Casino Management 1 (fragment)

Contents

Chapter 15 CASINO MARKETING II

Rebates on Loss

Player Action Criterion

Table Game Rule Modification as a Marketing Tool

Chapter 16 SPORTS BOOK OPERATIONS

History

Sports Betting Money Lines Point Spread Betting

Chapter 17 RACE OPERATIONS

Types of Races Types of Bets Racing Terms

Regulatory Requirements Race Book Operations

Chapter 18 CASINO STATISTICS

Population

Sample

Parameters and Statistics

Average or Mean

Median

Mode

Measures of Dispersion

Range

Variance                               ^l

Standard Deviation

Weighted Average

Probability Distribution

Expected Value

Calculating the Standard Deviation with Uneven Betting

Sample Game Probabilities, Variances and Standard Deviations

Our Worst Fears Realized—"a Money Manager"

Glossary of Casino Terminology Index

For the authors, this book represents the fulfillment of a vision—to create a reference book for individuals working in the gaming industry as well as a resource for those with a desire to learn more about one of the most rapidly expanding industries in the world. This book provides the reader with an in-depth view of many facets of gaming operations.

Gaming exists in most of the United States in various forms. It is pre­sent in most of our everyday lives, whether in the form of charitable games, lotteries, horse or dog racing, bingo or casinos. The growth of gaming all over the world over the past few years has been as rapid as in the United States. (Of course, areas including Australia, Egypt and Eu­rope have permitted the operation of casinos for many years.)

It is important for the reader to gain an understanding of how gam­ing achieved its present standing and to develop a better understanding of what has made the industry so successful. The history of gaming is re­viewed along with the regulatory environment that has been and will continue to be an integral part of the industry. The regulatory environ­ment is one of the most dynamic areas of the gaming industry as new reg­ulations are continually introduced and existing regulations are modified at both the federal and state levels.

Topics discussed within the book range from staffing and organiza­tional guidelines to casino marketing and player rating systems. The table games, slots, sports book and race book areas are examined in-depth in a manner that provides unique insight into the operation of the area, as well as the perspective of the casino operator. The authors have also pro­vided a comprehensive description of how common casino games are played as well as explaining in detail the mathematics of the games. Throughout the book, the authors use terminology that is common in the gaming industry. The glossary of terms at the end of the text provides an explanation of many of these key terms.

The gaming industry is one of excitement as well as one of risk. The authors hope that this book conveys much of this excitement while pro­viding information to help understand and reduce that risk.

Ix

Preface

Jim Fox would like to take this opportunity to thank his wife, Susan, and his daughter, Meghan, for their patience, love and understanding. He would also like to thank his parents for their lifelong encouragement and support. In addition, he would also like to thank the following individu­als for their support: Kurt Houser, Sergeant with the Chandler Police De­partment; Wayne Smith, Assistant Casino Controller at the MGM; Ellen Ma, Senior Financial Analyst at the Mirage; Bob Brown, Partner, Arthur Andersen, New York; Steve Comer, Partner, Arthur Andersen, Las Vegas, Larry Krause, Partner, Arthur Andersen, Las Vegas; Tom Roche, Partner, Arthur Andersen, Las Vegas.

Jim Kilby would like to thank the following individuals for their in­spiration, motivation, help and friendship: Jesse Ferrell, Executive Casino Host Manager, Harrah's Las Vegas; Anthony M. Cabot, attorney and au­thor; Joe Ricciuti, Casino Executive, Tropicana Resort and Casino; Tom Newman, Casino Executive, Mirage; Robert Terry, Race and Sports Direc­tor, Sunset Station; Bart Pestrichello, Director of Casino Operations, Sun­set Station; Roy Brennan, Casino Executive, Hard Rock Hotel and Casino;

Andrew MacDonald, Casino Executive, Conrad Jupiters, Gold Coast, Australia; Shannon Bybee, Professor of Gaming, UNLV; Vince Eade, Pro­fessor, UNLV; Lee Horowitz, Magician; Melody Larsen, Executive, Curtco Publishing; and Minnie Kilby, loving mother.

The authors would also like to give special thanks to the following in­dividuals: Tyrus Mulkey for providing information relevant to the chap­ter on the history of gaming; Jim and Raelene Palmer for their friendship, review and comments; Joe Lupo, Director of Race and Sports at the Star-dust, for his assistance in reviewing the chapters relevant to race and sports book operations; Ruben Cabanas, Director of Cage, Credit and Col­lections at New York New York for his assistance in reviewing the chapter on cage, credit and collections; Terry Ridgeway, Associate Professor of Economics, UNLV; and Stanley Ko, author, for his various contributions. In addition, they would like to thank Grant Novack, Director of Internal Audit at New York New York, for his friendship and moral support.

Comments and suggestions can be addressed to JunKilby@bigfoot.com.

CASINO OPERATIONS

MANAGEMENT

S^etfttw

1

The History of Modern Gaming

NEVADA: THE BIRTHPLACE OF MODERN GAMING

Since Nevada's inception into statehood in 1864, the state's lawmakers have passed legislation that directly impacts gambling on eight separate occasions. Four of these bills enacted laws that either restricted or prohib­ited gambling altogether, and the other four enacted laws that permitted some form of gambling. Regardless of the laws in effect, gambling has al­ways been an integral part of Nevada's history.

In 1869, when Nevada was only five years old, the first bill legalizing gambling was passed. The bill originally passed both houses in 1865, but succumbed to Governor Henry G. Blasdel's veto.¹ The bill was resur­rected in 1869, at which time the governor's veto was successfully over­ridden by the legislature.

Casino gambling in Nevada lasted until 1909, when the state legisla­ture passed a law outlawing all forms of gambling. It is interesting to note that the law did not become effective until late in 1910, which provided casino operators with almost 20 months to successfully move their opera­tions underground. As a result of this delay in the implementation of the law, the prohibition proved to be ineffective.

In the late 1800s and early 1900s, Nevada had a reputation of provid­ing activities considered illegal or immoral elsewhere in the United States. Activities ranging from "quickie" divorces to illegal prize fights could be readily found there. To this day, Nevada has one of the world's most lib­eral residency requirements for obtaining a divorce and the distinction of having several counties which permit legalized prostitution.

In 1911, the 1909 prohibition was relaxed to permit "social" games such as poker, provided the dealing of cards changed hands and the house (casino operator) did not take a percentage from the players' wa-

¹ Caroline J. Hadley, "America's Doxy Grows Up," Nevada Magazine (March/April 1981), p. 6.

Casino Operations Management

gers. As innocent as this latest modification appeared, this provision was repealed in 1913.

During the next legislative session in 1915, laws were re-enacted that permitted social games and nickel slot machines. The slot machines could pay off in cigars, drinks, or other prizes valued at $2 or less. The legaliza­tion of social games and slot machines would prove to be only the begin­ning of what was to become Nevada's gambling future.

THE WIDE OPEN GAMBLING BILL

Two events subsequently occurred that would dramatically affect Nevada gambling. The first to occur was the stock market crash of Octo­ber 29,1929, which was appropriately called "Black Tuesday." The second event was the funding of the Hoover Dam project by the U.S. Congress only three months following the crash. These two events provided the im­petus for the introduction and subsequent passage of Assembly Bill 98, which is better known as the Wide Open Gambling Bill.

The depression proved to be very hard on the state and, as a result, in 1931 Assemblyman Phil Tobin from the tiny town of Winnemuca, Nevada, introduced Assembly Bill 98 in an attempt to provide economic relief. Phil Tobin and the supporters of his bill felt that passage of the bill would accomplish three things:

1. Legalized gambling would provide the state with much-needed revenue through gaming taxes.

2. Legalized gambling would enhance business in general.

3. With the impending construction of the Hoover Dam and the thousands of federal workers who would be required to do so, there was concern that the U.S. government would move to shut down the many illegal casinos that were flourishing in Las Vegas less than 40 miles away. Supporters of the bill believed the only way to prevent federal intervention in these illegal activities was to legalize gambling. How could the federal government inter­vene if gambling was legal? Interestingly, this tactic was to prove successful.²

On March 19,1931, Governor Fred Balzar signed historic Assembly Bill 98 into law. During the same legislative session, the legislators passed a bill lowering the residency requirements for divorce from three months to six weeks.

Assembly Bill 98 legalized the following games:

zRalph Roske, "Nevada Gambling, First Phase, 1861-1931." Paper presented to the Western Association Section on Gambling in Nevada, October 13-15,1977.

The History of Modern Gaming            3

• Faro

• Monte

• Roulette

• Keno

• Fan-Tan

• Twenty-One

• Blackjack

• Seven-and-a-half

• Big Injun

• Craps

• Klondyke

• Stud Poker

• Draw Poker

• Slots

Legalized gambling provided a welcome new source of state revenue. Each gambling establishment (casino) was charged $25 monthly for each card game, $10 monthly for each slot and $50 monthly for each table game. The tax was determined by the number of devices and not the amount of the casino win.

The tax revenues were to be split, with 75% going to the county where the casino was located and the remaining portion going to the state. Since the county received most of the tax revenue, the responsibility for collection of the taxes and enforcement of gambling laws was placed with the county sheriff.

The original version of the bill failed to provide for any means of regu­lation. Cheating and operating a casino without a license were forbidden. Any operator found guilty of cheating was forced to forfeit his license for one year; however, no agency was assigned the power of enforcement. This omission was rectified eight days later when the legislature empow­ered local authorities to regulate gaming or prohibit it entirely.³

THE BULL PEN CASINO

If gambling is legal in the state, why shouldn't it be legal within the walls of the state prison in Carson City? As unlikely as this sounds, gambling was to be a recreational activity made available to prison inmates. In 1932, the Bull Pen Casino opened in the Carson City prison and was oper­ated by inmates, who were allowed to keep their profits. Naturally, the casino customers were all inmates as well.

In order to operate a game, the game boss (inmate) had to satisfy a prison administrative board that he could afford to bankroll the game.

³ Jerome J.Vallen, Ed., Nevada Gaming License Guide, Lionel Sawyer & Collins At­torneys at Law, 1988, p. 8.

4            Casino Operations Management

After obtaining approval from the board, the only other requirement was that the game boss contribute a fixed amount of the proceeds to an In­mate Welfare Fund. With the exception of this limited form of taxation, the game boss was allowed to run his game and keep the profits. The Bull Pen Casino provided the game boss with one of the few benefits of receiv­ing a long prison sentence.

In the Bull Pen Casino's prime, an inmate could gamble at blackjack, craps, chuck-a-luck, roulette and poker. There was even a window where an inmate could bet any horse race in the country and another window for betting on sporting events.⁴ Unfortunately for the game boss, the prison casino was closed in 1967 and replaced with more constructive and probably less profitable programs.

THE GRANDEST CLUB IN SOUTHERN NEVADA

The Meadows Supper Club opened in Las Vegas on May 2,1931, less than two months after passage of the bill legalizing casino gambling. No ex­pense was spared in building the most luxurious casino in Nevada, com­plete with its own landing strip for wealthy clients. The casino, which cost $300,000, included 100 hotel rooms and was the grandest club in southern Nevada.⁵ During the prohibition years, the Meadows Supper Club was known as "the place" to buy liquor.

The Meadows Supper Club, Las Vegas' first legitimate night spot, was built by Tony Comero and his two brothers Frank and Louis. The Comero brothers claimed that they had built the Meadows with the un­derstanding that the city would give them a monopoly on prostitution. The Comeros believed that city officials had promised to close down "Block 16,"⁶ which was located on First Street just north of Fremont in downtown Las Vegas and was known as the place where "Every Satur­day night is New Year's Eve."⁷

The Meadows Supper Club, which was located at Boulder Highway and Charleston, was plagued with bad luck from the beginning. The hotel burned to the ground in 1932 after firemen refused to fight the fire be­cause the Club was outside the city limits.⁸ The Club eventually went bankrupt in 1937 and was sold within a year to a builder from California.⁹

⁴ John Scares, Loaded Dice, Dallas, TX: Taylor Publishing. 1985, p.39. ⁵Las Vegas Review Journal, Supplement "75th Anniversary Year," March 3,1986, p. 16B. 'Ibid. 7Ibid.

»LVRJ, Supplement, March 3,1986. ⁹Nevadan Magazine, January 28,1990, pg. 12S.

The History of Modern Gaming            5

After leaving Las Vegas, Tony Cornero operated a gambling ship an­chored three miles off the shore of Santa Monica, California, called the SS Rex. Every week, thousands of Californians would drive to the pier, where water taxis took them to the SS Rex. Unfortunately for Cornero, California state officials became outraged by his operation and in 1939, California Attorney General Earl Warren sent 250 agents to close down the SS Rex.¹^ Tony Cornero died of a heart attack while shooting craps at the Desert Inn in 1955.¹¹

BIG TIME GAMBLING

During the early years, little or no attempt was made to market the casi­nos. This was to change when in 1935 Raymond Smith and his son Harold came to Nevada. With an investment of only $500, Raymond Smith opened Harold's Club in Reno.¹² Only 20 feet wide at first, Harold's Club grew and during the 1970s claimed the title as the largest casino in Nevada. Mr. Smith, also known as "Pappy," was an extraordi­nary promoter. He was a great visionary and realized that proper market­ing could lead to substantial profits.

Pappy Smith is credited with many "firsts" in gambling. Among these was his innovation of placing the casino directly adjacent to the street. Prior to Smith's arrival, most casinos were located either in the back room or upstairs. He was also the first to introduce mouse roulette, which provided for a special wheel with 38 numbered holes placed around its perimeter. A mouse was released from a hole in the center of the wheel and the winning number was determined by the hole to which the mouse ran.

Pappy Smith was also the first casino operator to hire women dealers, and his casino also housed the first escalator in the state. Harold's Club was also the first casino to conduct a national outdoor advertising cam­paign. At one point, Harold's Club had over 2,300 billboards placed on major highways throughout the United States.¹³

In 1937, a second gambling pioneer. Bill Harrah opened his Bingo Club in Reno.¹⁴ Harrah was the first to introduce corporate management philosophies to the gaming industry. At the time of his death in the mid-1970s, Harrah's Reno and Harrah's Lake Tahoe casinos were two of the largest and most successful in the state.

¹⁰ LVRJ, Supplement, March 3,1986. "Ibid.

¹² E. Malcolm Greenlees, Casino Accounting and Financial Management, University of Nevada Press, p. 6.

¹³ Nevada Magazine, Special Issue: 50 Years of Gaming, March/April 1981.

¹⁴ Greenlees, Casino Accounting and Financial Management, p. 6.

6            Casino Operations Management

THE BIRTH OF THE LAS VECAS STRIP

During the years 1935 through 1946, northern Nevada was the center of gambling. During this same period, the gaming industry in Las Vegas was growing in size and importance. In 1940, dark County, which in­cludes the city of Las Vegas, had a population of only 16,414 people. Just two years later, the population had skyrocketed to 34/247, which repre­sented an increase of over 100%.

Legend has it that on a hot summer day in 1939, hotelier Thomas Hull had a flat tire on old Highway 91 just south of downtown Las Vegas. Mr. Hull could not help noticing the large number of cars that passed him while he was waiting for a mechanic to arrive. Consequently, Thomas Hull opened the El Rancho Vegas in 1941 across from where the Sahara Hotel & Casino stands today On October 30,1942, the Last Frontier Hotel & Casino joined the El Rancho and became the second casino on the Las Vegas Strip. In 1960, the El Rancho, like the Meadows Supper Club, was destroyed by fire and the casino was never rebuilt. The Frontier Hotel and Casino today is located on the same spot as the original Last Frontier.

BUGSY

When the "Wide Open Gambling Bill" was passed in 1931, betting on horse races and sporting events was not legalized. The amendment legal­izing wagering on these events did not come until ten years later. When casinos were first allowed to offer betting on horse races, no method was established for the legal casinos to determine the outcome of races and how much the winning horses paid. Trans-America wire service, which, incidentally, was controlled by the Capone Mob in Chicago, was estab­lished to answer this need.¹⁵

The West Coast representative for the Trans-America wire service was none other than the infamous gangster Benjamin "Bugsy" Siegel, who came to Las Vegas with his friend Moe Sedway in 1941 to promote the wire service. With monopoly control of the wire service, Bugsy and his gang gained a foothold in the legal casinos of Las Vegas.¹⁶

Once familiar with Las Vegas gambling, Bugsy initially bought into and subsequently sold the El Cortez. He then decided that the town needed its first "plush" casino-hotel. Up to this point in Nevada's gaming history, most casinos sported a western theme and lacked the elegance of the Miami Beach type hotels. To satisfy this perceived gap in the market, Bugsy decided to gain control of the Flamingo Hotel & Casino on the Las

"Ed Reid and Ovid Demaris, The Green Felt Jungle, New York: Pocket Books,

1964. ¹⁶ Nevada Gaming License Guide, p. 10. Green Felt Jungle, p. 13.

The History of Modern Gaming            7

Vegas Strip, which had begun construction in January 1945 under the ownership of a businessman from Los Angeles.

The hotel was named after Hollywood starlet Virginia Hill, who was also Bugsy's girlfriend. Looking back, historians always refer to Bugsy as the developer, but at the time Bugsy's name was never mentioned as a principal. The developer of record was the Nevada Projects Corporation.

On Thursday, December 26, 1946, although its 97 hotel rooms were not ready for occupancy, the Flamingo Hotel & Casino opened to the pub­lic. One would have thought that the opening of the $5 million resort would have been on the front page of the Las Vegas Review Journal. In­stead, the day the Flamingo opened, the headlines announced the death of comedian W. C. Fields. The opening did make the newspaper, but not until page three.

The Flamingo was crowded with customers on opening night. The "cafe entertainment" was headlined by Jimmy Durante, Xavier Cugat, and Rose Marie. But since the rooms were not yet complete, customers had to stay at the El Rancho Vegas, the Last Frontier, or in one of the few rooms in downtown Las Vegas. Two nights later, a visit that was billed as the largest gathering of film stars outside the confines of Hollywood included the pa­tronage of such notables as Veronica Lake, Lucille Ball, George Raft, William Holden, Brian Donlevy, Ava Gardner and Peter Lawford.

In spite of all the hoopla, the casino immediately began to lose money and was closed on February 1, 1947, so that the construction could be completed. During the initial opening period, the casino lost over $100,000. The casino was reopened on March 27, 1947, and this time the rooms were completed and the customers had a place to stay. Unfortu­nately for Bugsy, the casino continued to lose money. Convinced he was skimming casino proceeds, his mob partners had him killed on June 20, 1947, at the Beverly Hills home of Virginia Hill, who had ended their rela­tionship one day earlier.¹⁷

Bugsy was buried in a $5,000 silver plated casket following a five-minute ceremony attended by only five mourners. Ironically, at the time of Bugsy's death, the Flamingo had improved operations and was mak­ing money.¹⁸ In retrospect, the opening of the Flamingo is viewed as a turning point in the history of Las Vegas gambling.

HOWARD HUGHES

Texas millionaire Howard Hughes came to Las Vegas in 1966 and imme­diately began to purchase casinos. Hughes owned 100% of Hughes Tool

¹⁷ Green Felt Jungle, p. 28.

1⁸ LVRJ, Supplement, March 3,1986.

Casino Operations Management

Company, which was an oilfield supply company founded by Hughes' father, who had patented a rotor bit used in the drilling of oil wells. Be­fore coming to Las Vegas, Hughes had owned RKO Studios and a major interest in TransWorld Airlines. He was a well-known and respected busi­nessman. His entry into gambling legitimized the industry and gave it a much-needed perception of respectability.

Hughes' entry into the gaming industry began on April 1,1967, with his purchase of the Desert Inn from reputed Cleveland mobster Moe Dalitz for $13.25 million.¹⁹ The purchase was not without some contro­versy, as Hughes became the first and only person to be granted a gaming license without appearing before the Gaming Control Board. With the as­sistance of Governor Paul Laxalt, who was anxious to improve the tar­nished image of Las Vegas, Howard Hughes was able to move swiftly through the licensing process and continue to expand his ownership in the gaming industry.

In July 1967, Hughes acquired the Sands for $14.6 million and fol­lowed this with the purchase of the Frontier on September 22, 1967. Hughes continued his buying spree with the acquisitions of the Cast­aways for $3 million and the Silver Slipper for $5.3 million. In September 1968, Hughes purchased the partially completed Landmark for $17.3 mil­lion, but the gaming license was not approved until January 1969. Within a period of a little more than one year, Howard Hughes had spent $65 million and had acquired four of the top fifteen hotels on the Las Vegas Strip. The 2,000 hotel rooms he owned represented 20% of the total hotel rooms on the Strip.

The purchase of so many casinos by one individual concerned both the administration of President Lyndon Johnson and Nevada's Gaming Commission. Fearing dominance in the industry was detrimental to free competition, the U.S. Department of Justice intervened when Hughes at­tempted to purchase the Stardust. After determining that the Department of Justice had no jurisdiction in the matter, Nevada's Gaming Commis­sion approved Hughes' license for the Stardust on April 30,1968.

Subsequently, the Department of Justice requested a 90-day delay in the acquisition so that they could investigate. Hughes' plans to purchase the Stardust for $30.5 million were voluntarily terminated in August 1968. The 1970 purchase of Harold's Club in Reno would prove to be the sev­enth and final in Hughes' string of casinos.

After Hughes' entry into gaming, a Corporate Gaming Act was passed in 1969 by Nevada's gaming regulators. Prior to the passage of this act, every owner of a casino was required to be individually li-

¹⁹ John Goodwm, Gaming Control Law, Columbus, OH: Publishing Horizons 1985, p. 28.

The History of Modern Gaming            9

censed. With public corporations, licensing of thousands of stockholders was impractical. The Corporate Gaming Act allowed publicly traded corporations to own casinos without requiring every single stockholder to be licensed.

The act was made retroactive to July 1, 1967, and was prompted by Hughes' decision to divest ownership in Hughes Tool Company, which he had solely owned. The act opened the door for other public corpora­tions to move with greater ease into the gaming industry. Today, the gen­eral rule applied is for a stockholder to own 10% of the voting stock in a public corporation before being required to obtain a gaming license.

MODERN-DAY LAS VEGAS

Las Vegas has grown into a city where tower cranes used for constructing high-rise buildings are as common a sight as neon lights. The building boom which began with Bugsy Siegel and Howard Hughes has contin­ued with only slight interruptions. The last few years in Las Vegas have seen the construction of themed mega-resorts exemplified by the Mirage, MGM, Excalibur and the Luxor.

These properties are typified by themes which are carried through­out the property and include attractions such as amusement parks and virtual reality games aimed at attracting families and expanding the de­mographic base of the casinos customers. The mega-resorts also feature large numbers of hotel rooms (currently as many as 5,000 rooms) and food/beverage outlets. The MGM includes an amusement park as well as a multipurpose arena which seats up to 17,000 and is used for concerts and sporting events.

Tourists visiting the Las Vegas Strip today can also visit the newly opened Monte Carlo or the Stratosphere Tower, which stands 1149 feet high and resembles the famous Space Needle in Seattle. Construction was recently completed on New York New York, which features replicas of the Empire State Building, Coney Island and the Statue of Liberty. Also under construction is Bellagio, which when completed will have a cost esti­mated at over $1 billion and will include a five-star caliber facility as well as a man-made lake.

Other projects planned include Paris, which will include a replica of the Eiffel Tower, and a monorail system which will travel the length of the Strip with planned stops at most of the major casinos. All of these projects will further enhance the image of Las Vegas and continue the growth trend which has seen the gross gaming win for Nevada increase 32% over the past five years. The following table shows the gross gaming win by year (fiscal year ending on June 30) for Nevada and the corresponding year over year percentage increase:

10           Casino Operations Management

Year         Win Amount (billions)       Increase (%)

STEVE WYNN

It is impossible to discuss modern day Las Vegas without discussing Steve Wynn. Perhaps no one individual has acted as a greater agent of change on the face of the gaming industry over the past decade than Steve Wynn. Mr. Wynn is credited by many in the gaming industry with transforming Las Vegas into a world-class resort destination.

Mr. Wynn today is the Chairman of the Board and Chief Executive Officer of Mirage Resorts, Incorporated, but his odyssey in the gaming industry really began in 1972, when he made a major investment in Golden Nugget, Inc. At the time of his investment, the Golden Nugget was an unspectacular casino located on Fremont Street in downtown Las Vegas. Under the leadership of Mr. Wynn, the property was reshaped into a four-star resort that became known for its elegant facilities and customer service.

Mr. Wynn's focus of attention later became the construction and sub­sequent sale of the Golden Nugget Hotel & Casino on the Boardwalk in Atlantic City. The casino was built in 1980 and sold to Bally's in 1987 for $440 million. The proceeds from this sale helped to fund the construction of The Mirage, which opened in Las Vegas in 1989.

The Mirage with its South Seas tropical theme represented a large gamble, but would become one of the most successful properties in the history of the gaming industry. The property was one of the first to fully integrate a clear theme throughout the operation and include a signature entertainment feature in the volcano provided free to the public as a mar­keting hook. The Mirage helped to act as a catalyst during a $5 billion building boom that further established Las Vegas as the fastest-growing city in the U.S. and one of the top tourist destinations in the world.

In October 1993, Mr. Wynn's next project. Treasure Island, opened ad­jacent to The Mirage. Treasure Island, in the same manner as The Mirage, features a prominent theme and signature entertainment. The property has a pirate theme and several times daily visitors can see at no charge a ship battle between a pirate ship and a British frigate. The ship battle is complete with actors, cannon fire and the sinking of the British ship.

The two new properties under development are in keeping with their predecessors. Beau Rivage at the cost of approximately $475 million will represent a significant addition to the casino industry in Biloxi, Missis-

The History of Modern Gaming           11

sippi, while Bellagio, a 3/000-room property is under construction on the Las Vegas Strip. These properties will only serve to further establish Mr. Wynn as one of the modern day innovators in the gaming industry.

NEW JERSEY LEGALIZES CASINO GAMBLING

In November 1976, New Jersey voters passed a referendum that legalized gambling in Atlantic City and was to have a significant impact on the fur­ther growth of gaming in the United States. Eighteen months later, on May 28, 1978, Resorts International became the first casino in the United States operated outside Nevada. Resorts International opened with a total investment of $50 million and during the first two months of operation the net win of the casino exceeded the initial investment!²^

Almost 20 years later, the number of casinos operating in Atlantic City has grown, with more casino projects planned for development. Since the inception of casino gambling in New Jersey, annual gross casino revenues have grown to $3,301 million (for 1993), making New Jersey the state with the second largest gaming revenue in the United States. For 1993, the following represents a ranking of the top states with operating casinos in terms of gross casino revenue (in millions):

1. Nevada      $6,020

2. New Jersey    $3/301

3. Mississippi     $790

4. Illinois          $606

5. Louisiana       $328

6. Colorado       $260

7. Montana       $182

8. Iowa          $45

²⁰ George Stemlieb and James W. Hughes, Atlantic City Gamble, Cambridge: Har­vard University Press, 1983, pp. 66,158.

(^^tafrten.

2

Gaming Control

HISTORY OF GAMING CONTROL IN NEVADA

When Assembly Bill 98 became law in 1931, the responsibility for enforce­ment of the law rested with the local authorities. Cheating and operating without a license were illegal and it was the county sheriff's job to see that these things did not happen. Since the county received 75% of the table tax/ it was also the sheriff's responsibility to serve as the tax collec­tor. Anyone seeking a gaming license had to be approved by a local five-member board made up of the sheriff, the local district attorney, and three county commissioners.

Local gaming control and enforcement lasted until 1945, when Nevada lawmakers imposed a 1% tax on the gross gaming win for each casino, which was to be collected in addition to the table tax. A require­ment was also established at this time providing for casino operators to obtain a gaming license from the state as well as the local authorities. Once the tax on gross gaming win was enacted, responsibility for issu­ing the license and collection of the tax was assigned to the State Tax Commission, which was made up of the governor as chairman and six commissioners.

ESTES KEFAUVER

In 1950, a U. S. Senator from Tennessee named Estes Kefauver chaired a Senate committee investigating organized crime's influence in America. The final report issued by the committee was highly critical of Nevada's regulatory environment and had the following to say¹:

¹ U.S. Congress, Senate Special Committee to Investigate Organized Crime in In­terstate Commerce, Third Interim Report 93, U.S. Government Printing Office, 1951.

13

14           Casino Operations Management

The licensing system which is in effect in the state has not re­sulted in excluding undesirables from the state, but has merely served to give their activities a seeming cloak of respectability.

When the Tax Commission began issuing gaming licenses, all currently li­censed operators were merely "grandfathered in" and no attempt was made by the Commission to clean house.² Many of the licensed operators were either members of or had connections with organized crime.

In testimony before the committee, Nevada's lieutenant governor ad­mitted that little or no effort had been made to screen applicants. The publicity of the hearings brought national prominence to Kefauver. In 1956, Kefauver ran second to Adiai Stevenson as the Democrats' choice for president.³

Nevada's legislature realized that if gaming was to continue to pros­per, changes had to be made to clean up the industry. Consequently, the Gaming Control Board (the Board) was created by the legislature in 1955. The Board's sole responsibility was to keep undesirables out of the indus­try. To accomplish this, the Board began conducting a thorough back­ground investigation of each gaming license applicant. After completing its investigation, the Board would make a recommendation to the Tax Commission as to whether the applicant should receive a license. The ul­timate decision on licensing still rested with the Tax Commission regard­less of the Board's recommendation.

This approach to licensing lasted until 1959, when the current Gam­ing Control Act was passed. The Gaming Control Act relieved the Tax Commission of any authority concerning gaming and established a Gam­ing Commission that was to act in unison with the Gaming Control Board to govern the industry.

NEVADA GAMING CONTROL

Whether in Nevada, Atlantic City or Deadwood (South Dakota), gaming control has three common objectives:

1. Assure gaming is conducted honestly. This is accomplished by the prevention of cheating and fraud by both the casino's cus­tomers and management.

2. Assure that the industry is free from corruption and the involve­ment of organized crime. This is accomplished by preventing un-

² Jerome H. Skolnick, House of Cards, Boston: Little Brown and Company, 1978, p.117.

³ Jerome J.Vallen, Ed., Nevada Gaming License Guide, Lionel Sawyer & Collins At­torneys at Law, 1988, p. 12.

Gaming Control          15

savory or unsuitable persons from having any direct or indirect involvement in gaming.

3. Assure that all taxes owed are properly paid. This is accom­plished by maintaining strict control over the financial practices of the licensee.

In Nevada, the responsibility for achieving these objectives rests with the Gaming Commission and the Gaming Control Board. The organizational chart shown in Fig. 2.1 depicts these two agencies.

THE CAMINC COMMISSION

Nevada's Gaming Commission has two primary responsibilities: (1) to enact all gaming regulations and (2) to serve as the final authority on all licensing and disciplinary matters. The five members of the Commission are appointed by the governor to four-year terms. Interestingly enough in view of their enormous responsibility, the Commission members serve in a part-time capacity.

In selecting the members of the Commission, the governor can choose whomever he or she wishes provided:

governor

executive secretary

Figure 2.1  Nevada Gaming Control Organizational Structure

1. No more than three Commission members are from the same po­litical party,

2. None of the Commission members is actively engaged in or has a direct interest in gaming, and

3. Preferably, no more than two members are from the same occu­pational area.

GAMING CONTROL BOARD

The Board's primary responsibilities are to protect and police the casinos.⁴ The Board is made up of three members who are also appointed by the governor and serve four-year terms, similar to members of the Commis­sion. One distinct difference between the Board and the Commission is that the Board members are full-time rather than part-time. The Gaming Control Act dictates to the governor who he cannot choose for the Com­mission and, in contrast, who he must choose for the Board. Individuals selected to be Board members must possess certain areas of expertise.

The chairman of the Board must have five years of sound administra­tive experience. One member must be a certified public accountant with five years of experience in general accounting, or be an expert in corpo­rate financing, auditing, economics or gaming. The final member must have full training and experience in the fields of investigations, law en­forcement, law or gaming. Most often, this member is either an attorney or retired police official.

The various departments of the Board are assigned to those mem­bers with the necessary functional skills. The organizational chart in Fig. 2.1 includes the Board members and their respective management responsibilities.

DIVISIONS OF THE BOARD

Investigations When an individual submits an application for a gaming license, the Investigations Division of the Board conducts a routine, but thorough, background investigation. In completing the background in­vestigation, Board personnel will contact law enforcement agencies where the applicant has lived as well as the Federal Bureau of Investiga­tion (FBI). Investigative agents with the Board fall into either the back­ground or financial categories.⁵ The applicant bears the entire cost of the investigation including all agent salaries and travel expenses.

⁴ John R. Goodwin, Gaming Control Law, Columbus, OH: Publishing Horizon, Inc., p. 46.

⁵ Nevada Gaming License Guide, p. 19.

Enforcement This division serves as the law enforcement arm of the Board. Each agent has police officer authority and routinely conducts un­dercover observations of gaming licensees. In addition, the Enforcement Division:

1. Investigates player disputes,

2. Reviews surveillance systems,

3. Inspects and approves gaming tokens,

4. Investigates and enforces the casino's compliance with the regu­lations and general standards of operations,

5. Arrests anyone attempting to cheat the casino, and

6. Reviews all existing and new work card permits.

Audit This is the largest division of the Board. All agents hold accounting degrees and the majority are certified public accountants. Every 3 years, each Group I and II licensee will be audited by Audit Division staff to de­termine whether the proper gaming and entertainment taxes were re­ported and whether compliance has been maintained with gaming regu-, lations. The Audit Division also reviews and evaluates the internal control system of each licensee, monitors the financial stability of each li­censee, and monitors compliance with Regulation 6A (see Chapter 5).

ATTORNEY GENERAL

In addition to the divisions listed, a staff of seven attorneys has been as­signed to the Board and Commission by the Attorney General's office. The primary responsibility of the attorneys is to serve as legal counsel to the Board and Commission.

GAMING POLICY COMMITTEE

The Gaming Policy Committee was established in 1961 to give the gover­nor a voice in policymaking. The exclusive purpose of the Committee is to discuss gaming policy, and its recommendations are advisory only and nonbinding to either the Gaming Control Board or Gaming Commission. The Committee meets on an ad hoc basis at the request of the governor and has not been convened since 1984. The expertise of the Committee members should yield sound advice concerning policy. The nine-member Committee is chaired by the governor and the remaining eight members come from the following agencies and professions:

1. One member from Nevada's Gaming Commission

2. One member from Nevada's Gaming Control Board

3. One member from the State Senate

4. One member from the State Assembly

5. Two representatives from the general public

6. Two representatives of gaming licensees

The Board and Commission designate their representative and the re­maining six members are appointed by the governor.

GAMING LICENSING

The Nevada Supreme Court has repeatedly upheld its 1931 decision that casinos are "privileged enterprises." There is a general rule that persons have a constitutional right to engage in "useful trades and occupations." Casinos are not considered useful trades and occupations, hence/ it is a privilege to operate a casino. Federal court has ruled that "gaming is a privilege reserved to and conferred by the state and does not carry with it those rights inherent in useful trades and occupations."

In addition to being a privilege to operate a casino, it is also a privi­lege to work in a casino as a key employee, and to gamble in a casino. Any of these rights can be summarily taken away by the Board and Commission.⁶

All companies, their officers and principal owners must be licensed or found suitable. Anyone seeking a gaming license must first prepare the application and submit it to Applicant Services, a subdepartment of the Investigations Division. As mentioned earlier, the applicant bears the en­tire cost of the investigation. Once the application is prepared, it is re­viewed and an estimate is made as to how much the investigation will cost. The applicant then prepays this estimated cost.

The application is submitted to the Board, at which time an investiga­tive team is assigned to the case. After the investigation, the applicant ap­pears before the Board to answer any questions that have arisen from the background and financial investigation. The Board then makes a recom­mendation as to the suitability of the applicant. Approximately two weeks later, the applicant comes before the Commission for another inde­pendent review. At the end of their questioning, the Commission will vote on whether the applicant should receive a license.

The recommendation made by the Board determines what the Com­mission must do if the applicant is to be licensed. If the Board unani­mously recommends against licensing, then a unanimous vote by the Commission is required for the license to be granted. If the Board unani­mously recommends licensing or this vote is split, then only a majority of Commission votes are necessary for approval or denial.

⁶ Goodwill, Gaming Control Law, p. 52.

Gaming Control          19

CLASSIFICATIONS OF NEVADA STATE GAMING LICENSES

The type of casino the applicant chooses to operate determines the type of license that is necessary. Nevada gaming licenses are either restricted or nonrestricted.

Restricted If the applicant chooses to operate no more than 15 slots and no table or poker games, then a restricted license must be obtained. In ad­dition, the machines must be incidental or adjunct to the primary business.

Nonrestricted An applicant wishing to operate more than 15 slots and/or one or more table games (including poker) and/or a race book or sports pool must first obtain a nonrestricted gaming license. Two other types of gaming licenses qualify as nonrestricted: a stand-alone race book or sports pool, and a slot route operator's license. A slot route operator's license allows the holder to place slot machines in licensed locations and share in profits without being on the license issued to the location.

HOTEL ROOM REQUIREMENTS

Effective July 1,1992, the state of Nevada requires a minimum number of hotel rooms before they will issue a nonrestricted state gaming license for a casino to be newly constructed. In the past, the number of hotel rooms was only a local requirement. Under current requirements, the applicant must have at least 200 rooms before the state will issue the license if the population of the county is 100,000 or greater. If an applicant wished to open a race book or sports pool only, the hotel room requirement does not apply.

In addition to the state license, the applicant must secure a local li­cense. Local jurisdictions have their own requirements before issuing a li­cense. If the local room requirement is greater than the state requirement, then the local requirement applies. As an example, the casino must have at least 20 slots and/or 3 or more table games for the city of Reno to clas­sify the casino as nonrestricted.

Any casino operation classified as nonrestricted in Reno must have at least 300 hotel rooms before a local gaming license will be issued. The state requirement is met at "200 rooms," but another 100 rooms are re­quired before Reno will issue the local license. Whenever the state and local room requirements differ, the jurisdiction with the largest require­ment must be met before the casino can open.

In dark County, 300 rooms are required before issuing a nonre­stricted gaming license. In all cases, increases in the room requirement are not made retroactive. That is, you are allowed to operate with the rooms required at the time the license was issued.

20           Casino Operations Management

WHAT THE COMMISSION IS LOOKING FOR IN AN APPLICANT

Any approval by the Commission will not be granted unless the Commis­sion is satisfied that:

1. The applicant is a person of good character, honesty, and integrity

2. The applicant's background, reputation and association will not result in adverse publicity for Nevada and its gaming industry

3. The applicant has adequate business competence and experience for the role for which application is made

4. Funding for the operation is adequate and from a suitable source

KEY EMPLOYEE LICENSING, FINDING OF SUITABILITY, AND WORK PERMITS

Two other types of approval, in addition to the approval to operate a casino, are the approval to work in the casino as a key employee and the finding of suitability approval.

Finding of Suitability An individual may be called forward by the Commission to be found suitable. In these cases, the individual must be found suitable to continue his or her relationship with the licensee. Typi­cally, those called forward for suitability are individuals who have influ­ence or a relationship with a licensee, but who are not directly involved in the control of the gaming operation. The following classes of individuak are those most likely to be called forward for a finding of suitability:

1. Mortgage holders

2. Landlords

3. Lessors of property and equipment

4. Lenders

5. Junket representatives

6. Those doing business on premises

7. Those providing goods or services

Key Employee Licensing When three or more members of the Commis­sion feel that the public interest would best be served by having a key em­ployee licensed, then the employee must be licensed. Regulation 3.110 states the following:

Any executive, employee, or agent of a gaming licensee having the power to exercise a significant influence over decisions con­cerning any part of the operation of a gaming licensee or who is

Gaming Control          21

listed or should be listed in the annual employee report required by Regulation 3.100 is a key employee.

Twice each year, each nonrestricted licensee is required by Regulation 3.100 to submit an Employee Report. The report includes the following categories of employees who are actively engaged in the administration or supervision of the casino operation:

1. All individuals who make more than $75,000 annually

2. Any individual who can approve casino credit limits

3. Any individual who can approve the use of rim credit

4. Any individual who can extend a player's credit limit by the greater of 10% or $1,000

5. Any individual who can recommend or approve the settlement or write-off of a credit instrument

6. Any individual who has the authority to hire or terminate super­visory casino personnel

7. Any individual who is a gaming or security shift manager

8. Any individual who has the authority to authorize complimenta-ries for other than food or beverage. Examples would include complimentaries extended for rooms or airfare

9. All individuals with the authority to manage the following de­partments: accounting; food and beverage; cage; credit and col­lections; personnel; internal audit; security; surveillance; enter­tainment; or sales and marketing

10. Any individuals who can enter into a contractual arrangement which is binding upon the licensee and is reportable under Regu­lation 8.130 (Transaction Reports)

11. Any individual who has been represented to the Board or Com­mission by the licensee as being important to the operation of the gaming establishment

12. Any person who individually or in conjunction with a group for­mulates management policy

As you can see, the annual Employee Report may contain dozens of em­ployees, but few are ever called forward for key employee licensing or suitability. Key employees are restricted from gambling in the casino where they work. Therefore, it is important to note what Regulation 5.013 says:

No officer, director, owner or key employee of an entity which holds a gaming license in this state shall play or place a wager at any gambling game, slot machine, race book or sports pool which is exposed to the public for play or wagering: (a) by that gaming licensee; or, (b) at or within the establishment which is owned or

22           Casino Operations Management

operated in whole or in part by that gaming licensee. This regula­tion shall not apply to the playing of or wagering on poker or panguingui.

Work Permits Every gaming employee in Nevada must obtain a valid work permit (463.335). This law was enacted to help the local and state gaming regulators keep undesirables out of gaming. Typically, work per­mits are issued by the city or county. If the county or city does not require work permits, then one must be obtained from the Gaming Control Board. The work permit is reviewed by the Board. Either the local author­ity or the Board can deny the work permit.

Figure 2.2 shows the work permit issuance, review and approval or denial process for the city of Las Vegas and dark County.

ATLANTIC CITY GAMING

In November 1976, this question was presented to the voters of New Jersey:

Shall the Constitution be amended, as agreed to by the Legisla­ture, to authorize the Legislature to establish and regulate gam­bling casinos in Atlantic City, with the State's revenues therefrom being applied solely to reduce property taxes, rentals, and tele­phone, gas, electric and municipal utilities charges of eligible se­nior citizens and disabled residents of the State?

Once referred to as "the Queen of resorts," Atlantic City in 1976 was a de­caying city⁷ which had become populated largely with criminals, con artists and prostitutes. In the year before the gambling referendum was presented to the voters, Atlantic City:

Was one of the nation's most distressed cities Had lost 25% of its population in the preceding 15 years Was the poorest city in the state by a dozen different measures Was top in the FBI's crime statistics in seven different categories Included concentration of elderly that made it the second oldest city in the nation • Had a 20% unemployment rate in season and a 40% rate off season

The time was certainly right for the gambling issue to pass and it did by a three-to-two margin. The introduction of the gambling bill had as its main objective the restoration of Atlantic City.

⁷ Michael Pollack, Hostage to Fortune: Atlantic City and Casino Gambling, Princeton, NJ: Center for Analysis of Public Issues, 1987, p. 22.

GAMING CONTROL IN ATLANTIC CITY

Before the gaming act was passed by New Jersey's legislators, the juris­dictions of Nevada, Puerto Rico and Great Britain were visited to deter­mine the best control model. After reviewing these different models of control, the Casino Control Act was passed in 1977 and became regarded as the toughest ever enacted in the United States.

The Casino Control Act created two agencies to control Atlantic City gambling: the Casino Control Commission and the Division of Gaming Enforcement. These two agencies are very similar to their Nevada counter­parts—the Gaming Commission and Gaming Control Board, respectively.

CASINO CONTROL COMMISSION

The Casino Control Commission is an independent division of New Jer­sey's Department of Treasury. The Commission is composed of five mem­bers appointed by the governor to five-year terms. When the Casino Con­trol Act was first passed, it stipulated that only the chairman would serve in a full-time capacity, with the remaining commissioners serving part-time. The legislators later decided that the work load and responsibility of the Commission was too great for part-time members. Consequently, the Act was amended to provide that all commissioners would serve full-time. As in Nevada, no more than three members of the Commission can be from the same political party.⁸

The duties of the Commission are to (1) to enact all gaming regula­tions and (2) serve as the final authority on all licensing and disciplinary matters. In addition, the Commission must be present through its in­spectors and agents at all times during the operation of any casino, and has the responsibility of collecting all fees and taxes due the state. Provi­sions for the continuous presence of Commission personnel represented a significant departure from the gaming control model employed by Nevada.

DIVISION OF GAMING ENFORCEMENT (DCE)

The DGE has only one director, appointed by the governor, who reports directly to the State Attorney General. The director's term coincides with that of the governor. Once the governor decides not to run or is defeated, the director of the DGE's term expires.

The duties and responsibilities of the DGE are much the same as those of Nevada's Gaming Control Board. They are:

⁸ N.J.S.A., 5:12-51 (New Jersey Statutes Annotated, St. Paul, MN: West Publishing).

Gaming Control          25

1. The investigation of all applicants for a gaming license, followed by a recommendation to the Commission whether the applicant should be licensed

2. Reviews and audits of casino operations

3. Enforcement of the Casino Control Act and its regulations

4. Prosecution of licensee violators before the Commission

5. Performance of continuing reviews of operations through onsite observations to assure compliance with the Act and Regulations

The DGE's findings serve only as a recommendation to the Commission and, as opposed to Nevada, have no impact on the way the Commission members must vote in order for an applicant to receive approval. The director's recommendation also does not determine how many Com­mission votes are necessary for applicant approval. In New Jersey, for an applicant to be approved as an operator, he or she must receive four yes votes. Approval for employee licensing requires only a simple majority.

New Jersey's Casino Control Commission has forced several gaming giants out of the industry, most notably William T. O'Donnell, Bally's chairman and president at the time, and Clifford and Stuart Perlman, major stockholders of Caesars World. As the result of adverse back­ground investigations, the Casino Control Commission forced all three to divest themselves from their respective companies before permanent li­censes would be issued.⁹ Hugh Hefner met the ire of New Jersey's regula­tors when the Playboy Club came up for licensing; he received only three of the four minimum votes necessary for licensing. In this case, Hefner was not willing to sell his interest in Playboy and, as a result. Playboy was not issued a permanent casino license.

CLASSIFICATIONS OF NEW JERSEY'S STATE GAMING LICENSES

Unlike Nevada, Atlantic City offers only one type of gaming license, which is a nonrestricted license that includes a requirement of at least 500 rooms before the license will be issued.

LICENSING

In addition to the companies, their officers and principal owners, most employees in Atlantic City also have to be licensed. Three categories of employees must be licensed: Key License (category 1), Gaming License (category 2a), and Nongaming License (category 2b).

⁹ Ovid Demaris The Boardwalk Jungle, New York: Bantam Books, pp. 196,206.

Casino Operations Management

Key License Includes casino and hotel policymakers ranging from the general manager/president and casino manager to the pit bosses. On the hotel side, positions included would range from the vice president of hotel operations to the director of food and beverage.

Gaming License Applies to those directly involved in the operation of the gambling: floorpersons, dealers, boxmen, etc.

Nongaming License Applies to those who work in a casino but are not directly involved in the play of the games, such as cocktail waitress, maintenance, mail delivery or any job that requires access to the casino floor.

PUERTO RICO GAMING

Casino table game gambling was made legal in Puerto Rico on May 15, 1948, as a tool to develop tourism. Slot machines were not legalized until June 30, 1974. As of July 1997, there were 18 casinos on the island. The casinos are extremely small by Nevada or Atlantic City standards. The largest casino in Puerto Rico is 12,000 square feet and has 300 slot ma­chines. Horse racing, state-run lotteries and cockfighting are all legal in Puerto Rico. In fact, the cockfights are often televised.

The slot machines are owned by the government, with the casino op­erator receiving about 31% of the gross win. The total number of slot ma­chines permitted per casino is a function of the total number of table game seats available. For instance, regulations specify that a blackjack or roulette game can accommodate seven players, a dice game eighteen, and a bac­carat game fourteen players. If the casino had only three blackjack games, then the casino would only be entitled to operate 21 slot machines.

The hold (the percentage of the amount wagered that is actually won by the machine) on the slot machines is prescribed by law and is high by Nevada and Atlantic City standards. The dollar machines must hold 10%, quarter machines 15% and nickel machines 20%. Marketing the casino outside the hotel is forbidden and no alcoholic beverages are permitted in the casinos.

PUBLIC POLICY TOWARD GAMING

Nevada (463.0129—Nevada Gaming Control Act)

The gaming industry is vitally important to the economy of the state and the general welfare of the inhabitants.

Gaming Control           27 New Jersey (5:12-1—New Jersey Statutes Annotated)

Legalized casino gaming has been approved by the citizens of New Jersey as a unique tool of urban redevelopment for Atlantic City.

Puerto Rico (No. 221—Laws of Puerto Rico)

The purpose of this act is to contribute to the development of tourism by means of the authorization of certain games of chance.

(^^afrtw

3

Gaming Taxes

GAMING TAXES

When gambling was first legalized in Nevada in 1931, the only levy was in the form of a table tax or slot machine fee. Card games were assessed $25 monthly, table games $50 monthly and slot machines $10 monthly. This levy lasted for 14 years until March 28, 1945, when Nevada's state legislature imposed a 1% tax on any gross casino win over $3,000 per quarter through Senate Bill No. 142. This gross win tax was in addition to the table tax already in place. The governor, E. P. Carville, opposed the tax and attached the following note to the bill:

Senate Bill 142 imposes on the gambling business a type of tax which the State of Nevada has avoided in the past as a matter of policy. It has been strenuously argued that the gambling business is in an entirely different category from what we may, for the mere sake of differentiation, term legitimate business.

I feel, however, that with the State making this departure from its fixed policy, the effort will be made to extend the imposi­tion of this type of taxation, and that the wiser course would have been to avoid this type of taxation, and obtain a just contribution from the gambling business by imposing a higher license fee.

Approximately two years of operation under Senate Bill No. 142 will make available to the next Legislature most valuable in­formation, such as: the amount actually realized by this 1% tax;

the workability of this law; the difficulties, if any, encountered in its enforcement. Present guesses may be supplanted then by defi­nite information, which will enable the Legislature to weigh the situation for taking intelligent action thereon.

It is for these reasons that I have permitted Senate Bill No. 142 to become law.

Respectfully submitted, E. P. Carville Governor

29

30           Casino Operations Management

The governor was certainly right about one thing: ". . . the effort will be made to extend the imposition." In the next legislative session, the gross win tax was increased to 2%.

GAMING TAXES—NEVADA

Nevada's nonrestricted casinos are required by NRS 463.370 to prepare a monthly report (Fig. 3.1) to determine their tax liability. A cash method of accounting is used, which means that the casino does not pay gaming taxes until the funds are collected. The tax is calculated as follows: pre­ceding month's gross gaming win minus any credit issued during the month that is still outstanding at month's end; plus any previously issued credit that is collected during month; equals the gross gaming win figure on which the tax is assessed.

Once gross gaming win is calculated, the licensee pays taxes at the following rates:

• 3% on all gross gaming revenues of $50,000, or less, per month

• 4% on the next $84,000 in monthly gross gaming revenues

• 6.25% on all monthly gross gaming revenues greater than $134,000

Casino credit plays a major role in many of the larger casinos. For exam­ple, the Mirage, Caesars Palace, Desert Inn and Las Vegas Hilton rely to a great extent on premium players for casino revenue. One thing that pre­mium players generally have in common is that they play on credit. Inter­estingly, the state of Nevada requires the payment of taxes not at the time the credit is extended, but at the time the credit is repaid by the player. Repayment of credit for premium players may not occur for an extended period of time due to the large dollar amounts involved, which results in a deferral of the associated gaming tax.

Often casinos find it necessary to "settle" a marker for an amount less than the face value. When a settlement occurs, NRS 363.371 provides for payment of the gaming tax only on the money actually collected by the casino. Credit instruments are often settled to:

1. Induce partial payment

2. Compromise a dispute

3. Retain a patron's business for the future

Frequently in today's competitive market, an agreement is reached be­tween the casino and a premium player to discount the face amount of any subsequent credit instruments to induce timely payment. For exam­ple, a deal may be negotiated between a player and the casino whereby, if the player loses, he receives a 10% discount on his losses. If the player wins, he is paid the actual dollar amount of the winnings. Discount

NEVADA GAMING COMMISSION Monthly Gross Revenue Report

—C-01 (4/11)

Navdu a—Ing Coa—iatlon.

1« raqulraci to b* ft lad -OMTHLV. MOT LATER THAN THE 24TH OAV OF THE MONTH.

For Gaming operations during the month of:

Filing Deadline:

ccount Ha.. Hut. Address. Zip Code

JOE'S CASINO

Pleue correct If In error

1. GROSS REV01UE before adjustments |Fro> NGC-31)

2. ADJUSTMENTS:

A. Cage credit issued

B. Collections in areas other than the pit

C. Net of return checks

0. NET ADJUSTMENTS (Line za * z* */. Kl

3. LOSS CARRY-OVER from                       -0-                                           |. 6.110<7»

(not to exceed Line 1 * Line 201

4.  GROSS REVENUE ilim I */- li— 2 • Line 3)

5. LICENSE FEE COMPUTATION: nrs 463.370(1)

A. 3» of the first (50,000 on line 1 B. 4» of the next (84,000 on line 4 C. 6.26H of the remainder of line 4        ____

6. ESTIMATED FEE DUE BASED ON GROSS REVENUE [Line U * » * SC1

7.  ESTIMATED FEE ADJUSTMENT mis 463.370(S)(b)

A. Current month's actual FEE DUE pine 61 B. Est. payment on 09/92 Cross Ravanup C. Estimated Pee Adjustment [Line 7A • 711

8. SUBTOTAL (li— ( */. llae XI

9.  CREDIT frc PRIOR PERIOD (not to exceed line 81

Total CREDIT available _____________0.00

10. SUBTOTAL (Line ( • H-t|

11 .   ADVANCE ESTIMATED PAYMENT: MRS <63,370(i) 17M11EE (3) tiaei the w»nt on line 61 NOTE: R|)p11et only to the first FULL inth of operitlon for 1 NEW LICENSEE

12. TOTAL DUE BEFORE PENALTY (Line 16 * ItM 111

13. PENALTY FOR LATE PA1MENT: N«s 463.270(1)

A. Fewer than 10 days late: zs« of iin* 12. nut

not r*t thT! ISO or •>or« than 11.000.           ______________

B. Ten or more days late: 2S« of iin* 12, bu*

net )••• than tSO or •or* than S5.000.           ______________

mULTl DUE IHn 1U w itr ixi

14. TOTAL AMOUfT DUE: (Line it * Une 11)

15. TOTAL REMITTANCE  Check Number:

PLEASE MAKE REMITTANCE PAYABLE TO THE NEVADA GAMING COMMISSION

i. Jo<' C^i^£> j^ga/ogwy''

(Oontr. pJrtner, president, treilurer. other - describe)

•rtoa to contact rerrdlir tMi report:                      NANti v]o£' CAt/^⁰____ phone!                            ^aSS-/Z/2.

Figure 3.1  NGC-1; Monthly Gross Revenue Report

32           Casino Operations Management

arrangements of this type also result under NRS 363.371 in the payment of tax only on the amount actually collected by the casino.

Although such an arrangement appears to cost the casino only 10%, the cost is actually much greater. It is not uncommon, depending on how long the player plays, for a 10% discount to cost the casino as much as 50%. Regardless of how much the player loses, the casino earns only the amount of the theoretical win. Any amount won by the casino over and above this theoretical win amount is only held in escrow by the casino.

NRS 363.371 does provide for some circumstances under which the Gaming Control Board may assess gaming tax on unpaid credit. These circumstances include: failing to obtain the player's signature or other written acknowledgment of the debt; failing to obtain the player's ad­dress; failing to provide evidence that a reasonable effort was made to collect the debt; failing to provide evidence that the casino checked the player's credit history prior to extending credit; and requesting that the unpaid balance not be confirmed at the time of an audit by the Gaming Control Board. The Statute also provides certain exemptions related to slot machines, such as the cost of personal property distributed to a player as the result of a winning wager.

ATLANTIC CITY'S GAMING TAXES

The tax rate in Atlantic City is 8% of the adjusted win paid on an annual basis. The adjusted win is equal to the gross win less the smaller of 4% of the gross win or the provision for bad debt. A casino in Nevada can afford to be more daring in issuing credit since taxes are not generally payable on any uncollected amounts. In New Jersey, the casino must still pay a large amount of the tax even if none of the outstanding credit is collected. Consequently, bad credit issuance decisions result in a substantial cost as far as the gaming tax is concerned.

Figure 3.2 is an actual Gross Gaming Report filed by Bally's Park Place in Atlantic City. Table 3.1 is a summary of tax rates in nine states. As a comparison, calculate how much gaming tax would be due if these monthly win figures came from a Nevada casino.

INTERNAL CONTROL SYSTEMS

In April 1968, Nevada's gaming regulators adopted Regulation 6. One of its primary objectives was to increase assurance that casino licensees were properly paying the required amount of gaming taxes. Regulation 6 re­quires each nonrestricted licensee to maintain detailed records pertaining to any revenue subject to gaming taxes or fees for a period of at least five years. Failure by a casino licensee to maintain records as required may be determined by the chairman to be following an unsuitable method of op­eration. In a situation where records supporting taxable gaming revenue

BALLYS PARK PLACE, INC.

CASINO REVENUES AW ESTIMATED TAX ON GROSS REVENUES FOR THE MONTH OF SEPTEKffiER 1992

IJndffnen^irfpajuryJdecl^ that Ihwesarir^tnsrE^aidtothe best o»tTykno»*(^atice^ &0*Q2             Signed: Casino Cortrdte

Figure 3.2 Gross Gaming Report, Bally's Park Place

Casino Operations Management Table 3.1 State Gaming Tax Rates

COLORADO 2 percent on gross revenue of $1 million or less per year; 8 per­cent on gross revenues of more than $1 million to $2 million; 15 percent on gross revenues of more than $2 million to $3 million; 18% of gross revenue of more than $3 million; $100 device fee on each slot machine and card table.

IOWA 5 percent on first $1 million of adjusted gross receipts per year; 10 per­cent on next $2 million of adjusted gross receipts; 20 percent on receipts over $3 million adjusted gross receipts; license fee of $5 per person boat capacity; admis­sion fee of 5 cents per passenger up to $250,000 per boat.

ILLINOIS 20 percent of adjusted gross receipts per year; admission fee of S2 per passenger (riverboat gambling).

LOUISIANA

riverboat 3.5 percent of net gaming proceeds per year; license fee of $50,000 per vessel for first year, $100,000 annually thereafter; franchise fee of 15 percent of net gaming proceeds; employee license fee of $100 per em­ployee.

iand based the greater of 18.5% of net gaming proceeds versus $100 mil­lion per year.

MISSISSIPPI 4 percent of gross revenues of $50,000 or less per month; 6 per­cent of gross revenues of $84,000 to $134,000 per month; 8 percent on gross revenues over $134,000 per month; $5,000 license fee; admission fee of no more than $1 per passenger.

MISSOURI 5 percent on first $1 million of adjusted gross receipts per year; 12 percent on next $2 million of adjusted gross receipts; 20 percent on receipts of more than $3 million adjusted gross; license fee of $5 per person boat capacity.

NEVADA   3 percent on revenues up to $50,000 a month; 4 percent on rev­enues of between $50,000 and $134,000 a month; 6.25% on revenues above $134,000 a month; license fees of $100 to $1,000 based on number of games operated; $330 on each slot machine per year.

NEW JERSEY 8 percent on gross revenues per year; license fee of not less than $200,000 for first year, not less than $100,000 thereafter; investment alternative tax of 5 percent of gross revenues.

SOUTH DAKOTA 8 percent of adjusted gross proceeds per year; manufactur­ers, distributors, operator license fee of $1,000 first year and $100 thereafter; re­tail license fee of $250 first year and $25 thereafter; employee license fee of $50 first year and $50 thereafter; license stamp fee of $2,000 for each card game or slot machine.

cannot be evidenced by the licensee, the Gaming Control Board may use other means to determine the amount of tax that should have been paid.

Regulation 6 also requires each casino licensee to establish adminis­trative and accounting procedures providing for control over the internal fiscal affairs of the licensee. The procedures must be designed in a man­ner to reasonably assure the following:

Gaming Taxes           35

1. Assets are safeguarded.

2. Financial records are accurate and reliable.

3. Transactions are properly authorized by management.

4. Transactions are properly recorded to facilitate reporting of gam­ing revenue and taxes, and to maintain accountability of assets.

5. Access to assets is through specific authorization by management.

6. Asset accountability is periodically compared to actual assets and discrepancies are investigated.

7. Adequate segregation of functions, responsibilities and duties exists.

The casino licensee is required by Regulation 6 to submit a written system of internal controls which describe the administrative and accounting procedures established by the licensee. The written system of internal controls (the system) is lengthy and covers every department subject to gaming or entertainment tax. The document must address: administra­tive and accounting procedures; duties and responsibilities of personnel, organization and structure, physical safeguards and controls and detailed operating procedures as they relate to the gaming areas. The chief finan­cial officer and chief executive officer (or licensed owner) must submit a signed letter attesting to the system's compliance with the requirements of Regulation 6.

In 1987, Regulation 6 was revised to include Minimum Internal Con­trol Standards (MICS) which were developed and issued by the Gaming Control Board. The MICS established specific control procedures which were required to be in place within the operation of each nonrestricted li­censee. Licensees were required at the time the MICS were initially adopted to revise their systems to comply with the MICS requirements. MICS were established for the following areas: table games; slots; bingo;

keno (manual); keno (computerized); race and sportsbook; card games;

cage and credit; entertainment; internal audit; and currency transaction reporting.

Alternative procedures that provide adequate control may be ap­proved by the chairman based on a written request for a variance by the licensee. Otherwise, the licensee is expected to comply with the MICS, The licensee is required, on an annual basis, to have an independent ac­countant perform a comparison of the system submitted by the licensee to the MICS and to issue a report which identifies any procedures the ac­countant believes do not satisfy the MICS or any variations from the

Mfo§ granted by the chairman. The report must also include responses from licensee management addressing any items of apparent noncompli-ance noted.

The last revision to the MICS occurred on May 1,1997. The Minimum Internal Control Standards for Cage and Credit are included in Fig. 3.3 to illustrate the requirements.

STATE OF NEVADA GAMING CONTROL BOARD MINIMUM INTERNAL CONTROL STANDARDS FOR GROUP I AND GROUP II LICENSEES

CAGE AND CREDIT

Note 1: Category A is defined as those licensees whose pit credit issues on NGC-31's for the 12 months ended June 30 exceed the greater of (a) $400,000 or (b) twenty percent (20%) of gross gaming revenue. All standards apply to category A.

Category B is defined as those licensees issuing lesser amounts. Standards numbered 5, 14, 19, 20, 21 and 43 do not apply to Category B.

The term "licensee" is intended to include race and sports books who cash checks for patrons.

Note 2: If a licensee has no pit credit and makes no adjustments for returned checks or cage credit on their NGC-Ts, only Standards 10-13 and 29-37 are applicable.

Note 3: The following standards represent minimum acceptable credit procedures. The

requirements of Regulation 6.120 must also be met if credit instruments are not to be included in gross gaming revenue.

Note 4: For any Board-authorized computer applications, alternate documentation and/or procedures which provide at least the level of control described by these standards will be acceptable.

Authorization and Extension of Credit

1. At least the following information is recorded for patrons who have credit limits or are issued credit greater than $1,000 (excluding payroll checks, cashier's checks and travelers checks):

a. Patron's name, current address, and signature. b. Identification verifications. c. Authorized credit limit.

d. Documentation of authorization by an individual designated by management to approve credit limits.

e. Credit issuances and payments.

2. Prior to extending credit, the patron's credit card and/or other documentation is examined to determine the following:

a. Properly authorized credit limit.

Figure 3.3 (a) Cage and Credit MICS

STATE OF NEVADA GAMING CONTROL BOARD MINIMUM INTERNAL CONTROL STANDARDS FOR GROUP I AND GROUP II LICENSEES

CAGE AND CREDIT

b. Whether remaining credit is sufficient to cover the advance. c. Identity of the patron (except for known patrons).

3. Credit extensions over a specified dollar amount are approved by personnel designated by management.

4. Proper approval of credit extensions over 10 percent of the previously established limit or $1,000, whichever is greater, is documented.

5. The job functions of credit approval (i.e., establishing the patron's credit worthiness) and credit extension (i.e., monitoring patron's credit play activity/availability) are segregated for credit extensions to a single patron of $10,000 or more per day (applies whether extended in the pit or the cage.)

6. If cage credit is extended to a single patron in an amount exceeding $2,500, applicable gaming personnel are notified on a timely basis of the patrons playing on cage credit, the applicable amount of credit issued and the available balance.

7. Cage marker forms are at least two parts (the original marker and a payment slip),

prenumbered by the printer or concurrently numbered by the computerized system, and utilized in numerical sequence.

8. The completed original cage marker contains at least the following information: marker number, player's name and signature, and amount of credit issued (both alpha and numeric).

9. The completed payment slip includes the same marker number as the original, date and time of payment, amount of payment, nature of settlement (cash, chips, etc.) and signature of cashier receiving the payment.

10. If personal checks, cashier's checks or payroll checks are cashed (except for instruments cashed which are supported by the documentation in item #1), the cage cashier:

a. Examines and records at least one item of patron identification (e.g., driver's license).

b. Records a bank check guarantee number or type of credit card and expiration date (not required for third party checks, e.g., payroll checks and cashier's checks).

c. Makes a reasonable effort to verify business authenticity (for payroll checks).

Note: If a check guarantee service is used to guarantee payment of an instrument, then this standard does not apply.

11. Counter checks in excess of $1,000 are not issued unless the information required by item #1 has been documented.

Figure 3.3 (b) Cage and Credit MICS

STATE OF NEVADA GAMING CONTROL BOARD MINIMUM INTERNAL CONTROL STANDARDS FOR GROUP I AND GROUP II LICENSEES

CAGE AND CREDIT

12. When counter checks are issued, the following is included on the check:

a. The patron's name and signature.

b. The dollar amount of credit extended (both alpha and numeric).

c. Date of issuance.

d. Signature or initials of the individual approving the credit extension.

13. When travelers checks/guaranteed drafts are presented, the cashier must comply with the examination and documentation procedures as required by the issuer.

14. If outstanding credit instruments are transferred to branch offices, collection agencies or other collection representatives, a copy of the credit instrument and a receipt from the collection representative are obtained and maintained until such time as the credit instrument is returned or payment is received.

15. A detailed listing is maintained to document all outstanding credit instruments which have been transferred to other offices as indicated above. (Branch offices maintain a detailed listing of outstanding credit instruments in their custody.)

16. The above listing is prepared or reviewed by an individual independent of credit transactions and collections thereon.

Payment Standards

17. All payments received on outstanding credit instruments are permanently recorded in the licensee's records and at the branch office (if applicable).

18. When partial payments are made on credit instruments, they are evidenced by a multi-part receipt (or another equivalent document) which contains:

a. The same receipt number on all copies. b. Patron's name. c. Date of payment.

Figure 33 (c) Cage and Credit MICS

STATE OF NEVADA GAMING CONTROL BOARD MINIMUM INTERNAL CONTROL STANDARDS FOR GROUP I AND GROUP II LICENSEES

CAGE AND CREDIT

d. Dollar amount of payment (or remaining balance if a new marker is issued), and nature of settlement (cash, chips, etc.).

e. Signature or initials of individual receiving payment. f. Number of marker on which payment is being made.

Note: The following three standards do not apply if account balances are routinely

confirmed on a random basis by the accounting or internal audit departments, if statements are mailed by someone independent of the credit transactions and collections thereon, and the department receiving payments cannot access cash.

19. The routing procedures for payments by mail require that they are received by a department independent of credit instrument custody and collection.

20. Such receipts by mail are documented on a listing indicating the following:

a. Customer's name.

b. Amount of payment.

c. Nature of payment (if other than a check).

d. Date payment received.

21. The total amount of the listing of mail receipts is reconciled with the total mail receipts recorded on the appropriate accountability by the accounting department on a random basis (for at least 3 days per month).

Access to Credit Documentation

22. Access to the credit information is restricted to those positions which require access and are so authorized by management.

23. Access to outstanding credit instruments is restricted to persons authorized by management.

24. Access to written-off credit instruments is further restricted to individuals specified by management.

Figure 3.3 (d) Cage and Credit MICS

STATE OF NEVADA GAMING CONTROL BOARD MINIMUM INTERNAL CONTROL STANDARDS FOR GROUP I AND GROUP II LICENSEES

CAGE AND CREDIT

Documentation

25. All extensions of cage credit, pit credit transferred to the cage and subsequent payments are documented on a credit instrument control form.

26. Records of all correspondence, transfers to and from outside agencies, and other documents related to issued credit instruments are maintained.

Write-Off and Settlement Standards

27. Written-off or settled credit instruments are authorized in writing.

28. Such authorizations are made by at least two management officials, other than branch office personnel, who are from departments independent of the credit transaction.

Customer Deposits

29. The receipt or withdrawal of a customer deposit is evidenced by at least a two-part document with one copy going to the customer and one copy remaining in the cage file.

30. The multi-part receipt contains the following information:

a. Same receipt number on all copies. b. Customer's name and signature. c. Date of receipt and withdrawal. d. Dollar amount of deposit/withdrawal. e. Nature of deposit (cash, check, chips).

Note; Provided ALL of the above information (a through e) is available, the only required information for all copies of the receipt is the receipt number.

31. Procedures are established to:

a. Maintain a detailed record by patron name and date of all funds on deposit.

b. Maintain a current balance of all customer deposits which are in the cage/vault inventory or accountability.

c. Reconcile this current balance with the deposits and withdrawals at least daily. Figure 33 (e)  Cage and Credit MICS

STATE OF NEVADA GAMING CONTROL BOARD MINIMUM INTERNAL CONTROL STANDARDS FOR GROUP I AND GROUP II LICENSEES

CAGE AND CREDIT

Cage/Vault Accountability

32. All transactions that flow through the casino cage are summarized on a cage accountability form on a per shift basis.

33. Increases and decreases to the cage inventory are supported by documentation.

34. The cage and vault inventories (including coin rooms/vaults) are counted by at least two persons and recorded at the end of each shift during which activity took place (at least once daily).

35. All net changes in outstanding casino accounts receivables, including all returned checks, are summarized on a cage accountability form or similar document on a per shift basis.

36. Such information is summarized and posted to the accounting records on at least a monthly basis.

Accounting Standards

Note: The term casino accounts receivable, as used in these standards, includes any item (including returned checks) deducted on the NGC tax returns.

37. The cage accountability is reconciled to the general ledger at least monthly.

38. A trial balance of casino accounts receivable, including the name of patron and current balance, is prepared at least monthly for active, inactive, settled or written-off accounts. (A listing of written-off items, i.e., worthless items at the time of write-off, and another listing of payments on items previously written-off are acceptable.)

39. Reclassification of an unpaid balance between the various casino accounts receivable listings must not be reflected on the NGC tax returns.

40. The trial balance of casino accounts receivable is reconciled to the general ledger each month.

41. All casino accounts receivable listings are reconciled to the NGC tax returns each month.

Note: One method to perform the reconciliation is:

Change in listings balance (beginning balance less ending balance), (+) marker credits, (-) "net adjustments" (from line 2(d) on the NGC-1 tax return), (=) zero.

42. The reconciliation and any follow-up performed is documented and maintained.

Figure 3.3 (f) Cage and Credit MICS

(^^afrteft

4

Casino Management

THE MANAGEMENT PYRAMID

One of the keys to success for a casino, or any business venture, is the ef­fectiveness of the management team. The experience and organization of the management team have a direct impact on the profitability of the casino operation. The mission of this chapter is to present and discuss the organizational structure of a typical casino and hotel along with descrip­tions of the responsibilities of a number of the key positions within the operation. The chapter also provides a discussion of how to determine the number of employees needed to staff these key positions.

Although every department and position is equally important to the success of the organization, only the positions within the casino depart­ment or those that are integral to the day-to-day operations are detailed. At the bottom of the chart are the front-line employees, including dealers, cage cashiers and change attendants. Toward the top of the chart are the management positions, including the games manager, director of casino marketing and vice president of casino operations.

As employees move up within the organizational structure, the skills necessary to perform the job functions change. Front-line employees need technical skills to fulfill their position responsibilities, whereas employees at the top of the chart require less technical skills and more management skills. The management pyramid (Fig. 4.1) depicts the relationship between skills required and the level of the management employee within the or­ganization.

CASINO ORGANIZATIONAL STRUCTURE

The organizational structure presented in Figs. 4.2 and 4.3 would be found at a typical casino in many different gaming jurisdictions. Varia­tions based on the size of the operation as well as the number and type of games offered are common. The reporting relationships and the assign­ment of responsibilities may also vary depending on a number of vari-

45

Casino Operations Management

Technical Skills

Human Skills      The ability to work with and through people to get things done. Human skills include the ability to lead and motivate. Studies have shown that between 20% and 90% of a person's ability is affected by motivation.

Conceptual Skills  The ability to see the big picture of the overall organization and how one's own operation fits into this puzzle. An executive with good conceptual skills understands that the objectives of the organization supersedes those of the immediate department. Figure 4.1  The Management Pyramid

ables, ranging from the skills and experience of the particular individuals to requirements within the specific gaming jurisdictions. These variations are too numerous to be addressed within this chapter.

The typical organization presented starts with the president and branches out based on functional responsibilities. The departments are divided along functional lines to provide for specialization as well as sep­aration of responsibilities for accountability and control. The vice presi­dents of loss prevention, administration and finance all perform responsi­bilities that require them to operate independently of the operating department heads.

As an example, it would not be in the best interest of the operation generally for the director of surveillance, who is responsible for monitor­ing activity within the casino, to report directly to the vice president of casino operations. Although at first glance there might appear to be some benefits to aligning the organization in this manner, the director of sur­veillance must be free to perform responsibilities which include reporting on regulatory violations observed as well as infractions noted involving

Casino Management          47

Typical Casino Hotel Structure and Noncasino Departments of Particular Importance to Casino

casino personnel. The director of surveillance and his or her staff are a key part of the protection of the gaming operation and its assets, and any impairment of these responsibilities has a direct impact on the success of the operation.

Generally, the vice president of finance reports either to the president directly or through a dotted line. Depending on the ownership structure of the casino, the vice president of finance may have a direct relationship to a representative of the owners. The vice president of finance is a key position in any casino organization, since the responsibilities of this posi­tion include establishing and tracking performance against budgetary guidelines, auditing the results of operations, regulatory compliance and, in most casinos, overseeing the cage, credit and collection functions. This individual is not only a check and balance on the other operating depart­ments, but also is responsible for safeguarding the assets, including the cash maintained for the day-to-day operation of the casino.

The following are brief position descriptions for many of the key po­sitions indicated in the first organizational chart presented relevant to noncasino departments:

• President (General Manager)—Responsible for the overall operation of the casino including the hotel and all related operations. The re­sponsibilities of this position are strategic as well as day-to-day in na-

Casino Management          49

ture. Ultimately, all personnel report to the president. Position reports to representatives of the owners.

• Vice President of Finance—Responsible for all financial activities for the operation. Direct reports normally include accounting, cage, credit, collections, MIS and purchasing.

• Vice President of Casino Operations—Responsible for the overall op­eration of the casino, including slots, table games and other gaming operations such as keno, race and sports, and poker. Gaming and gaming compliance are two critical areas of responsibility for this individual.

• Vice President of Administration—Responsible for employment, compensation, benefits, labor relations, training and workers' com­pensation functions as well as compliance with applicable federal, state and local requirements pertaining to these areas.

• Vice President of Loss Prevention—Responsible for surveillance, se­curity, investigations, safety and risk management, which includes handling insurance issues and guest loss complaints.

The following are brief position descriptions for many of the key posi­tions indicated in the organizational chart presented relevant to the typi­cal casino structure:

Table Games

• Games Manager (Casino Manager)—Responsible for table games op­erations and personnel. Supervises the shift managers.

• Shift Manager—Responsible for the operation of table games and the associated personnel during a particular shift. Supervises the pit managers and all other table games personnel during the shift.

• Pit Manager—Responsible for overseeing the operation of the table games in a designated pit. Supervises the floorpersons and dealers within the pit and is also responsible for customer relations and games protection.

• Floorperson—Responsible for supervising the operation of a group of assigned table games within a pit. Supervises the dealers at the as­signed tables. Also responsible for compliance with house rules and rating player action.

• Dealer—Responsible for the operation of a given table game. Dealers must comply with house rules for the conduct of the particular game.

• Pit Clerk—Completes pit transactions such as fills, credits and mark­ers through the use of the casino computer system or manually. This position may report to either cage or casino supervisory personnel.

Slots

• Slot Manager—Responsible for the operation of the slot department including selection of machines and determination of floor configura-

Casino Operations Management

tion as well as machine maintenance and operation. Supervises the shift managers and head slot mechanic.

•  Shift Manager (Slots)—Oversees the operation of the slot department including all personnel during a particular shift. Responsibilities in­clude customer relations and verification of large jackpot payouts.

• Head Slot Mechanic—Responsible for the maintenance and repair of all slot machines. Also maintains records pertaining to all slot ma­chines including location, par sheets and any changes to the machine. Supervises and trains all of the slot mechanics.

• Floorperson—Responsible for participating in the verification and conduct of jackpot payout and hopper fill transactions. Supervises change attendants and booth cashiers.

• Change attendants—Perform customer service transactions including making change. Also responsible for an assigned bank.

• Booth cashiers—Responsible for completing jackpot payout and hop­per fill transactions. Also responsible for making change and redeem­ing coins for slot customers.

Casino Marketing

• Director of Casino Marketing—Responsible for all aspects of market­ing the casino including developing and maintaining a database of customers. Also responsible for designing and implementing pro­grams to attract new and repeat customer visits. Oversees operation of the slot club, casino hosts, branch offices, tournaments and special events.

• Hosts—Responsible for identifying and attracting new casino cus­tomers as well as servicing the needs of the existing customer base.

Other Casino Departments

• Keno Manager—Responsible for the operation of the keno depart­ment including staffing, customer relations, game integrity, compli­ance with gaming regulations and financial performance.

• Keno Shift Manager—Responsible for the operation of the keno game during a particular shift. Involved in verifying payouts on winning tickets.

• Keno Writer and Runner—Provides service to customers by accept­ing wagers and handling payouts on winning tickets. Writers are based behind the keno counter while runners go to where customers may be, such as restaurants and lounges.

• Poker Manager—Responsible for the operation of the poker depart­ment including staffing, customer relations, game integrity, compli­ance with gaming regulations and financial performance.

• Poker Shift Manager—Responsible for the operation of the poker games during a particular shift. May perform as the poker cashier as well as conducting tournament activities.                 ^~-—

Casino Management          51

• Dealer—Responsible for the operation of a given poker table. Dealers must comply with house rules for the conduct of the particular game.

•  Director of Race and Sports—Responsible for the operation of the race and sports department including staffing, customer relations, game integrity, compliance with gaming regulations and financial performance.

• Race and Sports Shift Manager—Responsible for the operation of the race and sports book during a particular shift. Race and sports shift managers are responsible for administrative functions relevant to up­dating event information in the computer system as well as verifying payouts on winning wagers.

• Race and Sports Writer (Mutuel Clerks) and Cashier—Provide service to customers by accepting wagers and handling payouts on winning tickets.

Security and Surveillance

•  Security Officer—Responsible for protecting the assets of the casino. Participates in casino transactions including table fills and credits and may participate in slot transactions including Jackpot payouts and hopper fills. Observes card and dice transfers and maintains security over the drop and count process. Controls access to keys permitting access to sensitive and restricted areas.

•  Surveillance Officer—Observes, records and reports suspicious or improper activities within the casino operation. Focus is on compli­ance with gaming regulations, house rules, internal control proce­dures and asset protection.

Proper staffing levels within the casino contribute directly to the ade­quacy of customer service and the profitability of the casino operation. Management must be able to forecast the number of anticipated cus­tomers who will visit the casino during different periods and provide staffing levels that will be appropriate to service these customers. Over-Staffing or understaffing may have negative consequences to the bottom line of the casino.

Overstaffing may result in labor costs being incurred by the casino which are unnecessary to meet actual customer demand. Understaffing may result in loss of revenue through customers leaving the casino due to inadequate service or unavailability of gaming positions at their desired game. Either of these conditions is undesirable for casino management. The following discussion using a hypothetical casino provides a method­ology for determining proper staffing levels based on the number of ta­bles in operation during different days of the week.

Casino Operations Management

1. How many employees are needed to staff a casino under the fol­lowing conditions:

a. Dealers will work 60 minutes at the table followed by a 20

minute break. b. Floorpersons will receive breaks totaling 100 minutes out of

each 480 minute shift (eight hours). c. The following numbers of tables are assumed to be required

by day for blackjack (BJ), dice and baccarat:

BJ Tables Open:

Mon    Tue    Wed   Thu    Fri    Sat    Sun

Days      40      40      40      40     60     60      48 Swing     40      40      40      40     60     60      40 Grave     20      20      20     24     24     24      20

Dice Tables Open:

Mon   Tue   Wed   Thu    Fri    Sat    Sun

Days      8       8      8      8     10     10      8 Swing     8       8      8      8     10     10      8 Grave     2      223332

Baccarat Tables Open:

Mon   Tue   Wed   Thu    Fri    Sat    Sun

Days      2      222332 Swing     2      222332 Grave     1112221

In order to determine the number of employees required to staff the casino under these conditions, the casino manager would need to con­sider the following:

1. The number of stations needed to be open for each day of the week must be determined. A station is defined as a position which must be staffed for the entire shift. In blackjack, there is one station per game. In craps, there are three stations: the stick-man and two base dealers. Relief dealers will be figured in the computations to follow.

BJ Stations Required:

Mon   Tue   Wed   Thu    Fri    Sat    Sun

Days            40             40            40             40            60            60            48

Swing          40             40            40             40            60            60            40

Grave           20             20            20             24            24            24            20

Casino Management          53

Dice Stations Required:

Mon    Tue    Wed   Thu    Fri    Sat    Sun

Days      24      24      24     24     30     30      24 Swing     24      24      24     24     30     30      24 Grave      6       669996

Baccarat Stations Required:

Mon    Tue    Wed   Thu    Fri    Sat    Sun

Days      6      666996 Swing     6      6      6      6      99      6 Grave     3336663

2. How many dealers are needed to keep the required number of

stations open and still allow for 20- minute breaks after every 60

minutes on duty?

a. If the employee works 60 minutes on and 20 minutes off, the cycle is 80 minutes.

b. The total stations multiplied by 80/60 (1.33 multiplier) deter­mines the number of dealers needed per shift.

c. The following indicates the number of employees needed in each gaming pit for Monday:

BJ Employees Needed:

on

Days       40 x j^ = 53.3

an Swing     40 x j^ = 53.3

80 Grave      20 x — = 26.7

Total           133.3

Dice Employees Needed:

Mon

Days      24 x jj = 32.0

an Swing     24 x — = 32.0

80

Grave       6 x _ =   8.0 bU

Total            72.0

Casino Operations Management

Baccarat Employees Needed:

Mon

on Days       6 x — = 8.0

on

Swing      6 x — = 8.0 ou

on

Grave       3 x — = 4.0 bU

Total           20.3

d. If the same method of calculation is applied to each day of the week, the following number of dealer shifts will be needed each week:

Mon   Tue  Wed Thu  Fri   Sat   Sun    Total

BJ       133.3   133.3  133.3  138.6 192.0   192.0   144.0 = 1066.5 Dice      72.0    72.0   72.0   76.0   92.0    92.0    72.0 = 548.0 Baccarat 20.0    20.0   20.0   24.0   32.0    32.0    20.0 = 168.0

e. Each dealer will work only five of every seven days; there­fore, the following numbers of dealers are needed on the pay­roll to meet the demands of the casino:

BJ                  1066.5

Dice               548.0

Baccarat         168.0

f. What about vacations? If only the numbers of dealers indi­cated above are provided, the casino will not be able to sched­ule the dealers time off for vacation.

g. To allow for vacation, the average vacation time per em­ployee per year must be determined. If it is assumed each em­ployee will receive a two-week vacation each year, the em­ployee will work 50 weeks out of every 52. Using the same methodology as in number 2 above, the number of dealers needed when vacation is factored in is determined as follows:

BJ          213.30 x JJ = 221.83

Dice        109.60 x |^ = 113.98 ^u

Baccarat     33.60 x |j = 34.94

OU

Casino Management          55

3. To this point, the total number of dealers on payroll has been cal­culated so that each works:

a. 60 out of every 80 minutes

b. Only five days out of every seven, and

c. Receives a two-week vacation each year

4. The number of floorpersons on staff also needs to be determined. The number of floorpersons needed is calculated in the same manner as for dealers; however, eight hours is considered the cycle for a shift. If floorpersons are scheduled for a one-hour break and two 20-minute breaks each shift, then each employee will work 380 out of every 480 minutes (eight hours in a shift multiplied by 60 minutes).

a. Based on the number of BJ stations indicated in number 1 above and assuming one floor station is needed for every four BJ tables, the following stations are required:

Bf Floorperson Stations Required:

Mon    Tue    Wed   Thu    Fri    Sat    Sun

Days             10             10 10 10 15 15 12

Swing           10             10 10 10 15 15 10

Grave           5               556665

BJ Floorperson Needed Monday:

Mon 480

Days       10 x —— = 12.6 13.0

480 Swing      10 x ^ = 12.6 13.0

480 Grave       5 x —— =   6.3   7.0

Total                  33.0

b. Using the same method as demonstrated with the dealers, the number of floorperson shifts needed each week can be calcu­lated as follows;

Mon   Tue  Wed Thu  Fri   Sat   Sun    Total

BJ             13.0        13.0       13.0       13.0       19.0       19.0        16.0   =    106.0

Dice          13.0        13.0       13.0       13.0       19.0       19.0        13.0   =    103.0

Baccarat   7.0          7.0         7.0         8.0         8.0         8.0          7.0     =    52.0

Casino Operations Management

c. If each employee is only to work five days of every seven, how many floorpersons are needed on the payroll?

BJ           106.0 - 5 = 21.20 Dice         103.0 - 5 = 20.60 Baccarat      52.0 - 5 = 10.40

d. Allowing for a two-week vacation for each, how many floor-persons are necessary?

BJ           21.20 x § = 22.05

Ou

Dice         20.60 x '§, = 21.42

OU

Baccarat     10.40 x |j = 10.82

If Number of Tables Open Varies Greatly from Day to Day:

The formulas presented may not yield enough employees to staff the busiest day; therefore, the minimum number of employees is determined based on the number required to staff the casino on the busiest day. As an example of this, consider the following:

B/ Stations Required:

Mon Tue Wed Thu Fri Sat Sun

Dealers Needed Daily:

33.3   33.3   33.3   33.3    80    80    80

The formula indicates 74.67 employees are necessary to staff the casino;

however, 80 employees are required to staff the busiest days, which are Friday, Saturday and Sunday.

(280 x H?) - 5 = 74.67

Ou

In practice, few casinos have only three dealer shifts per day. Commonly, there may be between four and six different dealer starting times. Table 4.1 illustrates a blackjack opening game schedule, between the hours of 8 a.m. and 12 midnight, with seven different starting times. Each dealer works 60 minutes on and 20 minutes off.

Casino Management          57

The opening of the tables should approximate the player demand. In this example, the casino has as few as twelve tables open in the morning, when demand is low, and 40 games open in the afternoon. Using the ta­bles open line, determine: (1) why the shifts started when they did and (2) why seven different shifts were needed. Remember, each dealer is to work eight hours. Try to fill in the blank areas.

Table 4.1 Blackjack Opening Game Schedule

S^afaten,

5

Currency Reporting

HISTORY

Concerned that casinos provided a means for drug traffickers to launder their illicit profits, the Secretary of Treasury made a determination in 1985 that the definition of a financial institution under Title 31 of the Bank Se­crecy Act (31C.F.R., Part 103) would be expanded to include casinos. Deemed financial institutions, every casino within the jurisdiction of the U.S. federal government (Nevada, Atlantic City and Puerto Rico) was re­quired to begin complying with requirements for the reporting of transac­tions involving more than $10,000 in cash during any 24-hour period. In addition to stopping money laundering, it was hoped that the required reporting would provide the Internal Revenue Service with an increased means of identifying tax evaders. (See Fig. 5.1.)

For years, general businesses such as automobile dealerships, jewelry stores, hotels and even restaurants have been required to report all cash transactions in excess of $10,000 received in a trade or business to the In­ternal Revenue Service.¹ Before the inclusion of casinos, financial institu­tions were limited to the following.

1. Banks

2. Brokers or dealers in securities

3. Currency dealers or exchangers

4. Issuers, sellers or redeemers of traveler's checks or money orders

5. Licensed transmitters of funds

6. Telegraph companies

In May 1985, the following paragraph was added to Title 31:

Each casino shall file a report of each deposit, withdrawal, ex­change of currency, gambling tokens or chips, or other payment

¹ Internal Revenue Service Code 60501.

59

Friday, January 22,1993/Las Vegas Review-Journal

10 Atlantic City casinos fined

Treasury Department officials accuse the resorts of failing to comply with money-laundering laws.

Associated Press

WASHINGTON - The Treasury Department fined 10 Atlantic City, N.J, casinos $2.48 million Thursday for alleged civil violations of the law designed to prevent money laundering.

The department accused the casinos of "willfully failing to report* currency transactions over $10,000 to the Internal Revenue Service as required by the Bank Secrecy Act.

The law has applied to banks since 1974 and to casinos and other large cash-based businesses since 1985. The requirement is designed to help the government track and combat money laundering.

"Reporting failures, whatever their cause, ... potentially deprive Treasury of financial information which is a vital weapon in the battle against organized crime, drug trafficking and tax evasion," said John P. Simpson, acting assistant Treasury secretary.

The alleged violations that led to the fines were found in audits covering the years 1985 through 1988. Since 1988, "the casinos have invested substantial time and resources to improve compliance and cooperate with the government," the department said.

It said the penalties were based on the casinos' failure to comply with reporting requirements and that it had no evidence of criminal violations.

Six of the 10 casinos have agreed to settle the charges by paying fines. They are Bally's Grand Hotel and Casino, $126,000; Bally's Park Place Casino, $9,000; Showboat Hotel and Casino, $58,500; Tropworld Hotel and Casino, $414,000; Trump Castle Hotel and Casino, $175,500, and Trump Plaza Hotel and Casino $292,500.

The four other casinos were assessed the maximum civil money penalties authorized by law. They are Caesars, Atlantic City Hotel Casino $145,000; Claridge Casino Hotel $402,000; Harrah's Atlantic City Casino Hotel, $730,000, and Sands Hotel and Casino, $130,000.

Figure 5.1  Ten Atlantic City Casinos Fined

Currency Reporting           61

or transfer, by, through, or to such casino which involves a trans­action in currency of more than $10,000. Multiple currency trans­actions shall be treated as a single transaction if the casino has knowledge that they are by or on behalf of any person and result in either cash in or cash out totalling more than $10,000 during any twenty-four hour period.²

The classification of casinos as financial institutions was, to say the least, an unwelcome change. Operators believed that the new require­ments would discourage or severely curtail the extremely profitable high-end segment (high rollers) of the customer base. The casino industry ini­tially argued strongly against the change, but it became evident after months of dialogue that nothing could be done about the impending re-classification. Casinos would soon report under Title 31.

Nevada's regulators believed that individual casinos reporting di­rectly to the Treasury was an intrusion by the federal government that should be avoided if possible. The regulators were successful in persuad­ing the Secretary of Treasury to allow each jurisdiction, if they so desired, to develop their own method of implementing the controls and reporting procedures necessary to comply with Title 31 requirements. The final de­cision by the Department of Treasury gave each gaming jurisdiction two options:

1. Obtain an exemption from direct reporting to the Department of Treasury by developing their own system of implementing, and monitoring for compliance, the reporting requirements; or

2. Report directly to the Department of Treasury subject to Title 31 of the Bank Secrecy Act with the Department of Treasury respon­sible for monitoring compliance.

Nevada's regulators, with the support of Nevada's gaming industry, de­cided to develop their own regulatory system for monitoring compliance which was to become known as Regulation 6A. Before it was imple­mented, Regulation 6A had to be reviewed and accepted by officials from the Department of the Treasury. After months of negotiations, Nevada's self-regulation model was accepted. Even though Regulation 6A is ad­ministered by Nevada's gaming regulators, casinos are still required to submit copies of all reports to the Internal Revenue Service.

Both Atlantic City and Puerto Rico opted for maintaining compliance with the specific requirements of Title 31. Consequently, casinos in both jurisdictions report to and communicate directly with the Department of Treasury.

² Code of Federal Regulations ap. 1, Part 103.22.

62           Casino Operations Management

NEVADA'S REGULATION 6A MODEL Prohibited Transactions

There are three types of transactions which are strictly prohibited.

1. Nevada's system is designed to prevent certain methods of laun­dering money. As a result, cash for cash exchange transactions in excess of $2,500 is prohibited. This does not include exchanges of chips or tokens for cash, but does include exchanges of foreign currency for U.S. currency.

2. A casino may not issue its check for cash in an amount exceeding $2,500. The one exception would be the issuance of a check for verified winnings. For example, a patron winning a large slot jackpot may receive their winnings by check.

3. Issuing a check or wire transfer for winnings to a third party. The check must be issued in the name of the winning patron.

Types of Reports

There are two types of reports required under Regulation 6A: Currency Transaction Reports (CTR) and Currency Transaction Incidence Reports (CTIR).

The CTR is more detailed in the amount of descriptive information required to be completed relevant to the patron, the nature of the transac­tion and positive identification of the patron. The CTR closely mirrors Form 8362, which is required to be prepared under Title 31. The CTIR merely lists the type of transaction, assurance from the casino personnel that the amount listed was substantially placed at risk and the amount involved. Identification of the patron or inclusion of their name is not re­quired for completion of the CTIR.

Since both Title 31 and Nevada's Regulation 6A require reporting any patron whose total transactions during a 24-hour period exceed $10,000, Regulation 6A provided for a specific methodology for keeping track of multiple transactions. The Multiple Transaction Log (MTL) was designed to provide a written record of all cash transactions exceeding $2,500 in order to facilitate compliance with the aggregation requirements of Title 31. The MTL is used in all gaming areas and the casino cage.

Currency Transaction Report (CTR) Though the same form is used, transactions reportable on a CTR (Fig. 5.2) are further classified as 6A.030 or 6A.040 type transactions. The type of transaction involved determines whether it requires a CTR to be prepared under 6A.030 or 6A.040.

Under both 6A.030 and 6A.040, the CTR must contain the following information:

file « s*p«   » report ;or ««ch cransact.on. Pl«   ^ type oc print. (Cc^tiltf til applicaol* parts — »«« in3i..-ctions)

PART I      INDIVIDUAL OR ORGANIZATION FOR WHOn THIS TRANSACTION HAS COMPLETEO

PART II     IDENTITY OF INDIVIDUAL CONDUCTING THE TRANSACTION (complete only it an «q«nC conducts a transaction for cne person listed in Part I)

PART III                    DESCRIPTION CF TRANSACTION. I! separate schedule is attached, cneck tnr oox                                   0

1. Nacure.of transaction (check cne applicaole box):

Qa. Redemption by a patron of mere than S10.000 worth c£ chips for casn, when the casino is noc reasonably assured cnat the patron obtained the chips irj the course o£ a aaminq transaction.

Ob. Placing of a wager by a patron of more than SlO.OOO in cash at any caming activity at which chips are not customarily used for wagering (i.*., race book. sports pool, keno* bingo).

Qc. Sale of more than SlO.OOO worth of chip* to « patron In exchange (or cash.

Qd. Deposit of more than 510,000 in cash by a paccon in any transaction for garnin9 oc safe­keeping purposes it the casino has knowledge of the amount of cash deposited.

I3*. Repayment of ftore than 510*000 in cash by a patron for credit previously extended.

Q{. Redemption of more than Sl>000 worth of another casino's chips, by a patron, for cash in any transaction.

q. Other cash receipt* or disbursement* of nore than $10*000 not previously listed:

Q   (1) Withdrawal of deposit     Q (4) wire transfer on behalf of patron in exchange fcr cash

.Q   (2) Credit advance            0 (5) Other cash out (specify) ______

0   (3) Chack cashed              Q (6) Other cash in (specity) ______________________

2. Trans. da teI 3. Trans.time F 4. TraTfai. amount I 5. Addrcionai.'cr^nsaccicnrnYormaticn

PART IV       CASINO REPORTING THE FINANCIAL TRANSACTION

number and screec^

'-i cy                                                                                                       Zip Code" State

Casino employee who handledtrans. 1                                                                                                                                            (Data)

(Casino employee reviawing this form)                            (Title) (Data)

(a) Figure 5.2 (a)  Currency Transaction Report (CTR)

GENERAL INSTRUCTIONS

who nu*»- File

Any caaino with annual qross qaninq r*v*nu* In *xc**s of Sl million which !• a party co on* of Ch* •«vn transactlona listed on the (rent of this fora tiuic tubmit i completed torm lot each qualltyinq transaction. Multiple cran»«ctlon» by or tor <ny patron which, in any 24-hour pTiod, totti mor* than $10,000 should b* Cffd aa a sinql* transaction, It th« c**ino !• awar* of th*R.

Casinos do not have to file thia form (or the followinq transactions:

1. Any transaction with a domestic bank (no raport r«quired).

2. Whan cha caaino makes a cash payoff on a waqar of mora than S10.000 (6A.050 report raqulrtd).

3. Whan tha caaino red**ms fnora than $10,000 uorth of Its chlpa from a patron for caah, and cha eaaino can ba raaaonably aaaurad that tha patron obtained tna chlpa from gaming (6A.050 report raqulrad).

Whan and Whtra to Flla

Thl» fora; along with ona copy, nuat ba racaivad by cha Ga«lnq Control loard within IS day aftar cn» data of tha transaction. Sand Ch* fllinqa to:

Navada Gafflinq Control Board

Audit Diviaion

4220 South Maryland Parkway, Bulldinoi D

Las Vaqaa, NV 891S8

On* additional copy of aach form subiniccad to Ch* Board muac b* r*tain*d by th« casino (or *t laast tlv* yars (ro« Ch* submission data, and should b* tll*d In chronoloqlcal ord*r.

SPECIFIC INSTRUCTIONS

This par: is to b* us*d In all caaaa. ((•cord inforiatlon <

who coni'uct eransaccions in parson (or thair own banadc. with tha casino cor a patron or oehar parson, show in Part complata Part II Co show tha aganc'a Idantlty.

For transactions lla), Kb), and lie) (Regulation 6A.030 transaction*), th* social sacurley numbar of cha patron must ba racordad if obcalnad troifl eh* patron, or if obealnabia trow th* casino's in-hous* racords, ch* records at any afflllataa (as datlnad in NGC Rag. 15.494.3) locacad in Navada, or branch officts of eh* licans*d *scabl ishin*nt. For eransaccions l(d), 11*1, lit), and llq) (Raqulaclon 6A.040 transactions), th* social sacurlcy numb*r should b* racordad If obealnabia tron racorda only. Th* casino Is noc rtquirad co rtquast eh* social sacurity nuinb*r from eh* paeron for cha R«qulacion 6A.040 transactions.

Us* • paaaport, allan ID card, or any othar ottictal docum*nt showinq nationality co verity th* Identity and raaidanc* of a nonresident of th* United Scales. Us* a driver's license tot •II och*r pacrons. I! a driver's license is noc availael*. ch* casino may us* an identification docuornc cuscoaiar 11 y us*d for check eashinq if th* proc*dura is d«scrlb*d In th* casino's own lnc*rnal concrol syscaH subaiecad to th* Board pursuant to Requlation 6.

Part II

Complat* ehls pare only when an aq*nt conducts a transaction on b*hal( of •noch«r party. Part I should also b* coipl*c*d co id*nelfy eh* principal.

Part 111

If 1. - Check eh* boi chac describes ch* exacc nature of th* cranaaecion. If 4. - R*cord dollar amount. If anounc is an aqqraqac*d eoeal, also indieaea 'M".

If 5. • If addlclonal informaclon Is needed to fully document eh* nacur* of eh* erans«etien, includa chls information in chis box. It nor* space is needed, cheek th* appropriate box on ch* form and attach a separate schedule.

PTt  IV

Enter the full leqal name of the casino, the casino's amployer Identification number, and thai Street a'-'lresa of the casino, office, or branch where the actual transaction was conducted. Th* report nuac ba signed by eh* caaino employ* or official who handled th* transaction, and also by eh* etployee who reviewed th* torn tor compllanc* with Requlaclon 6A.

(6)

Figure 5.2 (b) Currency Transaction Report (CTR)

Currency Reporting           65

1. The date of the transaction

2. The amount of the transaction

3. The patron's name

4. The patron's permanent address

5. The method used to verify the patron's identity and residence and a description of document used including number (e.g., dri­ver's license, military I.D., passport)

6. The signature of the casino employee handling the transaction and recording the information

7. The signature of the casino employee reviewing the report (nor­mally a representative of the accounting department)

Distinctions between 6A.030 and 6A.040 include:

1. For 6A.030 type reports, an attempt must be made to obtain the patron's social security number.

2. For 6A.040 type reports, it is not necessary to ask the patron for social security number.

3. For both 6A.030 and 6A.040 reports. Regulation 6A indicates that the social security number of the patron must be included in the report if it is known by the casino or any other Nevada casinos which are affiliates of the casino.

There are only three types of transactions that require a report to be com­pleted under 6A.030:

1. Redemption by the casino of more than $10,000 in chips for cash that the patron did not win during the course of gambling. This applies to all casino departments where chips are customarily re­deemed for cash, such as the casino cage.

2. Acceptance of a cash wager of more than $10,000 in any game where chips are not customarily used for betting. Departments where this type of betting would occur would be the race and sports book, keno and bingo, although it is unlikely that a wager of this size would occur at either of the latter departments.

3. The sale of more than $10,000 in chips for cash. This type of transaction can occur in the pit or the casino cage, but it could also occur in the card room (poker) or in any other department where chips can be purchased.

Transactions requiring a 6A.030 report may result from single transac­tions or from multiple transactions which are aggregated to reach the re­porting threshold. For example, if the patron purchased more than $10,000 in chips in two or more transactions and the casino had actual knowledge of the transactions, a CTR would be required.

Casino Operations Management

One interesting requirement under 6A.030 applies to a patron w. wishes to cash out more than $10,000 in chips in a single transaction f which there is no evidence that the patron has substantially wagered won the chips in the course of gaming. In this situation/ if the patron i fuses to provide the casino with the information required to complete tl CTR such as his name and proof of identity, the casino is required to ni tify the Nevada Gaming Control Board and to refrain from complettn the transaction.

There are five types of transactions that require reporting und< 6A.040:

1. Receipt from a patron of more than $10,000 in cash as a fron money deposit (for gaming purposes) or for safekeeping. Thi only departments where cash is accepted in this manner woulc be the casino cage and possibly the race and sports book.

2. Repayment of any marker or markers totaling more than $10/00( in cash. Both the cage, pit, and the race and sports book can ac­cept cash as payment for a marker.

3. Regulation 6A.040 includes a catch-all that requires a CTR to be completed for receipt from or disbursement to a patron of more than $10,000 in cash not specifically covered elsewhere in the Regulation. This sentence is designed to prevent any large trans­action from slipping through on a technicality.

4. The redemption of more than $1,000 worth of another casino's chips for cash. This affects any department where chips can be redeemed for cash.

5. The loss of more than $10/000 in cash in a game where chips are normally used for wagering. Transactions of this type are limited to the table game area.

Transactions of the five types described above also require the preparation of a CTR where multiple transactions result in the aggregate amount ex­ceeding $10,000. Regulation 6A.040 also provides the only situation in the Regulation where a patron is specifically required to be barred from gam­ing at the casino and any casinos which are Nevada affiliates of the casino. Barring of the patron results from the patron wagering an amount in ex­cess of $10/000 in a single transaction at a casino game which customarily accepts chips (such as craps or roulette) and the patron's subsequent re­fusal to provide the information required to complete the CTR. The patron remains barred from the casino until the required information is provided.

Currency Transaction Incidence Report (CTIR) The CTIR (Fig. 5.3) is re­ferred to as a 6A.050 type report. The 6A.050 report differs materially from the 6A.030 or 6A.040 reports in that the identity of the patron is not required to be included. The 6A.050 reports only that the transaction has

CUKRi.NLI        TRANBAl.TlUN         INCIDENCE         »   E   p   "^>   °   »

Incid«ne« f 1:

;ncid»nc« • 2:

Iran*, die* I Ir*n«. cr* I;c*nl. *mounc I Irani.typ* I :liB« at •iriplcy ntniiiingccJn«J::::n

Ndffr ofpftCJon acc«JCingco 9«ming

:nci3«nc« • J:

r»n». die* | Tt*na. tia« | Tt*n». amount [ Tc»ns. cyp* | .'l<m< at •mplsy n*ndlino tr*r.a»ct;en

••air« of pTJcn att«3tinaco qdirinq

InC2d»nc* < •):

Tr*n*. d«c* j Trana.elm*jTcins. amount ITcans.cyp«I::dnr of •mplgy fi«ndlin=crans*ct;sr.

.lam* of p*CJon itfating cc gaming                                                                  Evidine* ot gaminq

Incid«nc«35:

Trans. dace | Tcana.cinr| Team. aacunc I leans.cyp*I Nam* of •mplsy handlingcraniaciion

Nam« oc person acctscing to gaming                                                                Evid«ne» ot gaming

CASINO REPORTINC THE FINANCIAL TRANSACTIONS

Idcncicying numo*r (&IN)

mibot and Jem

Figure 5.3 (a)  Currency Transaction Incidence Report (CTIR)

68           Casino Operations Management

GENERAL INSTRUCTIONS

Who nu*c ril*

Any casino wi eh annual qcoaa qaning ravnua in *xc*aa of Sl mll-llon which li * party to on< Ch* tallowing transactions must docuirnC th« tr«nnctlon on this locm:

I     Th» caaino m*k*« < c«»h ptyotf on • waa*r of nor* than 510,000. (Regulation 6A.050(

1     Th* eaatno r*d**B> nor* thtn S10.000 worth o( 1 c* chip* froB l p*tron (or e**h In • cr«n»acclon when en* c««lno li r»««onably a«aur*d that th« patron obtained ch« chip during th* courc of gating tr*n**cclon«. (R«gul*tlon 6A.050(2))

Mh*n and Wh«r« Co Fil*

Thil (or«. •lonq with on* copy. must b« r*e*ivd by th« G*»lnq Control Bo«rd within 15 d*y th* **rll*«t cran««etlon llsfd on ch* Cora. S*nd en* tiling* Co:

H*v*d* C«Rlng Control Board Audit Division

4220 South H*ry.J,d P«rku«y, lid. 0 L«J V*g«l, NV 89158

On* addition*! copy of **ch (orm aubaltfd Co eh* Board muff b* r*cain*d by th* caiino (or > l*««e tiv» yar* (roB ch* suoieifJion d*c«; «nd should'b* (il*d in cnronoloqie«l ordir.

SPECIFIC lHaTKOCTIOMS

Up co fiv rp*r*c* lncld«nc«» a*y b* r*p6rfd on chit (ocm. For *vry ineidenc* r*quir*d i b* r«porc«d, ch* ttrtt lin* of in{or»clon •u«c b* complcfd Co includ*:

1  D*f

2 tib*

3 Dollar fount at Cr«n«»ctlon

4 Tr«n»*ctlon cyp* (•ich«r '1" or *2* «• d*«crlb«d •bov) ! njb* of ••ploy handling tr*n««etlon

for cyp* ' !" cranfetlon* only, ch* collovlna iddltlon*! ln(or««tion auic «lio b* nofd:

1. N*«* o( p*r»on •ccccing th*c ch* chip* wr* obe*ln*d by ch* yatron during th* cour** o( qrlna.

2. Oferlpclon o( ch* •vidfne* u«*d co vrify th«e Ch« p*cron won or wg«r*d ch* chip*.

Prior co finding Ch* iota, ch* full l*g*l n*B* of ch* etfino, ch* crino'i •uployr ld*nclfic*elon nunbT, and ch* *cr**c •ddrc* of ch* c«*ino. o(tlc». or br«nch wh*r* ch* «c( cranrctlon* w*r* conducfd mu*c b* •nc*r*d on ch* torn. In addtcion, • c**ino •wploy, pr*f*rably froM ch* accouneing d*partn*nCf Jhould r*iri*w eh* eo«pl*e*d corB for eoMpllane* « Rxgulaelon 6A, and mu*c Includ* ni«,h«r algnaeur*, del*, and daf of r«vi*w In eh* appropri ap«e** on ch* forB.

(6) Figure 5.3 (b)  Currency Transaction Incidence Report (CTIR)

occurred and the amount of money involved. The primary use of thf CTIR by the Department of the Treasury would be as a source of informa­tion and not as an enforcement tool. The 6A.050 report contains:

1. The date and time of the transaction

2. The amount of the transaction

Currency Reporting           69

3. The name or initials of casino employees handling the transac­tion and recording information

4. The name or initials of casino employees providing assurance that the chips were substantially won or wagered by the patron

5. The signature of the casino employee reviewing the report (nor­mally a representative of the accounting department)

There are two transactions that require entry into a 6A.050 report:

1. If a patron wagers more than $10,000, wins the bet and the payoff is in cash. For the purpose of the report, the total amount of the payoff (including the wager) is entered in the report. The wager can be accepted in either chips or cash. If the wager was accepted in cash, it would be necessary to prepare a 6A.030 report at the time the wager was accepted. The only departments that may pay off in cash are keno, race and sports, bingo and hand-paid jackpots in slots.

2. The redemption of more than $10,000 in chips from a patron for cash where it can be reasonably assured that the patron won, substantially won or wagered in gaming the entire amount. These "substantially won" and "wagered in gaming" statements leave much to interpretation. Therefore, the Nevada Gaming Control Board has provided this explanation: "For this purpose the amount 'wagered in gaming' by a patron is the sum of the largest single amount wagered by the patron with his money (rather than house money) plus amounts lost by the customer in wagering with his money."

Although this explanation represents an attempt to clarify the meaning of the language in the Regulation, some room for interpretation still exists.

Multiple Transaction Log (MTL)

The Multiple Transaction Log (MTL) was established to keep track of in­dividual transactions exceeding $2,500 that, in total, may exceed $10,000 during a 24-hour period. These logs are required in all departments re­sponsible for the preparation of either 6A.030 or 6A.040 type CTRs. Any type transactions exceeding $2,500 require entry in the MTL. The MTL (Fig. 5.4) contains

1. A description and, if known, the name of the patron

2. The table number, if the transaction occurred in the pit

3. The time, date, type and amount

4. Signature of the casino or cage personnel recording the entry

Currency Reporting           71

These logs are maintained for a 24-hour period with a predetermined cutoff time which is selected by the individual casino. After the end of the 24-hour period, the MTLs for each gaming area and the casino cage are turned in to the accounting department for review and storage. Every 24 hours, each department initiates a new MTL and it is the responsibility of supervisory employees in the individual departments to review them for their respective departments throughout the shift to ensure that compli­ance is maintained with the aggregation requirements.

In general. Regulation 6A requires that only like-kind transactions are aggregated for purposes of preparing a CTR. This means that only trans­actions of the same type, such as chip purchases, are aggregated together. The casino would not aggregate a chip purchase with a front money de­posit or a marker payment. The one exception to the aggregation require­ment relates to chip redemptions where evidence has been obtained from casino personnel that the chips were placed at risk. Aggregation is not re­quired for 6A.050 type transactions.

Front Money and Safekeeping Deposits

The Regulation provides for unique ways of handling player deposits for front money or safekeeping. Each casino has two options when handling either type of deposit:

1. Physically segregate the cash deposited in a designated location and return the same cash to the patron, or

2. Record the number of bills in each denomination of the cash de­posit. When the deposit is taken down, it is returned in the same denominations and number of bills of each denomination as in the original deposit.

What If the Patron Refuses to Comply?

Since casino owners are forced by Regulation to obtain the necessary in­formation, the casino must bar the patron from gaming as described pre­viously until he complies. Each gaming area is required to maintain infor­mation relevant to any such patron. Many casinos have chosen to utilize a "barred patron log" which lists the patrons name, if known, and descrip­tion. All personnel in gaming areas and security are expected to routinely review this log.

Benefit of Choosing 24-Hour Window

The Regulation provides that each casino can determine when its 24-hour day begins and ends. This has proven extremely beneficial in minimizing the effect on individual players. For instance, if the casino's 24-hour pe-

72           Casino Operations Management

riod begins at midnight, one night for the patron could overlap nights for reporting purposes. If the player lost, or bought-in, for $10 or less before midnight and then bought-in for another $10,000 after r night, reporting is not necessary. When the regulation was first enac many casinos chose early morning as the 24-hour cut-off, but it did take long for them to change to a time that more closely divided the Irons' period of play.

Benefit of Segregating Like-Kind Transactions

Another benefit of Regulation 6A is the categorizing of transactic Transactions such as chip purchases, money play losses (losing cash i gers) and marker payments are all considered to be separate transactic Regulation 6A indicates that a transaction of a given type has to exo $10,000 in order to be reportable on a CTR. This separation of transact types for reporting purposes allows a player to purchase chips in amount of $10,000, have money play losses up to $10,000, buy b, $10/000 worth of markers, make race and sport wagers of $10,000 and posit $10,000 in cash as front money during the casino's 24-hour day-without having to prepare a report under 6A.030 or 6A.040.

Regulation 6A and Title 31 were reluctantly accepted by both m agement and players. It is extremely difficult for a casino employee to. proach a player just after he lost a bet that brought him over the $10,( threshold and request his driver's license. At this point, the player may in no mood to comply with the casino's request.

Since 1985, the players have grown accustomed to Regulation and, in the process, many have developed their own methods to avoid porting. It is not uncommon for today's players to ask casino person what their total is so as to stop their play just before the reporting woi be necessary or to change from one type of transaction to another. Oi the player reaches $10,000 in chip purchases, he may start betting cash.

It is also important to note that the player need not be bothered if \ casino has the necessary information on file. Many casinos photocop;

player's driver's license when an application for credit or check cashi is made and there is no need to ask the patron for identification if this formation is on file. Once a positive player identification is made for a port, subsequent reports can be made based on the prior identification.

It is not necessary to inform the player the report is being prepared is only necessary to inform the patron if the casino does not know w. the player is and, consequently, must see identification. When Regulatii 6A was first implemented, many casinos felt obligated to notify the play that a report was being prepared. Most casinos now simply prepare t report if the information is available.

Nevada's Regulation 6A provided a uniform method of comply!) with the regulations of the Department of the Treasury. Every casu

Currency Reporting           73

knew what was expected of them and how to handle most situations. In contrast, Atlantic City and Puerto Rico had only a single paragraph expla­nation contained in Title 31 to provide them with guidance on how to maintain compliance. Since 1985, each casino in these jurisdictions has developed a system they believe provides for compliance with Title 31. One additional difference between the jurisdictions is that betting of cash and pit marker redemptions are prohibited by regulation in both Atlantic City and Puerto Rico.

Monitoring Compliance with Regulation 6A

Recognizing the need for a system of consistent and reoccurring compli­ance monitoring procedures, the Nevada Gaming Control Board issued Minimum Internal Control Standards (MICS) for Currency Transaction Reporting which require the performance of procedures by both internal audit departments and independent accountants. The MICS specify that internal audit personnel for the casino review established procedures in all casino departments subject to Regulation 6A by interviewing appro­priate personnel in these areas on a quarterly basis. Testing of all types of documentation prepared pursuant to Regulation 6A is also required to be completed by internal audit personnel on at least an annual basis with the documentation tested being selected from each quarter.

The MICS outline procedures for walk-throughs of Regulation 6A procedures in branch offices maintained by casinos that have average casino receivables of $200,000 or more. One additional requirement which serves to highlight the importance of Regulation 6A compliance to both the Nevada regulators and the Department of the Treasury is the one asking that all exceptions discovered by the internal auditors be doc­umented and forwarded to management, which is defined to include owners, the board of directors and the department heads responsible for the exceptions.

The MICS provide similar requirements for independent accountants to perform in conjunction with the preparation of an annual report which is required per Regulation 6A.110 to be prepared and submitted. The re­port must address the casino's level of compliance during the year and all instances of noncompliance with Regulation 6A that were either discov­ered as a result of procedures they perform or that were brought to their attention regardless of the severity of the noncompliance. The MICS pro­cedures include four hours of unannounced observations per quarter of the casino cage, pit and sports book areas, walk-throughs, testing of docu­mentation and review of training programs established by the casinos in order to periodically communicate to casino personnel the requirements of Regulation 6A.

The MICS indicate that the independent accountant procedures may be performed instead by qualified internal audit personnel as long

74           Casino Operations Management

as the independent accountants review the work of the internal audi­tors. Depending on the casino, having the procedures performed by the internal auditors may provide a cost-effective alternative. These moni­toring procedures have helped the casinos ensure the effectiveness of their compliance systems by providing frequent feedback to manage­ment and, at the same time, have provided independent assurance to the Nevada regulators that casinos are maintaining adequate compli­ance with Regulation 6A.

TITLE 31 REPORTING

Unlike Nevada, where cash for cash over $2,500 is strictly prohibited, At­lantic City and Puerto Rico casinos do not have the same restrictions. However, a CTR (Fig. 5.5) must be prepared if the total of the exchange or exchanges exceeds $10,000. In these jurisdictions, cash-in and cash-out transactions are aggregated separately for the purpose of reporting.

Examples of cash-in would be front money or safekeeping deposits as well as chip purchases in the pit. If a player deposited $5,000 in front money with the casino cage and then purchased another $5,001 in chips with cash in the pit, a report would be required under Title 31. Atlantic City's casinos are required to use their casino computer systems for the purpose of aggregating pit buy-ins and casino cage transactions. Most casino systems will provide the ability to generate a report daily which identifies any patrons whose aggregated cash transactions have exceeded the reporting threshold and for which a report is required to be prepared and submitted by the casino. These reports from the casino system may be used by the casino to ensure that all reportable transactions have been properly identified.

Title 31 does not provide for the preparation of CTIRs. Therefore, cash-in or cash-out in the aggregate exceeding $10,000 requires the prepa­ration of a CTR. Cash-out includes winnings in Atlantic City and Puerto Rico, whereas Nevada's Regulation 6A exempts verifiable winnings.

One of the primary benefits of Regulation 6A to Nevada has been the ability to self-regulate compliance. However, one of the resulting trade­offs has been the additional administrative burden that was placed on Nevada's casinos in the form of the $2,501 threshold for aggregation and the required use of the MTL to record transactions exceeding this thresh­old. The MTL's are generally prepared manually by casino personnel and capture many transactions which would not specifically be required to be accounted for under Title 31.

The exemption that has allowed the casino industry to operate under Regulation 6A in Nevada has been an ongoing source of discussion by representatives of the Department of the Treasury. Revisions to Regula­tion 6A became necessary based on changes to the Bank Secrecy Act

Currency Transaction Report by Casinos

File a separate Form 8362 for each transaction. Please type or print

(Complete all applicable parts—see instructions)

V^SSf   Individual or Organization for Whom This Transaction Was Completed

Individual's last name                                                                                                                          Middle initial Social security number

Organization's name                                                                          Employer identification number (EIN)         Passport number                                                                                                               Country

Address (number, street, and apt. or suite no.)                             Occupation, profession, or business           Alien registration number Country

Country (if not U.S.)            Driver's license (number and state)

I^MfflIdentity of Individual Conducting the Transaction (Complete only if an agent conducts a transaction ______for the person in Part I

Patron's Account or Receipt Number >•

Description of Transaction

If more space is needed, attach a separate schedule and check this box

1  Type of transaction. Check the applicable boxes to deschbe transaction. a D Currency exchange (currency for currency) b CASH IN:

(1) 0 Deposit (front and safekeeping)  (3) D Check purchased (see item 6 below)   (5) D Collection on account

(2) D Chips purchased                (4) D Wire transfer of funds                  (6) D Other cash in ......................

c CASH OUT:                                                                                          (specify)

(1)0 Withdrawal of deposit (front and safekeeping)    (3) D Chips redeemed      (5) D Other cash out ....................

(2) D Check cashed (see item 6 below)               (4) D Credit advance                                      (specify)

.00

5       If other than U.S. currency is involved, please furnish the following information:

Currency name                                                            Country

Total amount of each foreign currency (in U.S. dollars) $                                             .00

0   If a check was involved in this transaction, please furnish the following information (see instructions):

Casino Reporting the Financial Transaction

Employer identification number (EIN)

Address (number, street, and apt. or suite no.) where transaction occurred

i Reduction Act Notice, so* back of form.                     Cat. No. 62291 Z

Figure 5.5 (a)   Form 8362

75

General Instructions

i Act Notice.—

The requested information is useful In criminal, tax, and regulatory investigations, for Instance by directing the Federal Government's attention to unusual or questionable transactions. Casinos are required to provide the information under 31 CFR 103.22, 103.25, and 103.36.

The time needed to complete this form will vary depending on individual circumstances. The estimated average time is 38 minutes. If you have comments concerning the accuracy of this time estimate or suggestions for making this form more simple, we would be happy to hear from you. You can write to both the Internal Revenue Service, Washington, DC 20224, Attention: IPS Reports Clearance Officer, T:FP; and the Office of Management and Budget, Paperwork Reduction Project (1545-0906), Washington, DC 20503. DO NOT send this form to either of these offices. Instead, see When and Where To Hie below.

Who Must File.—Each casino must file a Form 8362 for each deposit, withdrawal, exchange of currency or gambling tokens v chips, or other payment or trans er, by, through, or to such casino, which involves a transaction in currency of more than $10,000. Multiple transactions by or for any person which in any one day total more than $10,000 should be treated as a single transaction, if the casino is aware of them.

Exception. C a-'.inos do not have to file Form 8362 for transactions with domestic banks.

When and Where To File.—File this form by the 15th day after the date of the transaction. Send it to the Internal Revenue Service Data Center, P.O. Box 32621. Detroit, Ml 48232, Attn: CTRC, or hand carry it to your local IPS office. Keep a copy of each Form 8362 for 5 years from the date you file It. Penalties.—Civil and criminal penalties (up to $500.000) are provided for failure to file a report or to supply information, and for filing a false or fraudulent report. See 31 CFR 103.47 and 103.49.

Specific Instructions Parti

You must complete this part. Record information about patrons and other individuals who conduct transactions in person for their own benefit.

If an agent (see Definitions) conducts • transaction with the casino for a patron or other porson. show in Part I the patron's or otiier person's Identity and show in Part II the agent's identity.

Use a passport, alien ID card. or other official document showing nationality to

verify the Identity of an alien or nonresident of the United States. Use a driver's license or other document, normally accepted as identification when cashing checks, to verify the Identity of anyone else. Record the Information from the document in the appropriate block.

In the address section, enter the permanent street address. If the address is outside the United States, provide the city, province or state, postal code, and the name of the country.

Part II

Complete this part only when an agent (see Definitions) conducts a transaction for a patron or other person.

The identity of the agent must be verified. Use a passport, alien ID card, or other official document showing nationality to verify the identity of an alien or nonresident of the United States. Use a driver's license or other document, normally accepted as identification when cashing checks, to verify the Identity of anyone else.

In the address section, enter the permanent street address of the agent conducting the transaction. If the address is outside the United States, provide the city, province or state, postal code, and the name of the country.

In the social security number block, enter the social security number of the agent conducting the transaction. If the agent has no number, write "None" in this block.

Part III

If the patron has an account relationship with the casino, enter the account number. If a receipt has been issued for a front or safekeeping deposit, enter the number.

PartIV

If less than a full dollar amount is involved, round that figure to the next higher dollar. For example, if the CASH IN totaled $10,000.05, show the figure as $10,001.00.

Item 1.—Check the boxes that describe the exact nature of the transaction. Item e,—Complete this if a check is cashed or a check is purchased with currency.

PartV

Enter the full legal name of the casino and the street address of the casino, office, or branch where the actual currency transaction was conducted. Enter the casino's employer Identification number (EIN) in the block provided. Signature.—This report must be signed by the casino employee or official who handled the transaction and also by the casino official who reviewed and approved Form 8362.

Figure 5.5 (b) Form 8362

Definitions

Agent.—An individual who conducts a transaction in currency at a casino or gambling casino for or on behalf of another person.

Casino.—An organization licensed as a casino or gambling casino by a state or local government and having gross annual gaming revenue In excess of $1 million. It includes the principal headquarters, branch location, or other place of business of the casino or gambling casino.

Currency.—The coin and currency of the United States or of any other country, which circulate in and are customarily used and accepted as money in the country in which Issued. It includes United States silver certificates, United States notes, and Federal Reserve notes, but does not Include bank checks or other negotiable instruments not customarily accepted as money.

Domestic Bank.—Each agent, agency, branch, or office In the United States of a foreign bank and each agency, branch, or office in the United States of any person doing business in one or more of the capacities listed below:

1. A commercial bank or trust company organized under the laws of any state or of the United States;

2. A private bank;

3. A savings and loan association or a building and loan association organized under the laws of any state or of the United States;

4. An insured institution as defined in section 401 of the National Housing Act;

5. A savings bank, industrial bank, or other thrift institution;

6. A credit union organized under the laws of any state or of the United States; and

7. Any other organization chartered under the banking laws of any state and subject to the supervision of the bank supervisory authorities of a state. Identifying Number—For individuals, this is the social security number. For others, it is the employer identification number (9 digits).

Patron.—An individual who engages In gaming activities at a casino. Person.—An individual, corporation, partnership, trust or estate, joint stock company, association, syndicate, joint venture, or other unincorporated organization or group, and all entitles treated as legal personalities. Transaction in Currency.—A transaction involving the physical transfer of currency from one person to another. A transaction In currency does not include a transfer of funds by means of bank check, bank draft, wire transfer, or other written order that does not Include the physical transfer of currency.

76

Currency Reporting           77

which had occurred since the inception of the Regulation in 1985. As a re­sult of these changes, representatives of the Department of the Treasury worked closely with Nevada regulators and industry personnel to arrive at modifications that would be agreeable to all interested parties.

On October 28, 1996, the Nevada Gaming Commission circulated for review by industry personnel proposed revisions to both Regulation 6A and the Currency Reporting section of the MICS. The revisions will be­come effective May 1,1997. These revisions represent the first changes to either Regulation 6A or the related section of the MICS since the exemp­tion was granted in May 1985.

The following represent some of the more substantive changes which are included in the revisions:

1. Multiple cash transactions are aggregated using a threshold of

$3,000 instead of $2,500.

2. All cash payouts greater than $10,000 are reportable. This elimi­nates the CTIR and requires reporting of slot jackpot payouts.

3. All reportable transactions are filed using a federal CTRC-N in place of the existing CTR and CTIR.

4. The threshold used for prohibited transactions increases from $2,500 to $3,000.

5. Suspicious activity as defined by the regulation must be reported using a SARC-N form and each licensee is required to designate someone to be a Suspicious Activity Analyst.

6. The scope of Regulation 6A application in terms of the number of licensees will be reduced through the revised definition of what constitutes a 6A Licensee. Under the revised definition, a licensee is defined as having over $10 million in annual gross gaming rev­enue and $2 million in table games win.

7. Training and compliance programs are required.

8. Aggregation requirements continue to apply to like-kind transac­tions with the exception of a defined single visit. A single visit consists of one single continuous and uninterrupted appearance by a patron at casino areas including a gaming table, slot ma­chine, cage window, sports book window or branch office. In the case of a single visit, all cash-ins and all cash-outs are aggregated for reporting purposes.

9. A casino is able to exchange cash for coin with a patron where it was previously prohibited.

10. Funds transfer requirements including documentation of the transaction are addressed in substantial detail.

11. A licensee is specifically precluded from assisting a patron who is attempting to structure transactions in a manner to avoid re­porting requirements.

78           Casino Operations Management

Currency Reporting in Other Jurisdictions

Since the application of Title 31 to the casino industry in 1985, many other jurisdictions in the United States have approved gaming. In all cases, casi­nos in these jurisdictions operate directly under the requirements of Title 31. In some of these jurisdictions, additional requirements relevant to cur­rency reporting have been placed on the casinos. Title 31 compliance for casinos in these newer jurisdictions will evolve through experience and regulator interpretation as has already occurred in Nevada, Atlantic City and Puerto Rico.

In general, casinos operating in international locations are not subject to currency reporting requirements. In these jurisdictions, the governing entities and regulators have not chosen to address this as a specific area of concern relevant to casinos. One exception to this is Nova Scotia, Canada, which includes currency reporting requirements as part of its system of regulatory control. In Nova Scotia, recording of large cash transactions ($10/000 or more) and logging and aggregation of cash transactions equal to or greater than $2,500 are specifically required.

P    (^^afrtw

6

Casino Cage, Credit and Collection

CASINO CAGE

The casino cage is the financial center and an important component of the casino operation. The casino cage maintains an accountability of cash, chips and tokens which are used to fund the operations of the casino. When additional chips are needed on the table games, the cage is the source of these chips. The cage also provides the funds to conduct trans­actions with casino customers.

The casino cage is comprised of customer windows which are nor­mally established on an imprest basis (i.e., funded at a predetermined dol­lar amount which remains constant, such as $25,000) and are operated by cage cashiers. The imprest amount for a window varies based on the size and needs of the operation. Windows may range in size from $25,000 to $100,000 or more and consist of cash, chips and, in many casinos, tokens. The number of windows in the cage depends on the relative size of the cage and the number of customers present in the casino during peak times.

The cage also contains a fill bank which may also operate on an im­prest basis and maintains a substantial inventory of chips and tokens used exclusively for conducting transactions with employees of the casino. Fill bank transactions consist primarily of chip exchanges with the table games which are in the form of fills and credits. The fill bank also transfers chips to the cashier windows to replenish depleted inventories and accepts the excess chips cashiers receive through customer transac­tions such as chip redemptions. All exchanges of chips are documented by the fill bank cashier to enable the inventory of the fill bank to be recon­ciled at any point in time. The fill bank replenishes its inventory through exchanges with the main bank.

The casino cage in many casinos is also responsible for accounting for the inventories of the coin room and the slot cashier banks. If this is the case, the main bank may be the source of coins and tokens to replenish slot cashier banks and slot machine hoppers. Cage personnel under this

79

80           Casino Operations Management

arrangement are responsible for verifying the accuracy of the coin roor inventory on a shift-by-shift basis since the coin room balance is a compc nent of the cage accountability.

The marker bank is an additional area within the main bank which i responsible for maintaining inventories of issued markers transferred ii from the table games, front money, safekeeping deposits and other item;

such as returned checks and airfare disbursements. In smaller casinos, th( fill bank and main bank functions may be combined into one area. The main bank may also serve as the cashier for the hotel (front desk, restau­rants, bars and retail outlets) by issuing banks to hotel cashiers coming on shift and accepting the deposit of excess funds received by hotel cashiers during the course of their shifts.

The cage operates on a 24-hour basis in the same manner as the casino. An inventory of all items comprising the cage accountability is performed for each shift. The windows, fill bank and main bank are counted down and verified by both the outgoing shift and incoming shift personnel. The balances are carefully checked since any differences (over­ages or shortages) may result in disciplinary action being taken against the employee responsible for the difference. The results of these proce­dures are documented on an accountability sheet which shows all bal­ances the cage is responsible for by respective area.

All transactions that result in increases or decreases in the cage ac­countability during the shift are recorded on a shift summary. Examples of these items include airfare disbursements, coin coupons, and paid-outs. Documents supporting these transactions are placed in an envelope and attached to the completed shift summary. The shift summary, sup­porting documentation and the accountability sheet are sent to the ac­counting department daily to be audited.

Figures 6.1 and 6.2 are examples of typical accountability and shift summary sheets.

Most casinos today use computer systems designed to document cage transactions and facilitate the reconciliation of inventory balances at shift end. Receipts are produced for such common transactions as foreign currency exchanges, marker payments and front money/safekeeping de­posits, thus providing cashiers with an automated trail of transactions conducted during their shift.

CASINO CREDIT

Casino credit is a marketing tool that, when used appropriately, can re­sult in significant casino revenues. Casinos such as Caesars Palace, the Mirage and Trump's Taj Mahal rely heavily on casino customers who gamble on credit. Unlike consumer credit, casinos do not charge interest for the use of their funds; however, casino credit should not be consid­ered interest-free.

MAIN BANK COUNT SHEET

Figure 6.1  Main Bank Count Sheet

81

DAILY CASH SUMMARY                                                                        O-l-Apr-97

Day                   Late Adjust      Total