MINUTES OF THE

SENATE Committee on Judiciary

 

Seventy-second Session

April 8, 2003

 

 

The Senate Committee on Judiciary was called to order by Chairman Mark E. Amodei, at 8:15 a.m., on Tuesday, April 8, 2003, in Room 2149 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

 

COMMITTEE MEMBERS PRESENT:

 

Senator Mark Amodei, Chairman

Senator Maurice E. Washington, Vice Chairman

Senator Mike McGinness

Senator Dennis Nolan

Senator Dina Titus

Senator Valerie Wiener

Senator Terry Care

 

GUEST LEGISLATORS PRESENT:

 

Senator Michael (Mike) A. Schneider, Clark County Senatorial District No. 11

 

STAFF MEMBERS PRESENT:

 

Nicolas Anthony, Committee Policy Analyst

Bradley Wilkinson, Committee Counsel

Lora Nay, Committee Secretary

 

OTHERS PRESENT:

 

William Bible, Lobbyist, Nevada Resort Association

Dennis K. Neilander, Chairman, State Gaming Control Board

Karyn Wright, Lobbyist, Clark County School District

Jeffrey A. Silver, Lobbyist, Kenilworth Systems Corporation

Herbert Lindo, President, Lobbyist, Kenilworth Systems Corporation

Samuel P. McMullen, Lobbyist, Kenilworth Systems Corporation

 

Chairman Amodei:

We will open the hearing on Senate Bill (S.B.) 104.

 

SENATE BILL 104: Revises definition of “resort hotel” for purposes of certain statutes pertaining to gaming. (BDR 41-859)

 

Senator Michael (Mike) A. Schneider, Clark County Senatorial District No. 11: Senate Bill 104 is a bill I introduced last session authorizing a full gaming license for time-share projects. Some very large time-share projects are being built in Las Vegas with hundreds and hundreds of rooms similar to all-suite hotels.

 

As I testified last session, these projects will provide a good opportunity for the State to allow some extra slot machines, besides just a bar with 15 machines. Fairfield Grand Desert has built a very beautiful resort and is in its second phase. It is located behind the MGM Grand. If time-share projects choose to have any kind of gaming at all, they are allowed 15 machines. Hilton is building a project at Las Vegas Boulevard and Sahara, right across the street from the Sahara Hotel and Casino. They will have three towers and hundreds and hundreds of rooms, but they can only have a bar with 15 machines.

 

A lot of people visit Las Vegas for the Las Vegas experience. It would be nice for the State to be able to cash in on these places by permitting them to have a full gaming license and giving them an opportunity to possibly have a hundred or more slot machines. The State will get its cut plus 6.25 percent of the wins from those machines. Time-share resorts do not have the full array of gourmet restaurants, convention facilities, theaters, and show rooms and are not the big‑time gaming establishments like the Bellagio or the Mirage.

 

The visitors and the owners staying at time-share resort properties often want to have a drink before dinner and play the machines a little bit and then go to do their main dinner, entertainment, or gambling at the resorts having the amenities. Upon returning they may have a nightcap and put $20 into the machines before retiring. There could never be 1000 slot machines, 70 blackjack tables, and 5 crap tables unless there is the full attraction and array of amenities. The time-share projects would have smaller casinos. We should allow everyone to have access to more machines and help the State make more money.

 

Senator Care:

Do you envision these projects will be confined to the gaming corridor?

 

Senator Schneider:

Yes, this proposal is for time-share projects in the gaming corridor.

 

Senator Care:

You used the word casino and you also talked about the machines. I cannot envision anybody visiting Las Vegas and staying in a time-share with the intent of remaining in the time-share to gamble. I think you are correct. They would go outside. Do you mean an actual casino or were you talking about just a few machines somebody drops some quarters in on the way out or on the way back in? At the largest, what do you mean precisely?

 

Senator Schneider:

I do mean a full casino, but economics will prove the largest time-share project would probably have a couple hundred machines, three to five blackjack tables or something similar. They would not be like a Bellagio casino due to just pure economics and competition. If they are sitting with 800 rooms, they should be able to have more than 15 slot machines. It is good business for the State of Nevada.

 

Senator Care:

When you introduced the bill last session, it was passed with an amendment proposing there be a study by the Gaming Policy Committee. Are you aware of any study or have you talked to anybody about a study or anything of the like? What has happened in the interim?

 

Senator Schneider:

Nothing has happened.

 

Chairman Amodei:

Did you make any contact to try to make anything happen?

 

Senator Schneider:

I tried to make contact with the Nevada Resort Association (NRA) and they are not interested in this bill or proceeding with this type of study.

 

William Bible, Lobbyist, Nevada Resort Association:

In reviewing this bill, I would note it substantially lowers the bar established by the 1991 Legislature in terms of the definition of “resort hotel.” The public policy, as enacted by the State, was to require resort hotels to provide a variety of amenities creating attractions to bring people into the southern Nevada or Washoe County gaming markets, where there are full-service facilities.

 

Section 3 would materially change that requirement by indicating the property could have a snack bar or delicatessen and be open only 10 hours a day, instead of a full-service restaurant open to the public 24 hours a day. The purpose of the original 1991 legislation was to create a critical mass of properties. Since its enactment, it has demonstrated its success in terms of creating mass with attractions and for bringing people into the Las Vegas gaming market.

 

We feel this legislation would detract from prior legislation, and in noting Senator Schneider’s comments, the lessening of the restaurant requirements for time-share projects would also allow for modifications at any facility having the requisite number of rooms. By this definition, a property would be able to offer only a snack bar and still qualify for an unrestricted gaming license.

 

Senator Care:

If the bill were crafted poorly, keeping your testimony in mind, what would be the position of the NRA about any sort of gaming at a time-share project? You have heard Senator Schneider’s description about machines in a casino. I am still not sure if we are talking about a small room somewhere, maybe the size of an arcade. The Gaming Policy Committee was going to conduct a study which apparently did not happen. You have had 2 years to think about what sort of gaming should be permitted, so what would make you rest comfortably?

 

Mr. Bible:

Under existing law, a time-share project would qualify for a restricted gaming license for less than 15 slot machines and no table games. To qualify for a nonrestricted license, they would have to meet the requisite requirements of having a number of rooms for transient lodging and not just for the occupants of the hotel. I really do not know the meaning of the term in line 5 “or time-share project.” This legislation would seemingly establish a different classification from a resort hotel and may be related to the definition of “time-share project” contained in another section of statute which does not address transient lodging.

 

Senator Care:

Is time-share the appropriate word? A number of resort properties already have time-share projects. How many of those are there right now?

 

Mr. Bible:

I can think of two or three off the top of my head, there may be more.

 

Senator Care:

Do you have any idea how many rooms or units?

 

Mr. Bible:

They have a substantial number of units, although I have not really followed this. Some are relatively large.

 

Senator Care:

If I am staying in a time-share and I want to play, where is the closest place I can go? Do I actually have to walk into the major casino, the casino of the licensee, to play?

 

Mr. Bible:

Yes, you do. I am thinking of the time-share project behind the Flamingo Hilton. It is physically detached from the Hilton. I do not believe there is a common connector. You would have to exit the building and then enter the premises of the licensee.

 

Senator Care:

In your case, you just have the one license. In the case of a time-share project, would there be a licensing problem besides the other objections you have given us?

 

Mr. Bible:

Mr. Neilander would be the more appropriate person to talk about the regulatory aspects; I do not know. If the owner of a time-share project actually has an ownership interest in the building or just has an ownership in the time to occupy a unit, I imagine there could be some licensing implications in terms of those particular individuals.

Senator Schneider:

The Flamingo Hilton has a few towers. One very lovely tower, sitting in the back by the pool, is a time-share tower. It is sold out, but it is on the campus and is a part of the whole resort. Without the Flamingo Hotel they could not have gaming, so they combined the two. Other states trying to legalize gambling are proposing slot machines and table games at race tracks and do not have to have rooms. Here in Nevada we defined a resort hotel in 1991 legislation and carved that in stone. The stone is now turning and we have to adjust with the marketplace.

 

According to today’s marketplace, Las Vegas is the No. 1 time-share market in the world. The Marriott Corporation just paid hundreds of millions of dollars for their Polo Towers and is going to develop more time-shares. Big hotel companies from around the world are coming into Las Vegas to build time-share properties, and they will be bringing hundreds of thousands of visitors every year. They are not building cheap little places. They are building big, beautiful hotels, a different type of hotel than what we are used to. I do not foresee any licensing problems.

 

Most of the places today go on points. You have to own so many points in a resort and you can trade your points. You can trade around the world into different resorts so your operation is points-based. In the Las Vegas market, people visit for 3 or 4 days and leave. With the points, time-shares are selling and trading and people are coming from all over.

 

This is not the old 1970s-style resort with mob figures owning hidden pieces in resorts. It is a totally different market. Our market is changing and we need to be flexible and aggressive and encourage Nevada-style gaming in many different venues. This is just one of them.

 

Senator Care:

Is there some sort of vehicle alive permitting time-shares to do what Senator Schneider has described? For example, I was on business in Missoula, Montana a couple of years ago and I went into a casino. As I recall, it was not too impressive, having a restaurant on one side and a room with a few games. That was their idea of a casino. I do not envision anything much bigger in a time‑share project. In our scheme of licenses, is there something that would allow for Senator Schneider’s proposal, or would we have to amend the law?

 

Dennis K. Neilander, Chairman, State Gaming Control Board:

There are two things in play here. You have the definition of a time-share contained in a different statute. I did not see a definition in Senator Schneider’s bill, but I am assuming it should be the same. The definition is not similar to the hotel definition because the hotel definition centers around transient sleeping accommodations whereas a time-share definition makes references to persons who have an ownership interest or a percentage of ownership interest.

 

You have to marry those two definitions together to figure out exactly how this would work. If the time-share owners do have an ownership interest, they would be subject to licensing on a mandatory basis if they were sharing in revenue with the licensee at the location. If they were not sharing in gaming revenue, they would be subject to discretionary licensing as a landlord. Under existing law, in order to have a nonrestricted gaming license you must have 200 hotel rooms and those have to be open to the transient public.

 

The only way this could be done under the existing law is if you combined the two. With respect to a nonrestricted license, you would still have to have the 200 hotel rooms for the transient public together with the time-share component. There is nothing in the law prohibiting a time-share from having a restricted license; however, the law allows the Nevada Gaming Commission to set forth the standards for suitability of locations for the restricted environment. Current regulations limit restricted licensees to convenience stores, grocery stores, drug stores, and the like. There is a mechanism in the existing regulation allowing you to petition the commission to add time-shares, or some other location of business, to become eligible for a restricted license.

 

Senator Care:

When is the last time the Gaming Policy Committee actually sat down and studied gaming policy or a particular issue? There are ten members on this committee, created by statute, and most of them are appointed.

 

Mr. Neilander:

The chairman of the board and the chairman of the commission are automatically included by statute. That committee has not met since I have been with the board. I believe the last time the committee met was when Richard Bryan was the Governor, so it has been some time. The committee only meets at the call of the Governor.

 

Senator Care:

It is necessary for the committee to entertain appeals and I am thinking of the neighborhood casino, the Triple Five Nevada Development Corporation situation that happened a couple of years ago.

 

Mr. Neilander:

The committee is a subset of the Gaming Policy Committee and is made up of the chairman of the board, chairman of the commission, one member from the Indian tribes, and two members from the general public. This subset of those ten meets to consider appeals and has met on two occasions.

 

Senator Schneider:

I am proposing a big change, but the market is changing. Someone could build a huge 2000 room resort hotel and time-share the whole thing right from day one, but could not get a gaming license. Even if more restaurants were added and not just snack bars, it is still a time-share. A time-share is a hotel where all room rent is collected up front for the life of the hotel. When someone buys a week at a time-share resort in Las Vegas, and they pay $19,000 or $20,000 for the week, they have paid their room rent in advance for the life of the building. They pay a maintenance fee every year. Time-share resorts are a different type of hotel. The market has changed. Forty years ago, time-shares did not exist. Carnival Cruise Lines has merged with a big time-share operator. At some resorts you can qualify to trade points and go on Carnival cruises because the suite they have on the Carnival ship is also a time-share suite. Points are exchanged among time-shares.

 

Nevada needs to become very progressive and be out in front of the market because in another area of the country someone else is going to do this. Let us stay in front of the market. Let us allow different operators to make some money. I firmly believe some of the time-share operators would just lease out a public area to a casino operator, so they would not be in the casino business themselves. We always need revenue, so the more machines available, the more chances we have of increasing revenue.

 

Senator Amodei:

With no further testimony, we will close the hearing on S.B. 104 and open the hearing on S.B. 271.

 

SENATE BILL 271: Authorizes certain licensees to move their locations and transfer their licenses under certain circumstances and provides for imposition of additional monthly licensing fees and distribution of such additional fees to at-risk schools. (BDR 41-1176)

 

Senator Schneider:

Senate Bill 271 is an attempt to increase revenue for the State. Particularly in Las Vegas, we have some old, grandfathered unlimited gaming licenses. They are in several locations and their operators choose to remain small. Las Vegas has grown and boomed and has passed them by. These small operators are stuck because their gaming licenses run with the land and cannot be moved. The only way the operators could change is to build several hundred rooms and go into full resort-type gaming. There is a segment of our population who do not want to go to the big resorts and there are operators who want to operate a small place.

 

I propose these small operators be allowed to move their gaming licenses to a new location and still maintain their small business. For example, there is a bar at Bonanza and Las Vegas Boulevard with about 35 slot machines. They do not make money anymore and if the owner could move his license, maybe relocate to Bonanza and Ellis, he could have an opportunity to make more money. We have several licenses lying around like this. There are a couple of small casinos right on The Strip who chose not to build big resorts.

 

If we give these operators a second lease on life and let them move their gaming license, once, to a better location, they would agree to pay more in gaming taxes. I have upped the gaming tax 1.75 points to a full 8 points. The increase in the gaming revenue would go to fund at-risk schools in the county they are located in. There is a big benefit to the State for allowing a gaming license to be moved.

 

These operators are not going to be building big resorts, as they just want to run a little operation. As a matter of fact, there is a place on Rancho Road called Wildfire. It used to be Ernie’s bar and old Ernie’s bar was a great place. The old Ernie’s bar was sold to a new operator, another small operator who remodeled and built a place called Wildfire. They have a full gaming license, one of the old grandfathered gaming licenses, so they do not need rooms and they do not need all of the goodies the Bellagio or the Texas Station Gambling Hall and Hotel has. They built a little casino and they are doing pretty good, although the Station Casinos Incorporated has since bought them out. It is a small, very nice place.

 

People do choose to go to smaller places. I know I do. I do enjoy going to a place like Texas Station, possibly to their steak house. If I am just heading across town and want to stop and get a burger and a cold beer, something quick, these smaller places work just fine and are more convenient. We have people who are small operators and that is the way they choose to operate. They are not large developers like a Steve Wynn who go to Wall Street and borrow billions of dollars to build casinos. We need to allow these smaller places to flourish and this is also one step we could use to get more money for at-risk children.

 

Senator Wiener:

I sat on the 208 committee and subcommittees established by S.B. No. 208 of the 69th Session, and I do not remember any committee meeting being less than 3 hours. Sometimes it was painful doing the mapping. Maybe some of our effort was years beyond its time because a lot of the establishments were already in place in determining gaming enterprise areas, The Strip corridor, and the downtown area.

 

Though you come in good faith as a voice for the small properties having unrestricted licenses, I have a concern about allowing a license to be moved anywhere, which includes outside the enterprise areas we established in S.B. No. 208 of the 69th Session. Though you testify these small operators do not have the intent of growing a large property, there is nothing binding. People buy houses where they have some expectation of living in a neighborhood minus a casino property. This may be their largest purchase. We could have these results if we allow a licensee with an unrestricted license to go anywhere. Could you respond because you are saying it will not happen, but there is nothing to prevent it from happening.

 

Senator Schneider:

No, there are no guarantees in life, and perhaps under the worst-case scenario someone could take their license and move it down the street to build a Texas Station. However, a person would have to spend tens of millions of dollars for land and spend hundreds of millions of dollars to build the facility. If a person had that type of financial backing today, they would probably do it right now.

 

I know there is an old, grandfathered gaming license across the street from the Stardust Hotel. The owner is not going to build a huge destination resort like a Texas Station. It is not going to happen. In our wisdom, we have shut out small operators from Nevada and especially from Las Vegas. We have upped the bar so high, the only way anyone can become an operator in Nevada is to have Wall Street connections. They have to be able to go to Wall Street to borrow hundreds of millions of dollars through stock offerings and then come and build their projects. We have shut out the small person.

 

This proposal is to let the small person have an opportunity. Our big operators in Nevada started out as small people and they chose to become big operators. They had the wherewithal, the knowledge, the drive, and the ability to become big operators. Some people choose just to stay small operators and what is wrong with that? That is also good. Now they are sitting in an area where, due to the laws we have passed, we have encouraged the large mega-resorts and now they cannot compete with them. We are forcing them out of business. This proposal would provide an opportunity to move to another area where they can remain a small operator and where they have an opportunity to make money. They will pay us more taxes in return.

 

There is a lot of discussion about taxes and some people say you cannot make money if you pay more taxes, but we will find out what will happen with these small operators. I have talked to a couple of them and they will pay more if they have a second lease on life.

 

Senator Care:

Section 2 of S.B. 271 addresses all of the necessary approvals needed from the local government having jurisdiction over a location, which might address Senator Wiener’s concern. Let me think a little larger. I do not know if there is any more  privately held land available; for example, at Primm may be surrounded by U.S. Bureau of Land Management land. Under this bill, for another example, could the owner across the street from the Stardust Resort and Casino, move to a place like Primm, or some other location? Does the move have to be anywhere within Las Vegas itself or what we would regard as Las Vegas? Would it be permissible to go to another county?

 

Senator Schneider:

You can only move within your county. If someone is going to go to Primm and establish a place, they are going to have to make a really substantial investment. They are going to have to spend over $100 million because they are going to need some rooms to house people. If they are going to do all this, they are going to get a regular license and there is nothing stopping them from doing that now.

 

This bill is just for the little guys who do not have large financial support. This would be a little guy who is going to move his license to Bonanza and Nellis or to Spring Mountain and Rainbow. They are going to have an operation similar to the Wildfire. That is what I foresee. They will not be much bigger than an Applebee’s, and they do not create any more traffic than an Applebee’s.

 

You do not get into neighborhood problems until you get to these mega‑destination resorts. That is when the neighbors complain. Years ago we had these little places and they operated fine and the neighbors never complained. They did not complain until they got the 40- and 60-acre campuses of the huge destination resorts with movie theaters and such. Then the neighbors complained, feeling we had moved a portion of The Strip right into their backyards. A place like the Wildfire will not draw complaints and that is what I am trying to encourage. Just help the little guy and get some more money for schools.

 

Senator Care:

Do you know when the last time a license like this was issued? I had never heard of this until you introduced this bill.

 

Senator Schneider:

I do not think these old licenses have been issued, at least not since 1991, when we put in the 200-room minimum requirement to obtain a gaming license.

 

Senator Wiener:

There is a proviso, also in section 2, “the Commission may require the licensee to apply for a new license .... ” What did you have in mind? Before the move and transfer, there could be that requirement?

 

Senator Schneider:

I really do not know about that, it may be something the bill drafters added. They may require a new license; maybe they would require a liquor license or something, I do not know about a gaming license.

 

Mr. Neilander:

I am a little bit unclear as well, but I think what S.B. 271 is trying to get at is if the commission wants to review the entire operation. Let us say the commission is going to allow this move to take place, but they want to take a look at the officers and directors of the corporation at the location itself, the financing, and the projections. I think this is meant to capture the notion the commission may want to take a full investigative look before they would allow a move. I do not believe they could issue a new license and still maintain the grandfathered license, because the old license is needed for relief from the 200‑hotel room requirement.

 

Another thing it could mean is if the commission decided not to allow the move. They could then say you have to apply for a new license meaning you would have to have 200 hotel rooms. It is two different interpretations.

 

Senator Schneider:

We could make an adjustment at your pleasure Mr. Chairman. I have heard a lot of discussion how these small operations somehow hurt the big mega-resorts with their large investments. It is very evident their large investments have hurt the small places. This just gives the small guy another lease on life and an opportunity to do business. I do not foresee a person with 75 slot machines and 3 or 5 blackjack tables, something like the Wildfire, as hurting the business of a Texas Station or a Bellagio. This is just another form of small business and small gaming, and is good for society.

 

Senator Titus:

I commend Senator Schneider for trying to think outside the box in looking for money for at-risk schools needing more revenue. I just worry we are undoing some long-established precedent that has worked pretty well in terms of gaming control. You have brought up the point we need to look at broad-based taxes. We need to look at additional revenue. We need to get moving instead of trying to piece these little things together. I suggested taxing the strip joints as a similar kind of thing. We are getting desperate here and time is running out. We ought to be focusing on the big picture to fund education, so I appreciate you bringing this up.

 

Senator Schneider:

Years ago, Las Vegas was made up of a bunch of gambling halls like the Golden Nugget that never had rooms. We had a bunch of motels. People stayed in motels on Fremont Street or on Las Vegas Boulevard and then they went to the big gambling halls having rooms or extremely limited rooms like the old Horseshoe. The Horseshoe had 25 rooms and a huge casino. The Golden Nugget had no rooms and a very large casino.

 

Then we evolved to where destination resorts were built with a lot of rooms. Because they were spending a lot of money, we passed a law to protect the big operators to the point the small operators are now at risk. This is trying to level the playing field a little.

 

Mega-resorts, with minimum room requirements to obtain a full gaming license, have a very short history. We have a much longer history of not having any room requirements and everything operated pretty well. Now we are having an opportunity to go back.

 

Senator Titus:

You are right; it is not a very long history. In fact, I chaired the judiciary committee the year we passed the bill establishing the 200-room minimum, partly in response to the threat of Indian gaming within the State. There were good reasons for passing the bill. I do appreciate the fact things used to be different, but things move on and things change. It has worked since it has been in place.

 

Mr. Bible:

I am president of the Nevada Resort Association. The real problem in S.B. 271 is contained on page 3 subsection 4, in a fairly brief sentence saying:

 

Notwithstanding any other provision of law and except as otherwise provided in this subsection, the Commission may, in its sole and absolute discretion, allow a licensee whose establishment is not located in a gaming enterprise district to move the location of its establishment and transfer its nonrestricted license to another location that is not within a gaming enterprise district.

 

This would allow a move from an existing location, not in a gaming enterprise district, to any location also not in a gaming enterprise district. You are going to waive all the other provisions of law. Under Nevada Revised Statutes (NRS) 463.308 there is a restriction on the number of games and slot machines for establishments located outside a gaming enterprise district. If you had 16 slot machines to move to some other location not within a gaming enterprise district, this would allow for an unlimited number of slot machines and table games. There is a substantial procedure in NRS 463.3086 providing for an applicant or an individual who wants to petition for a designated location outside of a corridor or gaming zone, to give notice to all nearby residents and owners of property.

 

Additionally, a particular provision of law requires a supermajority vote of the governing body to locate a new or designated gaming enterprise district. It is a 75 percent vote requirement. There is also a provision in law that you would be waiving where an aggrieved party, either the petitioner who is bringing the application for the gaming enterprise district or the neighborhoods, can appeal the decision of the governing body to the subset of the Gaming Policy Committee. This was done in the case of the Triple Five Nevada Development Corporation application. The way this particular bill would work is if you are going to move the grandfathered location, you in effect would need a simple majority of the governing body and you would have no notice requirements or anything. I can see this as the example of Arizona Charlie’s that brought us the requirements of S.B. No. 208 of the 69th Session. It started as a bowling alley with a certain number of slot machines and ended up as a full casino. This particular bill would allow an existing nonrestricted, nonconforming gaming license. There are some bars in Clark County having up to 25 slot machines. There used to be some grocery stores having more than 15 slot machines. I do not know if they are still in the system, but this bill would allow the movement of those licenses, because they are outside of a gaming enterprise district to another location outside of a gaming enterprise district, with none of the procedural requirements we currently have in the law.

 

Karyn Wright, Lobbyist, Clark County School District:

On behalf of the Clark County School District, we appreciate Senator Schneider’s efforts to bring additional funding to our schools. As we are meeting here this morning, the Clark County School District is also meeting to make additional program cuts for the upcoming school year. We would appreciate any additional funding.

 

Senator Amodei:

With no further testimony we will close the hearing on S.B. 271 and open the hearing on S.B. 431.

 

SENATE BILL 431: Enacts provisions governing live game broadcasts. (BDR 41‑1174)

 

Jeffrey A. Silver, Lobbyist, Kenilworth Systems Corporation:

I am with the law firm of Gordon and Silver, Limited, and here on behalf of proposed S.B. 431. The major proponent of this bill is a gentleman seated in the audience named Herbert Lindo.

 

I met Mr. Lindo approximately 25 years ago when I was a partner at the law firm Lionel Sawyer and Collins. Mr. Lindo had two projects to bring to my attention for possible consideration in Nevada gaming. One was a project in which he had a patent for a credit card identification system, which could be used for cashless wagering. At that time Mr. Lindo’s company provided security systems for approximately 95 percent of the nuclear power plants in the country. He developed a unique chemical patent process. Instead of a magnetic card reader, the system used a chemically read device, which could not be counterfeited, and so it was usable in the nuclear industry. We tried to develop some interest in the gaming field about cashless wagering, but we were told people liked to hear the sound of dollar coins and tokens rolling in the buckets and therefore this type of technology would never be acceptable in the casinos in Nevada. International Game Technology and other major manufacturers who had the loud-sounding buckets maintained this position until they themselves developed some similar kind of technology and all of a sudden we have seen a dramatic change.

 

The second concept from Mr. Lindo and his company was the Roulabette concept which involved placing a camera over table games and then broadcasting those games and wagers either within the same casino or to some remote location. Both of these concepts were well ahead of their time. In the case of the cashless wagering, you can see Mr. Lindo was quite a visionary.

 

Now we are before you with what amounts to an introduction of the Roulabette concept for use in Nevada. We have heard a lot of suggestions as to how the gaming industry in particular can assist this State in raising new revenue sources outside of the box. Certainly the Nevada gaming industry is a very mature market, but there are a limited amount of possibilities for increasing revenue. In fact, everyone is concerned about the possibility of revenue numbers flattening out as the number of airline seats continue to erode along with problems we are facing with respect to construction of major highways and a lack of funds to expand highway mileage. Casinos are still being built in major cities, especially in Las Vegas, meaning there are more rooms to fill.

 

How is the gaming industry, in particular, going to be able to contribute more money to the State budget? One way we thought could solve some problems is by exporting a valuable product in the casino industry: the safety, security, reliability, and reputation of Nevada’s gaming apparatus, assuring the games themselves are conducted honestly, fairly, competitively, and without any hint of scandal. Most other jurisdictions are striving to achieve this, but have not met Nevada’s level.

 

Mr. Silver:

The Internet gaming situation from the last session has been viewed by a justice department, a U.S. justice department hell-bent to make sure gaming in Nevada is contained, placing a ring around the gaming industry in Nevada and not allowing expansion anywhere outside of our borders, because somehow gaming is a pariah in the minds of this administration. I will give you a very poignant example. Assembly Bill (A.B.) No. 466 of the 71st Session, which became the interactive gaming bill, was designed to allow Nevada licensees to conduct wagering outside of the State of Nevada. An element of that bill required the legality of those laws be passed upon before the Nevada Gaming Commission could adopt regulations. An opinion was sought from the justice department. The justice department declared they were not in the business of providing opinions for any jurisdiction other than the federal government, but since they were asked, they were happy to give a missive. After a number of presentations, they sent a letter announcing they did not think interactive gaming was legal because of the Interstate Wire Act of 1961.

 

The Interstate Wire Act of 1961 says:

 

Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers or for information assisting in the placing of bets or wagers shall be fined under this title or imprisoned not more than two years, or both.

The justice department used this section, which essentially was an anti-bookmaking statute, to determine a contest really means casino games and this interstate transmission of communication really means anyone who is engaged in the process of trying to conduct some form of gaming outside of their brick‑and-mortar box is committing a violation of federal law.

 

There are many writers and legal scholars who have disagreed with their opinion, but this is the kind of information we have to rely upon because certainly the State Gaming Control Board and the Nevada commission cannot allow a Nevada licensee to be subjected to criminal penalties by virtue of the authority the State of Nevada has granted them. Interactive gaming as we now know it is dead in the water.

 

In our view, the particular activity we are proposing is not interactive gaming. Interactive gaming is defined as the transmission of information to assist in the placing of a bet or wager to a computer. Interactive gaming deals with a virtual system wholly contained within some microprocessing unit allowing a player to make wagers on-line to the system’s computer.

 

Sometimes being simpler is better than being more complicated. I do not want to take the side of the Unabomber by saying we have gone too far in technology, but sometimes going back to simplicity really makes a lot of sense.

 

We are proposing a system using existing technology. It is the exact same technology we are using to bring simulcasts in horse racing into Nevada casinos race and sports books. We have developed a process in which there is an uplink facility where the information is encoded. This encrypted material is transmitted allowing people to make wagers, when they have the appropriate deciphering equipment decoders, at another location.

 

Using the Roulabette concept, a live table game, under camera surveillance with its image, is being transmitted to the United Kingdom (UK). An authorized party in the United Kingdom, possessing a gaming license issued by the British gaming board to conduct gaming in their jurisdiction, transmits this signal to interactive Set Top Boxes on television (TV) sets. People will be allowed to place wagers that can be regulated to a minimum or a maximum. Those individuals with the set top boxes will be required to go to a wagering location, identify themselves, and only then will their set top boxes be permitted to accept the signal.

The wagering part exists right now. British Sky Broadcasting Group, (BSkyB), also known as Sky Network with 6.5 million subscribers, has permitted us to reveal their participation in our proposed relationship with them. Some of their subscribers are wagering right now on a virtual game, a pari-mutuel-type game on their system. They are proposing a fixed-odds game and are seeking permission from the British gaming board. Once this occurs, they are asking why someone would want to watch a cartoon of a roulette wheel as opposed to a real game from a real casino in Las Vegas.

 

Mr. Silver:

So many promotional aspects can go with this. What is intended in this program is ultimately a promotional piece for the hotel in which the emanating signals show their property, the show rooms, the offerings and entertainment, and food. Ultimately there could even be some arrangement where points are earned in their slot clubs or in their gaming clubs. These would be an enticement for the people, who are gambling in the UK, to get on one of those nonstop flights from London and come to Las Vegas for the real thing.

 

There are some real promotional aspects for the hotel. Our original bill had the hotel as the licensee, but we realized it was a drafting error as a hotel cannot and should not participate directly in gaming revenue from this operation, less they run afoul of the Interstate Wire Act of 1961 provisions which states they cannot accept wagers or accept profits from wagers that might be transmitted.

 

Essentially, Las Vegas entertainment is transferred to another jurisdiction where people are actually doing the wagering. As opposed to interactive gaming, there is no question as to where the wager takes place. The wager takes place in the UK where this system is being broadcast using existing technology and I do not believe this runs afoul of the Interstate Wire Act of 1961.

 

I am going to cite one other issue with the Interstate Wire Act of 1961. There is a gentleman now in custody at the Nellis Federal Prison Camp serving a prison sentence in the white-collar crimes unit. His name is Jay Cohen. Mr. Cohen was a stockbroker in San Francisco who had a great idea; he was going to engage in the Internet gaming industry. First he went to one of the Caribbean islands and opened a sports book called World Sports Exchange and began taking wagers from people in the United States. Well, some of the wagers he accepted were from jurisdictions that did not permit wagering by their citizens. It was not very long before the Federal Bureau of Investigation swooped down on Mr. Cohen and took him to trial. Mr. Cohen was convicted in the main trial and sent an appeal to the United States Court of Appeals for the Second Circuit, which is the district of New York. The court referred to the Interstate Wire Act of 1961 and determined customers had placed wagers from the State of New York, where it is legal, so Mr. Cohen’s defense did not fit within the safe-harbor provisions of the Interstate Wire Act of 1961 and therefore, the court sent him to jail.

 

We looked at what the court said about the safe-harbor provisions of the Interstate Wire Act of 1961 in relation to Mr. Cohen’s case, decided on July 31, 2001. This fairly current pronouncement by a federal appeals court said the subsection provides a safe harbor for transmission or transmissions that occur under both of the following two conditions: No. 1, betting is legal in both the place of origin and destination of the transmission; No. 2, and this is an “and,” the transmission is limited to information assisting in the placing of bets as opposed to including the bets themselves. Using those two conditions, the courts determined the safe-harbor provisions did not apply to Mr. Cohen because neither of those two conditions existed. Mr. Cohen, of course, disputes their rulings, but he is in jail as a result of his misinterpretation of the law. The court was very clear about him not meeting those two conditions, so he was not eligible for the safe harbor.

 

We believe we are eligible for the safe-harbor determination based on the decisions in Mr. Cohen’s case. Our situation adheres to those two conditions. Wagering is legal in Nevada and it is legal in the UK jurisdiction. The only thing going across the airwaves is a picture. There is no wagering occurring as a result of this system.

 

Notwithstanding, if you look at S.B. 431, we have provided a number of safeguards where we can stop and pause a moment to make sure what we are talking about is in fact legal, is doable, and is regulated to the satisfaction of the main regulatory body, Mr. Neilander’s board and Mr. Bernhard’s commission. Page 2 in the bill states the signal can only go to an authorized jurisdiction. An authorized jurisdiction means a jurisdiction outside this State which has been administratively approved by the board to receive a live-gaming broadcast. We wanted to make sure the destination was outside this State. We are not going to be facing the issue where somehow inside Nevada people are going to be able to gamble in hotel rooms and in homes, which is not the purpose of this bill. Wagering in the UK is permitted and is not violating any policy provisions established here in Nevada mandating gaming must be restricted to casinos and gaming enterprise zones or other approved places.

 

Authorized jurisdiction means a jurisdiction outside this State which has been administratively approved. How does a jurisdiction get administrative approval? Years ago, when I was on the gaming board, we were grappling with the same issue when New Jersey decided to legalize gaming. We set up a task force to review their laws to determine comprehensiveness and effectiveness before allowing anything coming from Nevada as either a licensee wanting to do business there, or in this case, our games going over there. Complete discretion is given to the Nevada regulators in deciding whether or not their conditions have been met. Nevada regulators could have a continuing dialog to share information or have confidence a system is conducted free from corruptive elements or other similar regulatory nightmares other jurisdictions have dealt with.

 

Mr. Silver:

Section 4 talks about an “authorized user” who is a person administratively approved to receive a live game broadcast in an authorized jurisdiction for the benefit of their customers. Nevada gaming authorities can develop regulations, but we are saying the person who is actually distributing the signal in another jurisdiction is licensed by that jurisdiction and they have a proper license to conduct their business and do the things they want to do. Not only do they have to be licensed, but they also have a person with whom Nevada believes meets their standards. For example, and this is an absurd hypothetical, what if someone who is denied a license here in Nevada went to another authorized jurisdiction and decided they wanted to conduct gaming there using a Nevada product, the signal. The Nevada gaming authorities would have the ability to deny any authorized user not meeting the certain standards established as a part of regulation.

 

Section 5 talks about a licensed franchise holder. As the party who has brought this concept to Nevada, Mr. Lindo and his company are anticipated to be licensed under the same standards as any other licensee in the State of Nevada. They would have to follow the provisions in NRS 463.160, NRS 463.171, and NRS.463.172. They would be persons of good character, honesty, and integrity. In all those instances, the gaming board would exercise their customary and usual practices in performing an investigation, which would be unrestricted in scope, to determine whether or not the licensed franchise holder is suitable.

 

There are other points in the bill also dealing with the issue of controls subsequent to passage. We have provided an amendment (Exhibit C) to the bill for section 7 about an application fee of $250,000. In discussions with Mr. Neilander it was agreed there would be no unusual application fee; we would pay the ordinary, nonrestrictive application fee, but the investigation would not be restricted with any cap or limit as well. Therefore, if they had to spend half a million dollars investigating the system, the process, or the license holder, they can certainly do so.

 

Going to section 9, the board shall adopt satisfactory regulations to ensure the interests of this State are not unduly jeopardized by the dissemination of live game broadcasts. The intent is to meet all of the legal tests necessary in order to qualify. In section 9 we also agree the board has the ability to review the broadcasts as well to make sure they are secure and reliable, people of satisfactory age are the only ones wagering, and the location of the wager absolutely comes from the authorized jurisdiction.

 

We included section 11 in which the actual physical transmission to a satellite is going to be done by a licensed disseminator. Disseminators are kind of the bastard children in the gaming industry. They were first brought in because the casinos in Nevada did not want to have a direct relationship with the racing industry and vice versa. Disseminators provided an intermediary process; they were the ones having the contract with the racetrack and not the gaming industry. Concerns have been obviated by the licensing of various racetracks and the pari-mutuel systems we now have. Nobody has more expertise in the transmission of a real-time, encoded signal than the license disseminators, which is the reason they are included as being the physical element of transfer. Those people have to be involved because they have the knowledge and expertise to transmit the signal in the same fashion the horse racing simulcasts are being transmitted.

 

Finally, if you look in section 12, we have emergency procedures in the event something does go awry or something not considered might reflect on the State. The board can immediately pull the plug on the signal and decide whether or not this is a project they would consider worthy of continuing.

 

Mr. Silver:

There are elements throughout S.B. 431 allowing regulators the opportunities to make sure this is where we want to go and where we should go. The initial license fee to be paid by this license franchise holder is $20 million for a 2-year period. I have looked at the projections contained in a report completed by my client and I am not here to guarantee anything you put down in a projection. The only certain number the Nevada treasury is going to receive is $20 million upon approval of their license. If they are wrong, they are the only ones who are going to suffer for having made a mistake in their projections. The projections can be considered realistic given the numbers they are talking about. This proposal is an easy and sure way to expand revenues beyond the borders of Nevada.

 

There are 6.5 million subscribers to the Sky Network. If 1.2 percent will use this system, there would be about 780,000 subscribers in the first year. Based on the current information we have about the gaming appetite of the subscribers, it is anticipated each of these subscribers will wager about $3000 per year. If you look at 780,000 subscribers who are wagering $3000 or more, then you can readily discern the numbers here are quite huge. There is a $20 million initial license fee plus an override, another thing we have discussed with Mr. Neilander prior to coming here today. Forget the $200 million cap, we will pay the same percentage fee Nevada’s casinos are paying from day one the three-tier percentage that now goes to 6.25 percent. The numbers are so huge we can make a profit and the State of Nevada can make a profit.

 

There is a reason why we did not include the resorts as an element. We do not want to be in a situation where the party who is producing the signal participates in the gaming revenue, because we might find ourselves in a quagmire of the Interstate Wire Act of 1961. In all likelihood, the franchise holder pays a fee to a resort.

 

It may be advertising consideration in the signal, or it may be some dollar amount on a fixed-fee basis. If the resorts want to participate they can, or if they decide they do not want to, they do not have to. All we are saying is we will give you $20 million dollars and we are going to give you the percentage fee from day one and it expands the opportunities of bringing in revenue from people who are wagering outside the State. It is a good tourism mechanism to bring in people and we think this bill is worthy of consideration. Thank you.

 

Senator Care:

You mentioned A.B. No. 466 of the 71st Session, which, as you put it, became the interactive or, as I still say, the gaming bill. That bill actually started out as a work card bill, which is an interesting story in itself. In reviewing my objections last session, I am going to ask you a few questions.

 

It is unclear to me where the franchise holder would be taxed and what the rate of taxation would be. Would Nevada benefit from other than the license fees themselves? Where would the franchise holder be taxed?

 

Mr. Silver:

A definition of the gross revenue the franchise holder would receive is in the amendment. It is either going to be a fixed amount of money because it has the rights to the signal, or it is going to be paid like a licensee would be paid in an intellectual property-type situation. Currently they have negotiated for a fee which could be as high as 50 percent of whatever the operator of the system would receive. If the fee cannot be a percentage, then it will be some flat fee based upon some plateau. Whatever the amount of money coming to the licensee, the franchise holder, the State of Nevada would receive a percentage fee based upon those collections. If the franchise holder got $1 million, then the State of Nevada would get 6.25 percent in addition to the license fee of $20 million, or $10 million per year.

 

Senator Care:

What would happen if somebody in Nevada with an unrestricted license wanted to get into the same business? I suppose this could happen if they wanted to pay the application fee and the licensing fee, right?

 

Mr. Silver:

Anybody would be eligible to apply as long as they had the technology.

 

Senator Care:

Is the first 2 years $20 million and then $10 million thereafter?

 

Mr. Silver:

Yes, that is correct.

 

Senator Care:

Are we perhaps creating a monopoly? Only very few licensees would be willing to pay that amount of money. If we were to enact this the way it is and were it to become legal, have we created just one entity engaged in this business at the expense of anybody else who wanted to come in, but just could not raise the capital?

 

Mr. Silver:

Anyone who is desirous of coming into this field will need to have some major contacts. To justify going through all of this effort, they must have a wide audience in order to bring in the kind of revenue needed for the fee. We necessarily want to think big in this regard, because of what we saw in the case of interactive gaming, even with the lower application fees. The Nevada resorts had a heck of a time trying to get customers because there are so many restrictions and so many things they have to do. We are talking about an already built market. There are already 6.5 million subscribers in the one market we can tap into. We do not have to create all new marketing efforts to gain customers. We have the better product and we think we will be able to tap into the $300 billion already being wagered on virtual casinos for a real game actually coming from a real casino. We are thinking big because this project is not worth doing unless there are great rewards for us and for the State of Nevada.

 

Senator Care:

You said this might tweak an interest in Las Vegas and people in the UK eventually might want to make the trip as they have seen enough on the screen. Could it have the opposite effect? Somebody might have a trip planned to go to Las Vegas, find out they can do this, and decides not to come to Las Vegas.

 

Mr. Silver:

That certainly has been one argument made throughout the proliferation of gaming in this country. The major corporations that open up casinos in Illinois and in Mississippi and in Iowa have uniformly said all they are doing is whetting the appetites of people to come to the real deal. This is what we are talking about. There is a big difference between a couch potato in London, sitting in front of his TV set and clicking a 25-cent bet on a roulette wheel, versus someone who comes here and sees what we see, what we take for granted most of the time. This is a “Wow,” an “Oh, my gosh!” People come to Las Vegas to see the brick-and-mortar operation. Snippets on television from some of the hotels cannot do justice to the ceiling in the Bellagio or its Conservatory, or the size of the outdoor features. People see pictures of Niagara Falls and they still want to go there.

 

Senator Care:

I read somewhere about the person who actually places the bet in the UK or Iowa or wherever it happens to be. They have to deposit cash somewhere like an offtrack betting place and no credit card is involved. The person placing the bet has to physically walk in and demonstrate they are 21 years of age or older, or whatever, and it is their money. If he is a loser and his money is depleted, that is the end of it. He cannot get on the phone, he has to take additional cash and go make a deposit someplace. Is that right?

 

Mr. Silver:

That is correct. This is similar to when I was in the casino industry. I had a player, a fellow from China, who won a $25,000 keno ticket. When we asked him if he wanted a check or if he wanted money, he said, “I pay you cash, you pay me cash.” This is exactly what we have here. We have a situation where in order to qualify for wagering, you put the cash down on the barrelhead, identify who you are, where you live, and your Set Top Box. This also addresses the issue of problem gambling because if a person goes through their $300, it is not a question of dialing up the credit card company and transferring more money to the account. They have to get in the car, get in the cab or whatever, and drive over to place a bet with cash. There are some real protections not even intended with the bill.

 

Senator Care:

Is the Federal Communications Commission implicated at all? I guess no more than you have with horse racing that is disseminated.

 

Mr. Silver:

I do not believe they are.

 

Senator Wiener:

Some of my questions were answered, at least you responded to some of the questions I have been writing all over this bill. If you look at S.B. 431, section 9, paragraph (a), “Ensure that the interests of this state are not unduly jeopardized by the dissemination of live game broadcasts,” which protects not only the branding of what it is we are sending, but also the State of Nevada and the interests of our State. I am looking at section 13, “The Board may suspend the authorization to disseminate live game broadcasts to an authorized user without prior notice or hearing ...” and then go down a couple of lines to line 30, “...for any cause deemed reasonable by the Board or Commission.” I am trying to marry two concerns I have and I am wondering if there is anything in between. What I am reading is, the only action the board would be able to do would be to actually take the license away or suspend the authorization to disseminate the signal. There is nothing in between. Any cause would have to be pretty profound and we might have to get to such a point where they have to pull it. Is there anything in between to monitor along the way so we can go back to section 9 which states the interests of this State are not unduly jeopardized?

 

Mr. Silver:

From my experience on the gaming board, there are a myriad of things occurring informally between the doomsday button of actually taking away the license. The fact you have the ultimate punishment gives you the opportunity to take whatever steps you deem appropriate in friendly persuasion with licensees. We have no difficulty at all in making sure there is a reference to the disciplinary sections of the Nevada Gaming Control Act. Implicit with any license granted under NRS 463.160 is the fact the license would be subject to disciplinary action up to and including fine, suspension, and revocation. The idea of the summary suspension is an immediate and very potent reminder to any licensee that what they are doing needs to be adjusted immediately or face this particular sanction.

 

Senator Wiener:

My concern is that there be something graduated leading to summary suspension. Lesser behaviors, which under section 9 unduly jeopardize the State, may not be so egregious to lead to the withholding of the disseminator’s privilege. I think it is important we be able to protect at any level what is out there.

 

Mr. Silver:

In section 9 you have discretion as to whether or not this whole thing is workable and once you get past that, then you have a wide range of discretions going ultimately to the section about withdrawing the signal.

 

We felt it was important to have the ultimate ability to do this without notice and without any specific cause. The gaming board would be able to stop this thing because it is real time. It is not like, “Yeah, you know when these players come in next week we want to make sure you do not do this, this and this”; the signal is going out on a real-time basis and we wanted to make sure on a real‑time basis the board could stop something they did not agree with.

 

Senator Titus:

I know you say you have a lot of subscribers and you talk about all this money you can raise, have you all done some real in-depth marketing studies? Can you tell me how you came up with these figures, or is this all speculation or betting on the come?

 

Mr. Silver:

Certainly we never know what the acceptance of a product is going to be, but we also know the 6.5 million Sky Network subscribers’ receptiveness to gambling on their sets has been demonstrated in certain percentages. We believe these numbers will hold true. Going back to my accounting background, you never can trust an accountant to be there the next day if something does not go the way you say it does.

 

Senator Wiener:

I just want to follow up on Senator Titus. We are trying to get estimates and earlier you said 1 percent. Did you mean 10 percent would be the 780,000?

 

Mr. Silver:

Yes, I am sorry.

 

Senator Wiener:

I think you said 1.2 and I am trying to do the math and I am not an accountant, and have no accounting background. You had mentioned when we had a dialog about the virtual Vegas, which is the cartoon component, and does that help you factor the 10 percent? Does this reflect the participation in the virtual Vegas cartoon gaming being run right now?

 

Mr. Silver:

We have used elements of existing operations in concluding we have a superior product and will get a higher percentage than what virtual reality is now experiencing.

Senator Wiener:

And what is the virtual Vegas participation in the 6.5 million right now? Do you have any estimates?

 

Mr. Silver:

Mr. Lindo will have to come forward and answer your question, because I had nothing to do with the preparation of these numbers.

 

Herbert Lindo, President, Lobbyist, Kenilworth Systems Corporation:

I am the chairman of the board and president of Kenilworth Systems Corporation. We are the party who developed this system and we learned much of this by doing the same thing in Melbourne, Australia, in 1990. We have what you wanted to know about the numbers and how we get the numbers.

 

British Sky Broadcasting Group goes under the name Sky Broadcasting (BSkyB) and is an independent corporation. They are 65 percent owned by The News Corporation, Limited, and public shareholders hold 35 percent. They have 6.6 million subscribers. A subscriber is somebody who pays for broadcasts. Satellite broadcasts provide hundreds of different stations all over the world. Sky Broadcasting has what we call a gaming platform and 20 percent of their subscribers wager on their gaming platform. We would be sending our transmission via satellite uplinks and downlinks all the way into England. Sky Broadcasting would pick up our broadcasts and display them on their gaming platform.

 

Right now, BSkyB believes 20 percent of their subscribers will be playing along with the live game. They are now playing with what we call virtual games, make-believe games. These are called cartoon games and are not real games. They have a virtual game program called Bet Las Vegas. What they would like to do is introduce their subscribers to a live game, a real game, a game coming from the well-recognized, well-regulated area which would be here. Our estimates of what the company would receive in royalties from this broadcast come into billions of dollars, actually $1.2 billion next year. The minute we are permitted to broadcast, after we have resolved all the problems with the federal government, with the State of Nevada and Mr. Neilander, and controlling everything, we could be in business. We would have $1.2 billion in royalty payments from Sky Broadcasting, which is their estimate.

 

There are three other satellite broadcasters over England that also have gaming platforms and play virtual games; they have combined their 5.5 million customers. The reason we are planning such a good royalty from BSkyB is they believe if we exclusively give them the right to air-broadcast from casinos in Nevada, they would be picking up all of the subscribers on the other three networks. For them this is a huge deal if you multiply this around the world. In 2001 our government stated sports betting and wagering amounted to $300 billion in the United States. Only 1 percent of this amount came to Nevada where it is legal. The rest was illegal.

 

We are a Nevada corporation and will earn the money as a Nevada corporation. We really are an extension of a casino here which goes all around the world. The numbers are staggering. When you really look at it you can say to yourself, “How come it took so long to get here?”

 

I was in front of this commission in 1985 when I introduced the plastic card as an addition to coins, bills, and tokens. I introduced it, it was approved, and the Governor signed it. This is why you now have debit cards and rely on tracking systems and everything else.

 

Mr. Silver:

The numbers are the important thing and as a lawyer, let me be very frank with you. Mr. Lindo came into my office and said, “I am going to make $2 billion a year.” That is with a “B.” I am not used to having someone come into my office with those kinds of numbers. This is something beyond what would be considered normal. I kept trying to tell Mr. Lindo he should talk about making $100,000 or $1,000,000, but not about making $1,000,000,000 because it is not going to be believable. However, the numbers are there, the 20 percent, the 10 percent; in fact, this is lightning in a bottle. Let us take advantage of it. We are always talking about the guy who did something like a great invention. The guy who put the piece of cardboard together and set it in a windshield and said it would be a good thing to block the sun so your dashboard would not get cracked. He made millions of dollars and everyone is thinking they could have done that. Well, sometimes these ideas take a long time to come to fruition, but they are blockbusters. Our proposal is just that kind of idea.

 

Samuel P. McMullen, Lobbyist, Kenilworth Systems Corporation:

Locally I represent Kenilworth and Mr. Silver is the attorney in Las Vegas. Senate Bill 431 is enabling legislation. It will be done only with the full acceptance, full control, and full agreement of Nevada regulators. I want to put on the record an analogy very similar to a prizefight. The event is telecast, people can place wagers from a legal environment, and they can determine the outcome by watching television. We are taking this idea and translating it into a format, using every aspect of the system and the broadcasting, totally acceptable and approved by our State Gaming Control Board and gaming authorities.

 

Mr. Neilander:

I am here in a neutral position on S.B. 431. As you heard in the previous testimony, this is essentially enabling legislation. Were the bill to actually require the board and commission do these things as a matter of law, I would probably be here in opposition to the bill. If the “may” portions of the bill said “shall,” I would probably be opposing the bill; but they do not and they have been crafted that way on purpose. I am here more in a neutral position, but I do have some conceptual concerns with this bill and would like to share them with you very briefly.

 

First, with respect to the legality, I am not aware of case law interpreting the safe-harbor provision as Mr. Silver mentioned to apply to this kind of activity. The safe-harbor provision was originally designed to cover newspapers and things of that nature, things you would transmit such as information related to a wager, but not the activity itself. Here you are actually transmitting the gaming activity and I think this is different from a boxing match or the Oscars or anything else transmitted people may or may not bet on. A gambling game is being transmitted and a gambling game is defined not only by Nevada law, but also by federal law. I question whether this proposal fits within the safe-harbor exemption or not. Clearly it will not if the financial portion involves the disseminator or the licensee or the simulcast provider sharing in gaming revenue. I do not believe the safe harbor would be applicable. If they are sharing in gaming revenue related to the wager itself, I am unsure and I cannot sit here and tell you whether this is legal or it is not legal.

 

I can tell you the justice department position with respect to the Internet. They view the definition of ”wire” to be very broad and expansive. Although there are not any cases I am aware of, I would suspect they would view satellite as a wire transmission and subject to the Interstate Wire Act of 1961. The next question becomes, “Are you in the safe harbor?” and I do not know.

 

The reason you may fall out of the safe harbor is because you have a sharing in revenue situation, which leads me to my next concern. You are hearing a lot of big numbers being thrown around here today for you to decide whether those are legitimate or not through your discussions with the sponsors. However, it seems to me the projections I have seen are based on what was referred to earlier as a royalty. A royalty to me means you are receiving a percentage in exchange for allowing somebody to use something. If you receive a percentage, the safe-harbor provision is not available to you. You can try to structure it in such a way you may have a flat fee, or something of that nature, but depending on the circumstances of how it is structured will depend on how it would be interpreted. Also, because the projections are based on a percentage, it raises other questions about how the fee is to be paid. The numbers I have heard have been very large numbers. In respect of any gambling game, the money generally made is because people who are gambling are losing money. The whole premise is you cannot be sharing in the loss from gambling activities in order to meet the test under the Interstate Wire Act of 1961. I do not know what this does to the numbers in the long run, but the projections I have seen are based on sharing in a percentage of gaming revenue.

 

Finally, and this is more of a broader concern, I understand the bill drafters and the sponsors of this measure have put a lot of thought into how they would draft this proposal in order to try to resolve any regulatory concerns. However, this whole concept is taking the Nevada system, Nevada’s gaming regulatory system, the integrity of the system, and the things which made Las Vegas and using them as a base in order to market their live game broadcast. We are placing the reputation of Nevada and its system in the spotlight and, to some extent, at risk. If we cannot control what is happening on the other end when this product is simulcast, I would be concerned if there was a scandal such as the authorized user decides not to pay the patron. How would this be handled? Maybe we would not care because it is not our patron. I would be concerned we have created a nexus between Nevada, Las Vegas, the regulatory system, and all the related things when we then engage in a relationship with parties who may be oversees. How would all of this tend to reflect upon the State? Those are the broader concerns I have.

 

Senator Washington:

Mr. Neilander, section 11 of S.B. 431 talks about disseminating a broadcast by a person who “is licensed as a disseminator pursuant to NRS 463.430.” Subsection 2 talks about scrambling and encrypting the signal. I am just wondering, how would you monitor or check the legitimacy of those signals to make sure they are not decoded or broken into or the encryption is not violated?

 

Mr. Neilander:

This concept is taken from what happens now when a horse race is simulcast. A disseminator is used to uplink the signal to go via satellite. What we would have to do is test the technology. It would have to be an ongoing process as well in terms of making sure everything is encrypted and encoded properly.

 

Senator Washington:

So you have the ability to do this now?

 

Mr. Neilander:

Well, I do not know anything about this system they are using so I cannot say for certain. It is something we would have to look at.

 

Senator Care:

Mr. Neilander, section 3 of the bill would require you to administratively approve and authorize jurisdiction. I know you have had occasion to follow the activities of a Nevada licensee who has been licensed in another jurisdiction. Here we are talking about administratively approving an authorized jurisdiction which may mean the other jurisdiction would have Nevada’s stamp of approval. Do you have any thoughts?

 

Mr. Neilander:

This is one of the concerns I have. The bill leaves the discretion to the board and commission as to what would be the standards of review for an authorized jurisdiction. I am a little bit uncomfortable in terms of having to try to approve a jurisdiction and determine whether or not they are authorized.

 

Also, this is not like horse racing. If a racetrack is going to participate in a merging of pools with Nevada for pari-mutuel purposes, and if they are sharing in revenue, we actually license the racetrack. If they use a flat fee basis, we will actually do an investigation and there is more of an administrative approval process. However, they are then subject to our jurisdiction. I am unclear as to what the remedies for the State would be if the authorized user engaged in some unacceptable activity. There is a jurisdictional kind of a disconnect, leaving it to the discretion of the board and commission to try to figure out what standards would be used to review a jurisdiction and determine it if is appropriate for that jurisdiction to accept the signal.

 

Senator Titus:

I worry we are giving our good name and reputation to a company and what if they cheat on the other end? What if there was some scandal about the payoffs or something? We would be tarnished and yet there would really not be anything we could do about it, would there?

 

Mr. Neilander:

You have maybe even more eloquently, summarily stated my concern. We do have a nexus between the regulatory system, Las Vegas, gaming, and their integrity. It is a perceptual issue. If there is a scandal on the other end, whether or not we could take action against them in some fashion may not matter because the perception is already this is a Las Vegas game.

 

Senator Washington:

Section 12 of S.B. 431 talks about the authority or authorization of users to obtain all necessary licenses to approve these devices. This goes back to the question of how you would determine the authorization of those jurisdictions as to the reception and the actual playing of those devices.

 

Mr. Neilander:

We would have to do this on a case-by-case basis and look at each and every jurisdiction wherein the authorized disseminator wants to send the signal. Each jurisdiction is different. For example, the discussions today have centered on the UK and we do have a good working relationship with them and we could figure out their licensing system and that sort of thing. However, there may be other jurisdictions I am not familiar with that may be more difficult to try to determine whether they are acceptable or not.

 

Senator Washington:

I am sure there are other jurisdictions which may meet your specification or your approval in the way they authorize and operate gaming devices. Is there a list of those jurisdictions that you can make available?

 

Mr. Neilander:

It is a little bit unique. If a licensee were to go out and engage in an activity outside the State of Nevada, there used to be a requirement they had to get approval from the commission. The law was repealed in 1989 and now there is no such requirement. Licensees who engage in foreign gaming do not have to get approval from the board or commission. There is a reporting requirement and there are some penalties associated with certain things, but we do not approve other jurisdictions. Senate Bill 431 takes a different tact, as we would have the right to look at jurisdictions and approve them or not. Right now it is up to the licensee to do their own due diligence to determine whether or not these outside locations are suitable. We are involved and we keep a close eye on things, but there is no prior approval requirement like there would be here.

 

Senator Care:

Mr. Neilander, let me ask about the commission and the board’s workload. How far along did you get in drafting regulations for Internet gaming?

 

Mr. Neilander:

We spent a great deal of time on this issue and though we did not draft the actual regulations, we certainly were ready. About the point in time wherein we were far along on parallel paths, the legality of it, and also determining whether or not we could keep minors from playing, and the technology, we had those both going up at once and really were at a position where at least I had thought about the best way to draft those regulations. Marc Warren, who is with me here today, is the senior research specialist who spent at least 90 percent of his time on those issues for a long period of time. They did not come to fruition because ultimately we determined we could not even get over the first hurdle, which was whether it was legal or not. We had several days of hearings, and we continue to pursue this because we are required as a matter of law to do so.

 

Senator Care:

If we were to enact S.B. 431, you would now have another homework assignment. How much of a workload or a burden would it create?

 

Mr. Neilander:

It is going to be difficult to determine whether the safe-harbor provision is legal or not. It depends on how these contracts are structured as to whether there is a sharing in revenue. There is going to be quite a bit of work involved on the board side in respect to trying to get through section 12 and make those threshold determinations. It is a new area. It is one where there are a lot of questions. Whenever there are a lot of questions, we do not do things unless we do them full blast, and so it will take some time.

Senator Wiener:

When we were considering the Internet or interactive gaming in prior legislative sessions, one of the concerns we had was about the brick-and-mortar facilities. We tried to pay close attention to the access of these activities by minors. In the State of Nevada we keep a closer eye on their activity. There is a provision in section 9 to see “reasonable assurances that a person viewing the live game broadcast will be of lawful age and viewing only from an authorized jurisdiction.” We have addressed the authorized jurisdiction issue. Would you address whatever “reasonable assurances” are? Do we have something similar with the Internet? How do we get a handle on this? My major concern is about underage access or underage participation. Based on testimony, at least one adult person would be providing the money, like a debit account. When the money runs out they go back. They provide the money for access to the betting. How do we work with a jurisdiction across the ocean? I would think this would be even more complicated if it is not in United States. I do not even know what “reasonable assurances” are, but how do we pay attention and have some kind of a handle on them when we pay so much attention when it is a jurisdictional issue we can address in Nevada?

 

Mr. Neilander:

The term “reasonable assurance” was used in A.B. No. 466 of the 71st Session, the Internet provision. As we got further into our discussions during the interim, we struggled tremendously with that term in the context of the Interstate Wire Act of 1961, which is a criminal statute. It is not a defense to the criminal situation. If you committed an act, or you did not commit it, you cannot say, “I was reasonably assured this would not happen.” This is a term we struggled with and if there was a better term I would suggest it. There is always going to be the possibility of an underage person, who may take steps necessary to get around any kind of age verification procedure. That is a call you will have to make as to whether you think you can live with the fact it may happen or not.

 

I know the sponsors of this proposal would argue the same as the Internet people did. In this case you have to physically go down to sign up for the service and put front money down. What happens when you get back home, I do not know. I have heard the argument minors get into Nevada casinos all the time and that is true. Even though minors actually get into Nevada casinos, we can see them and throw them out. We do not have that luxury with those kinds of systems.

Senator Washington:

Even with encryption or magnetic cards, is it not possible a patron could buy an advance to his credit, let us say $500, for the purpose of broadcast gaming, and then use the coded card and have those funds extracted from their account and placed in the appropriate accounts? Based on technology, could we provide the necessary security?

 

Mr. Neilander:

Yes, and in response to your question, this would be something we would have to look at in terms of how does a jurisdiction actually handle accepting and placing of the wagers in terms of how they handle their accounts. Do they have anti-laundering types of provisions in place? I do not know. I am sure every jurisdiction is different.

 

Senator Washington:

Let us think outside of the box just for 1 minute. I know you have your set of standards and qualifications for gamers. If you transport those standards or those qualifications to an authorized jurisdiction recognized by the State of Nevada, then could you set the table for those jurisdictions to participate?

 

Mr. Neilander:

I suppose we could make whatever requirements we had to. We would have to say, “Well that is just absolutely going to be a requirement if you are going to be an authorized user of the system.”

 

Senator Washington:

Would they have to verify they have met those standards you have requested?

 

Mr. Neilander:

Correct.

 

Senator Washington:

This verification would occur before you sign off on it, or you allow whatever facility to participate?

 

Mr. Neilander:

We would verify the standards were met before we would deem them to be an authorized user.

 

Mr. Silver:

Just to offer a few comments on the commentary provided by the chairman. With respect to the federal interpretation of what is within the safe harbor of the Interstate Wire Act of 1961 and what is not, my guidance came from reading the United States of America v. Jay Cohen, 260 F. 3d 68 72-73 (2d Cir. 2001) criminal case. Certainly there was a clear indication from the court if certain tests were met, then it would fit within the requirement of the safe harbor. I would like to make sure we do not get into the old vaudeville jack story about thinking of so many reasons why the farmer would not loan the jack that we end up standing out in the rain forever with a flat tire.

 

I can think of a lot of reasons why the federal government may not like this particular proposal, not the least of which is maybe an anti-Nevada attitude. We have courts to protect us and these courts have interpreted this law in a certain way. One court in Louisiana has said the Interstate Wire Act of 1961 does not apply to casino games in a civil case. Another court in New York, in a separate circuit, has said the Interstate Wire Act of 1961 provides for certain safe-harbor provisions if two tests are met. We think we meet the tests and are not involved in any violation of law. This is an area of discussion for a proponent coming forward and asking the State Gaming Control Board and commission to adopt a regulation, but it is not a reason to wring our hands and say, “Oh my, the federal government may do something to us and we are not sure what it is!” When there is no clear-cut definition in the law as it is currently established, would this be a violation? In fact, to the contrary, the cases I have cited seem to go the other way.

 

Another issue having to do with the participation in gaming revenue by the license franchise holder can be addressed if it does become a violation of the Interstate Wire Act of 1961. Then for some flat fee or some fee not predicated on the actual numbers of the casino, it can certainly be accommodated and negotiated.

 

The person playing with the Sky gambling network is not playing with a Nevada casino. There is a real difference here, the lines are becoming blurred and washed in what is Internet and what is this particular proposal. The reason why this deserves a separate area of statutory law is because it is not Internet. In the one case, Nevada’s casinos were conducting the game. In our proposal, Nevada is supplying nothing more than a graphic representation of what occurs in a casino and nothing else. The wagering is being undertaken by Sky network and their gaming resources and under their license.

 

What about the approval of the jurisdiction? Well, jurisdictions are approved all the time. Recently in the Internet wagering field we just approved the Isle of Man because we thought their laws were sufficient to protect the reputation of the MGM Grand to conduct an Internet wagering operation. This would be no different than the kind of analysis we are talking about in approving an authorized jurisdiction here. We export Nevada’s reputation all the time. We exported it when the Nevada casinos went to New Jersey. We exported it when they went to Mississippi, and we exported it when they went to Canada. We have been doing this on a regular basis to assist the industry in some fashion and to allow it to expand itself and grow.

 

It is not just the fact the MGM Grand is a big company and happens to have casinos in Las Vegas making an attractive Web site for its virtual casino. It is the fact the MGM Grand is regulated by authority where there is confidence their jurisdiction can take punitive actions against the MGM Grand. If Sky Network does something wrong, it is Sky’s license on the line in their regulatory jurisdiction. There is a switch on the wall Mr. Neilander can flick off any time and say, “You have done something inappropriate and we are not going to allow this anymore.” There are all kinds of remedies short of the actual doomsday button. It is not a novel concept to say somebody should gamble at the Beau Rivage Hotel and Casino in Mississippi, because of course it is the Mirage casino in Las Vegas and they are protected. We export our reputation day in and day out. Now it is time to do this so we can make some money from it.

 

Mr. McMullen:

With respect to the federal issue of whether it is lawful or not under federal law, I want to make sure people on the committee understand the bill. Section 10 makes it unlawful for any person to conduct live game broadcasts until the commission adopts regulations and until a license is procured. Under section 9, the discretion of the commission to adopt regulations concerning the dissemination of live game broadcast is limited and cannot start until the commission first determines live game broadcasts can be operated in compliance with all applicable laws. We have tried to draft this so it creates some rule of reason for how this could progress.

 

Mr. Silver:

Mr. Neilander just notified me the gaming commission did not approve the Isle of Man. I misspoke and apologize for doing so. Even more important is the fact a licensee in Nevada is operating in another gaming jurisdiction without any jurisdiction being approved. It certainly modifies the protections in this bill to say we are giving them so much more than they already have.

 

Chairman Amodei:

With no further testimony, we will close the hearing on S.B. 431 and we will do a quick work session on S.B. 303 which we heard yesterday concerning the identification of volunteers.

 

SENATE BILL 303: Makes various changes concerning dissemination of records of criminal history by Central Repository for Nevada Records of Criminal History. (BDR 14-967)

 

Senator Care:

As I recall, the thrust of the bill that caught everybody’s attention, based on the e-mails we all received, simply says if you are going to go to work for, among others, a private school or a volunteer organization, then criminal information or background information from the repository can be requested and provided. There is no mandatory background investigation or anything. Am I right? Do I have the idea?

 

Bradley Wilkinson, Committee Counsel:

Correct, there were also several other changes included in the bill.

 

Senator Wiener:

Is there a liability on someone who does not make an attempt to pursue background information?

 

Mr. Wilkinson:

There would be liability for an employer who failed to request notice of that information without good reason. Liability is provided for in section 13.

 

Chairman Amodei:

Seeing no pleasure of the committee, is there any other further business to come before the committee? There being no further business, the meeting is adjourned at 10:31 a.m.

 

 

RESPECTFULLY SUBMITTED:

 

 

 

                                                           

Lora Nay,

Committee Secretary

 

 

APPROVED BY:

 

 

 

                                                                                         

Senator Mark E. Amodei, Chairman

 

 

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