A passive path to lure capital to casinos

Nevada's casino industry is hungry for investment capital. Gaming attorney Frank Schreck believes he has a way institutional backers can provide the much-desired money.

All he needs is the approval of Nevada gaming regulators.

Schreck has proposed a change to Regulation 16, which limits the percentage institutional investors can own in a publicly traded gaming company without facing a licensing investigation.

The lawyer, a member of the Nevada Gaming Commission in the 1970s, wants the maximum stake increased from 15 percent to 25 percent. He's betting that large investment houses would double down their wagers.

"If institutional investors can increase their equity stake, the benefit is gaming would be seen as a stable industry," Schreck said.

The hitch is that institutional investors would have to be passive shareholders. In other words, the investment houses wouldn't be allowed to exert any control over management decisions.

"Most of these (investors) have ownership in multiple companies," Schreck said. "The idea is to be passive."

Institutional investor status would need to be OK'd by Nevada gaming regulators.

Gaming Control Board Chairman Dennis Neilander said there are now a dozen approved institutional investors, including banks, insurance companies and fund managers, such as Fidelity Investments and Marsico Capital Management.

The Nevada Gaming Commission tentatively accepted Schreck's proposal. The control board will hold public sessions to gauge the change's impact. A recommendation will be made to the commission.

Before the public weighs in, Neilander wants to know whether the proposed change would comply with federal securities laws. He is also curious about what ownership thresholds other industries consider to be a passive investments.

"At what point does so much voting power give control to an investor?" Neilander said. "I don't know the answer to that yet and it's something we want to explore."

Schreck is considered one of the leaders in gaming's legal community. His clients include Harrah's Entertainment, Wynn Resorts Ltd., WMS Industries, Station Casinos and Pinnacle Entertainment.

He also created the original Regulation 16 in 1992.

Allowing institutional investors to increase their holdings at the time brought needed capital into the state.

The economic meltdown has zapped the balance sheets of several casino operators and slot machine manufacturers. Schreck said changing the limits once again "might mean a trillion dollars" in new capital to the gaming industry.

Yes, he said a trillion.

"Passive investors are the type of guys you want," Schreck said.

Howard Stutz's Inside Gaming column appears Sundays. E-mail him at hstutz@reviewjournal.com or call 702-477-3871. He blogs at lvrj.com/blogs/stutz.