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February 16, 2019

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Crossing the line cost Hard Rock Hotel

Illegal drug sales at resort’s hot spot draw $650,000 fine — a high-profile example of state regulators getting tough with the modern image of Vegas, as they did decades ago with the mob

Rehab party at Hard Rock (2008)

A UCLA law student, Carrie Richeu, nibbles strawberries poolside with friends during a Rehab in late June. Launch slideshow »

Hard Rock Casino

A view of the Hard Rock hotel-casino at Paradise Road and Harmon Avenue on Tuesday, Jan. 25, 2011. Launch slideshow »

Hard Rock fine

KSNV coverage of $650,000 fine levied against Hard Rock, Jan. 27, 2011.

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Map of Hard Rock Hotel & Casino

Hard Rock Hotel & Casino

4455 Paradise Road, Las Vegas

Undercover detectives had little problem scoring pot, cocaine and Ecstasy from employees at the Hard Rock Hotel’s Vanity nightclub last year. For money, a Hard Rock host even arranged the purchase of 7.2 grams of cocaine in the casino’s parking garage.

At the time of the cocaine deal in June, the Hard Rock had been notified of a sting operation that uncovered other drug sales.

So it was no wonder that Nevada regulators fined the resort $650,000 — the largest casino fine in state history for drug violations.

In fact, the Hard Rock — the bad boy of Las Vegas casinos and the target of previous fines — dodged a bullet. The property, struggling after a poorly timed buyout and $750 million expansion that began in 2007 when the market peaked, could have lost its gaming license. Still, it serves as a cautionary tale for the entire gaming industry: Times have changed. Make a wrong move and you’re in state regulators’ cross hairs. And it demonstrates the shifting challenges of regulators. A half-century ago, they forced out the mob. Now their target is the notorious and raunchy party scene.

•••

Nevada’s broadly worded casino laws, passed to scrub the industry clean of the mob, empower regulators to strip licenses of casinos that fail to protect “the public health, safety, morals, good order and general welfare of the people of ... Nevada” or “reflect discredit upon the state or its gaming industry.”

Regulators didn’t close the Hard Rock, nor have they forced a management change at a big casino since the days when the mob skimmed profits.

Shutting down casinos could damage Nevada’s business-friendly image as the state with the fewest restrictions on obtaining a casino license and effectively ban implicated employees from its chief industry. It would throw thousands of people into unemployment in a state with the nation’s highest jobless rate.

It could also backfire, threatening regulatory decision-making if a casino challenged that authority in court.

Across town, Palms owner George Maloof called the drug sales an “incredible” risk for the Hard Rock.

Maloof, who recently took over direct management of his night-life operations, said he roots out illegal activity by walking through his resort and talking to workers.

“I’ve gotten more tips from people who are down on the floor, from people saying, ‘I’m concerned about something,’ than from management,” he said. Maloof said he tips off regulators to bad behavior rather than hope they don’t notice.

“We’re not perfect. But when you know something and don’t do something about it, that’s a problem.”

•••

The Hard Rock’s fine will further hobble an insolvent casino that’s expected to change hands soon.

After spending its cash reserves last year, the Hard Rock can’t afford to make payments on $1.4 billion in debt and was unable to pay off a $1 billion loan due Feb. 9, according to court records and financial statements. To make last month’s payroll, lenders say the casino took money from its casino cage — money typically used to pay gamblers — and payments intended for vendors.

Fining the Hard Rock wasn’t a simple decision.

Unlike targeting mob skim, curbing raunch isn’t cut and dry.

In fact, some regulators wondered whether they were on a slippery slope. Allowing drugs and prostitution are out of bounds. But do you hold a casino responsible when customers remove clothing beyond the watchful eyes of its security? Nightclubs, after all, are fertile ground for people determined to bend or break the law — or simply overindulge. A drunken tourist drowned last year in the Hard Rock’s shallow pool.

The Hard Rock fine, the second strike against a Nevada casino for its nightclub, came with the harshest warning to date for regulators grown exasperated with activities that appeared to have gained acceptance in nightclubs: Casinos will pay for the actions of rogue employees or vendors — with their casino license, regulators said.

The challenge for casinos is whether they can toe the line while promoting their anything-goes image in what has become a world capital for nightclubs. Party venues generate profits rivaling gambling.

Despite the constant threat of Nevada’s moralistic casino regulations, Las Vegas is known as a place where people can do what they can’t get away with at home. For some tourists, that means asking their casino host or valet for hookers and drugs — offers that employees are trained to refuse with a smile.

Although tourists may go to other states to gamble, “people still come to Las Vegas to party,” said Maloof, whose resort caters to a similar clientele as the Hard Rock.

“We want to encourage people to have a good time. The message isn’t to prohibit their fun, but to control it,” he said.

But as the Hard Rock’s attorney put it at a recent hearing, it would be an “impossible task” for casinos with nightclub and pool venues for young adults to eliminate illegal drugs that are “part of our current culture.”

Still, Randall Sayre, a former state Gaming Control Board member whose expertise was enforcement during the club scene’s biggest growth spurt, said he had to start cracking heads.

•••

Nevada casinos are regulated by two bodies, the Control Board, which conducts background investigations and files complaints against casinos, and the Nevada Gaming Commission, which issues licenses, levies fines and makes policy decisions.

The supersized clubs were “out of control,” Sayre said.

And it wasn’t harmless fun.

“When you start talking about underage drinking, drugs and women being dumped into cabs or alleyways with no protection, you’re taking a significant risk” with customers’ safety as well as the industry’s global reputation and financial health, Sayre said.

“There is life after this recession, and we need to come through it with our heads held high.”

Without naming names, Sayre and other regulators say casinos had grown complacent about their clubs, partly because many were operated by third parties. Although state law says otherwise, some casino companies felt they weren’t directly responsible for the behavior of vendors and customers.

“Nobody had ever taken a stand on this before, to say ‘enough is enough,’ ” Sayre said. “The industry had never been held accountable. They lost their way.”

He circulated two warning letters and held workshops on casinos’ liabilities.

The first letter, in 2006, included a list of problems with the club scene, including “incidences of excessive inebriation, drug distribution and abuse, violence, the involvement of minors and the handling of those individuals who became incapacitated while at the club.” A follow-up letter in 2009 added to that list “overt sexual acts in public areas, acts deemed lewd, indecent or obscene ... date rape, extortion ... and prostitution.”

Apparently, some casinos weren’t getting the message. They weren’t monitoring clubs with the same attention they give gambling operations, said Sayre, whose Control Board term expired in December.

Exhibit A was Planet Hollywood’s Prive, a now-shuttered club where employees approached regulators and local law enforcement with accusations that management hosted known drug dealers and pimps. The club’s lease prevented casino security from entering without an escort. A $500,000 fine against Planet Hollywood in 2009 for incidents at Prive such as drug use, dumping intoxicated customers outside the club, sexual assault and alcohol consumption by minors got the industry’s attention. In response, some casinos rewrote contracts to allow management and police into the clubs, acknowledging direct liability for nightclub tenants.

“That was a sea change,” said Jeff Silver, a Las Vegas attorney who formerly represented the Hard Rock.

The written word only goes so far, though, when management isn’t monitoring the clubs daily, Sayre said.

Some casinos avoided fines, and public embarrassment, by fixing problems that weren’t as serious as those at Planet Hollywood and Hard Rock, said Jerry Markling, chief of the Control Board’s enforcement division. He declined to name the clubs.

Undercover investigations and interviews with current and past Hard Rock employees revealed an underground drug trade that lived up to the property’s sex, drugs and rock ’n’ roll image: “The direct involvement of Hard Rock Hotel ... employees and/or agents including supervisory employees and/or agents in the sale of controlled substances,” according to the Control Board’s complaint.

It seemed a fitting outcome for the maverick Hard Rock, the first major Las Vegas resort to capitalize on the young party crowd.

For those willing to pay up to $100 to enter the party and more than $1,000 for a cabana, the Hard Rock’s “Rehab” parties offer the summer’s day version of a raucous nightclub scene, with barely there swimsuits and booze in oversized squeeze bottles.

The Hard Rock’s lucrative party trade has since been copied by casinos and nongambling hotels nationwide.

The Nevada Gaming Commission fined the Hard Rock in 2002 for allowing public sex acts by nightclub customers and in 2004 for suggestive advertising, including the message “Get ready to buck all night” on a billboard showing a woman’s panties around her ankles and a print ad stating, “(W)e believe in your Monday night rights: large quantities of prescription stimulants (and) having wives in two states ... Tell your wives you are going; if they are hot, bring them along.”

That fine was another first, enforcing long-standing regulations that came as a surprise to many Nevadans and that require casino advertising and public relations be handled with “decency, dignity, good taste, honesty and inoffensiveness ...”

“The Hard Rock is a difficult brand to have in a gaming environment,” said Jeff Voyles, a UNLV casino management professor and industry consultant. “I think they have pushed the limits on what’s appropriate. It’s been a thorn in (regulators’) side for a long time.

“Gaming has been working at improving its image for 100 years to the point that it is respected by Wall Street and society at large,” Voyles said. The Hard Rock’s fine “kicks (the casino industry) back a few notches” in its progress toward mainstream respectability.

•••

Planet Hollywood and Hard Rock weren’t the only casinos where regulators found indiscretions after sting operations that began in 2008.

Many infractions were resolved confidentially, and regulators won’t elaborate on these problems. Control Board complaints prosecuted by the attorney general’s office involve acts regulators believe to be egregious, consistent or willful — misdeeds that require punishment through bad publicity and fines.

Nongambling entertainment has been the main attraction at the off-Strip Hard Rock, which opened in 1995 with a 30,000-square-foot casino and 646 rooms — both small by Las Vegas standards. For the nine months ending Sept. 30, 40 percent of its revenue came from food and beverages — compared with 24 percent from gambling and 22 percent from hotel rooms.

Hard Rock officials say they have tightened control of the nightclub by removing complacent managers, conducting random drug tests, hiring secret shoppers to monitor the club and threatening employees with termination if they fail to report bad behavior. After the Hard Rock was notified of the sting in May, it hired an outside company, Angel Management Group, to market its party and night-life venues in a further attempt to remove bad apples.

The Hard Rock “has always sought to maintain strong policies and procedures to avoid these issues,” Hard Rock spokeswoman Jessie Pound said. “The violations in question were caused by a few low-level, rogue employees who are no longer with the company.”

Gaming Commissioner Tony Alamo said the property failed its duty because upper management didn’t walk the property — a failure, he said, that extends beyond the Hard Rock to many of Las Vegas’ corporate-owned casinos.

“(T)hese gentlemen tend to work Monday through Friday, 9 to 5, and renegotiate debts and look at their costs ... but I don’t see the men on the ground,” Alamo said at a meeting. “The things you can see are not necessarily on surveillance but you can see the vibe, you can try to intercede before something happens.”

“If management can’t stop it from happening, maybe we ... go back to just a casino with games,” Gaming Commission Chairman Peter Bernhard said. “It is much easier to operate but it is also not in tune with what the industry needs” to compete in the global marketplace.

The law is clear, Voyles said: Casinos that can’t control nightclubs need to shut them down rather than fighting their way upstream using attorneys and carefully worded contracts.

County officials, rather than state regulators, shut down Prive after pulling the club’s liquor license. Management removed rapper Jay-Z’s 40/40 club from the Palazzo after less than a year and replaced it with a tamer venue: a combined sports book and lounge. Business reasons rather than regulatory concerns fueled the decision, however, Las Vegas Sands spokesman Ron Reese said.

“Sands makes it clear to all nightclub operations that there’s zero tolerance for any behavior that would jeopardize our license,” he said.

The Hard Rock’s “Rehab” reality TV show on truTV featuring frequent dust-ups with inebriated customers and exhibitionists was another source of heartburn for regulators. “Rehab” was canceled after Hard Rock was sued by the East Coast-based owners of the Hard Rock brand, who claimed the show tarnished the brand by portraying “drunken debauchery, acts of vandalism, sexual harassment, violence and criminality.”

Regulators didn’t shut down the show, which did not have the blessing of the Control Board. Still, it “didn’t do them any favors” by broadcasting that debauchery worldwide, Sayre said.

Meanwhile, the Hard Rock is still nurturing its party image.

The property hosted the 25th season of “Real World,” a reality show airing on MTV next month.

On its website, MTV says the show centers on “seven strangers living in a city defined by pleasure, temptation and the excitement of youth.”

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