The Hard Rock Casino: An In-Depth Observation

Constitutional Questions? Or Is There Something Else Involved?

by David Thompson, publisher

A Sorry Tale

The Background

The Hard Rock casino is located in Las Vegas, off the Las Vegas "Strip". The casino's management, anxious to find a niche in the highly competitive Las Vegas market, decided to try to attract "a young, edgy demographic and be known as a fun place." The kind of fun favored by the "young, edgy demographics" soon became apparent.

In May 2000, after a month-long investigation by the Las Vegas Metropolitan Police Department (Metro) into drug-dealing at the Hard Rock's "Baby's" nightclub, the Hard Rock fired the nightclub's management staff. According to insiders, the investigation began after a former Hard Rock employee was allegedly arrested with a large amount of Ecstasy.

Insiders said that, in addition to ecstasy sales, problems included guests being allowed in without having to pay a cover charge and bartenders overcharging for cocktails while management and security looked the other way. "A gaming license is not something you want to mess around with," one insider was quoted as saying. "The hotel just doesn't need the liability of what was going on down there (at Baby's)."

One year later, three more problems came to the attention of law enforcement. On July 15, 2001, Hard Rock surveillance tapes showed "overt sexual activity taking place above the dance floor in a so-called 'private' booth that is visible to the public." GCB agents witnessed more inappropriate sexual conduct by patrons in the private booths on July 20, 2001, and a third incident was captured on a July 22, 2001 Hard Rock surveillance tape. In every case, the overt sexual activity in the "private" booth was visible to the public, in violation of State law.

The State Gaming Control Board (GCB) filed a five-count disciplinary complaint against the casino. In addition to the claim that Hard Rock security guards had permitted public sex acts in "Baby's" nightclub, the complaint alleged that Hard Rock surveillance cameras were turned on patrons "beyond the time necessary to reasonably determine whether illegal activities were occurring," inconsistent with normal surveillance protocol. The GCB said the surveillance tapes' focus on customers was apparently meant for "self-gratification," but declined to explain further. According to the GCB, the Hard Rock also inappropriately photographed GCB agents, following them around the property while they were conducting their investigation. Finally, the Hard Rock was cited because its director of finance, James Bowen, was elected as an officer in April 2000 but did not file for a gaming license until June 20, 2001 -- more than a year past the deadline.

On July 25, 2002 the Hard Rock admitted all counts of the GCB complaint and paid a fine of $100,000 to the Nevada Gaming Commission, the administrative agency which oversees the operations of the GCB. This 2002 settlement, approved by the Gaming Commission, required a mandatory review by Hard Rock compliance officers of any "questionable elements" contained in advertising.

In 2003, bypassing the mandatory review by Hard Rock compliance officers of any "questionable elements" contained in advertising, the Hard Rock casino began a new and controversial public relations campaign. The first of the advertisements, which appeared on billboards in January 2003, was extremely controversial -- it featured a topless woman holding a pair of dice strategically concealing her nipples, with the caption, "We sell used dice." The Clark County Planning Division and Public Response Team termed the advertisements obscene and ordered the Hard Rock and Lamar Advertising to remove them from public display.

Other ads followed. At a licensing hearing on November 5, 2003 for the Hard Rock's new president, Kevin Kelley, GCB member Bobby Siller questioned the judgment of Hard Rock management in permitting such advertising. Siller questioned the wisdom of the Hard Rock permitting an MTV reality television show in which an unsuspecting couple checked into a hotel room and found what was believed to be a body inside, and said he was unhappy with the Hard Rock's football promotion ad, tagged "the big score," which had references to the use of drugs. Siller also said one of the Hard Rock's ads, which prominently displayed playing cards and poker chips, showed a man and a woman in seductive poses with the tagline "There's always a temptation to cheat," suggesting that cheating occurs in casinos.

"There has to be some accountability," Siller said.

More ads followed. A billboard ad which ran during the National Finals Rodeo featured a barely clad woman with her panties around her ankles. The Hard Rock slogan read: "Get ready to buck all night." A radio ad promoting Monday Night Football for the Hard Rock's "young, edgy demographics" declared: "At the Hard Rock we believe in your Monday night rights: large quantities of prescription stimulants, having wives in two states ... Tell your wives you are going; if they are hot, bring them along." Another ad showed a truck driver surrounded by women at the Hard Rock pool. The slogan was: "Rehab" spelled with the "R" shaped like the prescription drug symbol Rx.

By the beginning of this year, the GCB had had enough. On January 21, the Board unanimously approved and filed a three-count complaint alleging that the Hard Rock's sexually suggestive ads amounted to a "failure to conduct advertising and public relations in accordance with decency, dignity, good taste, honesty and inoffensiveness" in violation of a state gaming regulation against unsuitable methods of operation. The ads cited by the GCB were the Hard Rock's "There's always a temptation to cheat," "Get ready to buck all night," and the "Monday night rights: large quantities of prescription stimulants, having wives in two states."

The GCB was not the only group concerned with the problem. At a Nevada Gaming Commission (NGC) meeting in Las Vegas on March 18, about 300 citizens showed their support for the GCB's position and asked the NGC to take additional action against local hotel-casinos that sponsor indecent billboards.

On April 22, Hard Rock President Kelley announced that his company had reached a stipulated settlement of the disciplinary complaint with the GCB and the State Attorney General's office. The Hard Rock agreed to pay $100,000 fines for each of the three counts of the complaint, and the settlement Hard Rock did not intentionally seek to promote casino cheating, drug use or other illegal activity.

The settlement directed the Hard Rock to pay closer attention to its in-house compliance committee, consisting of Hard Rock Chief Financial Officer Jim Bowen, Chief Executive Officer Kevin Kelley, former Nevada Gaming Commissioner Bob Lewis and Brian Ogaz, vice president and assistant to Chairman Peter Morton. The compliance committee was tasked to review "questionable elements" of Hard Rock promotional materials.

In the settlement, the Hard Rock acknowledged that its commercial free speech rights are "subject to constraints imposed by federal, state or local law; and that any violation thereof may reflect on the repute of the gaming industry in Nevada" -- in other words, the Hard Rock's ads could not advocate illegal activity.

According to GCB Chairman Dennis Neilander, the board's main objection was to the drug and cheating remarks made in two Hard Rock ads. The GCB had less concern about the "Get ready to buck all night" spot but was troubled that Hard Rock's management had not complied with their 2002 agreement to internally limit their sexually suggestive advertising content.

On May 5, the GCB approved the Hard Rock settlement, which was also endorsed by the State Attorney General's office. The only remaining formality was to have the terms of the agreement approved by the Nevada Gaming Commission (NGC), a five-member supervisory body which, with few exceptions, has historically almost always agreed with GCB recommendations.

The GCB went into the hearing with a reputation for skillful and diligent investigations of serious issues in Nevada gaming regulation -- money laundering, illegal sports betting syndicates, and defective chips in electronic gaming devices.

Certainly, to the public, the odds of NGC ratification of the settlement appeared to be well-worth betting on.

The Controversy

It was right at this point, however, that things got very, very strange. First, on May 20 the Nevada Gaming Commission unanimously rejected the Hard Rock settlement, and set the three count disciplinary complaint for trial. Then, at a hearing on pretrial motions held September 24, the Nevada Gaming Commission threw out 2 of the 3 counts of the GCB's disciplinary complaint. The two dismissed counts were the charges directed against Hard Rock's advertising. The sole surviving count -- which involved the Hard Rock's failure to live up to the terms of the 2002 agreement -- was set for trial. NGC chairman Pete Bernhard recommended that Hard Rock attorney Jeffrey Silver and Control Board attorney Toni Cowan settle the last remaining issue in the case.

Why would the Nevada Gaming Commission not only meddle in, but unanimously disavow, a settlement agreement which the GCB had endorsed, and which was agreed to by all the parties?

Why would the Nevada Gaming Commission tell the GCB and the Attorney General's office to settle a matter before trial, when the Gaming Commission had already rejected a previous settlement of the same matter agreed to by the adverse parties?

What we do know is that the Gaming Control Board -- a law enforcement group distinguished for its achievements -- has been disavowed by a unanimous vote of the Nevada Gaming Commission unnecessarily, publicly and in a trivial, even inconsequential matter. What we don't know is why.

The explanations of the Nevada Gaming Commission have so far been contradictory and unconvincing.

The opening question is why the Nevada Gaming Commission felt compelled to intervene at all to reject the settlement between the GCB, the Attorney General's office, and the Hard Rock Hotel-casino. The parties had all agreed to the settlement. If everyone involved in the dispute amicably agreed to resolve it, why overturn the table?

Yet that's exactly what the Nevada Gaming Commission did. At the May 20 public hearing, several commissioners rushed to attack and even ridicule the settlement.

When Senior Deputy Attorney General Toni Cowan argued that the "There's always a temptation to cheat" ad encouraged casino players to cheat at table games, Gaming Commission Chairman Peter Bernhard and Commissioner Augie Gurrola said it was absurd to allege that the company was trying to encourage customers to go into the casino to cheat and that the word "cheat" could as easily be construed to have another meaning. Both commissioners expressed doubts that any reasonable person could realistically interpret the Hard Rock ads as promoting illegal activity.

According to Gurrola, "I don't believe any operator in their right mind would condone cheating in their businesses."

This kind of talk, of course, is grossly insulting. Bernhard and Gurrola are saying that it was unreasonable for the GCB and the Attorney General's office even to be offended by the ads, much less to have the audacity to bring a disciplinary complaint against the Hard Rock for them. Apparently the Hard Rock hotel-casino executives were also unreasonable in settling the complaint.

Commissioner Augie Gurrola said he was deeply concerned not only about the Hard Rock case, but about the implications of the proposed settlement for the gaming industry. So is the publisher of The Nevada Observer. The short-sighted, self-basting acts of the Commission in overruling the actions of the Gaming Control Board and the Attorney General's office threaten the gaming industry more than he knows.

Gurrola claimed he was concerned the proposed deal might elevate the Hard Rock's internal compliance procedures to the status of state regulations, allowing unelected "compliance committees" to create potentially absurd standards for what can and cannot appear in casino advertising.

This imaginary threat can be safely discounted, however, since the Nevada Gaming Commission had the choice of treating the settlement as a precedent or not. Furthermore, commissioners tried to argue the other side of the argument as well. When Hard Rock Attorney Jeffrey Silver said the Hard Rock simply wanted to dispose of the matter and avoid the cost of defending itself in a hearing, the Commission suggested that it was going to be left without any precedents to provide guidance on future advertising issues.

This argument starts nowhere and went nowhere. The settlement was either going to be treated as a precedent, or it wasn't. And given the fact that the Commission dismissed both advertising counts in the GCB disciplinary complaint, it appears clear that the commissioners had no interest whatsoever in regulating future advertising issues in gambling. Once that point is understood, the commissioners' arguments start to look a lot like a fog machine.

At the public hearing on May 20, Gurrola and Commissioner Ray Marshall also objected to the proposed compliance process because it failed to clarify who would decide what was questionable, instead referring the question to a committee that has no enforcement authority. Marshall also claimed the precedent set by the settlement would damage compliance procedures throughout the gaming industry: "Compliance committees work when they are seen as being advisory, but not creating liability. If that is not the case, management will be reluctant to consult and members will be hard to recruit."

This argument is just more fog from the fog machine, since these two commissioners voted against having any "compliance process" at all in the case.

Also at the public hearing, the Gaming Commission members attacked other aspects of the settlement. Commissioner Arthur Marshal repeatedly questioned the $300,000 total figure for the fine that all of the parties had agreed upon, and Commissioner Radha Chanderraj said she thought the fine was excessive.

Well, isn't that nice! Some of our commissioners thought that the GCB and Attorney General's office were being unreasonable bullies, too, even though the Hard Rock had agreed to the amount of the fine. How necessary were these commissioners' comments, considering that they would later vote to dismiss the two ad counts of the complaint? TNO will leave it up to our readers to decide whether they were just being public-spirited, or piling on cheap shots.

At the hearing, commissioners also questioned a letter from GCB member Bobby Siller, addressed to Gaming Commission Chairman Peter Bernhard and saying he was concerned that despite promises from company management that they would avoid problems with the compliance committee in place, that didn't happen: "In particular, concerning advertisements, I was told, both in writing and orally, that future Hard Rock advertisements which contain 'questionable elements,' would be channeled through the compliance committee. . . . This committee was composed of Hard Rock management and other individuals experienced in gaming in Nevada and sufficiently mature to assure that any advertising or promotion effort to reach the young crowd would not violate gaming regulations. Unfortunately, I have been disappointed."

Siller concluded by saying: "Should the Hard Rock fail in this effort again, I will seek for other board members' and the commission's consideration, not a fine for any subsequent failure, but disciplinary action against its license."

Why would the Gaming Commission raise this point, at a meeting where its members unanimously voted not to accept the settlement agreement at all? Why would the commissioners find it appropriate to "personalize" their decision by publicly referring to Mr. Siller's letter? Was it to show to all the world that the commissioners had read it, considered it, and rejected it utterly?

Immediately after the May 20 hearing, Gaming Commission chairman Peter Bernhard made a number of statements to the press which added to the mystery.

Bernhard denied that any constitutional issues were germane to the question of whether the proposed settlement was appropriate. He said that the constitutional issues, as well of the content of the ads, would be argued if no other settlement is accepted and the case actually proceeded to trial.

According to Bernhard, the five-member Gaming Commission which oversees the Control Board's regulatory authority had trouble understanding what the board and the Hard Rock were asking it to approve. "By the time we finished the two-hour meeting, I felt like I didn't understand how the stipulation would be interpreted in the future by the Hard Rock and the Gaming Control Board," Bernhard said.

This comment is interesting too. Bernhard is saying that he and the other members of the Gaming Commission "didn't get it," so instead of trying to understand the settlement, they just rejected it unanimously. Apparently the GCB, the Attorney General's office and the Hard Rock didn't have any problem understanding the agreement, and recommended it for NGC approval. How rational or competent does the Gaming Commission's rejection seem to you under those circumstances, Mr. and Ms. TNO reader? Or put another way, how plausible does that seem to you, within the context of the commissioners' verbal attacks on the settlement agreement?

Before the NGC public meeting on May 20, the issues had been defined by NRS 463.0129, which reads: "Public policy of state concerning gaming; license or approval revocable privilege.

1. The Legislature hereby finds, and declares to be the public policy of this state, that:

(a) The gaming industry is vitally important to the economy of the State and the general welfare of the inhabitants.

(b) The continued growth and success of gaming is dependent upon public confidence and trust that licensed gaming and the manufacture, sale and distribution of gaming devices and associated equipment are conducted honestly and competitively, that establishments which hold restricted and nonrestricted licenses where gaming is conducted and where gambling devices are operated do not unduly impact the quality of life enjoyed by residents of the surrounding neighborhoods, that the rights of the creditors of licensees are protected and that gaming is free from criminal and corruptive elements.

(c) Public confidence and trust can only be maintained by strict regulation of all persons, locations, practices, associations and activities related to the operation of licensed gaming establishments, the manufacture, sale or distribution of gaming devices and associated equipment and the operation of inter-casino linked systems.

(d) All establishments where gaming is conducted and where gaming devices are operated, and manufacturers, sellers and distributors of certain gaming devices and equipment, and operators of inter-casino linked systems must therefore be licensed, controlled and assisted to protect the public health, safety, morals, good order and general welfare of the inhabitants of the State, to foster the stability and success of gaming and to preserve the competitive economy and policies of free competition of the State of Nevada.

* * * * *

2. No applicant for a license or other affirmative commission approval has any right to a license or the granting of the approval sought. Any license issued or other commission approval granted pursuant to the provisions of this chapter or chapter 464 of NRS is a revocable privilege, and no holder acquires any vested right therein or thereunder."

The "Spin"

After the May 20 meeting, however, things began to take on a different spin.

The issue of obscenity had not been raised by either the Hard Rock or the GCB. Obscenity had been recognized as a non-issue in disciplinary complaints for over forty years, ever since a Nevada Attorney General's Opinion in 1961 declared: "Indecent exposure and obscenity are properly handled by local law enforcement instead of by the commission. Under the provisions of former NRS 463.130 (cf. NRS 463.0129) and NRS 463.140, the Nevada gaming commission is authorized to set standards of suitability for entertainment in gambling establishments in protection of public morals, and to enforce such standards by disciplinary action against a gaming licensee, but matters of indecent exposure and obscenity are to be properly controlled by local law enforcement under criminal statutes and ordinances. AGO 242 (9-1-1961)."

In the portion of the May 20 meeting devoted to public comment, Carole Gates, speaking on behalf of "American Mothers Inc.", said: "I represent thousands of mothers here in town and across the nation who are so grateful that you have upheld our community standards by fining the Hard Rock Hotel and Casino for its vulgar billboards. . . . We, who are here today, are not puritans nor prudes. . . . But we are decent people, as are you, who want our children and families to experience the good of Las Vegas and Nevada. We look to you to protect us." However, neither the parties to the disciplinary complaint -- the GCB, the Attorney General's office and the Hard Rock hotel-casino -- nor the Nevada Gaming Commission were particularly interested in the "vulgarity" of the advertising. The focus was on whether or not the ads promoted illegal activities

Following the Nevada Gaming Commission's meeting on July 29, however, media reports on the NGC's actions began to recast the Hard Rock issue as one of freedom of speech. On July 30 it was possible to read a statement like this: "Despite two months of talks between the Hard Rock Hotel and the state attorney general's office, the Nevada Gaming Commission on Thursday said larger policy issues affecting the industry and the community had to be addressed before the casino's allegedly pornographic advertising case can be resolved. (emphasis added)"

and this: "Gaming commissioners in May were reluctant to establish a policy that could be considered prior restraint and that would have industry-wide implications without community and industry input and full public hearings."

Notwithstanding this declaration, the Nevada Gaming Commission wouldn't even give the GCB and the Attorney General's office more time to resolve the issues through negotiations before scheduling a trial. When the Attorney General's office asked for an extension of time, the NGC turned them down: "I'm reluctant to put a complaint on hold any time someone says there's a policy issue," said Commission chairman Peter Bernhard. Both the Hard Rock casino and the Attorney General's office remarked that the principal obstacle to any renegotiated settlement was a lack of guidance from the Gaming Commission.

So what was going on? At the time the Nevada Gaming Commission rejected the Hard Rock-GCB settlement, there had been no mention of "larger policy issues affecting the industry and the community," which "had to be addressed" before the case could be resolved. What were these larger policy issues? While the Nevada Gaming Commission didn't get specific, an informed reader could make some educated guesses.

Perhaps the most obvious thing an observant reader might notice was the unsatisfactory, contradictory reasons which the Nevada Gaming Commission had given on May 20 for unanimously rejecting the settlement. Senior Deputy Attorney General Cowan and her opposite number for the Hard Rock casino, Jeffrey Silver, both expressed surprise. "I had no indication of what was going to happen," said Silver: "What the commission did was unprecedented." Hard Rock Hotel President Kevin Kelley also said that the Commission's rejection of the settlement had surprised him. The fact that the NGC's action was based on no discernable policy other than antagonism and lack of understanding could be considered a "larger policy reason" -- they needed to come up with something plausible, some kind of explanation for their act.

Another related factor in the search for a "larger policy reason" was that, while the commissioners had not settled on a reason for the rejection of the settlement, nevertheless it was rejected unanimously. A curious observer might wonder whether the appearance of Bill Bible, president of the Nevada Resort Association, who sat through the May 20 hearings with his good friend, Frank Schreck, a politically connected gaming lawyer representing several larger casinos, was only coincidental, or it had something to do with the NGC's unanimous decision.

Also, there was R&R Advertising's multimillion-dollar national television ad campaign for the Las Vegas Convention and Visitors Authority: "What happens here, stays here," with its subliminal message of political fixes for any problem. Although the Gaming Control Board had not shown any inclination to challenge this pernicious message, it could serve as a somewhat plausible excuse for reigning in the GCB.

Fortunately for the Nevada Gaming Commission, they were quickly able to get some outside help in finding a rationale for what might otherwise appear to have been their irrational snub of the GCB and Attorney General's office in the Hard Rock case.

For some time, the Nevada chapter of the American Civil Liberties Union (ACLU), abandoning its usual role as advocate for the underdog, had been waging a battle against the GCB generally, and the Hard Rock disciplinary complaint in particular. Gary Peck, the state ACLU executive director, offered the services of his organization to any gaming company that wanted to challenge such regulations and "the commission's claimed authority to act as censor." Allen Lichtenstein, general counsel of the Nevada ACLU, ridiculed the Gaming Control Board's complaint against the advertising as "a bogus issue." "Nobody seriously can believe that the Hard Rock was advertising for people to come and cheat the Hard Rock," Lichtenstein said. "That notion is silly. Clearly, it was a play on words. It exemplifies why the Constitution and the Supreme Court do not permit government agencies to act as a censor because results may be politically popular among some people."

On August 23, the Hard Rock casino filed a motion with the Nevada Gaming Commission to dismiss the disciplinary complaint, ignoring the original issues and instead arguing that "a government agency ... cannot act as a censor based on its perception about what it considers to be in good taste."

The Hard Rock brief continued: "Absent any inherently misleading statements or any statements advertising illegal products or services, any attempts to regulate advertising content are presumptively unconstitutional." . . . "even if one accepts the complainant's argument that an infinitesimal minority of patrons may misunderstand the satirical nature of the advertisements, courts have made it clear that only 'inherently deceptive' and not 'potentially deceptive' advertisements may be prohibited."

Significantly, the argument concluded: "Moreover, given current Las Vegas community standards, the advertisements, as a legal matter, also cannot be characterized as obscenity," the motion says.

Simultaneously, following NGC chairman Bernhard's call for "community and industry input," both the Nevada ACLU and the Nevada Resort Association (NRA) filed "friend of the court" briefs with the Gaming Commission supporting the Hard Rock's position. The ACLU brief said that the core issue in the case was the unconstitutionality of Nevada's gaming laws -- in particular those regulations which permit sanctions against gaming license-holders who exercise their free speech rights in a way that state officials believe reflects unfavorably on the industry. NRA President Bill Bible said the Nevada Resort Association intervened in the case because it involved issues with industry-wide significance which could not prudently be ignored. The Nevada Resort Association's brief was authored by Richard Bryan, esteemed ex-Senator, ex-Governor and ex-Attorney General of Nevada, adding needed luster and prestige to the Hard Rock's argument.

Late on September 21, Gaming Commission chairman Bernhard said that, although he had solicited "community and industry input," he would not permit public input, including testimony from the NRA or the ACLU, at the September 24 meeting of the Nevada Gaming Commission to decide the Hard Rock's motion to dismiss. Instead, Bernhard said he would make an independent determination as to whether to accept the "friend of the court" motions. If he decided to accept them, he claimed that they would only be considered at trial in November if the commission rejects the Hard Rock's motion to dismiss the case. It didn't make any difference. The real purpose of the pleadings was to recast the disciplinary complaint as a freedom of speech issue and provide the Gaming Commission with some public support for their actions, and that purpose had already been accomplished.

On September 24, the Nevada Gaming Commission dismissed two of the three GCB disciplinary complaints against the Hard Rock casino. The constitutional issues, which NGC chairman Bernhard had said on May 20 weren't "germane" to the question of whether the proposed settlement was appropriate, formed the basis of the September 24 dismissal.

The Outcome

Many articles heralded the dismissal as a victory for free speech. This writer doesn't see it that way. This writer found the "It's more than just 'panties around the ankles ads,' it's about the Constitution!!!" argument wide of the mark, ridiculous and pretextual. The "free speech" spin on the Nevada Gaming Commission's actions was unrelated to their original decision to unanimously reject the Hard Rock settlement and was concocted to make that decision appear to have been rational.

A hotel-casino trying to attract "young, edgy demographics" to their gambling tables is not privileged to suggest that prostitution and drug abuse come with the territory. The Hard Rock casino has no more rights to "free speech" than liquor or cigarette companies have when advertising their products, and because their license is a privilege and not a right, they may properly be disciplined when their actions bring discredit upon this State, its inhabitants, and its laws.

This writer sees the dismissals as an unwarranted attempt to marginalize the GCB and the Attorney General's office with a "no-confidence" vote on a frivolous and unnecessary sideshow issue. The idea behind having a Gaming Control Board and a Gaming Commission is, and always has been, to allow the State to police its own affairs related to gambling so that the federal government doesn't. If the GCB is not going to be allowed to do its job properly by unwarranted "no-confidence" votes of the Gaming Commission, perhaps things have gone too far in this State. Perhaps the federal government ought to take a longer look at Nevada's immense sex industry, which is already accused of having corrupted a number of local government officials in southern Nevada. If things go on this way, perhaps the federal government should also look at some of the other problems that the GCB has been trying to address, such as multi-billion dollar sports betting syndicates, and the seemingly endless money laundering violations.