An expected total ban on casino smoking in Macau is likely to shave 10 percent to 15 percent off already pressured VIP revenue, said a note from Karen Tang of Deutsche Bank AG on Monday.
VIP baccarat casino gross gaming revenue (GGR) fell 42.1 percent year-on-year in the first quarter, according to Macau government data.
Ms Tang said a bill to ban smoking inside casinos, including VIP rooms – and that would eliminate airport-style smoking lounges that are currently allowed on the otherwise no-smoking mass gaming floors – could be introduced by the Macau government this week.
On June 16, Macau’s Secretary for Social Affairs and Culture, Alexis Tam Chon Weng, said the government would send a bill on the banning of casino smoking – and specifically outlawing smoking lounges on mass floors and smoking in VIP rooms – to the city’s Legislative Assembly before the end of the month. He later said such a bill might be sent to the Assembly early in July.
“When the [Macau] mass gaming floors were made non-smoking in October 2014, mass gaming revenue fell 12 percent sequentially. We think that when [the expected] smoking ban is extended to VIP rooms in early 2016, the impact on VIP revenue would be similar (10-15 percent),” wrote Ms Tang.
According to the World Health Organization (WHO), there are more than 300 million smokers in China, nearly one-third of the world’s total. The WHO, quoting a 2010 survey, said nearly one-third (28.1 percent) of the mainland China population smokes, including 52.9 percent of men and 2.4 percent of women. In May this year, 66 percent of tourist arrivals to Macau were from mainland China according to the city’s Statistics and Census Service.
Analysts Anthony Wong and Angus Chan from UBS Securities Asia Ltd said in a Monday note on the Macau smoking issue: “The October 2014 ban on mass floor (smoking lounges allowed) has had a negative impact on demand, in our view. Operators have noticed changes in player behaviour in: 1) shorter time on device; and 2) lower average bet sizes as game is disrupted.”
They added: “The relatively stable slots segment also contracted -16 percent quarter-on-quarter in the fourth quarter 2014. The behavioural changes do not seem to have reversed the last few months. It is hard to exactly quantify changes in player behaviours, but if the bill pushes through, we think it is reasonable to assume 10 to 15 percent drag on VIP (already in our numbers), and possibly approximately 10 percent impact on mass/slot revenues.”
UBS added that the current Legislative Assembly session “could end on 15th August, which means debates will continue to intensify, and a possible voting on the bill might happen in the immediate months ahead”.
Ms Tang of Deutsche Bank noted: “According to a survey conducted by KPMG (commissioned by the six casino operators), if a full smoking ban is implemented, VIPs would look to reduce their Macau trips by 17 percent and cut their length of stay by 24 percent. Also, 32 percent said they would divert trips away from Macau. Recognising the government’s strong will to ban smoking in VIP rooms, the six operators now focus on lobbying to keep the airport-style smoking lounges, citing this survey where 66 percent (of the 34k casino worker respondents) said they support smoking lounges inside casinos.”
She added: “Given the legislative backlog, we think the bill may only be passed in the fourth quarter of 2015 with implementation starting early 2016.”
Smoking lounges were introduced to main casino floors prior to October 2014, after inspection and approval by government officials. The industry had understood they were an acceptable compromise for the government in its efforts to protect non-smokers and casino workers from the effects of second-hand smoke on casino main floors. Until October, up to 50 percent of Macau casino main floors were available for smoking. Prior to January 2013, smoking was allowed anywhere on main casino floors in Macau.
According to a report in the English-language Macau Daily Times newspaper on Monday quoting three Macau casino operators, major investment has been made in Macau casino smoking lounges with sophisticated air extraction and air treatment equipment.
MGM China Holdings Ltd, operator of MGM Macau, has four smoking lounges on its main floor, using a negative pressure system that keeps smoke from leaking out onto the main floor when the lounge doors are opened.
Sands China Ltd has 18 smoking lounges. There are five at the Venetian Macao, nine at Sands Cotai Central and four at Sands Macao, said the media outlet, quoting a senior manager saying that smoke-filled air in the lounges is treated with HEPA (High-efficiency particulate arrestance) filters even before it is extracted. The lounges also use a similar negative pressure system to MGM China. Melco Crown Entertainment Ltd is said to have 17 smoking lounges across its Macau properties using this technology.
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”China has been strengthening the control over capital flow, and the impact of that has already been reflected [on Macau’s gaming revenue trend]. There should not be any bigger impact from the new… legislation [on the mainland] … on the gaming revenue trend here”
Wilfred Wong Ying Wai
President of Macau casino operator Sands China