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Oregon Lottery keeps cut the same

Participating bars, taverns, restaurants will have current contracts extended to June 2020.

For more than 2,200 participating bars, taverns and restaurants, their cut of Oregon Lottery proceeds will be unchanged for the next five years.

The Oregon Lottery Commission decided Friday to leave in place two compensation plans that retailers can choose from, one rewarding low-volume retailers and the other high-volume retailers. The plans net them a commission average of 23 percent.

The new contracts with retailers will end in June 2020.

The vote was 4-1. The lone dissenter was Chris Telfer, a member who is a certified public accountant in Bend and a former state senator.

Telfer said afterward she had no big objection to what the commission did.

But she said she voted no because she was willing to consider a different plan, laid out by Oregon Lottery Director Jack Roberts, that would have let some retailers keep more money as an incentive to increase video lottery sales and earn more for the state.

That plan would have set a 27.5 percent cut for the first $175,000 of video lottery sales, 23 percent on sales between $175,000 and $475,000, and 20 percent on sales of more than $475,000.

However, during the last major debate about retailer rates more than a decade ago, education and social services groups advocated a flat rate of 15 percent.

House Speaker Tina Kotek, D-Portland, says many lawmakers also would have raised concerns about such a plan, even though the Lottery Commission is largely independent of the Legislature.

“I feel like they are doing this on their own and forgot to ask us,” Kotek said at a Jan. 20 meeting with the Portland Tribune editorial board.

“If we do not raise any more money, but we are going to pay them (retailers) more money, that is less money from the lottery coming into the state budget — and less on which we can bank on.”

The commission heard public testimony in December.

Staying the course

Roberts, in his written report, acknowledged potential opposition to his alternative:

“At the same time, I understand that commissioners and other state officials may be concerned that even a modest increase in commission rates after several years of fairly stagnant Lottery revenues may be a risky proposition.

“I also recognize that there would be vocal opposition from groups and individuals that have long felt that Oregon’s video lottery commission rates should be cut further, not increased.

“If the Oregon Lottery Commission chooses not to adopt this new rate schedule, I recommend that the commission simply retain the current rate schedules.”

That’s exactly what the commission majority did.

“Not everybody is going to be happy,” says Mary Wheat, a commission member from Portland.

Chairwoman Elisa Dozono, also from Portland, says she was willing to consider a three-year contract — shorter than usual — to test different rates. “It would be an opportunity to study them in-depth,” she said.

But Roberts advised against it.

“If the commissioners wish to consider a new commission schedule within the five-year period, that option will still be available. But a shorter contract period commits us to revisiting commission rates when doing so may prove more disruptive to our relationship with retailers, legislators and other affected groups.”

A long history

According to the Oregon Lottery’s financial statement for the 2013 business year — the latest available — retailer commissions for all games accounted for $204.9 million, an expense second only to prizes at $206.8 million.

Net proceeds transferred to the state for various purposes, including education, were $546.9 million for the year ending June 30, 2013.

Since the Oregon Lottery started video operations in 1992, first with video poker and then with other electronic games in 2005, they have accounted for about 70 percent of lottery proceeds.

The machines are owned and serviced by the state, but they sit in private establishments.

Until 2010, when the commission left them unchanged, retailer compensation rates had been whittled down from their initial 35 percent back in 1992.

Roberts estimated that under his alternative, no retailer would get less money and about quarter of the retailers would have gotten more, based on data for the year ending June 30, 2014. While the plan would have given retailers a projected $5.6 million more, Roberts says it would have removed a “seemingly punitive rate system," and a contingency fund had more than enough to offset that loss — assuming that sales did not grow.

The Oregon Lottery reported 2,271 retailers with 11,989 video terminals during the most recent business year ending June 30, 2014. Both numbers are down slightly from their 2010 peaks.

Oregon’s economic downturn, its extension of an indoor-smoking ban to bars and taverns in 2009, and changing consumer preferences in entertainment are considered factors in those declines.

A slight upswing

But during its meeting, the commission heard financial reports that Oregon Lottery sales — and specifically video lottery games — are on a modest upswing for the business year that will end June 30.

Compared with the previous business year to date, total sales were up 2.63 percent, and video sales up 5.04 percent. Sales of traditional products, such as scratch-off tickets, were down by 2.87 percent.

The Oregon Lottery is in the middle of a four-year, $225 million upgrade of its 12,000 video terminals. It is paying about a third of that cost directly and drawing the rest from lottery earnings before the state gets net proceeds for economic development, education, parks and watersheds.

About 1,900 of the 2,200 retailers now have new machines, although the upgrade has two more years to go.

“It seems to be paying off with increased revenues,” Chairwoman Dozono says.


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