in order. Harrah's -asked- Metro to go undercover at Sapphire Pool, and when they made arrests for drugs and prostitution, Harrah's shut the whole thing down voluntarily before the GCB even got involved.

February 2, 2011 2:03 PM Posted by Hunter

Correct, wrong word choice on my part.

February 3, 2011 4:12 AM Posted by Jeff in OKC

Excellent piece. I think Simpson's column is as good as anything being written about Las Vegas, regardless of forum.

Thank you, Hunter and Jeff, for providing this.

February 3, 2011 10:18 AM Posted by atdleft

Definitely thought provoking.

Honestly as a Gen Y'er myself who supports legalizing prostitution and marijuana, those don't really bother me. Trying to kick all prostitutes out of a casino is like trying to kick all heavy drinkers out of a casino. It just doesn't work.

But at the same time, I can see Mr. Simpson's point about casinos not wanting massive coke parties and orgies in their nightclubs. It just isn't conducive to promoting a safe and enjoyable environment for everyone. So obviously, there's a need for the casinos and GCB to ensure their nightclubs don't become another Charlie Sheen scandal.

Without a doubt, it's a delicate dance that GCB must play and it certainly isn't easy.

February 3, 2011 2:10 PM Posted by jinx

Very good article. I think it's a slippery slope for identifying what's ok and what's not, although I'm not in disagreement on the things you feel are (within reason) ok and those that aren't. Put me in the group that thinks for now these are warning shots across the bow of the big 4, although LVS had a host of issues with law enforcement (not regulators though I don't believe) at some of it's original clubs. I'd definitely be on guard if I was the Palms, at the moment, my guess is Cosmo may get a breather period. Was the Rio fined by gaming regulation for their pool issues or was that just law enforcement that busted up the issues that were going on there?

Anyway, I do think it's in the casino's best interest in taking these back in house, will they be less 'hip' most definitely, but I think in the long run it will prove to be a financially sound move as they retain control of the venues and it's not like they don't have a base of tourists they can pump in there, even if it's not the hip spot. I'm guessing Studio 54's numbers still look pretty decent, and they don't even have to fork out a ton for promotion or renovations.