We know that smoking will damage your health, but how much does a smoking ban, in the long run, damage casino revenues?
There is no single answer to this question, but only more questions. First of all, what is the competitive environment? Are alternatives within easy reach for smokers? If smoking is allowed in competing casinos, expect the greatest revenue decline. If there are no proximate casinos that allow smoking, a ban will have less effect on revenues. In addition, the extent of the ban is also critical, as partial smoking bans tend to have less revenue impact than a full smoking ban.
Who has them? Who is considering them?
Smoking bans have now been in place in some casinos jurisdictions for several years. The table at right shows which jurisdictions have implemented bans, and which year the ban was implemented.
Up in a Puff of Smoke?
It is commonly held that a complete smoking ban will cause a significant impact on revenues, an impact that will lessen over time but still result in a lower stabilized number. To assess the validity of this perception, we turn to Delaware, which was one of the first states to impose a complete ban on smoking on the casino floor.
Delaware is an interesting case study for two reasons. First, the state imposed its ban in 2002, which allows sufficient time to assess the long-term effect of the policy change. Secondly, Charles Town Races & Slots in West Virginia and Atlantic City both permit smoking, thereby offering alternatives for a large part of the Delaware market in the Washington-Baltimore corridor.
It is clear from the data that the smoking ban had an immediate negative impact on revenue. In the first year after the smoking ban the statewide impact was approximately 11 percent.
There was extreme volatility in the revenue declines on a monthly basis as the customers and operators adjusted to the smoking ban. This volatility in statewide revenues was reflected in a similar vein for each of the operators.
What have been the long-range impacts, and what was the loss in revenues versus where revenues might otherwise have been?
Where did this revenue potential go? It is highly likely that it accrued to Charles Town Races & Slots, which is almost equidistant to a large portion of the Delaware market. As the table on the next page shows, revenues at Charles Town increased dramatically between 2001 and 2004.
It is not possible to isolate how much of this is due to diverted gamers from Delaware properties, since the Charles Town property was continually expanding and upgrading during this period. However, it can be safely assumed that a significant portion of the lost potential revenues at Delaware properties accrued to this expanding property as it became a much more attractive option for smokers in the Baltimore-Washington corridor.
The lesson to be learned here is that operators must assess the impact of a smoking ban on the likely future revenue potential of their property-not just on prior-year revenues. If they do not, they will underestimate the impact of a smoking ban, which in turn may weaken their case for some form of smoking ban exemption.
Recent Bans and the Proximity Effect
Colorado and Illinois both imposed smoking bans in 2008. The recession and high gas prices (remember those?) make it difficult to isolate the impact of the smoking bans, and thus to compare with Delaware. However, they illustrate how the degree of impact will depend largely on the presence and proximity of casinos that permit smoking.
Colorado imposed a smoking ban on casinos in January 2008. With no proximate smoking permitted, gaming alternative Colorado experienced a revenue decline of only 12.3 percent from the prior year, even with the combined impact of recession and gas prices.
In Illinois, a smoking ban at casinos was implemented January 1, 2008. Revenues statewide declined by 21 percent, and admission by 11 percent. As was the case for Colorado, it is not possible to isolate the exact impact from the smoking ban.
However, if the theory holds true that the further a smoking-restricted casino is from a smoking-permitted casino, the less is the impact on revenues, then we should be able to discern some variations among the Illinois properties. In Illinois, a large portion of the state’s gaming population has access to casinos where smoking is permitted in Missouri, Wisconsin and Indiana.
Peoria, located in the center of the state, has the least access to smoking-permitted casinos jurisdictions. It follows then that the Par-a-dice in Peoria should have experienced a smaller revenue decline as a result of the smoking ban than properties in Chicago, which have access to smoking-permitted casinos in Indiana and Wisconsin.
In fact, this was the case, as the table at right shows. However, as can be seen from the table, there are few examples which permit a straightforward comparison. In the case of Illinois, the waters are muddied by expansions at the Casino Queen in East St. Louis and at Rock Island, which as a result did not see the sort of revenue declines experienced elsewhere in the state.
It is also likely that the removal of the loss limit in Missouri and casino expansion in northern Indiana also impacted some of these declines. On the whole, though, the experience of Illinois supports the case for the proximity effect of smoking bans.
Impact on Play
Based on tracked play pre- and post-ban from a couple of casinos, which will remain anonymous to protect the integrity of the data, we have been able to discover some illuminating facts.
Analysis based on weekly pre-smoking ban visitation versus weekly post-smoking ban visitation found that the total impact for smokers was a decrease of between 19 percent and 24 percent on trips, 13 percent to 17 percent on time played per trip, and 14 percent to 18 percent on win per trip, for a total impact on rated revenue for smokers of minus 33 percent-37 percent.
Looking at post-ban trends and comparing them with a similar period the previous year, it was found that the total impact on win per trip and on total gaming revenue was between minus 17 percent and 20 percent.
When viewed against the prior trend for total gaming revenues the decline post-ban was 21 percent to 25 percent, similar to that experienced in Delaware.
It would seem from this data that a portion of the decrease in trips by smokers was replaced by non-smokers, and that actual playing time decreased as smokers left the casino floor for a smoke break, resulting in a decline in win per visit. This decline in win per visit could also be related, at least in part, to a possible differential in value between non-smokers and smokers.
Moving On – Opportunity Knocks!
For some time now, the industry’s focus on smoking bans has to a great degree centered on the likely decline in revenue that results from a smoking ban, whether partial or complete, regardless of the geography. There can be no doubt that there is a negative impact. But is there a silver lining?
The proportion of the U.S. population that smokes has steadily declined. Very long-range trends follow a similar pattern. Over time, then, the impact of a smoking ban should decline, albeit at a very low rate. This long-range trend of declining impact was noted in the analysis of Delaware, the only state with sufficient time under a smoking ban for these longer-range trends to show up in a significant way.
More immediately, although it certainly is something that has not been in the forefront of casino executives’ minds, are the potential up-side opportunities related to a smoke-free casino.
Again, geography plays a key role. In a market where there is a significant density of casinos serving essentially the same population base, the opportunity exists for a casino to target non-smokers and thereby differentiate itself.
The fact that the majority of casino patrons are non-smokers would suggest that such a strategy would meet with success. For example, J.D. Power and Associates in a July 2008 survey of Southern California gamers found that 85 percent of gaming customers at Indian casinos in Southern California would prefer a smoke-free environment. In a national survey conducted by the Innovation Group, 45 percent of respondents considered a smoke-free environment extremely important compared to only 25 percent who considered a smoking-permitted casino as extremely important.
So, while most casinos cater to non-smokers by designating non-smoking areas on the casino floor, there is the potential that an entirely smoke-free casino could represent a significant competitive advantage in certain markets where there is no ban on smoking (or even a partial ban) and where there is a high density of casino development equally proximate to the customer.
Of course, any decision to voluntarily go smoke-free would require substantial market and consumer research to verify casino customer preferences for that particular jurisdiction.
Paul Girvan is managing director of the Innovation Group based in New Orleans. His experience in the casino industry spans 25 years and includes significant experience in the U.S. and major international jurisdictions. To reach Girvan, email [email protected]