Oregon Lottery: Slot machines call to gamblers across the state

PORTLAND — If you took the slot machines from all nine Oregon tribal casinos and put them under one roof, they wouldn’t rival the state lottery’s gambling empire. Not even close.

The Oregon Lottery licenses more than 12,000 video slot and poker machines, compared with about 7,600 at tribal casinos by the latest count. The state’s arrangement allows it to offer Vegas-style terminals in every nook and cranny of the state.

“The reality is, the largest casino is the state of Oregon,” says Justin Martin, spokesman for the Confederated Tribes of Grand Ronde, which runs Spirit Mountain Casino northwest of Salem. “They certainly have more convenient locations.”

Voters, when they approved the lottery back in 1984, had no clue that it would one day offer rows of electronic slot machines. In fact, they also voted in a clause that specifically banned casinos.

But the state found a workaround. Casino-style gambling on slot and poker machines has now become the second-biggest revenue raiser for Oregon government, behind income taxes.

Family restaurants have gotten in on the action, tacking on “lottery lounges.” And so-called delis with little in the way of food openly flout a state law that prohibits businesses from making lottery games their “dominant use.”

Critics say the lottery puts slot machines within easy reach of problem gamblers and then – in classic fox-guarding-henhouse style – does a poor job enforcing the rules. State lawmakers have little power and, with so much money pouring in, even less incentive to do anything about it.

“The same agency that operates the lottery also regulates it,” says Jeff Marotta, founder of Problem Gambling Solutions and a frequent consultant for the Oregon Lottery. “The whole system doesn’t make sense.”

“They’re everywhere”

On any given day, the vast majority of Oregon adults are within a few blocks of a place where they can feed bills up to $100 at a time into a state-run electronic slot machine, push a button and watch the virtual reels spin. And thousands do, losing hundreds of millions of dollars every year that help pay for public schools, parks maintenance, salmon habitat and other state programs.

Researchers and mental health counselors say the convenience factor only worsens problem gambling in Oregon.

“It’s an impulse control disorder,” says Brian Farr, who helped develop Cascadia Behavioral Healthcare in Portland, one of the state’s biggest problem-gambling treatment clinics. He now has a private counseling business.

“If they have to think about driving an hour and a half to gamble at a casino, they might not do it,” Farr says. “Compare that to passing three taverns with slot machines on the way home from work.”

Tim Murphy, executive director of the Bridgeway treatment clinic in Salem, says proximity to gambling offers more gateways for potential addicts, and makes it more difficult for problem gamblers to stop.

“They’re everywhere,” Murphy says of places to gamble. “I can look out my window and see four places where I can play video poker or slots.”

Kitty Martz, a recovering gambling addict, recounts with dark humor what happened when she attended counseling sessions at the Cascadia clinic in Southeast Portland.

“It’s a block away from Tom’s,” Martz says, naming a popular restaurant that has a bank of Oregon Lottery slot machines. “I would gamble before and after group therapy. Everyone who goes to Cascadia goes to Tom’s. It’s like the meeting before the meeting.”

Retailers cash in

The state-retailer gambling partnership has paid off handsomely, not just for the state but also for the bars, restaurants, delis and other storefronts licensed to offer Oregon Lottery machines.

The retailers get a cut of the losses, ranging from 11 to 27.5 percent, depending on how much gambling goes on. The average share is about 24 percent. Some do quite well. At the top of the list: Shari’s in Northeast Portland, just over the Interstate 205 bridge from Washington. Over the past year, gamblers lost $1.4 million on the six slot machines in the restaurant’s lounge. Shari’s share: $284,649.

In all, the lottery paid $176 million in commissions to about 2,300 retailers in the past year, an average of about $75,000 per establishment.

It’s not the easy money some make it out to be, says Bill Perry, lobbyist for the Oregon Restaurant and Lodging Association. Retailers who offer video slot machines take on risks and higher liability costs because it’s one of the few cash-only operations in the state.

Decreases in commission rates, the recession, a statewide smoking ban, liability issues and other factors have combined to make retailers think twice about offering slot and poker machines, he says.

“Fewer and fewer people are seeing it as an attractive way to make money,” Perry says. While the restaurant industry as a whole is growing faster than inflation, revenue from video lottery machines isn’t keeping up, he says.The numbers back him up, to a point. The number of Oregon retailers offering video slot machines peaked in 2010, at 2,384. It’s now down about 4 percent to 2,278, mostly due to owners going out of business, according to lottery spokesman Chuck Baumann.

Upping the ante

Yet the growth of state-sponsored electronic gambling in Oregon has been nothing short of spectacular.After the Legislature approved the introduction of video poker machines in 1992, 232 bars, taverns and restaurants gave it a try, installing 550 machines. Video poker proved an instant success, and the numbers exploded.

By 1998, the Oregon Lottery had licensed more than 9,000 video gambling machines in some 1,800 outlets. The growth in Oregon and elsewhere attracted federal attention, and in 1999, the National Gambling Impact Study Commission came down hard on the Oregon Lottery’s business model.

“Convenience gambling, such as electronic devices in neighborhood outlets, provides fewer economic benefits and creates potentially greater social costs by making gambling more available and accessible,” the commission concluded. “States should not authorize any further convenience gambling operations and should cease and roll back existing operations.”

Oregon Lottery payouts

The portion of money put into a game that’s returned in prizes.

Oregon ignored the advice. In 2004, the state Lottery Commission, with the blessing of Gov. Ted Kulongoski, approved “line games” — video slot machines. The lottery continued to spread the machines to more and more retailers.

Rather than slow down gambling, state policymakers and the Lottery Commission helped goose play and profits. Among other actions, they increased the number of machines allowed per outlet from five to six, allowed machines to accept bills as high as $100, and approved games with jackpots of up to $10,000.

Delis with little food

The system has made for some interesting additions to Oregon’s eating and drinking scene.

Family restaurants added small lounges, resulting in children eating pancakes in one part of the restaurant as adults test their luck on a slot machine in another. At some Elmer’s locations, the “lottery” sign is almost as big as the restaurant name, and a “Lottery Lounge” sign greets visitors at the door.

By far, the most conspicuously casino-like are the “delis” that offer slot machines and little else. Dotty’s is the biggest chain, but it has many copycats, including Richard’s and Jasper’s.

Don’t go into one and ask for corned-beef on rye. Many offer a limited menu, often merely microwaved frozen food and bottles of beer. Many sell cigarettes as a big part of their business.

“They’re scams,” says Robert Whelan, senior economist at Portland’s EcoNorthwest, who has studied the gambling industry extensively. “The idea was it would be a supplement to your income, not your primary source of income.”

A 1994 state Supreme Court decision required the lottery director to confirm that gambling would not be the “dominant use” of a retailer before granting a video poker or slot machine license. The court did not define dominant use, but the lottery has rules that say at least 50 percent of a retailer’s revenue must be from sales of food, drink or other non-lottery items. The rule has gone largely unenforced.

“Based on a review of sales information for the delis we visited, it was clear that their businesses were not primarily the sale of food or beverages,” the audit found. “Lottery was their main business and was not an adjunct to their deli business. All of the five delis we visited were operating out of compliance” with the dominant-use rule.

Then-Director Chris Lyons did little to stop the spread of lottery-based delis, as did the directors who followed her, Dale Penn and current Director Larry Niswender.

Lax enforcement

Of all the types of businesses that offer video slots, the delis are the most efficient at making money off them. In 2012, gambling losses at bars and taverns averaged $321,018 per establishment. Delis posted close to twice that: $607,833 in losses per place, on average.

With that kind of money changing hands, there’s little incentive for the lottery or the Legislature to crack down on businesses that seem to fit the casino definition. And the rules that apply are fuzzy.

The lottery relies on retailers to report their revenue. Even if revenue from lottery machines makes up more than half the retailer’s business, the lottery can consider other factors, such as appearance, floor space, menus and atmosphere before making a “dominant use” ruling.

Asked how many video slot and poker retailers have had their contracts terminated because they violate the rule, lottery spokesman Baumann did some quick research before emailing, “The short answer is one.” A handful of other retailers had their licenses taken away because their records were inadequate, according to an information sheet Baumann sent.

“The program was not designed to terminate retailers,” Baumann wrote. “It was designed to notify retailers of issues and give them the opportunity to make corrections so they can maintain their retailer contract with the Lottery.”

It’s no secret why the lottery is loath to take steps against retailers, Whelan says.

“It’s the golden goose for the state,” he says. “The problem is, it’s a symbiotic relationship. These Dotty’s and the like, they bring in a ton of money for the state.”