A top gambling regulator raised red flags Friday about a proposal to allow private equity firms to place large bets at Nevada racetracks and sportsbooks.
AG Burnett, chairman of the Nevada Gaming Control Board, said Senate Bill 346 poses serious regulatory concerns over how the state would police activities to protect the reputation of the state’s core multibillion-dollar gambling industry and guard against money laundering, corruption and fraud.
“If there is a scandal or a fund manager closes the book and runs off to the Cayman Islands ... Nevada’s reputation may be on the line,” Burnett told members of the Assembly Judiciary Committee.
Under existing law, only individuals can place bets. It’s also illegal to pay someone else to place a bet for you — something called “messenger betting.”
Burnett said the bill would essentially “gut” that law.
Nevada holds a monopoly on sports wagering under a 1992 federal law. The bill’s sponsor, Sen. Greg Brower, R-Reno, has said the measure would allow Nevada to capture some of the estimated $380 billion bet illegally on sports each year in the U.S.
Burnett said the concept of entity wagering appears to be an attempt to allow hedge funds and other big investment firms to gamble on behalf of investors at Nevada sportsbooks.
“How that complies with federal law, the Gaming Control Board is not sure,” he told the committee.
If all participants and every aspect of private equity wagering were in Nevada, Burnett said, the regulatory task would be manageable.
“We don’t object to new methods and modes of helping to enhance the sports-betting business in the state,” Burnett said after the hearing. “But we have to do it carefully, and we have to make sure it’s legal so the state doesn’t get embarrassed.”
But he said bets made by hedge funds and private equity groups would bring unique regulatory and legal challenges, one being whether out-of-state investors who transfer money electronically would run afoul of federal or other state laws.
Could Bain Capital, Goldman Sachs or other investment firms create separate entities to manage and place sports bets? If so, who would be subject to regulatory scrutiny to determine suitability to operate in Nevada?
He called the proposal itself a big wager.
“It’s a wager that these entities will come here, will not run into trouble with the federal government ... that they will not engage in any corruption ... and that they will bet lots and lots and lots of money,” he told committee members.
Burnett also said he would want either Congress to pass a law or an opinion from Department of Justice that money wired to Nevada sports-betting firms are legal before going down that path.
The Senate unanimously approved the bill in April.
But the control board Friday also attached a hefty fiscal note to the bill, something that could signal its doom. The agency estimated that if the bill becomes law, it will need an extra $745,000 over a two-year budget cycle for enforcement expenses. The agency also submitted a proposed amendment seeking authority to charge firms for initial investigative costs.
The committee took no action.