Oregon Administrative Rules
Chapter 177 - OREGON STATE LOTTERY
Division 40 - RETAILER CONTRACT
Section 177-040-0061 - Casino Prohibition
Universal Citation: OR Admin Rules 177-040-0061
Current through Register Vol. 63, No. 12, December 1, 2024
(1) General: The operation of a casino is constitutionally prohibited in the state of Oregon. It is the policy of the Oregon State Lottery to place Video Lottery terminals only in an establishment that does not operate as a casino. The purpose of this rule is to provide a framework and a process for determining when an establishment is operating or may operate as a casino. This framework and process are in addition to other methods the Oregon State Lottery uses to prevent Video Lottery retailers from operating an establishment as a casino. Other methods include, but are not limited to:
(a) A limit on the number of Video Lottery
terminals in any establishment;
(b)
Limiting public view of Video Lottery terminals;
(c) A limitation on certain advertising and
promotional activities by retailers; and
(d) Considering the sale of Lottery tickets
and shares by retailers an adjunct to their businesses.
(2) Definitions: For purposes of this rule:
(a) "Establishment" means any single location
in which Video Lottery games are operated or which is identified in a Video
Lottery Retailer Application as the proposed site for such activity. An
establishment must be owned or operated by a person licensed to sell alcoholic
beverages for consumption in a specific age-controlled area of the
establishment. The final determination of what constitutes an establishment
shall be made by the Director.
(b)
"Total Annual Lottery Compensation" means the actual, or in the case of an
applicant, the reasonably projected total annual compensation received from the
Lottery for the sale of all Lottery tickets and shares at the establishment
over a selected twelve-month period, including, but not limited to,
compensation resulting from participation in Lottery incentive and bonus
programs, as described in the Retailer Contract, other than those programs
awarding bonuses on the basis of the sale of winning and validated Scratch-it
or On-Line tickets for which a prize of $10,000 or more is paid.
(c) "Annual Non-Lottery Sales" means the
actual, or in the case of an applicant, the reasonably projected revenue from
the sale of products or services other than Lottery tickets and shares to
retail customers at the establishment over a selected twelve-month period.
Projected sales will only be deemed reasonable if they are based on a detailed
business plan which is fact and evidence based or meets industry standards for
business plans. Only the sale of products or services to retail customers in
return for which the establishment receives cash or any instrument evidencing
cash consideration shall be included in the calculation of annual non-Lottery
sales. Examples of products and services not considered for annual non-Lottery
sales for purposes of this rule include, but are not limited to:
(A) The sale of products or services which
are not usually sold by or associated with the type of retail establishment
being reviewed. For example, the sale of a car by a tavern would not be
included;
(B) The wholesale sale of
products. "Wholesale" means the sale of goods in quantity, as to retailers or
jobbers, for resale to the public. This includes the sale or transfer of
cigarettes or other products between two or more establishments operated by the
same retailer;
(C) The gifting of
complimentary or promotional products; or the value of promotional
discounts/coupons;
(D) The retail
sale of products or services sold or rendered outside of the establishment
(such as catering) unless the work is substantially completed at the
establishment and the services are provided substantially by employees of the
establishment;
(E) The sale of
products or services for which the retailer receives a commission, except that
the amount of the commission received may be considered; and
(F) Income from other than the sale of a
product or service (such as a cover charge) will not be included in the
calculation of annual non-Lottery sales.
(3) Director's Casino Determination: The Director shall determine whether an establishment is operating or may operate as a casino before entering into a Video Lottery contract for that establishment. The Director may also initiate a review of an existing Video Lottery retailer whenever the Director has reason to believe that an establishment is operating as a casino, or may operate as a casino. The Director may rely on whatever resources and information are available in deciding to initiate a review of an existing Video Lottery retailer. A Video Lottery retailer, or person applying to become a Video Lottery retailer, has the burden of proof to show to the satisfaction of the Director that an establishment is not operating, or will not be operating, as a casino. The Director's determination is final.
(4) Conclusive Evidence that an Establishment Is Not a Casino: The following establishments are not casinos for purposes of this rule:
(a) An establishment whose annual
non-Lottery sales are at least 50 percent of the establishment's total income
as defined in section (5) of this rule. This subsection does not apply if the
Director determines that the establishment is a convenience store or a business
not normally associated with the on-premise consumption of food and alcoholic
beverages as described in OAR 177-045-0030(2).
(b) A private club as described in ORS
471.175 so long as the private club is not engaged exclusively in the business
of selling Lottery tickets and shares.
(5) Income Analysis: In determining whether an establishment meets the criteria set forth in subsection (4)(a) of this rule, the Director shall conduct an income analysis as set forth below.
(a) General: The Director shall conduct a
review of the establishment's total income which, for the purpose of this rule,
shall equal the sum of the establishment's total annual Lottery compensation
and the establishment's annual non-Lottery sales. For a person applying to
become a Video Lottery retailer, the Director shall conduct a review of the
establishment's projected total income which, for the purposes of this rule,
shall equal the sum of the establishment's projected total annual Lottery
compensation and the establishment's reasonably projected annual non-Lottery
sales. If the review of an establishment's total income shows that the
establishment's annual non-Lottery sales are less than 50 percent of total
income or projected total income, and there is no conclusive evidence that the
establishment is not a casino as explained in section (4) above, the Director
shall consider other factors as set forth in section (6) below in determining
whether the establishment is operating or may operate as a casino. The
twelve-month period selected for the review will be chosen by Lottery staff.
The ratio of an establishment's total annual Lottery compensation to its total
income shall be determined by dividing the establishment's total annual Lottery
compensation by the sum of:
(A) The
establishment's actual, or in the case of an applicant, reasonably projected
annual non-Lottery sales; and
(B)
The establishment's actual or projected total annual Lottery
compensation.
(b) CPA
Review: The retailer or applicant may request that a Certified Public
Accountant (CPA), engaged and paid for by the retailer or the applicant, verify
the accuracy of the Lottery's calculation of the retailer's annual non-Lottery
sales or the applicant's reasonably projected annual non-Lottery sales. The CPA
must use procedures specified by the Lottery and document his or her analysis
as required by the Lottery. The Director may consider the CPA's analysis in
making the final determination.
(c)
Director's Determination: The final determination of the ratio of an
establishment's actual or projected total annual Lottery compensation to the
establishment's actual or projected total income shall be made by the
Director.
(d) Business Records: For
the purposes of this rule, a Lottery retailer must acquire, compile, retain,
and make readily available to the Lottery all business sales and expense
records that are pertinent to the calculation and determination of the
establishment's total income for a period of 24 months. Required records of the
gross non-Lottery sales must be detailed and correct including, but not limited
to, records of the cost, price and amount of goods sold, bank statements,
records of daily sales, and other relevant sales records. Lottery staff shall
be allowed to perform examinations of these records, and make any copies
necessary to complete the review. Records and accounting information must be
provided, at the retailer's expense, in any form or format reasonably requested
by Lottery staff. Retailers operating multiple establishments must maintain
separate and complete records as specified in this subsection for each
establishment they operate. In the absence of adequate records, Lottery staff
will make a reasonable estimate of annual non-Lottery sales based on available
records and information. In making a reasonable estimate, the Lottery will only
rely on records and information that the Director concludes are credible and
accurate.
(6) Factors to Consider: If the income analysis indicates that the establishment's annual non-Lottery sales are less than 50 percent of total income or projected total income, and there is no conclusive evidence that the establishment is not a casino as explained in section (4) above, the Director shall consider additional relevant factors such as those described below to make a final determination whether the establishment, taken as a whole, is operating as a casino or may operate as a casino. Such factors include, but are not limited to:
(a) History: The history of the
establishment's operation, or lack of history. If, for example, an
establishment has a longstanding history as a neighborhood pub or a family
restaurant, this factor may demonstrate that the establishment is not operating
as a casino.
(b) Appearance: The
appearance of the premises, as perceived by a reasonable person and determined
by the Director, as it relates to the type of establishment. If, for example, a
reasonable person, as determined by the Director, would perceive the
establishment to be a place to eat, drink, socialize, and engage in a variety
of activities or forms of entertainment, this factor may demonstrate that the
establishment is not operating as a casino.
(c) Food Service Accoutrements: The
availability of menus, dining tables and chairs, tableware for the consumption
of food and beverages, and other accoutrements intended specifically for use by
patrons for eating and drinking. For example, an ample number of tables and
chairs, proportionate to the size of the area, that are set up with napkins,
salt and pepper, etc., and are available to patrons for eating and drinking,
combined with the availability of food and beverages, the staff and means to
cook, prepare and serve food and beverages, the availability of tableware, a
menu or reader board, may demonstrate that the establishment is not operating
as a casino.
(d) Meals and Menus:
The number and variety of meals and menu items available on a daily basis. For
example, serving two meals per day, such as lunch and dinner, and a variety of
entrees and side dishes for each meal, as opposed to serving only one or two
items, or only a variety of sandwiches, throughout the day, may demonstrate
that the establishment is not operating as a casino.
(e) Non-Lottery Products and Entertainment:
The number and variety of non-Lottery products and forms of entertainment
available. If, for example, an establishment offers snacks, gum, and cigarettes
for sale, and has pool, darts, and live music and dancing, as opposed to only
one or two products or services, this factor may demonstrate that the
establishment does not operate as a casino. This factor acknowledges that a
retailer's efforts to sell or serve non-Lottery products or services are not
always successful. The mere fact that the non-Lottery products or services are
readily available, as evidenced by observation and records, is a
factor.
(f) Business Name: The name
of the business. For example, if the business name does not contain words,
references or allusions to gambling or gambling related objects or activities,
good luck or good fortune, or winning, directly or indirectly, this factor may
demonstrate that the establishment does not operate as a casino.
(g) Advertising: Advertising and promotional
activities. If, for example, the retailer advertises food and other non-Lottery
products, services or forms of entertainment at least equivalent to advertising
for Lottery products; and, if the retailer offers promotions, such as discount
coupons for food and other non-Lottery products at least equivalent to
promotional activities related to Lottery products, this factor may demonstrate
that the establishment does not operate as a casino.
(h) Records: The retailer's financial
records. If the retailer's financial records, including expenses, show that the
volume of non-Lottery products and services sold, and the number and variety of
non-Lottery forms of entertainment made available to patrons is greater than
indicated by the establishment's annual non-Lottery sales, this factor may
demonstrate that the establishment does not operate as a casino.
(i) Atmosphere: The general atmosphere of the
establishment and the attitude and approach of the retailer. If the retailer,
and the retailer's employees encourage and promote food and beverage service;
if the general environment is clean and inviting to patrons for purposes of
dining or engaging in entertainment activities; if the retailer and the
retailer's employees are equally courteous and accommodating to non-Lottery
playing patrons as they are to those playing Lottery games; and if the retailer
demonstrates cooperation with the Lottery and approaches this matter with a
demonstrated willingness to keep the establishment in compliance, this factor
may demonstrate that the establishment does not operate as a casino.
(7) Compliance Plan:
(a) General: For purposes of selling Video
Lottery tickets and shares, the Lottery Director shall determine whether a
Lottery retailer is operating an establishment as a casino, or in the case of
an applicant, will be operating as a casino in violation of this rule. When the
Director determines that an existing Video Lottery establishment is operating
as a casino pursuant to review under section (6) of this rule, the Director
shall notify the retailer of the determination in writing, and set forth the
reasons for the determination. The Director shall provide the retailer the
opportunity to develop and implement a plan to bring the establishment into
compliance with this rule within six months from the date of this written
notification. The plan must be submitted within 30 days from the date the
notification is issued by the Lottery. The plan shall include an analysis of
the retailer's business operation to show that the retailer has made a
reasonable determination of what changes need to be made and the steps the
retailer intends to take to bring the establishment into compliance. A retailer
may not restrict access to any Lottery game to achieve compliance with this
rule without prior written approval from the Director. The retailer's
submission of the plan is for the purpose of demonstrating to the Lottery that
the retailer seeks to bring the establishment into compliance. The Lottery will
review the retailer's plan and may offer guidance to help the retailer bring
the establishment into compliance. The retailer is solely responsible for
implementing the plan and for its success or failure during the six month
period.
(b) Four Month Review: At
the end of the first four months of the six-month period, the Lottery will
review the retailer's progress toward compliance, and may provide the retailer
with factual information, analysis, or recommendations if it appears to Lottery
staff that doing so will assist the retailer in bringing the establishment into
compliance.
(c) Determination at
End of Six-Month Period: At the end of the six-month period, the Director shall
determine whether the establishment is in compliance. A retailer shall be
deemed to be in compliance if either:
(A) The
establishment's total Lottery compensation was not more than 50 percent % of
the establishment's total income, as set forth in section (5) of this rule,
over the entire six-month period; or
(B) Based upon an analysis of some or all of
the factors set forth in section (6) of this rule, or other additional factors,
the Director determines that the establishment is not operating as a
casino.
(d) Sixth Month:
If the establishment's total Lottery compensation was not more than 50 percent
of the establishment's total income, as set forth in section (5) of this rule,
for the sixth month of the plan (but not the entire six months), the Director
may extend the original six month period of the compliance plan up to three
additional months if, in the opinion of the Director, the retailer will become
compliant within that time. At the end of the additional time period, the
Director shall determine whether the establishment is in compliance based upon
subsection (7)(c) of this rule.
(e)
Termination: If, at the end of the compliance period, the Director determines
that the establishment continues to operate as a casino, the retailer's
contract to sell Video Lottery tickets and shares shall be immediately
terminated.
(f) One Year Review:
If, at the end of the compliance period, the Director determines that the
establishment is no longer operating as a casino, the Director shall send a
notice of compliance to the retailer. At the end of one year commencing on the
first day of the month following notification of compliance, the Lottery will
conduct another compliance review as set forth in this rule. If the Director
determines that the establishment is again operating as a casino, the
retailer's contract to sell Video Lottery tickets and shares shall be
immediately terminated. The retailer shall not be given the opportunity to
implement a compliance plan as described in subsections (7)(a), (b), (c), and
(d) of this rule in these circumstances. Nothing in this subsection prohibits
the Director from initiating another review at any time as set forth in section
(3) of this rule.
(g) Application
Denial: If a person applying to become a Video Lottery retailer is projected by
the Lottery not to be in compliance with the requirements of this rule, the
Director shall deny the application.
(8) Re-Application: Re-application after an application denial is covered under OAR 177-040-0010(8). Re-application after a contract termination is covered under OAR 177-040-0120.
Statutory/Other Authority: ORS 461
Statutes/Other Implemented: OR Const. Art. XV, § 4(4), ORS 461.215 & 461.217
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