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Gambling on change

New lottery rules aim at clearer definition of 'casino'
by: JIM CLARK, A customer plays video poker at the Shilo Inn near Portland International Airport, where games like Hexbreaker also are among the offerings. To curb the suspicion that some lottery retailers have become little more than casinos, the Oregon Lottery Commission has ruled that a business must earn at least 50 percent of its revenue from nonlottery sources.

In the beginning - or at least 23 years and several billion lottery dollars ago - Oregon voters said there shall be no casinos in Oregon on nontribal land.

Problem is, Oregon voters said that while at the same time approving a state lottery. And 23 years and several billion lottery dollars later, state lottery officials - and lottery critics and skeptics - are still trying to define what a casino is. And isn't.

They're still trying to determine whether the strip-mall retailers that are in business to provide the state lottery's electronic poker and slot machines - and seemingly to do little else - are or are not illegal minicasinos.

The state lottery commission now has taken another run at refereeing the issue, with changes in regulations that govern how lottery officials will decide whether a video lottery retailer is a casino.

But a leader of at least one group is skeptical that the changes will help and is even wondering whether the changes cause more confusion, and allow the continuation and expansion of businesses that exist for no reason other than to offer video lottery.

'We have put a lot of effort to try to curb what have become de facto gambling establishments,' said David Leslie, executive director of the Ecumenical Ministries of Oregon, a consortium of Christian churches whose leaders for years have questioned state-sanctioned gambling. 'And we're still not really convinced that this new move will curtail what seems to be sort of an across-the-board problem in Oregon.'

The Oregon Lottery Commission's recent moves coincide with the completed sale, just this week, of a controversial company that has been at the center of the debate about video lottery retailers - the Dotty's chain.

Dotty's has 26 outlets, most of them in and around Portland. And it has been, by far, the state's largest group of video lottery retailers in the last decade.

From 1996 through 2005, it brought the state more than $151 million in video lottery revenue, and generated more than $41 million in lottery commissions for the company that owned the chain, and the company's owner, Richard Craig Estey.

But late last year, the Oregon Lottery officially terminated its agreement with Estey's company, saying Estey's conduct in Nevada, where he maintains a home, violated his contract with the Oregon Lottery.

That contract calls for lottery retailers' 'key' operators to do nothing to impugn the integrity of the lottery.

Estey operates minicasinos in Nevada that are similar to Dotty's. But the Nevada Gaming Control board fined Estey $200,000 early last year after it found he lied to the board about a domestic violence incident in August 2005.

Estey's estranged wife had told Las Vegas police that Estey had grabbed her by the hair and put a semiautomatic pistol to her forehead. He was never prosecuted.

When the lottery terminated the Dotty's chain's contract, it gave Estey until this month to sell the company. Lottery officials announced Tuesday that Estey had completed the sale of his company to a South Dakota holding company set up by a group in the lottery business in South Dakota.

Other sales must be made

A common complaint about the Dotty's chain - that the retailers sell almost nothing beyond video lottery - won't necessarily change with new owners.

But Oregon Lottery leaders say the changes the lottery commission made in its regulations, in late January, were not directly related to Dotty's reputation, or Estey's.

Oregon Lottery Director Dale Penn said his predecessor several years ago had set up a committee to look at possible changes in lottery regulations concerning retailers' lottery versus nonlottery revenue.

The lottery had instituted a 'dominant use/dominant purpose' rule that said lottery retailers could not get more than 60 percent of their total business revenue from the lottery - or they would be considered casinos by the state.

But hearings the lottery commission held throughout the state showed that it was 'a rule that was not clearly understood,' Penn said.

Penn said changes the Lottery Commission approved in January will be an improvement.

Consider revenue vs. profits

With the new rules, lottery retailers must get at least 50 percent of their business revenue from nonlottery sources.

If a lottery retailer doesn't, then lottery officials will look at other aspects of the business - how it advertises itself, what products or services it offers beyond the lottery - to determine whether it should be considered a casino or not a casino.

'Basically, how do you portray yourself? What other business do you have? We'd look at that whole picture in trying to make a determination,' Penn said.

Critics say one weakness in the old rule has not been changed with the new rule: The nonlottery numbers used to judge a lottery retailer include all nonlottery revenue, as opposed to nonlottery profits. So a retailer can sell all nonlottery products at a loss - only making a profit on video lottery - and that nonlottery revenue still helps the retailer avoid being called a casino.

'I think that was definitely one of the concerns we had - profit versus revenue,' said Leslie, whose organization filed a letter opposing the rule change before it was approved.

But Penn said it would be inappropriate for the lottery to consider how retailers sell or price their nonlottery products, or whether they - like grocery stores - only break even or even lose money on some products to sell other products. 'I think that's way too complicated - for the lottery to be saying, 'This will be the way you market your nonlottery products.' '

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