On May 30, 2011, Governor Sandoval signed Assembly Bill No 213 into law, which allows both individuals and entities (collectively “Persons”) to file applications for “preliminary finding of suitability,” even if the Person is not otherwise required to be licensed by the Nevada Gaming Commission.
As a result, Persons without an existing involvement with Nevada’s gaming industry or an agreement that gives them a right to such involvement are now provided the opportunity to apply for a preliminary finding of suitability. This preliminary finding provides the applicant with a means to address and resolve licensing risk prior to entering into major transactions or assuming employment positions. This is in contrast to the law that has reigned for three decades where any Person seeking to file an application for a Nevada gaming license has first had to be in a position in which licensing is mandatory under the Nevada Gaming Control Act.
Historically, the Nevada Gaming Control Board and the Commission have tried to ensure that all gaming applications considered by them would, if approved by the Commission, materialize into gaming deals and ventures. Regulators did not want to expend their limited time and resources reviewing, investigating and considering applications for deals not likely to proceed. Thus, for an individual applicant to be found suitable by the Commission he/she first had to be employed in a capacity that required such a finding of suitability, such as a director or principal officer of a gaming licensee. Similarly, in order for an entity applicant to apply for and obtain a gaming license, it had to be party to an agreement that would require licensure by the Commission.
The effectiveness of this regulatory stance during the boom years when the gaming industry in Nevada was expanding rapidly and the regulators were inundated with gaming applications cannot be questioned. The recent global economic depression and its damning consequences upon Nevada’s gaming industry, however, has spurred a focus upon making the market more accessible to both investors and qualified personnel in an attempt to attract greater investment capital back into the state and its gaming industry.
Accordingly, the enactment of A.B. 213 allows Persons to be found suitable or licensed by the Commission without having to take a position or consummate a transaction that would require licensing by the Commission. In short, this concept seeks to induce new Persons to enter the Nevada gaming market.
Assembly Bill 213
A.B. 213 begins by proclaiming that the Commission may, with the advice and assistance of the Board, adopt regulations governing the issuance of a preliminary finding of suitability to a Person.3 Furthermore, if such regulations are adopted, the Bill mandates that the regulations must:
- Provide that a Person must demonstrate to the satisfaction of the Commission that the Person has the suitability to become involved as a licensee but has not
otherwise entered into a position or transaction which would require licensing pursuant to this Chapter 463 of the NRS;
- Provide that a preliminary finding of suitability expires not more than two years after issuance by the Commission but may be renewed for additional periods of not more than two years as the Commission deems appropriate;
- Set forth standards for a Person to be issued a preliminary finding of suitability that are as stringent as the standards for a person to be issued a non-restricted
- Establish the fees for a Person to apply for, to be investigated for and to hold a preliminary finding of suitability;
- Provide that no Person may be issued a preliminary finding of suitability unless the Person agrees that, for the duration of the period in which the Person holds the preliminary finding of suitability, the Person will not seek or in any way engage in a corporate acquisition opposed by management; and
- Define the term “preliminary finding of suitability.”
In accordance with A.B. 213, the Board and Commission have begun to revise Nevada Gaming Commission Regulation 4, the regulation that addresses application
procedures for gaming licensees. As proposed, a “preliminary finding of suitability” is defined as “the commission grant of an application by a person who has not entered into a position or transaction which would require licensing pursuant to NRS Chapter 463 but wishes to submit to the jurisdiction of the board and commission for the purposes of obtaining a preliminary determination of whether or not the person is suitable to hold a non-restricted license under NRS Chapter 463.”
Along with defining a “preliminary finding of suitability,” the proposed regulation section would specify the requirements for preliminary findings of suitability, including, but not limited to, Persons who may apply, Persons who must apply, Persons who may not apply, the form of the application, the standards of review concerning an application, the effect of the Commission declining to approve an application, the duration of the Commission’s grant of the application, and the discipline which the Commission may impose on a Person who has obtained a preliminary finding of suitability.
In particular, the application for a preliminary finding of suitability will be in the same form as if the Person was applying for a non-restricted gaming license. Any
preliminary finding of suitability is a revocable privilege, and no holder acquires any vested right therein or thereunder. The Board shall have authority to recommend the granting, declining or the imposition of limitations, conditions or restrictions on any finding of suitability as well as revocation or suspension of any preliminary finding of suitability. Likewise, the Commission shall have full authority to grant, decline to grant, limit, condition, restrict, revoke or suspend any preliminary finding of suitability required or permitted. However, the Commission’s determination as to whether it grants an application for a preliminary finding of suitability or declines to approve such an application will not constitute actual or implied approval of any future applications for a gaming license, finding of suitability, or registration. Equally important, the Commission declining to grant an application for a preliminary finding of suitability shall not be considered a denial. Finally, a preliminary finding of suitability may not be sold, assigned, transferred, or disposed of in any manner.
Ramifications of Assembly Bill 213 and Regulation 4.100
As stated in our introduction, historically the Nevada gaming market has not been a market amenable to investors that seize upon deals when an opportunity arises. Instead, Persons have been required to enter into a binding agreement or take an employment position and then seek licensure by the Commission. This has deterred investors for several reasons. First, this regulatory stance has created the risk that after being in such a position, the Person may not be licensed by the Commission, notwithstanding all the time and expense expended in the application and investigative process. Second, and perhaps more importantly, Persons have had to expend a lot of time and effort in order to position themselves to do business in the Nevada gaming industry. For instance, there have been instances in the past whereby companies, which have had a strong desire to become involved in the Nevada gaming industry but have been unable to identify an entry date into the industry, have purchased small stock interests in private Nevada gaming companies as a means to undergo an investigation for a gaming license. Once licensed, these companies have then had the footing to more easily invest in subsequent acquisitions, often for more significant interests in gaming companies, because they have already been found suitable for involvement in the gaming industry in general.
However, following the introduction of A.B. 213 and its regulations, the Commission can grant preliminary findings of suitability that will attest to a Person’s general suitability but will not grant that Person any involvements in the gaming industry. In other words, the initial background check, conducted as part of the preliminary finding of suitability, is expected to shorten the investigation time necessary for a Person’s subsequent application for licensure with a gaming operation. Therefore, A.B. 213 and its regulations will allow Persons to position themselves more easily to invest in the Nevada gaming industry and also resolve any licensing risk prior to entering into a major transaction or assuming an employment position.
Even more intriguing is the opportunity now presented to current (or would be) Internet gaming operators. Specifically, such operators can request a finding of suitability and upon a finding of suitable be well positioned to act should the U.S. Congress legalize Internet gaming and utilize the regulatory services of Nevada.
In conclusion, the enactment of A.B. 213 and its regulations not only demonstrates Nevada’s commitment to maintaining investment in its traditional gaming industry,
while not diminishing the strong requirements for suitability, but also to positioning Nevada and its regulators at the forefront of the interactive gaming industry
in the U.S., should Congress legalize Internet gaming.