06:59 PM PST on Tuesday, January 11, 2005

By BRAD CAIN, Associated Press Writer

SALEM -- Bar and tavern owners across the state are squaring off with school advocates over the surge of new revenue that's expected to come from the Oregon Lottery's expansion into electronic slot machines.

File photo

Casino slot machines.

At a hearing Tuesday, retailers said the Lottery is proposing a raw deal for them when it comes to sharing expected slot machine revenue.

But groups advocating for children and schools say the retailers already are making excessive video lottery profits and should get less money, not more.

At Gov. Ted Kulongoski's request, the Lottery Commission is preparing to launch slot machine-style games July 1 as a way to raise $120 million to pay for state troopers.

The commission still has to decide, however, the amount of payouts the retailers should receive when the games come on line.

Lottery Director Dale Penn issued a tentative proposal that he said is aimed at giving the bars and taverns some extra profits — but not a windfall — from the slot games.

His proposal calls for trimming the average poker commission rate from 28.8 percent of net sales to 25.6 percent for the 2,000 establishments that offer the games. Net sales means money spent to play video poker machines minus prizes paid out.

Penn said that under his plan, the average video retailer who now receives $68,000 a year would get about $76,000 by next year — provided that the slot machines produce an expected 12 percent boost in play.

At Tuesday's retailer forum, about 150 bar and tavern owners crowded into a hearing room to show their opposition to Penn's proposal.

They expressed doubts that the video slot machine games would produce as much additional revenue as lottery officials are forecasting. They said the result is that retailers could end up with less money because of the proposed reduction in commission rates.

Bob Heilman, owner of the Labor Temple Cafe and Bar in Astoria, noted that the lottery commission last March reduced by about 10 percent the state's payouts to bars and taverns with video poker machines.

"I feel like a Pinata — every time you need more money, you hang me up and try to beat more money from me. It's disgusting," Heilman said.

Frank Wilson, owner of a restaurant in Mapleton, said he doubted the new slot games would expand his customer base and that he might choose not to have the new line of games in his restaurant.

"It's not going to increase anything for me," Wilson said. "I'm not signing anything until I see what it's going to do for me."

Later in the day, however, school advocates met with Penn to make their case that it would be reasonable to cut video lottery commissions by more than half.

Jonah Edelman of the advocacy group Stand for Children said that slashing the rate to 15 percent of net sales would produce an additional $85 million for education or other programs.

"For too long, retailers have enjoyed a sweetheart deal that subsidizes bar and tavern owners at the expense of school children and other public purposes," Edelman said.

The Oregon School Employees Association is suing to overturn the rates approved last March, saying the payouts are excessive and voters who approved the lottery in 1984 never intended it to be a windfall for bar owners.

"This is a new day and the Lottery Commission has another chance to do the right thing and that means lowering the commission rate to a reasonable 15 percent," said Merlene Martin, president of the association.