SENATE COMMITTEE ON JUDICIARY

MINUTES OF THE

SENATE Committee on Judiciary

Seventy-First Session

May 15, 2001

The Senate Committee on Judiciarywas called to order by Chairman Mark A. James, at 8:00 a.m., on Tuesday, May 15, 2001, in Room 2149 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Senator Mark A. James, Chairman

Senator Jon C. Porter, Vice Chairman

Senator Mike McGinness

Senator Maurice Washington

Senator Dina Titus

Senator Valerie Wiener

Senator Terry Care

GUEST LEGISLATORS PRESENT:

Assemblyman Richard (Rick) D. Perkins, Clark County Assembly District No. 23

Assemblyman Donald (Don) G. Gustavson, Washoe County Assembly District No. 32

Assemblywoman Merle Berman, Clark County Assembly District No. 2

STAFF MEMBERS PRESENT:

Bradley A. Wilkinson, Committee Counsel

Allison Combs, Committee Policy Analyst

Carolyn Allfree, Committee Secretary

OTHERS PRESENT:

Luther Mack, Nevada Athletic Commission, Department of Business and Industry

Glenn Carano, Nevada Athletic Commission, Department of Business and Industry

Dr. Elias F. Ghanem, Chairman, Nevada Athletic Commission, Department of Business and Industry

Kirk Hendrick, Concerned Citizen

Edwin Homansky, M.D., Nevada Athletic Commission, Department of Business and Industry

Kenneth Rohrs, Administrator, Division of Museums and History, Department of Museums, Library and Arts

James Barmore, Director, Nevada State Museum, Division of Museums and History, Department of Museums, Library and Arts

David Horton, Lobbyist, Nevada Freedom Coalition

Lynn Chapman, Lobbyist, Nevada Eagle Forum

Janine Hansen, Lobbyist, Independent American Party of Nevada

Janice Wright, Deputy of Cash Management, Office of the State Treasurer

Scott Sisco, Interim Director, Department of Museums, Library and Arts

Scott Scherer, Board Member, State Gaming Control Board

Dennis K. Neilander, Chairman, State Gaming Control Board

Brian E. Sandoval, Chairman, Nevada Gaming Commission

William Bible, Lobbyist, Nevada Resort Association

Robert D. Faiss, Lobbyist, MGM Mirage

Daniel M. Wade, Vice Chairman of the Board, MGM Mirage

Harvey Whittemore, Lobbyist, Nevada Resort Association

Anthony Cabot, MGM/WagerWorks, Inc., Las Vegas

Mark H. Fiorentino, Lobbyist, Boyd Gaming Corporation

Samuel P. McMullen, Lobbyist, Association of Gaming Equipment Manufacturers

Michael LaQuey, Concerned Citizen

Chairman James opened the hearing on Assembly Bill (A.B.) 446.

ASSEMBLY BILL 446: Revises provisions relating to unarmed combat. (BDR 41‑1195)

Assemblyman Richard (Rick) D. Perkins, Clark County Assembly District No. 23, explained the purpose of A.B. 446. Changes are required in Nevada’s laws inasmuch as sports over which the Athletic Commission has jurisdiction are changing. In addition, Nevada law needs to be made consistent with federal law, he stated.

Luther Mack, Nevada Athletic Commission, Department of Business and Industry, introduced himself and said he is available to respond to questions.

Glenn Carano, Nevada Athletic Commission, Department of Business and Industry, said A.B. 446 will help Nevada maintain its number one ranking in the sport of professional fighting.

Senator Care asked Mr. Mack to explain the purpose of registering a broadcast network, and what an investigation would entail. Mr. Mack deferred Senator Care’s question to Dr. Elias F. Ghanem, Chairman, Nevada Athletic Commission. A summary of the testimony from members of the Nevada Athletic Commission (Exhibit C) was provided to the committee. Senator Care disclosed his law firm has represented Dr. Ghanem on occasion, but the representation has had nothing to do with this legislation.

Dr. Ghanem made the following statement:

When fights come to Las Vegas and they have a $10 million purse or more, we do not know where that money is; we do not know who gets paid what. What we are trying to do is protect, mainly, the fighters. Usually, the managers or the promoters have 33 percent of the purse, but we do not know where all that money is disbursed. Does one-third of it go to the promoters, or do they take more? The managers? What does the fighter end up with? We have never had possession of that money. So, with this bill, I think we will be able to manage that the fighter will get his purse. What is really important [is], for the past years that I have been on this commission, my main objective was that the fighter get what he is owed . . . Most of those people, as you know, really end up broke . . . This bill will help us quite a bit to understand what is going on when they have a big purse . . . With the world organizations, for example, the rankings of the fighters is very important. A fighter could be number 10 or number 14 or 15 on their agenda, and all of a sudden he is down to number 1, and we would like to get into that and see how did he just . . . get ahead of 14 fighters within a day or two.

Kirk Hendrick, Concerned Citizen, Las Vegas, said he represented the Athletic Commission during the past 3 years and is currently of counsel for the law firm of Jones Vargas. He was appearing as a former state employee, and Jones Vargas had no interest involved in A.B. 446 or with the Nevada Athletic Commission.

Senator Care asked whether fighters are still at liberty to make their own deals with managers or promoters and whether the Athletic Commission has a role in determining whether the contract is equitable. Mr. Hendrick said the role of the commission would be to make sure the terms of a contract are honored. The commission is not concerned with the amount, only that the fighter receive the amount promised him.

Senator Care asked how a broadcast network would register with the commission, what the investigation would be, and where confidentiality enters in.

Mr. Hendrick responded:

Specifically to the investigative costs, those are much more important, for this particular bill, for the sanctioning organizations. Those are literally and truly world organizations that have outlets completely around the globe. So, the asking of investigative costs is necessary in case Nevada would have to do some limited investigation . . . outside of the United States . . . With regard to the broadcast networks, it is not quite as important . . . They are a federally registered entity, most of the time, with the FCC [Federal Communications Commission]. We are talking about . . . the major organizations that put money into the fight game. It probably will be minimal, if there is any investigative cost. But, the commission is asking for statutory authority in case there is ever a need . . . The confidentiality goes much more to the sanctioning organizations and to the promoters.

In the last session of the United States Congress, they determined that it was important for promoters and sanctioning organizations to notify all state commissions about the money that they are receiving from a fighter, from a fighter’s purse, and from a fighter’s contract. That law, however, ended up with a clause in it that said, if the state where the fight was occurring did not have a confidentiality provision to keep those documents from becoming publicly available . . . the promoter would then [have to] submit them to the voluntary organization known as the Association of Boxing Commissions. Indeed, that put Nevada in a position of being a backseat driver because we did not have confidentiality to protect the documents; so, that it ends up going to a voluntary organization that actually moves around from state to state. And, as Commissioner Carano mentioned, we think it is very important that Nevada remain the number one ranked organization anywhere in the world for boxing regulation.

Senator Washington, referring to the definition of “unarmed combatant” in section 4, subsection 2(b), asked how it pertains to the amateur boxer. Mr. Hendrick responded it does not relate to the payment of any fees; it simply is defining the term “unarmed combatant.” Senator Washington asked how this bill would affect Mike Tyson’s pending lawsuit with Don King Productions. Mr. Hendrick said A.B. 446 would not address that lawsuit. He added that if the provisions of A.B. 466 had been in effect at the time Mr. Tyson executed the contract with Don King Productions, the Nevada Athletic Commission would have been authorized to examine the contract.

Senator Care noted section 5 of the bill says, “the commission may require” an organization to register, and asked if that language is discretionary. Mr. Hendrick said it is discretionary and is not intended to be an ongoing process, because the commission does not have the staff to do that. He said the idea is for the commission to have statutory authority to register sanctioning organizations and broadcast networks.

Senator Care noted subsection 1, paragraph (c), of section 2 provides that any manager who receives or is entitled to receive at least 10 percent of the gross purse or gross income of any professional unarmed combatant would be affected by this bill. He asked whether a manager is usually a corporate entity and whether it might be possible to “skirt” the requirement in the event an athlete had two managers, each of whom received 8 percent. Mr. Hendrick pointed out that the provisions in section 2 are “or” provisions, and managers receiving 8 percent would be included in one of the other provisions.

Senator Washington asked whether the fees provided for in section 5, subsection 3, paragraph (a), are collected upfront. Mr. Hendrick responded section 5, subsection 3, paragraph (b), provides that an amount of money deemed necessary by the commission to pay for the costs be deposited with the commission. Any money not used would be returned to the registrant. The commission has not previously asked for attorneys fees, but the provision is here in case that should occur.

Mr. Hendrick said:

What we are very interested in, and what this commission wants to know is, how much money, after they have become registered, are they taking out of a fighter’s purse; it could ultimately be millions of dollars. As you have seen, many of these fight purses are getting so huge that these organizations are availing themselves of Nevada’s resources, coming into Nevada and taking the money out of Nevada, with literally no control over who is paying the money and where it ends up going.

Edwin Homansky, M.D., Nevada Athletic Commission, made the following comments:

The fees that we are talking about here are minimal . . . We chose the term “register” because it is a little more user-friendly and less confrontational. What we are looking for here is at least to have some legislative control over these entities. At this point in time, the commission really has no ability . . . to regulate these entities. With this bill, we will be more able to watch the welfare of the fighter. That is the whole purpose here; to make sure that if there is a purse . . . the fighter gets what he is due. The fees from the registration should be minimal, and we will be working in conjunction with the television networks and the sanctioning bodies. We do not see this as being confrontational at all.

Senator Washington questioned whether it would not be the fighter’s responsibility, if he has a big purse, to arm himself with enough attorneys to watch out for his best interest, without having the commission oversee it. Dr. Ghanem responded the fighter does not have lawyers or anybody else who will watch over his interests; the fighter has a contract with a promoter, and this bill will give the commission the power to ensure the fighter receives the contractually determined amount. The fighter is not protected in any other way, he said.

Chairman James closed the hearing on A.B. 446 and opened the hearing on A.B. 456.

ASSEMBLY BILL 456: Provides for issuance of gaming tokens by State of Nevada. (BDR 19-506)

Assemblyman Donald (Don) G. Gustavson, Washoe County Assembly District No. 32, explained A.B. 456 would allow for the issuance of silver gaming tokens through the Carson City Mint and other, private, mints. He said the purpose is to raise nontax revenue for the Nevada State Museum. Gaming tokens issued from the Carson City Mint would make a valuable collector’s item, he said. Included in the bill is the provision that up to 500 individually‑numbered coins could be issued by the Nevada State Museum as a collector’s item and could bring a little higher price than normal issue would. The Great Seal of the State of Nevada would be on the face of each coin to demonstrate loyalty to the state of Nevada and provide a royalty to the Division of Minerals for the reclamation and cleanup of mines. He said the committee established by A.B. 456 would work in cooperation with the Nevada State Museum to use Press No. 1 of the Carson City Mint to mint the coins, or contract the work out to other mints in the country. The first 500 coins should be made of .999 fine silver, he said, and would be a nice, shiny collector’s item. The coins minted for use in casinos would have an alloy in them to endure increased wear, he said. Assemblyman Gustavson said A.B. 456 has been amended to comply with Gaming Commission and Gaming Control Board rules.

Senator Washington asked Mr. Gustavson whether the silver legislative coins are printed by Carson City Mint’s Press No. 1. Mr. Gustavson replied both the bronze and the silver legislative coins are minted by Press No. 1 of the Carson City Mint.

Kenneth Rohrs, Administrator, Division of Museums and History, Department of Museums, Library and Arts, distributed a brochure describing Carson City Mint’s Press No. 1 (Exhibit D), and made the following remarks:

Coin Press No. 1 is an artifact; it is 130 years old; it is not an operating press. We use it for educational purposes, occasionally striking medallions, such as what we did for the Legislature, and, on a very limited basis, for historical and cultural organizations. We did the bicentennial coin for the State of Nevada and . . . we learned from that experience that we cannot use that press as an everyday operating press . . . We are in an awkward position here; we are not opposed to this bill; we are, however, opposed to using an artifact for a commercial venture . . . The one concern that we have . . . is that we are not permitted to use this to coin tokens or anything that has the appearance of currency . . . I would also indicate that the language of the bill is troubling because it provides nothing for the maintenance and repair of this 130-year-old artifact.

The language of section 4, subsection 4, says that the money in the account may be used to pay the costs of making and selling additional tokens. Well, I am not so sure that repair and maintenance, and our educational programs, fit within that language. Presently, any money that we make from the sale of the medallions goes for the mission of this museum, which is educational, and the repair and maintenance of the artifact . . . We would indicate, also, that the American Association of Museums has some pretty strong language with regard to accreditation. And, using this coin press to mint these gaming tokens is not within the mission of the museum . . . Mr. Barmore [James Barmore, Director, Nevada State Museum] is the person who is to make the decision regarding use of the coin press . . . but there is a policy of the Board of Museums and History that he must comply with . . . Coin Press No. 1 is an irreplaceable symbol of Nevada’s history; it is a treasure; it is not something that we should be using to make gaming tokens.

Senator Washington said, if he understands the bill correctly, the proposed tokens would not be large in volume, and would actually be collectors’ items. Mr. Rohrs clarified there is a limit of 500 for a design, but there is no limit on the number of designs. Senator Washington suggested a limit be placed on the number of designs.

Mr. Rohrs said the Division of Museums and History still has “fundamental issues” with regard to using an artifact for a commercial venture. Senator Washington replied, “My question is, if they are souvenir tokens that represent the historical value of the state of Nevada for patrons who come to our gaming establishments . . . and allow the state to generate some type of revenue on a limited basis, I would think that it would be . . . a win-win situation.” Mr. Rohrs explained that people from his division had met with Assemblyman Gustavson and raised some of their concerns, and this bill, as amended, does not sufficiently address those concerns. He said there would be a fiscal impact, yet there is no provision in the bill for the maintenance and repair of the coin press “which is now going to be used much more than it has ever been used in the past.” Mr. Rohrs said it is very expensive to repair the press.

Senator Washington asked whether it would be possible to make sure the minting of the coins is cost-neutral so the costs of maintaining and repairing the press are recouped from the printing and selling of the coins. He said he thinks it could be cost-neutral or even revenue-enhancing for the museum. Mr. Rohrs asked Senator Washington to consider what would happen if the mint breaks on coin number 25 of the first design and a $250,000 expense is incurred.

Senator McGinness asked Mr. Rohrs whether his concerns were raised in the Assembly Committee on Government Affairs. Mr. Rohrs responded they were not, because the museum personnel missed the hearing.

David Horton, Lobbyist, Nevada Freedom Coalition, spoke in support of A.B. 456 and said it could provide a cash flow for charitable organizations. The advantage of having the Carson City Mint mark, he said, is the coins could be sold for more than their face value. He said the bill is well reasoned and provides a potential for a nontax source of revenue.

Senator Porter asked Mr. Horton whether this is the same type of proposal he presented in the past. Mr. Horton said it is very different, but it evolved out of his original proposal. Senator Porter asked Mr. Horton whether this is an attempt to create a monetary system in Nevada. Mr. Horton replied creating a monetary system would require a statutory provision stating something is legal tender, and this bill does not do that.

Mr. Horton stated this bill has a different purpose. He explained the bill provides a means to offer a visitor a memento of Nevada and a reason to return to Nevada. He said it could also create a cash flow to maintain the press. Senator Porter said he wants to be sure today’s proposal is separate from prior ideas and thoughts. Mr. Horton assured Senator Porter this is completely different “so far as its thrust and what its effect would be.”

Lynn Chapman, Lobbyist, Vice President, Nevada Eagle Forum, brought silver coins and tokens for “show and tell,” commenting coins and tokens are wonderful gifts and keepsakes for travelers. She said she thinks A.B. 456 is a great idea for the state of Nevada.

Janine Hansen, Lobbyist, Independent American Party of Nevada, spoke in favor of A.B. 456. She recalled the silver dollars from when she grew up in Nevada. When she was in college she worked in a motel, she said, and tourists were always looking for souvenirs to take home with them. She said she believes the problems in the bill can be resolved, and the coins and tokens celebrating the unique heritage and history of Nevada would make wonderful souvenirs, whether they are minted at the Carson City Mint or not.

Janice Wright, Deputy of Cash Management, Office of the State Treasurer, pointed out that Article I, Section 10, of the United States Constitution, states that no state shall coin money. She said the Treasurer’s office has concerns about language in A.B. 456 concerning minting, and recommends changing the word “mint” to “manufacture” throughout the bill. At the end of line 22 (section 3, subsection 2), the Treasurer recommends adding a phrase that says, “The administrator shall not consider the face value of the token when determining the fair market value of any gaming token sold to a holder of a nonrestricted gaming license.” (Suggested changes to A.B. 456 from the state treasurer are outlined in a memorandum dated May 14, 2001, Exhibit E.)

Chairman James said, “You make all those commemorative ones, right? Who makes the ones for the Legislature?” he asked. Scott Sisco, Interim Director, Department of Museums, Library and Arts, said the museum manufactures commemorative medallions for the Legislature and other historical and cultural entities, but the medallions are all limited in size, and they are not mass-produced. “We did the commemorative one that was discussed earlier, and we learned our lesson from that one,” he said. The revenue from the coins manufactured on a limited scope goes into the museum to fund educational programs and upkeep of the equipment; but they are extremely careful about how many they do, in order to protect the artifact above all else, he said. Chairman James said he knows about that, but the coins they do manufacture do not have all the language being proposed by the Treasurer’s office. Mr. Sisco said that is correct, but they are clearly medallions and do not have the language being proposed in the bill, either.

Scott Scherer, Board Member, State Gaming Control Board, said he testified in the Assembly on A.B. 456 and the amendments made there satisfied most of his concerns. He said a number of issues will need to be addressed by regulation and through the regulatory system, even if the bill should pass. He said the name of the licensee would be required to be on the token. That is required by the applicable gaming regulations, he said, and this bill would make these subject to those regulations. He said he would be concerned about not having the dollar amount on the token. There are regulations currently requiring the denomination be on both sides of the token, he said, for the purpose of monitoring and reading the token from the surveillance camera and by security as they are walking by a table. He said, if disputes arise, it is important for them to be able to identify what denomination those chips or tokens are. The bill provides the tokens be issued in accordance with all applicable laws and regulations, he said, “and we interpret that to mean not only the gaming regulations, but also the federal treasury regulations.”

Chairman James said, “It may be a problem doing this, because one thing says you have to have a dollar on there and the other thing says that you cannot have it.”

Chairman James closed the hearing on A.B. 456 and opened the hearing on A.B. 578.

ASSEMBLY BILL 578: Revises provisions relating to gaming. (BDR 41-531)

Dennis K. Neilander, Chairman, State Gaming Control Board, said A.B. 578 is Gaming Control’s annual “housekeeping” bill and, for the most part, updates the statutes based on activities that have occurred since the last session. He said the bill was significantly amended in the Assembly and now contains several provisions from the industry not in the original bill. Mr. Neilander said he would discuss the original amendments to Chapter 463 of Nevada Revised Statutes (NRS) brought by the Gaming Control Board, and he provided a handout to the committee to supplement his discussion of the bill (Exhibit F). Turning to section 12 in the handout, he said they added the words “assumes responsibility for the design of” to the definition of manufacturer of gaming devices, in subsection 2. He said the board had difficulty, under the old language, allowing manufacturers to contract with somebody to design certain components of the system. They were concerned, he said, not to have the gaming mechanism and software intersecting with the cosmetics of the gaming devices. This codifies what the policy has been, he said.

Mr. Neilander explained pages 9 through 12 of A.B. 578 contain provisions related to taxes and fees. During the interim the board studied what other states do regarding payment of interest when refunding overpaid taxes or fees (Exhibit F), and established a policy based upon what they found. Section 21, having to do with publicly traded corporations, originally contemplated publicly traded corporations’ having stock issued on a national stock exchange, he said. But what has happened, he said, is several companies that are public by virtue of debt, but not stock, traded publicly on exchanges. So, he said, a proposed amendment to NRS 463.643 provides that a shareholder owning more than 10 percent debt security of a company registered with the Gaming Commission is subject to mandatory licensure. He said that is how it has been interpreted over the years, but they wanted to make it clear in the statute.

Chairman James asked whether this means someone who does not acquire more than 10 percent of the stock does not come within the licensing provisions. Mr. Neilander said that is correct, for the mandatory requirement, but they do have the discretion to license anyone. Chairman James pointed out if a person files voluntarily under section 13(d) of the Securities Exchange Act of 1934 he may own less than 10 percent but still be subject to mandatory licensing, which could create a burden on the Gaming Commission. Mr. Neilander said that is not the intent of this legislation; the intent is to capture the debt-only companies. He said he would have to look into the issue to make sure the board is accomplishing what it wants to accomplish. Mr. Neilander said the Gaming Commission has some clarifying amendments to offer with respect to the amendments added by the Assembly.

Brian E. Sandoval, Chairman, Nevada Gaming Commission, said he and Mr. Neilander had consulted regarding the Internet gaming portion of A.B. 578, and they are in complete support of the proposals.

William Bible, Lobbyist, President, Nevada Resort Association, spoke in support of A.B. 578, saying the bill is similar to one considered earlier by the committee regarding salon gaming, Senate Bill (S.B.) 283, “which was advanced in order to address the changing nature of gaming throughout the world and in order to keep Nevada in a competitive position in the world of gaming.”

SENATE BILL 283: Revises various provisions governing gaming. (BDR 41‑761)

Mr. Bible made the following statement:

This bill [A.B. 578] addresses changes in technology that have evolved over the years, and you now have Internet applications that are fairly widespread and generally operating illegally throughout the world. There is some regulation in Australia and there are going to be some regulations in Great Britain . . . The guts of the bill are contained in section 3, and I am working off of a sheet that is identified as “(A.B. 578 as it would appear if all of the attached amendments are adopted by the senate judiciary committee on May 15, 2001)” [Exhibit G] . . .

This bill, as I indicated, is authorizing legislation; if it is approved by the Legislature and signed by the Governor, it does not automatically implement Internet gaming in the state of Nevada. What it does is indicated in section 3 . . . What this bill would do would be to, as a policy matter, allow the gaming commission to adopt, under very stringent standards and conditions, Internet wagering, and to allow Nevada licensees to engage in that activity.

Robert D. Faiss, Lobbyist, MGM Mirage, explained the proposed amendments to A.B. 578, as follows:

Section 3, page 3, line 5, merely adds an additional requirement for the commission in adopting regulations, that it should set forth standards for the location and security of the computer system and for approval of the hardware and software . . . The other amendments come after “resort hotel.” This is language that was in the original bill, which dropped out in the flurry of amendments in the Assembly. The requirement was, for a resort hotel to qualify, it had to first hold a nonrestricted license to operate games and gaming devices. So, that language is inserted after “resort hotel” when that appears.

Section 3, page 3, line 36, by inserting language as subsection 5 . . . The reason for that is the establishment may well, for various reasons, want an affiliated company which . . . is actually the one that holds the license. In all cases, that is a controlled affiliate. Because of that change, there is a further amendment to [NRS] 463.245 as a new section 13. That section is . . . that you cannot have a license issued to an establishment if that would mean there is more than one license there. As this would be a new license, the restriction is put in there that it does not apply to an Internet gaming license. Those, essentially, are the amendments that were proposed by the MGM Mirage and the NRA [Nevada Resort Association].

Daniel M. Wade, Vice Chairman of the Board, MGM Mirage, made the following remarks:

We believe that the state of Nevada is not only the number one gaming state in the universe, but because of the ability of working with you through the rules and regulations that we will follow, hopefully you will find . . . that we have done a very, very detailed ‘bio’ of Internet gaming of what we know today . . . Internet is changing . . . and there are currently 1400 Internet sites out there today doing sports wagering and, of course, that is on the illegal side. We have been working on the NCAA [National Collegiate Athletic Association] aspect of that. But, on the Internet side, we believe that the state of Nevada, because of this, will be prepared and ready to go if and when it is legal.

Harvey Whittemore, Lobbyist, Nevada Resort Association, offered amendments to A.B. 578 jointly proposed by members of the Nevada Resort Association and others (Exhibit H). He explained the amendments, which deal with Chapter 463A of NRS, as follows:

As we move into the twenty-first century with discussions on interactive gaming, it is also important that we look at areas of the law which have not changed since the early 1970s. The history on [NRS] 463A is quite simple. It was adopted in 1975 and, basically, it was designed to control and to develop a finding that was appropriate at the level of union activity and our understanding of the nature of those activities that were in place some 25 years ago. The state at that time recognized that the relationship between labor organizations and employees it represented may affect the conduct of gaming operations. The state recognized that not all of those who wanted to represent employees were suitable for that task. So, what we are proposing in chapter 463A [of NRS] is to change 5 specific areas . . . A well-regulated gaming system is obviously important to the economy, and that is why we . . . are supporting A.B. 578 with respect to interactive gaming; it is also important to the welfare of the citizens. It is also done to foster public trust . . . by making sure that all activities are conducted honestly and free from crime and corruption.

This amendment seeks to make some standards that apply at the end of the process to also apply at the beginning of the organizing process . . . Why is it necessary? Because, at that point, the unions have immediate access to the employer’s property . . . It is when the unions will be able to exert pressure on an employer in terms of either pickets, boycotts, or other economic pressure; and, finally, because this process is open-ended and could potentially last for years, it would involve numerous agreements, including neutrality agreements and things like that. So, the state of Nevada should be able to obtain the greatest degree of knowledge and accurately monitor those activities to prevent malfeasance or difficulties before they happen.

Chairman James asked Mr. Whittemore how he defines the term “seeks to represent” and if it is an understandable term of art. Mr. Whittemore said it would be when a union files notice that it is going to start an organizing campaign on a particular property. “I do not think that the preliminary activities of contacting particular employees and finding out what the nature of the labor activities are in the state would necessarily rise to that,” he said, “but what we are trying to do is make sure the language which was originally adopted in 1975 really covers the activities which you are now seeing in, specifically, the Clark County and Washoe County areas.”

Chairman James said there are some mandatory things the labor organizations must do that are triggered by the time at which they seek to do something, and he asked if that conduct has been adequately defined. Mr. Whittemore answered that he thinks it is fairly consistent with what unions would expect to do. He said he can further define what activities would comprise “seeking to represent.” The beginning of the process provides the state’s greatest chance of determining whether the individuals involved in the process are appropriate and suitable for engaging in that conduct, he said.

Chairman James asked Mr. Bible to comment, and Mr. Bible replied that the activities a union is required to undertake are enumerated both in statute, in Chapter 463 of NRS, and in regulation. But, he said, if there is ambiguity regarding what “seek to represent” means, it would be best to codify it so there is a clear understanding as to what activities it entails. He said the key would be the union’s soliciting cards, and Chairman James said that should probably be put in the statute. He said, “If you have X company, who is a gaming company, and the culinary union wants to organize the employees, it is clear under the law now that they have to do certain things once they become the entity representing those employees . . . What you want to do is say that, when they go in and start trying to organize themselves . . . that also triggers the formal interest of the gaming authorities in who these people are.” Mr. Whittemore said that is correct, and the minute that happens, it triggers access to the employer. Chairman James said that moment in time needs to be defined.

Chairman James said he did not see representatives of the unions at this hearing and he would assume, if they were concerned, they would be here challenging the legislation. But, he said, if the activity is not defined, the law could be challenged as vague, because union activity is constitutionally protected. He asked Mr. Bible if the proposed legislation might cause any impediment to labor organizing activity that would be impermissible under federal law. Mr. Bible said he did not believe it would. He explained the reason this issue came to their attention is the state of Mississippi adopted the Nevada Gaming Control Act and its regulations “wholesale” and, when they got to this particular section, they changed Nevada’s provision to the provision being proposed today. He added that Mississippi has had no challenges to that area of the codes.

Mr. Whittemore stated he believes the state’s interest in protecting gaming is “so paramount” he did not think any challenge to these provisions would overtake the state’s interest.

Chairman James stated the inquiry as to whether adoption of regulations is consistent with the public policy of the state, provided for in section 3, subsection 2(c), is a legislative function, not a function for the regulatory authority. He said that language ought to be removed and replaced with language requiring determination that the regulations themselves are consistent with public policy. “Whether or not we should have interactive gaming and whether or not adoption of regulations by our gaming authorities would be consistent with the public policy I think is something we [the Legislature] have to decide,” he said. Mr. Bible agreed that, once the Legislature makes the public policy determination that Internet gaming is acceptable under certain conditions, then the conditions are laid out and implemented by the regulatory body. Chairman James said, “Exactly, and it is the function of the gaming authorities to ensure that whatever regulations they come up with remain consistent with our policy as stated by the Legislature.”

Anthony Cabot, MGM/WagerWorks, Inc., Las Vegas, author of Internet Gambling Report, was asked by Senator Porter about the concept of Internet gaming and its impacts on the community and the country. Senator Porter referred to Report No. 4 of Mr. Cabot’s book that discusses evolving technology and how it appears to be outstripping the ability of government to regulate it and enforce regulations, and asked Mr. Cabot what is happening in the marketplace in regard to Internet gaming. Mr. Cabot made the following remarks:

When I speak of the wild, wild west in Internet, it is because the Internet is a global phenomenon. What happens, basically, is . . . not a question of whether we have regulated or we prohibit Internet gambling; it is whether we have [it] regulated or we allow it to remain unregulated, as it is, substantially, with the 1400 sites that Mr. Wade talked about before. I think clearly we can adequately regulate Internet gambling and provide some of the governmental benefits that are important for regulated gambling. That is, that games are fair, that games are honest, and we can assure that people get paid if they win. I think it is one of the great benefits that our regulatory process, which is, I think, the best in the world, can bring to Internet gambling and bring to people who gamble on the Internet with licensed Nevada sites . . . Great Britain is looking toward legalizing and regulating Internet casino gambling; it already legalizes Internet sports wagering. Australia and a number of other countries are doing the same thing . . .

With regard to the Native Americans, Native Americans have not gotten into this area in any great amounts. There is a native Canadian tribe . . . near Montreal, which has a server farm, which conducts Internet gambling . . . I think that some of the Native American tribes in this country may try to do the same thing, although they have some issues in how they can properly conduct that according to federal law.

Senator Porter asked Mr. Cabot to summarize the federal government’s stance regarding Internet gaming, and Mr. Cabot stated the following:

I believe there is an issue under federal law called the Federal Wire Act [Interstate Wire Act of 1960] as to what is and what is not allowed. What that act says is that, basically, it is unlawful to transmit in interstate or foreign commerce bets or wagers on any sporting event or contest. If that is read to mean . . . Internet casino type games, then what we can do pursuant to this bill is strictly on intrastate, within the state of Nevada. If it is read only to apply to sports wagering, then what it would allow is a licensed Nevada Internet operator to take bets on an intrastate basis, between states where it is legal, and between Nevada and any foreign country where it is legal. That debate is the subject of a lawsuit that was brought in the federal district court in New Orleans, Louisiana, wherein a number of credit card companies were sued for providing credit card services to offshore illegal Internet casinos. The question became, were they illegal under state law or were they illegal under federal law. The judge in that case held that the Federal Wire Act, in particular, does not apply to games of chance. That case is on appeal to the fifth circuit [court], and I think if the fifth circuit [court] concurs with the district court judgment, then what will happen is that the Federal Wire Act does not apply to games of chance, which would then allow Nevada casinos to accept wagers from places where it is legal outside the state of Nevada.

Senator Porter asked how, with the borderless nature of Internet gaming, Nevada will enforce, from its regulatory body, what is happening internationally. Mr. Cabot replied that it is not possible. “Unregulated Internet gambling will continue to exist,” he said, and added, “What we can do is put a place on the Internet where gamblers can go where it is safe to gamble, where they know that games are fair and honest and they will get paid if they win, and there is a level of credibility.”

Senator Care said he thinks several preliminary matters must be addressed. The Nevada Legislature enacted Senate Bill 318 of the Sixty-ninth Session, he said, and he asked Mr. Cabot what impact the passage of A.B. 578 would have on NRS 465.091 through 465.094.

SENATE BILL 318 OF THE SIXTY-NINTH SESSION: Makes various changes to provisions governing gaming. (BDR 41-1079)

Mr. Cabot responded that there would be no impact whatsoever. He said Senate Bill 318 of the Sixty-ninth Session states it is unlawful for anybody in Nevada to place a bet with anybody who is not licensed by the Nevada Gaming Commission; likewise, it is illegal for anybody within Nevada to accept a wager from anybody, through any means, including the Internet, unless that person is first licensed by the Nevada Gaming Commission. Assembly Bill 578 is completely consistent with that bill, he said.

Senator Care asked Mr. Whittemore how passage of A.B. 578 would affect S.B. 419, the time-share bill.

SENATE BILL 419: Requires Gaming Policy Committee to study certain issues. (BDR S-1184)

Mr. Whittemore said his understanding is it would allow the interim process to provide recommendations for further modifications. “I do not think that you are going to be able to assume that the board or the commission is going to use this enabling legislation to adopt the regulations,” he stated, adding, “I think it means we are going to continue to look at this whole process.”

Senator Porter asked if it is legal in Nevada to use freelotto.com to purchase a lottery ticket from another jurisdiction. Mr. Bible answered it is possible to do, but it is not legal in Nevada. “What you see up there [in the Internet] now is generally not legal and not regulated,” he said.

Senator Titus speculated Internet gaming may be profitable in the short run, but said she is wondering what it will do in the long term. “If people get comfortable gambling at home, will they want to come to Las Vegas?” she asked. “It is okay for you if you are national corporations looking at the bottom line, but what does it mean for Nevada and Las Vegas, itself?” she asked. Mr. Wade replied, for MGM Mirage, it is a tool to promote more visitation. “We have billions of dollars invested in the state of Nevada and it is not our intent as a company to create another gaming opportunity where those now cannot return profits,” he said.

Senator Care asked why an operator in Nevada must be an establishment with a nonrestricted license. “Why not an entrepreneur in a garage?” he asked. Mr. Faiss answered that there are two reasons:

The Legislature already made this policy decision after spirited and long debate in 1991 that gaming and nonrestricted status should be used, not only for what it can do for the operator, but for what it can do for the state and the community. We have said that the issuance of a nonrestricted license is limited to a resort hotel, so that the person getting that privilege in the state of Nevada invested not just in gaming facilities, but invested in facilities that they [sic] had to fill by bringing additional visitors into the state of Nevada. I think that is the same reasoning here; certainly an Internet gaming license is equal to a license to operate a casino. If you do not give it to someone, as Dan Wade said, who has an investment here in the state of Nevada, who is going to give at least equal attention to that to bring additional visitors into the state and create employment, then you are going contrary to the policy that you adopted after much reasoning and debate 10 years ago.

Senator Care said this is where he gets lost, because he does not see that Internet gaming really has anything to do with casino gaming. “I can see where everybody would think that,” he said. “But you are really talking about a new industry here, aren’t you?” he asked. Mr. Wade responded there is more through the Internet than just gaming. The primary focus today is on hotel reservations and promotions, and the Internet is a tool used to increase visitation, he said. Mr. Whittemore, addressing Senator Care, said, “I think your question goes to the heart of the rationale of trying to create certain categories of eligible licensees, and I think it needs to be answered very directly.” Senator Care interjected, “It also goes to the taxing rate; there is . . . some overhead, but you do not have a construction debt to retire, you are not hiring bartenders, [and] you are not hiring maids. So, why should the 6.25 [percent] that is applicable now to a major resort apply to earnings off of Internet gaming?”

Mr. Whittemore responded:

Again, I think it goes to the heart of the way the bill was structured. Those institutions that have, literally, invested billions and billions of dollars have a desire to protect that investment as no other entity does. We explained this on the Assembly side as a partnership between the state and the industry that, as a responsible industry, we had an obligation to our partner, the State of Nevada, which received 6.25 [percent] of the gross receipts to make sure that the enterprise and the business opportunity was first presented to this jurisdiction.

Because of that fiduciary relationship of being partners, we felt it was appropriate that this opportunity be expressed to the state, because, again, there are those entities which can simply take advantage now, not look to the State of Nevada, and simply say, “I am going to engage in this activity through the regulatory structure which is going to be developed in Great Britain; I am going to look at the regulatory structure in Australia.” Therefore, if we do not encourage those institutions in the state to engage in this activity . . . the state will ultimately lose tax revenue, because I believe that there is no stopping Internet gaming . . . and, only with the assurance of the State of Nevada that it is properly regulated and that we can market it appropriately, will be able to protect the billion dollar bricks and mortar investments that are in the state of Nevada. With respect to the tax structure, the tax issue with respect to whether or not it should be taxed at a higher rate will be one that this body will look to in years to come, because, again, until the regulation is adopted, it is enabling legislation, once it is adopted and you really take a look at whether or not it is generating the type of proceeds that you have anticipated . . . it would not be appropriate to guess at the level of involvement of the wagering or the profitability of doing that.

Mr. Whittemore concluded:

Clearly, we can construct a model and develop a construct which says that, if you are not having to make the capital investment associated with bricks and mortar, it should be more profitable. But . . . from the industry’s perspective, those institutions which are going to engage in this activity are worried about startup costs, the threat of Internet gaming from those jurisdictions whose tax rates may be lower or higher. Can you imagine the circumstances where the MGM Mirage, or the Mandalay group, or Park Place, or Harrah’s invests in millions and millions of dollars of this activity conducted in the state of Nevada, only to see other competitors say, “I do not want to pay the 6.25 [percent]; I am going to go to the jurisdiction that is only going to charge us 2 percent with respect to Internet wagering” . . . So, the concern that you have expressed about the appropriate rate . . . might be a little bit . . . premature.

Senator Care asked about the smaller operator who cannot afford to make the kind of investment Mr. Whittemore described, whose customer decides to stay home and do Internet gaming with a big resort casino. “On the one hand, that is beneficial to a larger resort,” he said. “But it seems to me it is detrimental to some smaller resort; what do we do with that?” he asked. Mr. Whittemore answered it comes about as a result of technology, and there is nothing the State of Nevada is going to be able to do about it. The customer is making a choice and, while Internet gaming may have an impact on small “mom and pop” businesses, this bill neither encourages nor discourages the impact.

Senator Care said he would like somebody to address the social impact of Internet gaming, and Mr. Bible said he thinks there will be better identification and better control of individuals than in the typical casino environment, “because you are going to be required to learn something about the individual as he establishes an account with you,” he said. Senator Washington asked whether the nonrefundable application fee provided for in section 5 of the bill goes to the General Fund or to the gaming commission. Mr. Bible said it would go to the General Fund.

Senator Washington inquired about the time constraints stated in section 5, subsection 1, paragraph (b). Mr. Bible replied he believes those time constraints were being removed by an amendment proposed by the State Gaming Control Board. Senator Washington asked if the fees outlined in section 5, subsection 2, are based on the number of devices in an establishment. Mr. Bible said the fee is for the activity itself and does not vary by device count. In follow up, Senator Washington asked how it is determined. Mr. Bible said the operator would be subject to two fees; one would be the flat fees proposed in this legislation, which for an operator is a $500,000 fee for a 2‑year period; the revenue itself is subject to the gross gaming tax. “You do not go around and measure the number of hookups or terminals . . . and have a separate fee like you do for a slot count,” Mr. Bible said.

Senator Porter asked whether Nevada properties would compete outside the United States in the international market, if this legislation is passed. Mr. Wade said he believes Nevada properties can compete with anybody in the world, except in the United States. Senator Porter asked whether a license would stay with a property, if the property were sold, or whether the license is a separate entity. Mr. Faiss answered the license is tied to the establishment. Mr. Whittemore, responding to Senator Porter’s first question, said, “The language in the bill is enabling; you would still have to have the regulations adopted in place. Then, under the existing language, if in the jurisdiction in which you wanted to place the bet it is legal to make that bet, then . . . once they [the State of Nevada] have established the rules, you could receive it.”

Senator Titus asked whether there is any other state in the country where it would be legal to make the bet, and Mr. Whittemore said there is not. Senator Titus asked if there are any efforts going on in other states to get this kind of legislation enacted. Mr. Bible answered New Jersey has considered a proposal similar to this. Mr. Bible also stated regulations cannot be adopted until the gaming commission makes a finding that interactive gaming can be operated in compliance with all applicable laws, including federal laws. Mr. Whittemore said the sponsor of interactive gaming, Assemblywoman Merle Berman, Clark County Assembly District No. 2, can answer some of these questions being asked.

Chairman James said he would like to hear from Assemblywoman Berman about the Internet gaming portion of A.B. 578. Assemblywoman Berman stated section 1 to section 4 comprises the original Internet gaming bill with the legislation enabling the commission to institute Internet gaming when and if it becomes legal. She said the issue was brought to her attention at a conference she attended, at which Mr. Cabot gave a computer presentation, and she felt it was an area Nevada needed to delve into to see if it would work for Nevada and to progress with legislation to allow it to happen. She said she thinks the State Gaming Control Board needs to talk about who participates in gaming and whether the border controls are working. “We want to keep children off, and we want to be gaming in legal jurisdictions,” she said.

Chairman James asked Mr. Neilander how the gaming authorities can assure themselves a bet placed pursuant to a regulation adopted under this authority is legal in the place it is made, and he asked, “Where is a bet made if it is made at a computer in some other part of the world on a site operated by one of our Internet gaming licensed establishments?” Mr. Neilander, answering the second question, said the following:

I believe that, legally, that matter is not clear. My opinion of it is that, when you have a wager, it is governed by contract law. The offer is made through the terminal from the site where the server is. When the wager is placed, I believe the wager is placed in the jurisdiction where it is accepted . . . This area is a new frontier and is one where we are not going to have a lot of case law and there are not going to be any statutory provisions to rely on. So, there are a lot of legal questions that are going to be outstanding, and a lot of these kinds of issues you have raised today that we simply do not have the answer to right now. We need to make those findings under the way the bill is written now, and in order to do that, we are going to have to go forward and explore those issues.

Chairman James asked Mr. Neilander how the gaming authorities are going to assure themselves the people placing the bets are not minors, and Mr. Neilander said they have been looking at technology being utilized in Australia and other places. He said he is not comfortable the technology is there yet to provide appropriate border protections. “What we are going to need to do to assure ourselves, is get this stuff in our lab and go through some very thorough testing,” he said. And, he said, the board has not done that to this point because it needed the policy decision from the Legislature before expending state resources.

Mr. Sandoval said he agrees with Mr. Neilander, and the predicate is that this is a legal one, that this is a legal activity. He said he and Mr. Neilander have discussed the issue and agreed they have to get some type of opinion or meeting with the United States (U.S.) Department of Justice, because they do not want to put Nevada licensees at risk of having a federal criminal indictment brought upon them after receiving a State of Nevada stamp of approval on their Internet site. “With regard to these other issues, the location of the person who is placing the bet, whether that person is a minor, whether that person is a problem gambler . . . we have been monitoring those issues and I have been advised of several technologies out there that allegedly satisfy all of these concerns, but . . . we have not taken the next step, because we believe that it is a policy decision up to the Legislature,” Mr. Sandoval said.

Chairman James made the following comments:

I understand what is going on here, and that is that we are trying to have the law be ahead of the technology so we can take advantage of this if it does become something . . . which, by all indications, is going to be a very large industry. But . . . whether or not we do this as a policy matter is a decision for the Legislature. By telling you, you cannot authorize Internet gaming until you are satisfied it would meet the public policy of this state, and it is legal and it cannot be corrupted by any illegality, whether it is intentional or unintentional, and children cannot have access to it, we are delegating to you a tremendous responsibility, more than we normally do, because we normally spell things out and then you adopt regulations which we are sure are legal and appropriate within our public policy. But in this, we are telling you to go satisfy yourself that this is not going to be a problem, that there is not going to be a licensed casino in Nevada with the imprimatur of this law from the Legislature that gets into a dispute with the federal government over whether they are doing something that is legal. So . . . my message, maybe, is you have to proceed with the utmost of caution, probably more than you normally do, in carrying out the task of these regulations.

It is in section 3, subsections 1, 2, and 3 . . . When Bob [Robert D.] Faiss introduced this bill, he said the whole bill is in section 3. And, he said that for a reason, because that is what we are actually doing. The rest of this stuff is . . . just the details of how it is done and how the fees are paid . . . The big policy decision is one we are essentially delegating to you. So, I think we have to take out the word “adoption” of such regulations, because I want the record to be clear that we are deciding that it is okay for you to go ahead with the adoption of these regulations. But, when you do, you have to remember that we are taking a leap of faith, and I, personally, do not want to be burned . . . For example, I do not think you should predicate our regulations upon the pronouncements of one judge in Louisiana . . . I think you know that . . . I know all of you and I have worked with all of you in the Legislature, so, I do not need to give you this lecture; I need to give the record of this bill this lecture, because I want the record to be abundantly clear that we have considered these things in some detail.

Mr. Neilander said, from his perspective, removing paragraph (c) of subsection 2 of section 3 would leave the gaming authorities with the responsibility of determining whether the technology is in place to do Internet gaming properly. He said that is something, as regulators, they are comfortable looking at, and he agreed that the public policy issue is a legislative prerogative. Chairman James said, just taking out the word “adoption,” so it will read, “such regulations are consistent with the public policy,” would be fine.

Mr. Neilander stated he has discussed this matter with Mr. Cabot. He made the following comments:

He [Mr. Cabot] believes the law is crystal clear in this area; I believe it is a legal quagmire. I believe there are open legal issues with respect to whether you can take bets in-state, because the signal on the Internet, as you know . . . travels through the path of least resistance, which means it goes across state lines, it goes all over the place before it even comes back to the state it originated from . . I think the same question can be raised with respect to international jurisdictions. I also think that, because a lower court in Louisiana has made a decision with respect to the wire act, that is not controlling authority in Nevada; I do not know if a fifth circuit decision is controlling authority in Nevada; I also would not want to go forward at all without, as Mr. Sandoval said, some indication from the [U.S.] Department of Justice that their interpretation of the law meshes with what the State of Nevada intends to do. There are some things we can do in that area; we have discussed seeking some independent legal opinions from experts in the area of state‑federal relations . . . There are some things we can do to try [to] further that, but I assure you we are not going to go forward until we are 100 percent sure we can satisfy the mandates in the statute, as it is written.

Senator Care said something gave him pause in the second reprint of A.B. 578, and that is the language in section 5 concerning fees. Mr. Neilander pointed out that in the proposed amendments presented to the committee (Exhibit G), section 5 is removed in its entirety. He said if the State is going to go forward in this area, it is a decision the State has to make and it would be premature to have people filing applications before the preliminary matters have been delved into and a finding is made. Mr. Neilander said he is not sure where that provision came from. He said the amendments in the second reprint were added “at the eleventh hour” in the Assembly and may have been an effort to get some funds that would be available, but he said he had already addressed that in the board’s budget and the commission’s budget.

Chairman James commented it is not his purpose to put any unreasonable impediments to the development of the industry, but he just wants the record to be clear that they need to satisfy themselves regarding the legal issues. The justice department needs to embrace some sort of policy regarding this “exploding” industry, he said, and he wants Nevada to be on the “same page” with them.

Senator Porter said he concurred this needs to be a public policy of the State of Nevada, not of the industry. Senator Porter made the following comments:

Internet gaming is one piece of a huge, huge system across the world that, in fact, can breed a lot of criminal activity, a lot of abuses . . . But, specific to our industry, for over a half century we have been driving the market, we as an industry, we as a state. It appears to me now the market is now driving us. This creates a change, not only for our gaming industry, but [also] for all of our businesses across the country. The market is driving corporate America to make decisions and changes rapidly . . . I share the chairman’s concerns that we need to move cautiously and methodically . . . Nevada’s is the industry that has the best regulation, and I would hate to see us rush to judgment and change our perception around the world.

Chairman James said he wholeheartedly agrees with efforts to tie the industry to established licensed operations in Nevada and does not think it is the kind of thing that should be encouraged to be operated out of garages, for example. He pointed out to do so would be inconsistent with the public policy established over the years in relation to the resort industry. “I do not think creating an industry out there in cyberspace would be in the interest of Nevada; I think it is in the interest of Nevada to have gaming in Nevada,” he said.

Senator Care pointed out the Legislature has decreed gaming in Nevada is open, and he asked how that can be accomplished with Internet gaming. Mr. Neilander said he had not given that much thought, and said, “Assuming we can get over these other hurdles we have discussed . . . much like an inter‑casino link works now . . . If someone walks in and says, ‘I want to see the Internet room,’ for security reasons I’d probably think that they would not be allowed to do that.”

Senator Titus commented, “I just wonder if this is a very propitious time to do this . . . We know that there are people in Washington who have introduced bills and have been fairly successful . . . Is this going to be kind of an ‘in your face, Congress,’ where we are going forward even though we know that there is not a lot of sentiment for it?” Mr. Sandoval responded that he thinks it is an open question and there is legislation being introduced in congress that would make this moot. He said he does not think this is an effort to defy the federal government, but it is a responsible thing for the State of Nevada to do. Mr. Scherer said the fact that the bill specifically requires gaming authorities to find it is in compliance with all applicable laws, including federal law, means it is not an “in your face, Congress.” Senator Titus clarified she does not think it is meant to be “in your face, Congress,” but Congress may see it that way.

Mr. Neilander further explained the proposed amendments to A.B. 578 (Exhibit G). He said telephone betting now exists in-state, and it is a legalized activity. The definition of “interactive gaming” in section 2, subsection 1, arguably could prohibit that, he said, which is not the intent; so there is an exception for previously approved “communications technology” in section 2, subsection 2. Additionally, he said the amendment clarifies there is a “manufacturer” of a system and anyone else who has anything to do with the system is a “manufacturer of associated equipment.” “That puts it more in line with how we treat gaming devices today,” he said. Finally, the work permit section is amended, he said, to statutorily require a person who works for a manufacturer or works for an operator to qualify for a work permit.

Chairman James asked Mr. Neilander, for the record, if he is comfortable with the language in the amendment to section 9 concerning “all gross revenue received” pursuant to one of these licenses. Mr. Neilander said he is comfortable with it. “The intent of the bill, and I think what the bill actually says, is that they are subject to the 6.25 percent gross gaming revenue fee,” he said. In the section Senator Washington asked about earlier, we clearly said such establishments are not subject to all the various gaming device fees a typical casino is subject to now, he added.

Mark H. Fiorentino, Lobbyist, Boyd Gaming Corporation, stated his office represents the Longstreet Inn and Casino, which is a relatively small gaming facility in Nye County. He offered an amendment to A.B. 578 (Exhibit I), stating the ability to grow and to continue to be competitive in a dynamic gaming market is important to rural operators. The amendment he proposes would allow properties such as the Long Street Hotel and Casino to participate in this new technology and the new markets without lowering the standards the bill establishes for ensuring the people who want to get into this market are experienced operators who have made substantial investments in the economy and employment base in Nevada.

Senator Care asked Mr. Fiorentino how many years his client has held a nonrestricted license, how many rooms it has, and how many spaces for recreational vehicles it has. Mr. Fiorentino answered, without this amendment they would not be able to qualify. But, he said, he can say with some confidence, his client is not the only one in the rural counties who would, instead of investing money in hotel rooms, invest in full-blown RV (recreational vehicle) spaces.

Samuel P. McMullen, Lobbyist, Association of Gaming Equipment Manufacturers, stated his amendment to A.B. 578 (Exhibit J) was crafted before the amendments from gaming control (Exhibit G) were offered. He said manufacturers support the bill and gaming control’s amendments. They do have an issue regarding the license fee, however, he said. He noted the bill clearly does not allow manufacturers to go to the outside world and offer Internet gaming directly, unless they satisfy the other requirements. He said he wanted it to be clear that manufacturers have agreed to pay the applicable 6.25 percent gross revenue tax, to the extent they participate in revenues. “The trouble came when there was an exactly equivalent license fee for a manufacturer, as opposed to an operator, of interactive gaming,” he said, and requested consideration of the changes to section 8 proposed in lines 5-9 through 5‑12 of his amendment (Exhibit J). He said the following:

Our logic for that . . . is that, generally, I think this was built on a misconception in the Assembly that all of these will be struck as participation revenue deals; not all of the sales, of course, would be that. They would be outright sales; so, in a lot of these cases it . . . generally could be an outright manufacturer sale as a supplier to the system . . . Generally, though, when there is a participation agreement, the highest sort of ratio that has ever been negotiated for those is at 20 percent; so it is either 20 percent of the revenues or less . . . So, consequently, the industry uses sort of a rule of thumb . . . of 5 to 1 in terms of the revenue. We proposed an amendment in the Assembly, which was unsuccessful, at $50,000 for an initial license fee; we have “upped” it in this case to $75,000, which is really basically a sort of rule of proportion of 30 percent, but we think that is much more fair . . . I will not go into all the misconceptions that were over in the Assembly, but we want to just make sure there was some rule of reason with respect to the proportion of the fee that we would pay.

Chairman James said there will be a work session where all the amendments will be considered.

Michael LaQuey, Concerned Citizen, said he has had about 20 years of IT (information technology) consulting and a lot of Internet experience, and he has been following the discussion on A.B. 578. He said he feels the wording is discriminatory with regard to the licensing of the resorts. He said he understands resorts have an investment, but “entrepreneurism” is stifled in this new, emerging market. In addition, he alleged there is no way minors will be prevented from gambling on the Internet, unless the terminals are actually in a casino where security guards can monitor the people making the wagers.

Senator Porter asked Mr. Neilander what he predicts in short-term and long-term revenues from Internet gaming for Nevada. Mr. Neilander responded that he is not able to answer that question, but referred Senator Porter to a report prepared by Bear Stearns & Company Inc., and offered to obtain a copy for him. He said Bear Stearns tried to gauge the market, and their estimates for the worldwide market range from $3 billion to $5 billion within the next 3 years. But, he said, a lot of that is with respect to sports wagering and is clearly illegal under the wire act. Senator Titus commented it seems that if a little casino in Nye County is willing to pay $500,000 a year for a license, they anticipate it is going to be quite lucrative, and Mr. Neilander agreed.

Chairman James raised the following issue:

Companies that lease space to people who have restricted licenses . . . charge more for someone who has slot machines in his or her business than they do for somebody who does not. For example, a 7-Eleven that has slot machines has to pay more for its 7‑Eleven lease and franchise than someone who does not have slot machines in a convenience store . . . Doesn’t the law say that somebody who is sharing in the profits from gaming needs to be suitable for the gaming industry? So, I would propose a requirement that the commission find an individual or company suitable, who benefits from gaming in this manner. It would be changing the statute from “may” to “shall,” that you would require landlords who are in this manner sharing in the revenues from gaming to be suitable. I would like to take this up as an amendment to the bill in this committee . . . I have had this brought to me by a number of people, and I am concerned about these national companies who, essentially, are participating de facto in the gaming industry in Nevada. If they want to put these slot machines in every kind of business, and we cannot seem to stop them . . . and they are going to share in that revenue, then they should be licensed like everybody else.

Mr. Neilander said, if the landlords are not receiving a percentage of gaming revenue, they are not subject to mandatory licensure; if they are receiving a percentage of gaming revenue, they are in a mandatory licensing position. He said there is a legal distinction between a flat fee and a percentage fee. Chairman James said he wants to change the distinction, because they are sharing in the revenue.

Chairman James told Mr. Neilander another issue which needs to be dealt with in this bill is its being illegal to bet on a fixed sporting event, but not illegal to fix the event. Senator Porter would like that changed, he said. Mr. Neilander agreed to find language to achieve that.

Chairman James closed the hearing on A.B. 578 and announced A.B. 466, on today’s agenda, would not be heard and would be rescheduled.

ASSEMBLY BILL 466: Provides for issuance of statewide work permits for gaming employees. (BDR 41-244)

There being no further business, the meeting was adjourned at 11:20 a.m.

RESPECTFULLY SUBMITTED:

Carolyn Allfree,

Committee Secretary

APPROVED BY:

Senator Mark A. James, Chairman

DATE: