Video Poker A Big Moneymaker For Oregon Bars, Taverns -- Some Say Business Commissions Are Much Too High

SALEM - Video poker has made high rollers of many Oregon tavern owners, some of whom are raking in $300,000 a year in commissions from the state.

The No. 1 retailer is Joe's Cellar, a northwest Portland tavern that received $334,000 in commissions the past 12 months. Owner Jean Swanson makes no apologies.

"The reason I'm successful with this is because I run it like a separate business," she says. "I've hired extra people who do nothing but take care of the lottery, and I've put up a booth where players can get their change and their payoffs."

The state lottery pays bars and taverns 35 percent of video-poker revenue as commissions - well above the rates of 10 or 15 percent paid to businesses for handling other lottery games like keno.

The average retailer with video poker is paid $65,000 a year in commissions, according to a study done for a legislative task force on the lottery.

One critic, state Rep. Mike Burton, D-Portland, claims the 35 percent is "way too high" and doesn't maximize net state revenue, which the lottery is required to do by statute. Net revenue from the lottery goes to economic development programs.

"The purpose of the lottery is to benefit the people of Oregon in general," Burton says. "We're required under the state Constitution to ensure that the maximum possible return comes to the people, not to the tavern owners."

Partly because of criticism from Burton and others, lottery officials have decided to take a look at the commission issue.

Lottery Director Dan Simmons and members of the Lottery Commission plan hearings around the state. The commission might propose a reduction in the rate paid to retailers.

At the same time, Simmons says, the lottery must be careful not to take steps that could harm what even critics concede has been a financial success story.

The lottery now has 6,300 video-poker terminals in 1,350 retail outlets across the state, with a limit of five machines per establishment.

Video-poker games net the state about $120 million a year and make up about 60 percent of the revenue from all lottery games. The video-poker money has flowed in at a time when the Legislature has been forced to deal with a budget squeeze brought on by the Measure 5 property-tax limit.

The Oregon Restaurant Association, a trade group representing 3,000 retail establishments, says video poker is a proven success, the game remains free of corruption, and that the lottery shouldn't fiddle with retailer compensation rate.

Industry spokesmen say some retailers might get rid of video poker if compensation rates were sharply reduced, thus cutting the amount of money the state nets from video poker.

"If they're talking about cutting it to 15 percent, those machines would be out of here," says Jerald Case, owner of the Towers Inn, a Salem tavern that received $217,000 in video-poker commission in the past year.

Case says the commission doesn't tell the whole story: that video poker also requires him to hire extra help, and there are other costs involved, including monthly on-line charges to the lottery and electricity bills.

Burton doesn't believe most retailers would get rid of video poker if commissions were reduced. He cites a study done for the Legislature saying the lottery could cut its commission payments to video-poker retailers by two-thirds - and almost all would still be making a profit.

"The question is, how much is a decent amount of money for them to make vs. them gouging the state?" Burton asks. "It's true that video poker has been successful beyond anyone's wildest dreams. But I think it's time to go back and re-examine the arrangement that we have with our dealers."

The issue could become moot, of course, if the Oregon Supreme Court agrees with a lawsuit filed by opponents of video poker. They argue that the poker machines have created casinos - illegal under the state Constitution.