Opinion: The hurdles of gaining a Nevada licence

Companies hoping to operate their own US online gaming sites face a substantial hurdle. Under Nevada regulations only existing Nevada casino licensees will be eligible to become licensed internet gambling operators. There are certain other requirements, depending on the location of the establishment within the state, that require existing licensees to have either a resort-hotel, a certain number of rooms or seats, or have held a licence for at least five years. If the Federal government passes legislation it will likely restrict operators’ licences to casinos, Indian tribes, racetracks and card rooms.

Still, under either system, there will be room for European operators and others to get in on the action.

This is because there will be no similar limitations regarding who is eligible to be a service provider as there is for operators or manufacturers. A licence to manufacturer interactive gaming systems would allow the holder to manufacture, assemble or produce an interactive gaming system. A service provider licence would allow the holder to operate a gaming site on behalf of a licensed operator even to the extent of providing a complete platform and managing all operations.

Here is an illustration of who would fall into these three different categories:

Let’s assume Company A built a software package that it wanted to sell to casinos. To do this, the company would have to apply for a manufacturer’s licence. If a casino bought such a system from Company A and wanted to start taking bets, it would need an operator’s licence. If, however, the casino did not want to run its own online poker site, it could hire Company A or another service provider who would obtain a service provider’s license, allowing it to run the site for the casino.

If Company A supplied and managed the system, it would need both a manufacturer’s and service provider’s licence.

Manufacturers and these types of service providers must undergo a non-restricted licence investigation, the industry’s most stringent background investigation. This investigation is reserved for people holding the highest level positions in the gaming industry, such as owners or top management.

If the Federal government adopts a regulatory scheme, it will likely allow established regulatory regimes, like Nevada, to issue licenses for operators, manufacturers and service providers. The Nevada gaming regulators have specially trained agents that conduct these investigations, which equally focus on the individuals associated with the company making the application as the company itself.

On the company side, the investigation looks at the company’s history of legal and regulatory compliance, business practices, finances, and tax compliance. More time is typically spent, however investigating individuals.

Nevada law has very complex rules on who needs to file applications, which depend on the type of entity such as publicly traded or privately held or a partnership, LLC or stock corporation. Generally, however, it is meant to capture key employees like the CEO, CFO and CTO and senior directors and major shareholders such as those owning 5% or more of a private company or 10% or more of a public company (with several exceptions).

The cost of the non-restricted investigation will vary based on the number of persons that must file applications and the complexity of their personal and financial background. Because the applicant must pay the costs of the investigation, it is an expensive proposition. A non-US company with five individual applicants can easily spend more than a million dollars in fees that must be paid to the regulators. The investigation can take more than nine months to complete. Each individual and the company must complete extensive application forms including personal history and financial disclosure forms that provide the gaming regulators with a wealth of useful information that can build a framework on which to conduct the investigation.

The investigations themselves involve both background and financial agents. The background agents check areas such as criminal background, education, litigation history, associations, and reputation. Financial agents typically request five years of records and do a complete audit that traces all significant sources and uses of funds by both the company and the individual applicants.

After the agents have exhausted all investigative means, they prepare a confidential report for the Nevada regulators. The applicants then must undergo two public hearings where they may be questioned in depth about any areas of interest or concern that the regulators may have regarding their business acumen, financial capabilities or suitability. Only after this gruelling process may applicants be considered for a licence.

Anthony N. Cabot is the gaming law practice group leader at Lewis and Roca, a full-service law firm with offices in Nevada and throughout the Southwest. For more information on this topic, you can request a PDF copy of Cabot’s booklet, “How to Obtain a Non-Restricted Gaming License in Nevada.” He can be reached at acabot@LRLaw.com or 702.949.8280.