Tuesday, July 24, 2007

Don't count your pastrami before it's smoked

Okay, let's recap:

The Oregon legislature passes package of bills that effectively put an end to predatory, 500% payday lenders.


Almost immediately, loan shops across the state, howling that they can't be expected to make a profit charging a mere 36% interest on their short-term loans, begin closing their doors.


So people at the rough end of the economic stick will have fewer establishments trying to legally suck their last dollar out of them.

Not so fast, Sparky.

You may remember that I mentioned seeing a payday lender in my neighborhood being turned into a deli.

Well, yes and no, as it turns out. Mostly no, in fact.

I peered in the window the other day to see how the remodeling was going. Everything was coming together--serving window, tables and chairs, prints on the wall . . . and, wait a minute, what's that 8' by 5' bulkhead coming out of a side wall, blocking the view of half the deli from the sidewalk?

Well, turns out it's standard equipment for set-ups like this:
On a weekday afternoon, deli manager Susanne Goplen helps a newcomer to the world of video poker.

She recommends breaking a $20 into fives and trying a few of the deli's six machines, the maximum allowed under state law.

How long will this last?

"Oh, honey," she says. "It could last you all day or it could last you five minutes."

Perched at one of Grampy's video poker machines on this day is 38-year-old Anita Rodriguez, a Forest Grove resident who says she hangs out at Grampy's almost daily but gambles only about four times a week.

She soon finds herself one card shy of the highest paying hand in Oregon Lottery's video poker - a royal flush, worth as much as $600.

As a good-luck ritual she runs a finger back and forth across the touchscreen, flipping the virtual cards up and down in wavelike motions. Odds are she'll lose, but she just might make a handsome return on investment. She did the other day, she says, on that machine there, in fact.

"Come on, ace of clubs! Give it to me!" Rodriguez says. "If you give it to me, I'll go home. I promise." She laughs and draws. No ace of clubs.

For the better part of two hours, the majority of customers at Grampy's sit in the horseshoe of six video poker machines, gambling. A few customers mingle around the five tables and nine chairs in the dining area, but no one is eating much

Yes, lucky us: The payday lenders, creatively skating on the thin ice of the law until this summer, have been replaced with (fanfare, please), mini-casinos, skating on the thin ice of the law.

If no one eats much at these places, how do these places stay in business, when state lottery rules require that video poker revenue cannot be more than 50% of an establishment's total take? Simple:
In the 12 months before the Oregon Lottery audit, Grampy's had nearly $211,000 in lottery sales, and $201,000 in nonlottery sales. It sold $139,000 worth of cigarettes.

Without the cigarettes, the "deli" would need to sell 120 sandwiches daily to match its lottery sales.

How many sandwiches does Grampy's sell on an average day?

Five, Goplen says.

And how many sandwiches does Grampy's sell on a good day?

Ten, she says.

But of the cigarettes, Goplen says, "We have the cheapest in town."

It's true. A quick price check around town finds Grampy's regular price for a pack of Marlboros - $3.30 - to be the cheapest by 50 cents.

John Lee, a shopkeeper at nearby Cost Warehouse, says it can't compete with Grampy's on the price of cigarettes, because it needs to have a higher markup in order to make money. He calls Grampy's cheap cigarettes "bait" luring smokers to the video poker machines.

"They don't have to make money from their cigarettes," he says. "They make their money on lottery.

I checked with a cigar store a couple of doors down from where the faux deli is going in. It's true, the fellow behind the counter confirmed with a grin. This was going to be one of those cigarette-and-video-poker places. The cigar store owner wasn't much concerned; cigarette sales weren't going to cut into his pipe and cigar business.

So--no nice, lean pastrami on marbled rye with cole slaw and Russian dressing for our hero. Not this time. Come to that, our hero would be well advised not to go near the tuna salad, either. In a place averaging five sandwiches a day, it might have been sitting there for a while. Instead of a barber shop being a front for a numbers operation, we've got a deli fronting for a legal-loophole casino.

Lottery commission auditors are, for the first time, starting to investigate the connection of cigarette sales to video poker revenue in these barely-legal joints, although the story has been on some people's radar for some time:
Steve Novick is a recently announced Democratic candidate for the U.S. Senate seat occupied by Gordon Smith. But he has been a longtime Portland political activist, and has long advocated for changed rules in how the state lottery deals with its retailers.

The fact that the lottery only considers nonlottery revenues in examining the illegal casino issue is an invitation for retailers to sell things like cigarettes at cost, or even at a loss.

"It's obvious that that's what some people are going to do," Novick said. "And I think it's totally inconsistent with the Oregon Supreme Court rules which said you're a casino if you're making all your money off lottery.

Stay tuned. And pack your own sandwiches.

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