Faced with an increasingly angry and demonstrative casino workforce, the government of Macau had to know it was only forestalling the inevitable when it tried to make the smoking issue go away with a partial ban. This was instituted at the start of 2013, and its intent wasn’t so much to curtail the dangers of second-hand smoke as it was to corral them within areas that could total no more than 49 percent of any casino’s public gaming space.
It was a failure out of the gate.
Management responded by promptly moving table games and the croupiers who man them into smoking areas, a concentration that only worsened the plight of the workers affected. There were problems with lax enforcement as well, which was not unexpected. And as two rounds of air quality tests would show—28 properties failed to pass the first, 16 failed the second—absent physical barriers between the sections it was going to be difficult for smaller floors and those with aging and inadequate ventilation systems to pass muster.
Armed with evidence that more than twice as many dealers were working in smoking areas, labor groups proposed altering the 49 percent ratio to also take into account numbers of table games.
The obvious solution, a blanket ban, was something government never considered, at least not publicly, not until the six casino concessionaires themselves petitioned for it. It was SJM, the successor to casino tycoon Stanley Ho’s monopoly, that led the initiative, more to level the playing field than anything, since most of the properties failing the tests were its third-party-owned sub-licensees, which saddled the company with a policing problem its competitors don’t share. It was SJM also that floated the idea of non-gambling, airport-style smoking rooms.
In June the government finally announced a ban covering all public gambling spaces starting on 6 October. Since then, 39 casinos and slot parlors have submitted plans for smoking rooms.
Government’s tepid progress to that point was understandable. It derives the lion’s share of its funding from a 40 percent gaming revenue tax and other industry fees, a haul good for more than US$18 billion last year. It is, for all intents and purposes, a tax on the spending of mainland Chinese, who are the city’s largest feeder market by far at upwards of 70 percent of total visitation, and one of the salient facts about this giant money machine is that it’s also the largest consumer of tobacco products in the world. Estimates of China’s adult-age smoking population range from 270 million to 300 million, which works out to a prevalence rate between 24 and 28
percent, about six to 10 percentage points higher than the global average.
In light of which, it’s anybody’s guess what the fallout will be for the industry, and the government, come October. Certainly analysts are less sanguine about it, four months into year-on-year revenue declines, than they were in June when the market looked unstoppable. It was not expected either that dealers would leverage a prevailing labor shortage to take to the streets over wages and benefits and force staff costs to rise to levels where they’re now exceeding the relative growth in gaming revenues and biting into margins.
As a reference, the bank pointed to bans imposed in the last decade in the UK and parts of Australia that resulted in initial revenue declines as high as 35 percent before players and management adapted, usually after about a year. The hit isn’t expected to be as dramatic in Macau because Chinese gamblers have no close-in alternative and because the market is massively undersupplied in terms of table game seats relative to demand.
Nonetheless, the evidence that exists suggests there will be a toll. Market-wide, the number of players at smoking tables is at least double those at non-smoking tables, according to Morgan Stanley, which notes that yields have been noticeably lower in new non-smoking premium-mass and slot areas at Sands Cotai Central and City of Dreams. Moving high-limit cash players into VIP rooms, where smoking will continue, is not optimal either because margins on junket-driven rolling chip win are only about one-fourth of mass win. There is, finally, the inevitable slowdown in betting velocity as players retreat to the smoking rooms.
Among front-line workers, those at the lit end of the scheme, the belief is widespread that they’ll be contending with the reality of just another partial ban, a huge loophole masquerading as prohibition, and they’ve been clamoring for government to publicize the details. To date, that hasn’t happened.