A BUM DEAL?
By Bill Rautenstrauch
of The Observer
Savvy gamblers everywhere know one thing for sure: in the long run, the odds favor the house.
It's as true in casinos in Las Vegas as it is in the bars and restaurants of Union and Wallowa counties, where people spend nearly $3 million a year on state-run video poker games.
But with a political battle brewing over commission rates paid by the Oregon Lottery, vendors are worried their share of the take could shrink.
The fear stems from the fact that the Lottery Commission recently asked Secretary of State Bill Bradbury to conduct a study on whether commissions paid to retailers are too high.
Statewide, those commissions average about 32 percent of net sales, defined as total sales minus pay-outs.
The 16 video-poker vendors in Union County averaged more than $47,000 in commissions the past year, and the five in Wallowa County nearly $21,000.
According to a recent story by The Associated Press, one in four Oregon retailers earned over $100,000 from video-poker commissions in the most recent fiscal year. The average take for 1,900 businesses across Oregon was $75,000.
That's too much, say the critics.
"The lottery isn't supposed to be about keeping failing taverns in business, or fulfilling the expectations of tavern owners who have been on the lottery gravy train," Steve Novick, a political activist, said in the AP article.
Mark Hankel, owner of Benchwarmers Pub and Grill and the Longbranch on Depot Street in La Grande, is one of a host of retailers who take sharp exception to that comment.
Hankel readily admits he profits from video poker, but he also says commissions are very important to the overall quality of his business.
"It's not a gravy train," he said. "The money helps pay for a higher standard of business. It helps keep food and drinks cheap, and it goes toward higher pay for employees."
The Longbranch and Benchwarmers, adjacent to each other on Depot Street, have five video poker machines apiece the maximum number allowable.
In the period from Dec. 22, 2002, to Dec. 20, 2003, net video-poker sales were $292,922 at the Longbranch and $163,430 at Benchwarmers. The Longbranch realized $99,652 in commissions, Benchwarmers $57,166.
It wasn't all profit. Each establishment involved with video poker pays $100 per month for a lottery telephone line, plus state amusement device taxes which vary according to income.
Also, a good deal of employee time is spent taking care of poker customers.
The cost of maintaining the operation doesn't end there, Hankel said.
"There are hidden expenses, and one of the big ones is bad checks. We get a lot of them," he said.
"Plus, there's a hidden expense associated with problem gamblers. If you've got to spend time dealing with an angry wife whose husband has gambled away a lot of money, that's an expense.
"The machines are there for people to have fun, but when you've got a problem child, it's no fun."
The Oregon Lottery began in 1985 as a simple scratch-ticket operation. Today, it takes in $350 million a year and is a major source of funding for state programs.
Hankel said he thinks the lottery commission has become insensitive to the needs of the small businesses who have helped make the lottery a success.
"They have not called and asked us what we think. They couldn't care less," he said. "They'll bowl us over. If there is a cut, we'll see small businesses go down, and we don't need that."
Hankel said his customers ultimately would pay for a reduction in commissions, should there be one.
"I can probably survive, but I'll have to raise prices for food and drink," he said.
Only one local business, Denny's Restaurant on Island Avenue in La Grande, is earning a six-figure commission from video poker proceeds.
Between Dec. 22, 2002, and Dec. 20, 2003, Denny's tallied $145,225 in commissions from $459,166 in net sales.
Denny's General Manager Laurie Millsap says the five video-poker machines on the premises, though profitable, are time-consuming.
"A lot of work goes into it. You're cashing tickets, making change, and keeping a bank for. It ties at least one person up," she said.
Denny's employs 61 people, six in the lounge area. Millsap said she thinks a cut in lottery commissions would lead to a reduction in lounge staff.
"There would be some downsizing. I think we'd lose at least one employee out of the lounge," she said.
"We'd have less money to put back into the business. Probably some remodeling we're planning wouldn't get done."
Benchwarmers, the Longbranch and Denny's are a few of the the bigger local winners in state-run video poker. A host of other businesses make far less money from the state's gaming machines.
Toma's, an Enterprise restaurant with five video-poker machines in its bar area, earned just over $17,000 in lottery money in the past 12 months.
Manager Janice Parker said she doubts the Lottery Commission will cut the retailers' share of poker proceeds.
If it does, however, Toma's likely will get out of the video-poker business.
"I think we'd just get rid of the machines," said Parker, who oversees a staff of 11 employees. "It might make things a little tougher for us, but up here in Wallowa County, we're used to things being tough. We always pull through."
The upcoming review happens at a time when the state's contract with video-poker vendors is up for renewal.
The contract expires in June; if recommendations for cuts in commissions are made and supported, they would show up in the subsequent contract.
But as Parker points out, a reduction in commissions is by no means a done deal.
The Oregon Restaurant Association, a powerful trade organization representing more than 3,000 hospitality businesses, is fighting the proposed cuts.
The organization has its own government affairs staff, which lobbies on behalf of its members.
Retailers will have an opportunity to voice objections to possible cuts in a series of forums that will be held around the state in early March, said Lottery Spokeswoman Marlene Meissner.
Meissner also said the commission will hold at least one public hearing on the issue.
Dates and times for the forums and hearing have yet to be announced, Meissner said.
She said forums will be held in Pendleton and Ontario.