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Levelling the smoking field

Gaming analysts consider that if the new smoking bill is approved, the difference in market competitiveness between casinos where smoking at VIP and premium mass tables is allowed and those where it is not, will be eliminated

The new smoking bill will ‘level the playing field’ between gaming operators, since VIP/Premium Mass smoking is only allowed in casinos that opened before 2012, according to gaming analysts Morningstar.
The analyst firm also revised its estimates for gaming revenues in the next two years, taking into account the effect of the bill. While the firm predicts VIP revenue growth in 2018 will stay the same, with mass gaming revenue growing by 14 per cent, it predicts VIP revenues in 2019 – the first year of full implementation of the bill – will decrease by 3 per cent, while mass gaming revenues will rise by 13 per cent.
‘Smoking premium mass customers will have to walk to nearby lounges or outdoors to smoke, reducing the time of play and thus premium mass gaming revenue,’ stated the report
Nevertheless, the expected decrease in VIP revenues in 2019 is still lower than the estimated 16 per cent decrease that was predicted to occur in the case that initially proposed total smoking ban in gaming areas had been enforced.

Level playing field
Last week, it was announced that if the newly proposed smoking bill is passed by the Legislative Assembly (AL) gaming operators will have until January 1, 2019 to install new smoking lounges, or update their current ones to meet the new standards set by the authorities.
With smoking currently allowed at gaming tables in VIP rooms and premium mass rooms, a possible approval of the smoking bill would mandate that gaming operators install smoking lounges in these areas by the deadline given.
According to analysts from Morningstar, at the moment, premium mass customers can only smoke while betting at VIP tables located in properties that were inaugurated before Sands Cotai Central’s Phase Two opened in September of 2012, which gives an edge to properties that opened prior to that year.
‘For example, smoking is permitted in City of Dreams’ entire premium mass gaming area, which accounts for approximately one third of the mass tables of the property on our estimate. This has offered an advantage to the more recent resort openings (Sands Cotai Central Phase 2, Galaxy Phase Two, Studio City, Wynn Palace, and the Parisian) in the region’s Cotai area, as many Chinese gamblers enjoy smoking,’ stated the report.
According to a previous report by JP Morgan, gaming operator Melco Crown Entertainment Ltd. could suffer the largest impact from the smoking bill, since 35 per cent of its 2019 EBITDA was estimated to be derived from premium mass smoking tables, especially in its integrated resort City of Dreams.
The Morningstar report points out that under the proposed smoking bill, newer casinos will be able to establish smoking lounges in VIP gaming areas, while ‘older casinos’ will ‘lose’ their premium mass and VIP smoking areas.
‘Cotai casinos as a whole stand to gain market share at the expense of Macau peninsula casinos,’ states the report.

Case studies
The report also mentions a series of worldwide case studies where full implementations of smoking bans have affected gaming revenues.
According to the report, a smoking ban enforced in the U.S. state of Delaware in 2002 led to a 13 per cent yearly loss in gaming revenues in the year of enforcement, while a smoking ban enforced in the U.S. state of Illinois in 2008 led to a 20 per cent decrease in revenues the year after it came into effect.
However, since the predicted smoking ban in the MSAR is only partial, Morningstar analysts believe the impact on VIP revenues will be less drastic.
‘We believe casino operators have designed their new Cotai properties to minimise the damage brought by a future VIP smoking ban by constructing balconies off betting rooms that would allow for smoking breaks. Also, VIP play should experience some benefit from infrastructure improvement in 2019,’ the report stated.
With gaming operators having until 2019 to enforce the changes, the analyst firm report also believes there is ‘abundant time for casino operators to redesign their gaming floor and layout of smoking lounges to minimize revenue impact’.
Therefore, properties such as MGM Cotai – expected to open in the second half of this year – and Grand Lisboa Palace – expected to open in the first half of 2018 – will have enough time to enact the changes.