Lottery director's proposal would take effect in July
Penn's proposal, if adopted by the Lottery Commission, could deliver a greater share of state gambling profits to schools and other services.
Education groups praised Penn's proposal. Bar and restaurant owners panned it, saying it could backfire and reduce state lottery profits.
Lawmakers and lobbyists in Salem have anxiously awaited Penn's recommendation. That's because adding electronic slot machines and boosting the share of lottery profits kept by the state is the path of least resistance to raising revenues at a time when tax increases are unpopular and major budget cuts loom.
In some respects, Penn's recommendation was Solomon-like.
More than 2,200 retailers get to woo new customers by adding electronic slots, something they've clamored for during the past decade. And the retailers would get to keep six-year video-poker contracts inked in July that guarantee them nearly 29 percent of the profits from the wildly popular game.
But Penn recommended that retailers earn 15 percent of the profits from electronic slots when those games are added to video-poker terminals in July. That appeals to school advocates, who complain that the state long has subsidized taverns and restaurants by granting them too large a share of the video-poker profits.
"I've tried to address both concerns in one action," Penn said.
The proposal should protect the state's relationships with video-poker retailers and the $300 million annual profits that the games produce for the state, Penn said.
Adding electronic slots, also known as line games, won't cost the retailers much, so Penn reasoned that it's fair to lower their share of profits from those games.
"It appears to be a very thoughtful, reasonable proposal that moves the lottery more in line with its legal responsibility of maximizing revenue for the public benefit," said Jonah Edelman, director of the advocacy group Stand for Children. "We consider it a step in the right direction."
Ed Edwards, lobbyist for the Oregon School Employees Association, said that Penn's recommendation "only goes halfway." His group filed suit to overturn the lottery's 2004 video-poker contracts with retailers and wants Penn to lower retailers' profits on that game to 15 percent as well.
Although retailers would retain their coveted video-poker contracts, they were disappointed with Penn's proposal.
"I don't think it's right. I don't think it's fair, and my gut reaction initially is, I'm not interested in line games," said Scott McComas, owner of Jammers Tavern in Salem.
Jammers six video-poker terminals all are being used 40 percent to 60 percent of the time, McComas said. So he would rather not have players switch to electronic slots when that would deliver about half the profit share.
If retailers decline to offer electronic slots, that jeopardizes Gov. Ted Kulongoski's plan to raise $60 million per year from the new games to pay for state troopers, said Mike McCallum, chief executive of the Oregon Restaurant Association.
"Very few retailers would participate, so the governor's revenue projections are nothing but a dream," he said.
Penn said that the lottery will install the games on all of its terminals at bars and restaurants but won't force retailers to offer the new games.
Still, he has an ace up his sleeve: old-fashioned American competition.
"If someone else down the street has line games, do you think (Jammers) is still going to have 40 to 60 percent capacity?" Penn asked.
All of the evidence shows that gamblers will give up video poker and switch to electronic slots.
Four Canadian provinces found that 85 percent of their video-poker players switched to electronic slots within five years after those games were added in their lotteries.
So Penn's proposal could deliver the much-higher state lottery revenues that school advocates want, without breaking faith with retailers who have contracts with the state.
slaw@StatesmanJournal.com or (503) 399-6615
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