Obtaining a Restricted Gaming License in Nevada
09/01/2016

Overview

First-time visitors to Nevada are often amazed by the rows of slot machines adorning the entrances to supermarkets. Nevada is unique in that it allows business owners to supplement the income from their primary business with revenues from gaming devices. However, only certain businesses are eligible to have gaming devices. In order to place up to 15 slot machines at a business location, the business owner or company that places the devices must first obtain a restricted gaming license. The application procedure for a restricted gaming license appears complex and intimidating. Indeed, each application package begins with the ominous warning “an applicant for a state gaming license is seeking the granting of a privilege, and the burden of proving his/her qualifications to receive such a license is at all times on the applicant. An applicant must accept any risk of adverse public notice, embarrassment, criticism, or other action, or financial loss which may result from action with respect to an applicant, and expressly waives any claim for damages as a result thereof.” This booklet explains and demystifies the restricted gaming license application process.

What Does a Restricted Gaming License Allow a Business to Do?

A restricted gaming license permits the operation of a maximum of 15 slot machines in an establishment where the operation of such slot machines is incidental to the primary purpose of the business.

When Are Slot Machines Incidental to the Primary Purpose of a Business?

In determining whether the applicant’s proposed operation of slot machines is incidental to the primary business at a particular location, the Gaming Control Board (“Board”) and the Nevada Gaming Commission (“Commission”) may consider a variety of factors. These include:

• The amount of floor space used for the slot machines as compared to the floor space used for the primary business.

• The amount of investment in the operation of the slot machines as compared to the amount of investment in the primary business.

• The amount of time required to manage or operate the slot machines as compared to the amount of time required to manage or operate the primary business.

• The revenue generated by the slot machines as compared to the revenue generated by the primary business.

• Whether a substantial portion of the financing for the creation of the business has been provided in exchange for the right to operate slot machines on the premises.

• Other factors, including but not limited to the establishment’s name, the establishment’s marketing practices, the public’s perception of the business, and the relationship of the slot machines to the primary business.

What other amenities the applicant offers to itscustomers. It is important to note that any business licensed to sell alcoholic beverages at retail by the drink to the general public, that is located in a county whose population is 100,000 or more (i.e., Clark County), must satisfy the following requirements in order for it to be granted a license to operate 15 or fewer slotmachines:

• The business occupies an area comprised of at least 2,500 square feet which is open and available for use by patrons.

• The business contains a permanent physical bar.

• The business contains a restaurant which:

  1) Serves food ordered by patrons from tables or booths.

   2) Includes a dining area with seating for at least 25 persons in a room separate from the on-premise kitchen.

  3) Includes a kitchen which is operated not less than 12 hours each day the establishment is open for business to the public, or the entire time the establishment is open for business to the public if it is open for business 12 hours or less each day.

In practice, obtaining a restricted license for locations other than for bars, taverns, saloons, restaurants with a separate bar area, liquor stores, grocery stores, convenience stores, and drug stores typically poses a challenge. While you may occasionally find slot machines in other locations around the state (such as laundromats, gas stations and donut shops), these locations were likely “grandfathered” in years before the adoption of the newer location suitability standards. Bars, taverns, saloons, restaurants with a separate bar area, liquor stores, grocery stores, convenience stores, and drug stores are generally considered suitable locations for a restricted license, but the type of location may dictate the maximum number of devices allowed. Convenience stores and liquor stores are presumed suitable provided that no more than seven slot machines are operated at a convenience store, and no more than four slot machines are operated at any individual liquor store. Slot machines in grocery stores and drug stores also must be within a separate gaming area or alcove having not fewer than three sides formed by contiguous or partialwalls. Some facilities are unsuitable regardless of either type or location. Fast food restaurants, for example, are a type of business often considered to be unsuitable for gaming operations. By regulation, the Board and Commission may deny an application for a state gaming license if the location is deemed unsuitable because it:

• Is near a church, school or children’s public playground.

• Is in a place where gaming is contrary to a valid zoning ordinance of any county or city.

• Has a substantial minor clientele.

• Lacks adequate supervision or surveillance.

• Is difficult to police.

Who Needs a Restricted License?

Either the business operator or a licensed slot route operator must obtain a restricted gaming license. A slot route operator is a person who engages in the business of placing and operating slot machines upon the business premises owned and operated by another person. These operators maintain the machines, pay major jackpots and provide all accounting services. Where a slot route operator pays a flat rate per machine, only the slot route operator needs to obtain a restricted license. In instances where the business owner shares in revenues (revenue share) or operates the slot machines, the business owner must obtain a license. A person that owns multiple restricted gaming locations will generally be required to undergo a more comprehensive non- restricted background investigation for his/her third restricted gaming location. Lewis Roca Rothgerber has a guide to obtaining a non-restricted gaming license, which can be downloaded from our website at www.lrrc.com.

Which Individuals Associated With the Business Owner Need to File Applications and Be Licensed?

Nevada has different criteria for determining who needs to file an application and be licensed depending on the type of entity that owns the business where the slot machines are located. In the rare case where the owner is a public company, only shareholders owning more than 10% of any class of voting stock must apply. In most small businesses that apply for restricted licenses, the owner is either an individual or a private corporation. In these cases, each manager, officer and director of a private corporation must apply for a restricted license. Likewise, each individual owner or shareholder who holds more than 5% of the beneficial ownership of the private corporation must apply for a license. In certain circumstances, the general manager of a restricted location who is not otherwise subject to licensing must be licensed as a “key” employee. The most obvious circumstances would be when the owner of the business is not actively engaged in managing the business or resides outside of Nevada. Gaming regulators can also require anyone associated with the business to obtain a license. In essence, the Board is not restricted by the title of the job performed and may consider the functions and responsibilities of the individual.

What Needs to Be Filed?

Applicants for a restricted license must complete and submit to the Board an exhaustive application that covers their personal history and, in certain circumstances, limited financial information. The investigation for a restricted license is generally less expensive and intrusive

than an investigation for a full casino license. Nevertheless, Board agents still conduct a thorough criminal background check on all restricted applicants. Form 1: Application For Nevada Gaming License is a two-page document that asks for the identity of the individual applicant and the type of approval being sought. This form requests such information as the name of the applicant, mailing address, and a breakdown of the gaming devices to be offered for play at the proposed premise. If the applicant is a corporation, partnership or limited liability company, it must file Form 2: Application For Approval by Corporation/Partnership/Limited Liability Company. This form requests the names of all partners, directors, officers and shareholders, a breakdown of the percentage of ownership, notification of any bonus or profit sharing arrangements and a certified copy of either the Articles of Incorporation, Articles of Organization or a true copy of the Partnership Agreement. An application for registration by a holding or intermediary company is made on Form 3: Application For Registration by Holding Company/ Intermediary Company. The two most substantial forms found within the application submission package are the 12-page personal history record and a 10-page personal finance questionnaire. All individual applicants must file the personal history questionnaire. This questionnaire requires three character references and requests information regarding the applicant’s general profile, such as name, age, address, citizenship, prior residences and physical description; family information; military record; arrests, detentions, litigations and arbitrations; and employment history for the past 25 years. Only equity holders, such as individual owners, patrons or shareholders, must file the personal finance questionnaire. This form concentrates on the applicant’s financial standing and can be read in conjunction with Form 20: Source and Application of Funds. These two documents examine the applicant’s financial status; the amount of revenue to be invested into the proposed gaming establishment; the source of the revenue; and whether the applicant anticipates active participation in the management and operation of the gaming establishment. Each applicant must file documentation relating to the premises of the proposed gaming establishment. Form 15: Landlord/ Location Information Sheet requires the applicant to provide a meaningful narrative of the primary business; maximum occupancy allowed in the establishment; the business hours; whether or not minors will be patrons; and the location of the premises. An original floor plan also must be submitted with a minimum of three photographs of the premises, as well as a copy of the deed, lease, sublease, or other document evidencing the right of the applicant to occupy the premises for which licensing is sought. Additionally, Form 27 provides information relevant to whether the proposed operation of slot machines is incidental to the applicant’s primary business.

Finally, each applicant must file:

• Form 10: Affidavit of FullDisclosure.

• Form 17: Release and Indemnity of AllClaims.

• Form 18: Request to ReleaseInformation.

• Form 28: Fingerprint Receipt.

• Form 28A: Fingerprint Civil ApplicantWaiver.

These forms authorize the Board to conduct a review of the applicant’s criminal history and financial records and release the state from any liability resulting from said review. Most applicants retain a gaming attorney who is actively involved in the preparation of the application. The attorney’s primary responsibility is to ensure that all the information provided is accurate and complete. The gaming attorney should carefully review the documents to make sure that all the questions have been answered and have internal consistency. Places of employment should correspond to places of residence. Gaps in employment need to be explained. Any untrue or incomplete statement is grounds for denial and may result in disciplinary action. An experienced gaming attorney can also determine if any information provided requires further explanation in a supplemental exhibit to the application. Experienced gaming counsel can therefore ensure potential regulatory concerns are avoided.

What Type of Investigation Is Conducted?

Restricted investigations include exhaustive criminal background checks, but the financial investigations are typically limited to reviewing the source of funds, ownership structure, and limited corporate records. Investigations rarely involve examination of personal financial records. The agents, however, do enjoy a great deal of discretion. For instance, an agent may decide to investigate the source of funds depending on whether the funds appear to come from a regular lending agency or from a source that appears suspicious. Whenever questionable circumstances exist, or where a licensee owns three or more restricted locations, the agents will conduct a full financial investigation equivalent to that under a no restricted gaming license. You can refer to the Lewis Roca Rothgerber Christie Guide to Obtaining a Non-Restricted Gaming License in Nevada for more details on the non-restricted application

process.

What Happens After the Investigation?

After completing the investigation, the gaming agent completes a report and submits it to the Board. At that time, the Board will schedule the application for consideration at a public hearing and send notice of the scheduled hearing to the applicant by letter. The Board holds monthly meetings. The meeting agenda is divided into sections based upon the types of items. For example, hearings on applications for restricted licenses start at a certain time, usually 9.00 a.m. Most frequently, the investigation for the restricted license goes smoothly and the Board will not require the applicants to appear at the hearings where the application is being considered. About two weeks after the Board hearing, the Commission will hold a separate hearing for final consideration of the license. Applicants may be requested to attend these meetings and to testify as to matters of interest to the Board or Commission. Simply because an applicant must appear does not necessarily signal that the application has problems. In many cases, the regulators simply need additional information that may be relevant to their consideration of the application. Still, an applicant would be wise to be well prepared and ready to answer any questions that may be posed. Failure to appear and testify, unless excused, constitutes grounds for denial of the application. If the applicant is asked to appear before the Board, the applicant and his/her attorney should be present at the beginning of the hearing. Although applicants are given a specific time to be present for their hearing, they should be prepared to wait, sometimes for several hours, for their hearing. Once the agenda item is called, the applicant and legal counsel take their places at a podium facing the members of the Board or Commission. The Executive Secretary of the Board reads the agenda item as to who or what is properly before the Board for determination. Counsel and the applicant then identify themselves for therecord. Ordinarily, the Board allows the applicant to affirmatively prove his suitability. To this end, the applicant’s counsel may proceed with an opening statement, and call witnesses on behalf of the applicant.During the presentation, the applicantmayaffirmatively address areas of concern raised by the agents. The applicant and his witnesses may be subject to intense examination by the Board members. After the applicant presents his case, the Board may question the applicant about any aspect of his personal or business life that affects suitability. Although Board members generally use the investigative summary as a guide for their questioning, they are not constrained to the summary. The procedure may seem strange to a non-gaming attorney. Unlike a typical court case, where the attorney contends with opposing counsel before a neutral judge or jury, the applicant’s counsel presents his/her case to the same agency serving as both investigator and decision maker. Moreover, the applicant cannot examine evidence contained in the written summary prepared by the agents and cannot investigate or verify either the source or the accuracy of any information contained in the summary. After completion of the proceedings, the Board will issue to the Commission an order recommending the approval or denial of the application. In rare cases, the Board will refer the case back to staff for additional investigation. An applicant can also request a withdrawal of the application when the Board is unlikely to recommend approval. Although the Commission has the final authority to deny or approve a license, its hearings are generally shorter in duration than the Board’s. Commission members receive a full transcript of the Board’s hearings accompanied by written reasons upon which the order is based. In turn, the Commission need only to ask about matters not covered in the agents’ summary or in the transcript. The Commission hearing is similar to the Board hearing. The Chairman conducts the Commission hearing. Items are typically heard as listed on the Commission’s agenda. The Executive Secretary reads into the record the title of the matter, and counsel and the applicant then identify themselves for the record. The applicant is ordinarily given the opportunity to prove his suitability. The applicant may call witnesses and present documentary evidence. The Commission can ask questions or seek clarification of any point. The Commission Chairman has the authority to rule on all procedural and evidentiary matters that arise either in or between meetings. The Chairman’s authority can be temporarily abrogated by a simple majority of the Commission. At least one member of the Board will be present at the hearing to respond to questions from the Commission. The applicant may make a closing statement at the end of all discussion. Thereafter, the Commission will close the public hearing. Commission members may then discuss, in the open meeting, the merits of the applicant’s suitability or possible conditions to the license. After the discussion, one of the Commission members will make a motion. The most common motions are:

• To continue the matter.

• To refer the matter back to the Board.

• To deny the application.

• To approve the application with or without conditions or for a limited or unlimited duration.

• A combination of the foregoing.

The Commission’s voting rules are different from those of the Board, where a simple majority determines the action taken. If the Board has given a favorable recommendation on an application or had a tie vote, a simple majority of votes by the Commission will determine the action of the Commission. If the Board has recommended denial of the application, the Commission must have a unanimous vote in order to approve the application. If the Commission denies an application, the Commission must prepare and file a written decision setting forth the reasons for its action. No written decision is necessary after approval of an application.

How Much Does the Process Cost?

Each person, corporation, partnership, or other entity seeking licensing must pay an application fee of $150 and an investigation fee of $550. These fees are non-refundable. The Board may also require an applicant to pay supplementary investigative fees and costs, and require a deposit to be paid by the applicant in advance as a condition precedent to beginning or continuing an investigation. After all supplementary investigative fees and costs have been paid by an applicant, the Board shall refund to the person who made the required deposit any balance remaining in the investigative account of the applicant together with an itemized accounting of the investigative fees and costs incurred.

How Long Does the Process Take?

Because each licensing application is unique, the length of each investigation varies according to the individual facts. As such, no specific time frame for the investigative procedure is provided within either the Nevada Gaming Control Act or Regulation 4, which concentrates on the application procedure for restricted licensing. Within a reasonable amount of time after the filing of an application and such supplemental information as the Board may require, the Board commences its investigation. Typically, the process from filing to hearing will take about six to eight months, but this timeframe can be influenced by many factors, such as the completeness of the application, the diligence of the applicant in providing additional information, the workload at the Gaming Control Board, the number and nature of issues posed by the application, and the complexity of the business deal.

What Are The Typical Reasons an Application Might Be Denied?

A common question is what are the reasons an applicant might be denied? In essence, the regulators are attempting to decide how to best serve Nevada public policy. The regulators will not permit a person to engage in the gaming industry when their involvement is likely to result in regulatory violations or create a poor public perception because of the person’s poor reputation. Because of this, regulatory licensing issues typically concern either the applicant’s character, experience, cooperation, regulatory compliance or financial viability. Character issues on which a denial may be based include:

• Arrest or conviction of a crime involving violence; gambling or moral turpitude.

• An unexplained pattern of arrests.

• Arrest for cause for a gaming crime.

• Association with organized crime or unsuitable persons.

• Failure to list negative information on the application.

• Poor business ethics as demonstrated by civil cases, such as fraud or securities violations.

• Sustained or current illegal drug use.

• Discovery of unsuitable business practices such as bribes, tax evasion and the like. Failure to provide truthful and complete answers to the gaming agents. Regulatory compliance issues on which a denial may be based include:

• Prior unsuitable operation of incidental gaming operations.

• Poor, absent, or incorrect record keeping.

• A pattern of regulatory violations, whether intentional or not.

• Lack of diligence in completing the gaming application.

• Failure to respond in a timely manner to the agents during the course of an investigation. Financial issues on which a denial may be based include:

• Failure to demonstrate financial viability regarding maintaining gaming operations within your premises.

• Failure to show a legitimate source of funds.

• Ownership of any interest whatsoever in such premises by a person who is unqualified to or disqualified from holding a gaming license.

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