Shari's, ORA, Go Fork Yourself.

Chuck Sheketoff

One of my good friends in law school walked into the final exam for property law, a required first year course where the “king” usually wins, read the exam, opened the blue book, and wrote simply “This course stands for everything I’ve been against all my life” and walked out.

In my third year when I asked my friend “why are you stuck taking property law again?” my friend told me a story:

Cannibals captured three guys in the jungle. The cannibals said, “We’ve got bad news and good news. The bad news is that you are going to die and we are going to use your skins to make canoes. The good news is you each get to decide how you want to die.”
The first guy said, “Give me a gun.” He took the barrel, placed it in his mouth, and pulled the trigger.

The second guy said, “Give me a gun.” He took the barrel, put it to his temple, and pulled the trigger.

The third guy said, “Give me a fork.” He took the fork, began to stab himself all over his chest and belly, and exclaimed, “Screw your canoes.”

That’s the story the Oregon Lottery Commission, its Director Dale Penn, and Governor Ted Kulongoski ought to tell Shari’s Restaurants and others from the Oregon Restaurant Association (ORA), who are threatening to boycott the new slot games if the Commission lowers the restaurants’ and bars’ take.

Does anyone other than some members of the Lottery Commission really believe that the ORA members will walk away from the millions of dollars the slots will generate? If Shari’s and other ORA members want to get off the lottery dole, that’s fine with me. Those precious state dollars could better fund our schools, our parks, our salmon recovery, community infrastructure, and economic development.

Lottery Commission, do the right thing. Shari’s, ORA, go fork yourself. See if anyone gives a damn.

  • (Show?)

    Agreed. It's time to call their bluff. Here's what I want to know: Given that lottery commissions are the worst kind of government subsidy (or perhaps, corporate welfare) where are the anti-government, anti-welfare conservatives on this? Why is this even an issue?

  • Sid (unverified)

    Here, here!

  • David Wright (unverified)

    Kari, an "anti-government" type would probably be opposed to increasing the government's cut (by decreasing the retailer's cut), right?

    And as for the lottery being a form of corporate welfare... the cut that retailers get is a sales commission. It's a legitimate cost of business to the lottery. If we wish to have any lottery income for the state, somebody has to offer the games, and that somebody needs to have an incentive to do so or they won't do it. Using your apparent loose definition of "corporate welfare", virtually any business that receives any money from the government whatsoever for a service provided is on corporate welfare. I don't buy it.

    Is there room for debate over the appropriate commission rate to pay lottery retailers? Sure. And I agree that the state probably has enough real leverage to push through some reduction in those rates because there is a very real benefit to the retailer in offering lottery games. But there is a breaking point somewhere, beyond which it does not make financial sense for a retailer to offer these games because they don't cover their own costs and aren't worth the hassle.

    And Chuck, I must take issue with your statement: "If Shari’s and other ORA members want to get off the lottery dole, that’s fine with me. Those precious state dollars could better fund our schools, our parks, our salmon recovery, community infrastructure, and economic development."

    If the retailers get off the lottery dole, those precious state dollars wouldn't exist for schools, parks, salmon recovery, etc. The Lottery Commission would have to find a new batch of retailers to take their place, this at a time when their own projections demand a 20% increase in sales to meet their budget requirements. (There's a lot of interesting info on the commission web site regarding the new rate proposals etc.) Could this be done? Eventually, perhaps, but meanwhile there would be up to a $500 million hole in the state budget (the 2004 revenues from Video Lottery).

    In short, yes the ORA (and other retailers) could be bluffing when they threaten to bail on VLTs, to a point. But treating the retailers as leeches on society is no way to encourage additional sales. You can't "maximize profits for the people of Oregon" by trashing your sales force. Or daring them to go fork themselves. <nobr>;-)</nobr>

  • (Show?)


    They're being paid on "commission", which would seem to imply that they're doing something pro-active to boost sales.

    But, they don't. They clean up a bit, cash out tickets, and otherwise just rake it in.

    My suggestion - how about the lottery pay a flat room rental fee to the bar owners? Say... $500 a month per machine. They're only taking up about a 5'x5' area. $500/mo is awesome rent - even given that they have to sweep once in a while.

    What would be wrong with that? Why should they be on 'commission' at all?

  • Bert Lowry (unverified)


    Here's the problem I see with the flat rent:

    I'll take 60 of those machines. I'll bet I can find some commercial space in Mitchell where they each get 25 square feet. And I'll bet it costs about $200/month. That gives me $29,8000/month pure profit.

    Of course, no one will ever play those machines because no one goes to Mitchell.

    A commision system ensures that the state doesn't pay out more than it takes in.

    It seems like this should be an issue for actuaries, not policy makers. I thought the Lottery Commission was directed to maximize lottery profits, not maximize restaurant and bar profits. If that's the case, we just need to figure out how low we can set the commissions.

    A hypothetical example:

    -- There are 100 lottery machines in the state. -- Lotto players lose $10,000/month -- $100 per machine. -- The commission rate is 80%.

    In this case, the state collects $2,000/month.

    Let's imagine that if we lower the commission to 60%, 5 of the lottery retailers, at 2 machines each, will stop offering the games. It now looks like this:

    -- There are 90 lottery machines in the state. -- Lotto players lose $9,450/month -- $105/machine, because some players from the retailers who withdrew the machines find new places to play. -- The commission rate is 60%.

    In this case, the state collects $3,780/month. Clearly a better option. And, it takes fewer dollars from the pockets of hard working Oregonians.

    -- Bert Lowry

  • ron ledbury (unverified)

    Chuck, what does an Anarchist do once they take over a government that owns business operations or, as here, claims on the take from gambling? They adapt their philosophy so long as it suits their self-interest. Sort of like your ORA canoe point.

    The Lottery ORA OEA debate does not fit any democratic, anti-government or capitalist analytical paradigm. The canoe got poked full of holes long ago when Barbara Roberts reined as our Governor and the lottery began. I said then that the last thing that I wanted to hear was that we needed the lottery for the money, rather than for some other public purpose unrelated to the money for the state. Now that is all that I hear and no one even makes the slightest pretense of discussing the non-money-hungry angle for authorizing the lottery.

    We have anarchists on both sides of the current lottery debate. Gambling remains, as always, a less-than-zero-sum game from a capitalists point of view.

    Every dollar not spent on gambling would likely be spent on something else and, I suppose, have a ripple effect on the real economy. The likely beneficiaries of this diverse and diffuse spending are just not as easy to identify and to aggregate into a positive economic impact number. If we called the money-not-spent on gambling as itself “economic development” we could then use the same glowing “economic impact” multiples that the lottery has used as its' sales pitch to trumpet the good things that they do for Oregon via economic development. Everybody, it seems, can find some argument in favor of lottery to suit the current battle for the dollars – those arguments themselves are like shifting sands over time. This canoe has neither a paddle nor a rudder, nor a large enough bail for the leaks.

    When I was in law school, there was a guy who believed that monopoly was good. These were nearly fighting words from my perspective because it was so irrational, and I concluded that a rational discussion would have been pointless. The current lottery battle is on par with that level of absurdity, and discussion of the merits seems just as pointless.

    The OEA needs the ORA as a partner to keep the lottery games from being ended all together. That is how, politically, the problem of the diffuse benefits of not starting the lottery games in the first place was solved . . . by ignoring them and building a political base of targeted beneficiaries in support of gambling. It remains a net loser to the public as a whole no matter how one slices up the benefits. I thought that you, Chuck, might take this as a given, given your concern for economics.

    The current proponents of lottery, both the OEA and ORA, are just arguing the politics of anarchy, thus there is no possible point in talking some sense into their heads or even trying to make sense of their arguments.

  • David Wright (unverified)

    First off, full disclosure, I used to work in the Gaming Industry, so naturally I have some bias in favor of casinos, lotteries, etc. Just wanted to make that clear.

    Kari: Paying a flat rate per machine virtually guarantees that no retailer will do anything to boost sales, because there is zero incentive to do so. With this structure, a retailer that encourages play will be rewarded as the state benefits. Plus, Bert's point about the disconnect between state revenues and state expenses is a very good one.

    Bert: I think you're right about the actuaries vs. policy makers, however the trouble is in finding good data to support the models. Keep in mind that the current overall commission rate is something like 28-29%, and there were proposals to slash that nearly in half (which currently seems to be off the table). How do we determine exactly how many retailers would drop the games for any given drop in commissions? How do we determine exactly how much additional play the remaining machines would get as players find new venues? If you've got those magic numbers, by all means let the Commission know about them! <nobr>;-)</nobr>

    Ron: I'm not sure I understand exactly how Lottery = Anarchy. I agree with you, however, that there's no rational argument to be made that gambling is a net gain for society as a whole.

    Given that, however, I also know that people will gamble, just as people will smoke and drink and do all manner of things that aren't directly in their best interests. If the behavior is going to take place anyhow, why shouldn't the state derive some benefit? Your theory about every dollar not spent on gambling being spent on something else is fine, but could as easily be turned around to say that every dollar not spent on gambling in Oregon will be spent on gambling somewhere else. Vegas is only a 2 hour flight away, Reno's just an hour. There are card houses within about a 30-45 minute drive from Portland, up in Washington. I'd suggest that the competition for Oregon gambling dollars is not necessarily other local economic uses, but rather other gambling venues.

  • ron ledbury (unverified)


    The Lottery = Anarchy point is derived through a process of exclusion. If one assumes that gambling is both morally repugnant and economically repugnant, as two factors to consider, then support for state sponsorship cannot find any match against any known philosophic underpinning. The Anarchist link is a catch-all for such nonsense. (There is a curious historical example of some Spanish Anarchist's gaining control of a town, during the civil war era, and then facing the intellectually puzzling dilemma of just what to do with the government enterprises; why, make a profit from them of course and divvy up the proceeds as they deemed politically expedient. That is the mental picture I see when I hear Oregon's political interests make their unprincipaled claims to the state take from gambling. It is humor.)

    You at least make an economic argument, that a dollar that seeks be gambled will be gambled anyway, and we could simply offer a local venue. Yet, a libertarian view offers a local venue too, one that does not involve either a state take or a retailer take, and could be sold as genuine economic development through the invitation of outsiders to come to Oregon. Authorize card games with limited stakes and where the house, and state, is prohibited from any take. It is the only position that seems to have any principaled underpinning, and is nevertheless compatible with the human predisposition to gamble.

  • Jon (unverified)

    I think these businesses (like bars) that are using the machines as a revenue source need to see reality. If you cant stay in business serving drinks, why are you in business? You are not a casino. I remember an editorial letter by the owner of Sayler's restaurants, where he says he couldnt stay in business without it. Sorry. That may something about either your food, or prices.

  • David Wright (unverified)

    Jon: I wonder if that editorial letter you referred to was talking about whether Sayler's could stay in business if the Lottery was gone, or whether they could stay in business if they dropped the Lottery.

    Because I guarantee, a business that does not offer video poker while their competition does, is going to lose core business as well. That's the leverage that the Lottery Commission can use to set lower rates (to an extent) because unless all retailers in an area boycott the games, the ones who don't will maintain a major competitive advantage.

    However, as to your other point about those businesses that claim to be in trouble without the lottery funds having fundamentally flawed business models <nobr>--</nobr> this may be true to some extent, but the reality upon which the retailer's business model must be based includes an environment where the Lottery is available and (as mentioned above) a competitive necessity in many places. Thus it is not unreasonable to incorporate that expected revenue stream into one's model, and over time that additional revenue stream may become critical to covering other overhead costs for the whole business. Slashing that revenue stream dramatically without in any way reducing the associated costs would naturally have a dramatic impact on the business model.

    Which is not to say that the author of the letter didn't overstate his case. Just that the reality is that lottery revenue does indeed have a big impact, and rightly so, on one's business model.

  • (Show?)

    It isn't just that the money isn't going to schools or economic development or whatever.

    The lottery subsidy artificially raises the value of those businesses. Cheesy bars whose owners put no effort or investment into them are big profit centers due to the lottery subsidy and crowd out other enterprises that would bring more benefit to the community.

    I'm all for calling their bluff. There is a big benefit to society in cutting the subsidy even if it doesn't increase the revenue to the state by a single cent.

  • (Show?)

    Chuck, kudos on the extremely well-written and well-framed and funny post. I don't care if you're wrong, I'm convinced. Plus, you managed to use a perfectly benign word--with explanatory cannibal joke--as an F-bomb.


  • iggi (unverified)

    "people will gamble, just as people will smoke and drink and do all manner of things that aren't directly in their best interests."

    man, those things are so in my best interest (in moderation, of course). there are few things less conspicuous in this life than sobriety and a fear of gambling.

  • (Show?)

    David, I'm not opposed to gambling - certainly, I've dropped plenty of cash in Vegas, Reno, and at home poker games.

    Let's just remember one thing: Oregon video poker isn't gambling.

    Gambling requires some semblance of a chance to win. Unlike the Vegas video poker machines, Oregon's give you no chance.

    Huh? That's right. There's not a single game in Nevada that pays out less than 93 cents on the dollar wagered. Many games are in the 97 to 99 cents range.

    Oregon's video poker machines pay out only 57 cents on the dollar. Our machines are illegal in Vegas.

    If Oregon's going to sponsor gambling, the game at least ought to be a fair fight.

    Look at it another way. With Oregon's 57% machines, your cash need only pass through the machine an average of 19 times to lose all your money.

    With Vegas's 93% machines, it takes an average of 138 times. With a 98% machine, it takes 492 times.

    It's simply not a fair fight. You simply don't have enough chances to 'get lucky' to combat the odds here in Oregon.

  • David Wright (unverified)

    Kari: Could you cite your source for that 57% payout figure? In doing some research, I see that you've used that stat before on this site, and I wonder where it comes from.

    According to the Lottery's own web site, they claim that Video Lottery prizes pay out at a combined rate of 93%. Perfectly legal in Nevada (where, in point of fact, the minimum payout is actually 75% per the Nevada Gaming Commission's Regulation 14.050). And I can tell you for a fact (again, having worked in the industry as recently as within the last 6 months) that there are machines in Nevada that pay less than 93%. Of course, to be competitive the casinos tout their "high" slot payout percentages, but you have to remember that the number is a floor (or bank) average, not a minimum for individual machines.

    Now, granted the 93% Oregon payout is just from a little blurb on the Lottery's own web site, and I found no other supporting documentation for that figure. So if you have a more accurate source for your data, I'd be very interested in seeing it.

    By the way, those percentages are aggregates over the life of the machine and include the high reward/low chance megajackpots for progressive machines. A 93% "Megabucks" progressive machine in Las Vegas, for example, is not going to let you keep your money for 138 pulls on average. It's going to take your money pretty quickly, but some lucky SOB is gonna make up for it by hitting the $10-$30 million jackpot once in a blue moon.

    So here's a little "former insider's tip" for those who insist on playing slot machines... take a good look at the payout table before you play. GENERALLY SPEAKING (there are certainly exceptions so this is for entertainment only and not investment purposes!!!) the higher the maximum payout, the less likely you'll be to take money out of the machine, because it takes more losers to pay for the big winner. Of course, even the same type of machine with the same pay table can have different computer chips inside that determine the theoretical payout percentage, so there are no guarantees (other than not playing in the first place but where's the fun in that???) <nobr>;-)</nobr>

  • David Wright (unverified)

    Excuse me, typo in the above post -- should read NGC Regulation 14.040 instead of 14.050 -- lest anyone actually follow the link and get very confused. <nobr>;-)</nobr>

  • David Wright (unverified)

    One other point, for the sake of fairness -- Oregon Administrative Rule 177-200-0060 establishes a maximum payout rate for VLTs of 96%, though this may be exceeded for "extended play" games. So we've been kind enough to provide a cap on the theoretical payout of machines, consistent with Oregon's mandate to make money directly for the state and not give too much back to the poor saps who volunteer to pay the "dumb tax". <nobr>;-)</nobr>

  • (Show?)

    David, you're right - I don't have a published source. In a former life, I did some pretty extensive policy research into gaming in Oregon, Nevada, and California - though I don't have my hands on it anymore. (Left the job; lost the work product.) That 57% figure came out of that research; I'm happy to stand corrected if someone's got a published source on Oregon's true payout rates on VLTs.

    One thing I can say - the whole question of gaming finances is a bizarre world. Some bits of language (like "sales" and "revenue" and "wager") aren't used in ways consistent with the rest of the world or with how a rational person would use them.

    For example, if someone sits down at a machine with $100, plays for an hour, and walks away with $45, a rational human might assume that lottery sales for that transaction were $55.

    That rational human would be wrong. In fact, that little story problem doesn't have enough info to determine sales. That's because each individual wager is treated separately for accounting purposes. It's entirely possible that our fictional player, over the course of the hour, won $245 and lost $300. That would make 'sales' of $300, and 'prizes' of $245. That can even be true if their total cashable balance never went over $100.

    So, let's agree on this much: Never take anything you read about gaming revenues at face value; unless you really understand the terminology and you're reading the technical specifications that the manufacturer provides the machine's owner.

  • LT (unverified)

    The owner of Sayler's restaurants? Didn't he used to be a state legislator?

  • David Wright (unverified)

    Kari, fair enough about the 57%. I had a hard time finding evidence to back up the Lottery's 93% claim, so at this point we really don't know for sure, though I do think the burden of proof should be on you to disprove the Lottery's official (published, even if effectively as a footnote) number.

    In my former life I actually worked on design and programming of casino management software that dealt with slot accounting and player tracking (among other things), and there are some quirks involved, but ultimately it does actually make perfect sense. It just seems a little funny at first when looking only at the net results from the player's point of view.

    The problem is introduced when you look at the whole hour of gaming as "one transaction". In fact, the hour of gaming from your example might be made up of 300 games at $1 bet each. That's 300 separate decisions made by the player to actually wager $1, hence the $300 coin in (or "sales" as you put it) makes perfect sense. It may not seem like you've bet $300 at the end of the hour, or won $245, because you (the gamer) are looking at net results. But that's how the casino (or lottery) gets ya... <nobr>;-)</nobr> You put $100 into the machine and pulled $45 out, it seems like the machine "held" 55% of your money. But you didn't only play $100 worth of games, you played $300 worth of games, and the machine still only retained $55.

    And when you subtract that $245 coin out from the $300 coin in, you still end up with the correct net value: $55 in revenue for the house, for an actual calculated hold of 18.3% in that hour (thus 81.7% payout). And that would be a perfectly reasonable result (over only 300 games) for a machine with say a 93% theoretical payout. Or a 98% payout. Or a 75% payout. Over the course of a day, with a reasonable amount of play, you'd expect the results to be closer to the theoretical numbers, but over the course of a single hour most anything goes.

    Sales, revenue, wager -- how are these confusing? Typically we're talking about gross sales, and net revenue, and the term wager seems pretty straightforward to me.

    Generally speaking, gaming revenues do represent the cash that the house actually retained at the end of the day, I don't see anything misleading there to trip up a rational person. It's the coin in and coin out ("play") numbers that should be taken with a grain of salt, because they don't necessarily have anything to do with the amount of money brought into the gaming location nor taken out of the gaming location.

  • ron ledbury (unverified)


    The 55 dollars in your post above (100 crammed into the machine and 45 paid out) is the meat of the transaction, the net, and the dollars that get split. If you got 6 grand in cash from the machines and you paid out 4 grand that leaves a net of 2 grand to split. It can be negative too, or 5 grand net, whatever.

    Who cares what the technical sales are, per game as a computer programmer fixes the odds, the gambler and the house and the state all look to the cash in and cash out. This is accounting 101. The odds do not need to be accounted for each and every night, and given the large sample size the only uncertainty is the volume of dollars crammed into the machines.

    Kari, you need to get out more often. You can get the machines to spit out a play history if you really want one, but the only printout of any consequence is the dollars crammed in and the tickets spit out (and paid).

    Would anyone want to wager on the percentage of drug money that finds its way to the bar owners and the lottery division via the video terminals, I mean the illicit kind of drugs? If some, a small percentage, of the video addicts (life style addicts really) did not have such an addiction problem they might not need to feed on other people's other addiction problems to meet their own. Lets call the drug trade economic development, folks, so long as the drug folks pay their voluntary dumb tax, just to show that they got money to blow, money to blow that they cannot otherwise spend in normal traceable channels. The IRS might get them if they fail to report their income, from whatever source. The state says, just dump it off here, before the IRS finds out! If you raise the odds of winning then you limit the opportunity to extract the working capital from this segment of the market. You have got to have odds so bad that they can deposit 500 to 100 dollars during a casual night out.

    Does anyone recall one argument made in favor of the sales tax at the time of the start of the lottery, that it would get some of the income from the drug trade that is not otherwise taxed? The video terminals seem tailor made to meet that task. A catchy slogan might read “OEA supports relaxation of enforcement of drug laws so as to get more video poker dollars for education.”

  • (Show?)

    Who cares what the technical sales are, per game as a computer programmer fixes the odds, the gambler and the house and the state all look to the cash in and cash out. This is accounting 101.

    Ron, I absolutely agree. It should be as easy as cash in, cash out. I'm just saying that you can't trust the lottery folks to give you straight numbers understandable by real people. They use words like "sales" in bizarre ways.

    <h2>For once, I'm with ya.</h2>

connect with blueoregon