Sisters’ urban lounge dream hits snag in gambling regulation feud

When the city of Las Vegas decided to waive hefty liquor license fees for people willing to open a tavern in the burgeoning Arts District, it was as if fate had smiled on Pam and Christina Dylag.

After leaving Las Vegas for college and to travel, the two sisters were ready to return to their hometown to start their own business.

They even saved tens of thousands of dollars to invest in the Velveteen Rabbit, a boutique tavern concept named after their favorite children's book.

"It was like everything opened up," said Pam Dylag, 27, of the opportunity to start a lounge with "crafted cocktails," unique draft beers and independent music without having to pay $20,000 for a liquor license. "The reason we left was because places like this weren't here."

But fate failed to account for fallout from a high-level battle over Nevada gambling regulations that unfolded last year.

That battle between lobbyists for the state's largest casino companies and operators of the Dotty's Tavern chain of slot-machine parlors resulted in a requirement for bars such as the Velveteen Rabbit to include at least 2,000 square-feet of public space and to offer food for patrons.

"It is me and my sister; we've been saving our own money," Pam Dylag said. "There is just no way. We don't have the extra capital to put into a kitchen."

Now the sisters and their slot route operator, Eagle Rock Gaming, are working to unravel the process of applying for a waiver from the state Gaming Control Board and the Nevada Gaming Commission that would allow them to install the five machines allowed in their urban lounge license without the kitchen or the extra floor space.

"I didn't realize this whole gaming thing was so political -- and it is political," Pam Dylag said.

The sisters are the first to seek such a waiver. The fate of their urban lounge could determine whether other taverns locate downtown to further shape the Arts District.

CAUGHT IN THE CROSSFIRE

The battle over whether businesses such as Dotty's, a growing chain that catered to women who didn't want to gamble in a traditional casino environment, didn't focus much on potential fallout for smaller operators.

Lobbyists for gambling giants such as Station Casinos and the Nevada Resort Association argued Dotty's was operating under restricted gambling regulations even though the businesses were more like casinos and deriving the bulk of their income from gambling.

The restricted model, the lobbyists argued, is meant for businesses such as taverns, restaurants and other places that offer gambling as an amenity not a core business.

Dotty's fired back by insinuating that the big gamers weren't concerned about the integrity of regulation, but instead wanted to make it difficult for a competing business model to succeed.

The regulators sided with the resort association and beefed up the restricted license standards to require a restaurant and minimum amount of public floor space in a "bar, tavern, saloon or other similar location licensed to sell beverages by the drink ... if the establishment intends to operate more than four (4) slot machines."

There are provisions for operators to ask the control board and commission to waive the regulations, but the waiver requirements aren't completely clear, saying the operators need to show "exceptional circumstances."

"What you need to do is lay out your reasons why you can't meet the standards," said Brian Duffrin, executive secretary to the board and commission. "The board and commission will look at each one individually."

Kimberly Riggs, president of Eagle Rock Gaming, which is seeking the waiver on behalf of the Velveteen Rabbit, said the amended gambling regulation conflicts with the city's urban lounge license, which allows five machines without the extra requirements.

"I think it is a new regulation and there are some bugs that need to be worked out between the city and the state," Riggs said.

CITY RESPONSE

So far city of Las Vegas staff members have yet to pick up the baton on behalf of the Dylag sisters or potential future urban lounge operators.

When asked whether city attorney Bradley Jerbic planned to get involved, city spokeswoman Diana Paul said it's a matter for state regulators.

Jerbic "suggested you contact the state entity that made the ruling to discuss any intended/unintended consequences," Paul said in an email. "The CA's (city attorney's) office hasn't done an analysis of this particular ruling."

Wes Myles, owner of the building where the Dylag sisters want to open the Velveteen Rabbit, said he is disappointed city staff isn't offering more help.

Myles said the urban lounge fee waiver was intended to help small-business people who are less influential than city government when it comes to pressing a legal or political issue.

"There is this assumption that all businesspeople are wealthy and sophisticated," said Myles, who also owns the Arts Factory. "They don't understand Mom and Pop."

Although Myles said he thinks city staff could be more proactive, there is some support for the Dylag sisters coming from City Hall.

Ward 3 Councilman Bob Coffin, whose ward includes the Arts District, has helped the women get meetings with gaming lobbyists to learn more about how to approach the issue.

He's also reaching out to other members of the City Council in the event the city needs to approach state regulators or the Legislature.

"The Gaming Control Board regulations have an unintended consequence, and that is to make it tough on a lot of little people," said Coffin, a former legislator.

He is hopeful the women can make their case with supporters of the tighter restrictions that a waiver is in order for the Velveteen Rabbit and others like it, so if the issue gets to regulators they don't encounter opposition.

"The meetings have been going well," Coffin said. "It may be that they can't take an official position" in favor of the waiver, Coffin said about the gaming lobbyists.

"It might be they just don't show up to challenge the waiver."

SISTERS UNDETERRED

Despite the unplanned encounter with new gambling regulations, the Dylag sisters remain undeterred.

They are working with Myles to restore a gutted building on Main Street, a couple blocks south of Charleston Boulevard. They are installing a new roof, bathrooms and a bar, as well as creating parking, a patio and a walk-in cooler.

They're even moving forward to acquire Victorian style furniture to complement the shabby chic decor.

In addition to cocktails made with fresh ingredients, hard to find beers and unique music, the women want to offer a comfortable vibe for locals, in part by keeping prices low and the atmosphere casual.

Neither sister appears close to giving up.

While discussing the challenges, Christina Dylag, 24, recounted what motivated her to pursue the tavern dream in the first place.

She attributed it to a man she met while traveling in India. He had ridden a bicycle all the way from England.

"A bar had been something I had wanted to open for a while," she said, recalling the chance meeting. "I was like, you really can do anything. You just have to have the motivation."

Contact reporter Benjamin Spillman at bspillman@reviewjournal.com or 702-229-6435.