Proposal also would eliminate smoking lounges
Last month, the Macau government said it would propose a full ban on smoking inside casinos. The proposed ban would include VIP rooms where smoking is still permitted, as well as non-gaming smoking lounges that cater to mass-market customers.
If it happens, says Deutsche Bank AG analyst Karen Tang, it could cut even further into Macau’s gross gaming revenues, which have plummeted since last summer in the wake of a government crackdown on money laundering. Year over year, GGR has dropped for eight consecutive months; according to GGRAsia, VIP revenues fell by 29 percent in the fourth quarter, and 10.9 percent for all of 2014. VIP revenue accounted for 61 percent of all casino revenue during the final three months of the year.
“We estimate that the smoking ban on the mass gaming floor since October 2014 had a 10-15 percent impact on mass gaming revenue,” Tang wrote in a January 29 note. “If the smoking ban is extended to VIP rooms in the second half of 2015/2016, the impact on VIP revenue may be similar.”
Macau’s Secretary for Social Affairs and Culture Alexis Tam Chon Weng says the changes will probably not be approved before the summer, and may not fully take effect until 2016. He added that Galaxy Entertainment and Wynn Macau may feel the greatest impact from the proposed measure, given their high exposure to VIP play.
The city’s ban on smoking in public buildings?a ban that is popular among residents and casino workers?was enacted last October. There was one exemption to the rule: the city’s casinos, which in years past have contributed up to 80 percent of the government’s annual revenues. High rollers who play in the VIP rooms can still puff away freely. Mass-market players can smoke too, but only in lounges that contain no gaming machines.
Analysts from JP Morgan Securities agree with Tang that a full ban is “inevitable” and just a matter of timing.” They predicted a loss in “gaming demand” by up to 6 percent.
And Cameron McKnight of Wells Fargo Securities LLC says a full smoking ban in Macau will likely have the same effect on Macau as a similar ban did at Star City casino, now simply the Star, in Sydney, Australia in 2007.
“We believe the mid-2007 smoking ban at Star City (now the Star) in Sydney, Australia, is the closest comparison to Macau’s given its high mix of Asian customers and ‘destination-like’ characteristics. During the first year of the smoking ban at Star City, mass table and slot revenue growth dropped around 3 percent and around 10 percent points, respectively,” said McKnight.
Recently, Macau’s City of Dreams, a Melco Crown property, was fined MOP100,000 (US$12,524) for allegedly violating the current ban. The company reportedly failed to post “no smoking” signs in one area of its casino.
Meanwhile, Robert Goldstein, president and chief operating officer of Las Vegas Sands Corp., said in a recent earnings call that a full smoking ban is “not a positive.” He added, “Whatever it is, it is. If it ends up being a ban or it ends up being smoking rooms, like the airport, we’ll abide by it and we’ll move forward.”
Macau would “prosper in spite of the smoking ban or a smoking restriction,” Goldstein said.
A recent study by the Macau Health Bureau showed that more than 58 percent of casino workers prefer not to work in VIP rooms where smoking is allowed. The study also showed that 75 percent of Macau residents support a full smoking ban in casinos.
