License Guards: Paying Attention to the Pool

Last September, Nevada Gaming Control Board Member Randy Sayre presented two informational seminars to address current issues that have been concerning the board. Among the topics addressed was that of European pools and day clubs. Back in late September 2009, the topic was still hot; however, a long cold winter can—and often does—shift priorities away from summer issues. This article is just a refresher to bring Nevada regulators’ concerns about the pool back into focus. While information in this article is based on Nevada-specific concerns raised by Sayre, it may be useful for those in other gaming jurisdictions that apply similar regulatory regimes.

In the highly competitive Las Vegas market, the party pool and day club phenomenon took off like a rocket. Pool parties became the daytime equivalent of nightclubs, with parties featuring music, dancing and celebrity hosts. The competition to offer the most attractive pool entertainment was fierce. But with rapid growth, intense competition and quick success came new challenges and risks.

One publicly reported example of such challenges and risks was the Rio Hotel Casino’s Sapphire Pool, a topless Brazilian-style pool area with entertainers provided by the Sapphire Gentlemen’s Club. By all accounts, the parties at the Sapphire Pool were popular and the venture was an apparent success. However, Harrah’s Entertainment asked the police to conduct periodic “integrity checks,” and subsequently closed the Sapphire Pool area after such checks discovered compliance issues.1 The compliance issues reportedly included activities that led to nine vice arrests and two narcotics arrests.2

The problems discovered by Harrah’s Entertainment from its investigations of the Sapphire Gentlemen’s Club were not unique to that particular venue, and other properties reportedly experienced similar issues with their adult-themed pool parties.3 The problems with the pool areas, even though not directly related to gaming, caused gaming regulatory issues for licensees where such activities were occurring.4 Reports were published that Nevada’s regulators were investigating whether violations of vice and narcotics laws were isolated or frequent and whether the precautions and procedures implemented by gaming licensees to prevent illegal activity were sufficient or enforced.5

In Nevada, the Gaming Control Board (GCB) does not issue, regulate or enforce any set of basic decency standards, and prior actions indicate that its power to regulate based on decency standards it establishes is limited or non-existent. However, the GCB has an affirmative statutory obligation to administer the gaming laws and regulations for the protection of the public and in the public interest in accordance with the policy of this state. As part of the protection of the public interest in accordance with the policy of the state, the Nevada Gaming Commission regulations include a list of activities that can serve as grounds for disciplinary action. Among these listed grounds is the following:

• Failure to conduct gaming operations in accordance with proper standards of custom, decorum and decency, or permit any type of conduct in the gaming establishment which reflects or tends to reflect on the repute of the State of Nevada and act as a detriment to the gaming industry. 6
• Failure to comply with or make provision for compliance with all federal, state and local laws and regulations pertaining to the operations of a licensed establishment including, without limiting the generality of the foregoing, payment of all license fees, withholding any payroll taxes, liquor and entertainment taxes and antitrust and monopoly statutes.7

While the GCB doesn’t set the decency standards, it is charged with enforcing them. It looks to local ordinances and regulations to set such standards. With regard to activities occurring at pool areas of licensees, even when such pool areas are managed by third parties, any violation of state or local laws or ordinances can be grounds for disciplinary action against the gaming licensee. In a GCB letter dated April 9, 2009, Sayre identified many areas of concern that could lead to disciplinary action, including violating any of the following laws:

• Alcohol serving laws
• Illegal drug use
• Prostitution
• Indecency (violating local topless ordinances)
• Accounting irregularities
• Impeding law enforcement and regulatory investigations

As set forth in the cited regulations above, activities at the “gaming establishment” are the focus of the basis for such disciplinary action. A common misconception is that the “gaming establishment” is limited to the gaming floor. However, the GCB views the “gaming establishment” as the entire resort hotel casino complex as bordered by public streets. This means that regulators may use conduct occurring at pool areas, nightclubs, shopping areas and hotel areas of a resort hotel casino complex as the basis for investigation and disciplinary action.

Even if disciplinary action is not taken, an investigation can be a time-consuming, expensive and exhaustive exercise for gaming licensees. Therefore, in the summer months, it may be helpful to look at ways to mitigate the risks of facing an investigation or regulatory disciplinary action for operating summer pool parties.

1. Assess the local laws and ordinances that are applicable to pool parties and pool areas. For example, in Clark County, Nevada, local ordinances permit topless sunbathing in pool areas, provided that the area is separate from other swimming pool and guest areas and that it is off limits to minors.8 Additionally, the same regulations also prohibit the use of the topless sunbathing area for any “special events, contests or parties while topless sunbathing is occurring.”9 As expressed by the Clark County Department of Business Licensing and as discussed in Sayre’s seminars, sunbathing can only occur at times when the sun is up; therefore, Clark County Code does not permit topless pool areas after the sun sets. As expressed in Sayre’s seminars, after-sunset topless pool areas, parties, wet T-shirt contests, booty-shaking contests and similar activities in the topless sunbathing area may violate Clark County Code and may be grounds for an investigation or disciplinary action from Nevada gaming regulators.
2. All written agreements with third-party event or venue operators should have language that (i) permits inspection of the event and venue by the licensee, its agents, regulatory agents and law enforcement agents at all times; (ii) permits immediate termination upon notice without liability for any activities that violate federal, state or local laws or ordinances; (iii) requires the third party to have a written compliance plan to address compliance with federal, state or local laws or ordinances; and (iv) permits audits of the event or venue.
3. Conduct periodic inspections of the event or venue, related advertisements, websites and social media sites to ensure compliance.
4. Interview event and venue management regarding their policies and procedures concerning the handling of incapacitated patrons, minors, illegal drugs, prostitution; club access for law enforcement; and coordination with casino security.
5. Conduct audits to compare door revenue with records.
6. Investigate and resolve any complaints that unlawful activities are occurring at the events or in the venue.
7. Have written compliance plans and policies to minimize the likelihood of problematic conduct from occurring within the pool areas or pool party events and periodically review and revise these plans and policies to maintain their effectiveness.

While these suggestions for risk mitigation may seem difficult and resource intensive, they are less difficult, expensive and resource intensive than submitting to a regulatory investigation or defending a regulatory disciplinary action.

The GCB has gone to extraordinary measures, through letters and Sayre’s seminars, to let licensees know what is expected from them and their tenants and contractors with regard to activities that take place at gaming establishments. Therefore, it is incumbent on licensees to heed the advice of the regulators and to stay ahead of any problems that pool parties and adult pool areas are likely to present.

1 Amanda Finnegan, “Rio closes topless pool after Metro Police check,” Las Vegas Sun, July 28, 2009. See also, “Rio indefinitely closes adult-themed Sapphire Pool,” Las Vegas Review Journal, July 30, 2009.
2 Jane Ann Morrison, “$500,000 fines make bigger impressions on casinos than polite letters,” Las Vegas Review Journal, July 30, 2009. See also, “Metro: Prostitution, drug activity found at topless Rio pool,” Las Vegas Sun, July 29, 2009.
3 Mary Manning, “8 arrested in undercover operation at Hard Rock’s Rehab pool,” Las Vegas Sun, Sept. 8, 2009.
4 Mary Manning, “Regulators expand probe at Hard Rock’s Rehab pool,” Las Vegas Sun, Sept. 9, 2009.
5 Id.
6 Nevada Gaming Commisison Reg. §5.011 10.
7 Nevada Gaming Commisison Reg. §5.011 8.
8 Clark County, Nev. Code §8.20.570 (i)(1).
9 Id.

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