SALEM - A major cut in commissions that the state Lottery pays to taverns and bars having video poker machines would devastate the industry, business owners told the Lottery Commission as it began hearings on the always-prickly issue.

The panel has to decide whether to change commission rates as it drafts terms for new six-year contracts with Lottery retailers. Current contracts expire June 30.

The panel plans hearings around the state before deciding on new contract terms.

Commissions now average 32 percent of net income on the poker machines.

The state paid $159 million in commissions averaging about $75,000 to retailers in the fiscal year ended last June. Critics say the outlays are too generous and that a cut would give the state much-needed revenue.

"Approximately what we have today is a fair and reasonable rate of return," said Mike McCallum, executive director of the Oregon Restaurant Association.

"We have helped the state make a whole lot of money in some very difficult times," he said.

The organization represents 3,100 restaurants, of which about 700 have video poker. That's about one-third of the video poker retailers in the state.

Video poker accounts for about 80 percent of the Lottery's net revenue of about $350 million a year that goes to education, parks, salmon recovery and economic development programs.

McCallum attacked a study released this week that was done for the Lottery by ECONorthwest, an economic consulting firm.

The report concludes bar and tavern owners could cover costs associated with poker terminals and make a 15-percent rate of return with Lottery commissions ranging from $7,700 for small, rural bars to $9,700 for an establishment in Portland.

The report also says establishments with video poker employ fewer people than those without the game.

McCallum said using averages can be misleading and that video lottery critics employ "half truths and misperceptions."

The study, he said, "is saying it takes no labor" to have the machines.

But Steve Novick of Portland, a longtime video poker commission critic, said other studies have indicated the main labor cost is counting the money taken from the machines.

Some bar and tavern owners said they and others would fold up without their current video poker income.

"It's going to devastate us" if commissions are cut by as much as one-half, said Jack Bailey, owner of Calamity Jane's in Portland, who said he got $220,000 in poker machine commissions last year.

Commission cuts would lead to "massive closures and unemployment in this industry," said Eugene real estate broker Dave Ingman, who said he specializes in bar and tavern sales.

Talk of commission reductions has scared off potential buyers, he said.

Dick Olsen, legal counsel for the Shari's restaurant chain, said the company has "avoided closing underperforming restaurants" by its decision in 2002 that has put video poker in all but one of its 41 restaurants in Oregon.