Sam Nazarian wins casino license, must submit to random drug testing

LAS VEGAS — Los Angeles nightlife mogul Sam Nazarian saved his casino license Thursday by eating heaping portions of humble pie before the Nevada State Gaming Commission.

All four commission members said they had arrived at the meeting intending to reject Nazarian’s application — after disclosures that he had recently used cocaine, lied about it to investigators and paid as much as $3 million to a two-time felon in what Nazarian described as extortion.

All four members changed their minds after hearing from a penitent Nazarian, promising to address any addiction issues he may have and to take time off from running his sprawling hospitality empire.

“I’m taking off from SBE as a whole,” said the 39-year-old billionaire, referring to the company he runs. “Twenty years of going 100 miles per hour, it takes its toll. I’ve learned my lesson. I’ve sought help.”

Earlier in the week, Nazarian had already stepped away from his chief executive role at the SLS Las Vegas hotel and casino, turning over management to his principal investor, real estate investment firm Stockbridge.

The property, opened in August, was never in danger of losing the ability to allow gambling. But Nazarian needed the license to keep his 10% stake in the development.

Impressed with Nazarian’s humility and candor, the commission approved his application on the condition that he takes frequent, random drug tests and creates a $50,000 credit line to pay for them, along with any additional commission investigations.

Nazarian and his investors have spent close to $1 billion building the SLS from the bones of the former Sahara Hotel and Casino, a Rat Pack playground property, at the unfashionable north end of the Las Vegas Strip.

Nazarian’s troubles began when gaming board investigators dug into his long-standing relationship with Los Angeles car customizer — and two-time felon — Derrick “Smokey” Armstrong. The two men were introduced in 1999, Nazarian said, by mutual friend Rick Fox, the ex-Laker basketball player.

Nazarian’s case might have been helped by Armstrong’s botched attempt to attend the hearing Thursday. Armstrong was arrested on outstanding warrants before he could make it.

He was nabbed by enforcement agents of the Nevada Gaming Control Board, who were tipped off by local police that the ex-convict was wanted and might be there. The warrants were issued by the Clark County district attorney’s office, relating to charges of writing bad checks in Las Vegas, officials said.

“He’s a bad guy,” Nazarian told the board. “But he is out of our lives. He will never be an issue.”

Nazarian confirmed to investigators, and again to commissioners Thursday, that he had paid Armstrong and two of his associates — Death Row Records founder Marion “Suge” Knight and convicted racketeer Hai Waknine — more than $3 million in payments that Nazarian called blackmail money.

Armstrong, in an interview with The Times, has denied extorting Nazarian.

Nazarian, dressed in a funereal black suit and black tie, sat like a schoolboy at the hearing, hands in his lap, in the front row.

Nazarian — after asking to speak “from the heart, from the soul” — apologized to the commission for lying about his recent drug use. He admitted to it only after failing a drug test administered by Nevada gaming authorities in early 2014.

“I want to talk to you today about things I’m not proud of,” he told the commission.

The hotelier was asked repeatedly what embarrassing information Armstrong had used as leverage to extort such lavish payments. But Nazarian never acknowledged any specific information that he feared would become public.

“It was fear,” Nazarian said — fear of physical harm to himself or his family, and fear that Armstrong’s behavior might scare away his company’s investors or disrupt pending SBE deals.

That answer didn’t seem to satisfy Commissioner Joseph W. Brown, who pressed Nazarian about why he would pay Suge Knight $90,000. Nazarian has said he paid Knight because he was associated with Armstrong.

“I don’t understand what the consideration was,” Brown said of the alleged shakedowns. “Suge Knight just picks up the phone and says he wants money? Did the word get out in Los Angeles that you were an easy mark?”

But commissioners ultimately dropped the line of questioning and lauded Nazarian for his candor.

Mark Blankenship, an entertainment producer and associate of Knight, said the record-label owner was not available to comment Thursday.

Nazarian was also subjected to the humiliation of acknowledging, under questioning, that he had fathered a child out of wedlock and did not want his family to find out about it. But Nazarian never said that secret was involved in the extortion, and commission members never asked.

The commissioners spent more than an hour subjecting a fidgeting Nazarian to pointed questions about when he had last used drugs.

Nazarian said he used cocaine in July 2013, and admitted to having used Ecstasy and “maybe” marijuana in his 20s.

He also said he had sought medical help for addiction issues, choosing respected Las Vegas physician Michael Levy. He said he was only a “social” user of cocaine, but might have a drinking problem.

“The thing I’m assessing now is alcohol abuse,” he said. “I’m self-aware now that I may need to spend more time with myself, and with my family. If there is an issue, we’ll find a solution.”

Commission Chairman Tony Alamo put Nazarian on the spot: “And if we tested you today, what would we find?”

“Nothing, sir,” Nazarian answered. “Nothing.”

All four commissioners present (commission member Pat Mulroy did not attend) said they had come to the hearing prepared to deny Nazarian his license.

“I went to bed concluded that I could not support this application,” said Brown, a local attorney with eight years on the commission.

Nazarian, stressing his company’s many job-creating successes with hotels and nightclubs in Los Angeles, Miami and now Las Vegas, said in carefully constructed closing arguments that his indiscretions were youthful mistakes, never to be made again.

“All I ask is for a shot to regain your trust,” he said.

The board members agreed.

“I always want to give someone a chance,” Alamo said. “I want to give them enough rope to save themselves — or to hang themselves.”

Commissioner Randolph J. Townsend closed by acknowledging Nazarian’s difficult time at the podium.

“This is probably the toughest day you’ve ever spent,” he said. “And if you can’t package this as a movie deal, you have the wrong attorneys. This is a fabulous story.”

In a nod to the desert city’s sometimes violent past, Alamo got the only big laugh of the morning by jokingly threatening to hold Nazarian’s attorney, Anthony Cabot, responsible if Nazarian fails to live up to his promises.

“If you don’t,” Alamo said, “we’ll simply take Mr. Cabot out and beat him to death.”

charles.fleming@latimes.com

hugo.martin@latimes.com