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Best of Howard Stutz

Gaming Guru

Howard Stutz

Ashes to ashes: Strip smoking could end

21 July 2014

LAS VEGAS -- The idea of a full-scale smoking ban in Nevada casinos seems out of place.

The “No Smoking” concept doesn’t fit the Strip’s “do anything” reputation.

Of the 23 states with commercial casinos, 18 outlaw smoking in casinos.

In Nevada, a voter referendum in 2006 banned smoking in all public places — excluding casino floors.

One gaming analyst, however, has warned investors that a Strip smoking ban could become reality in the next 24 months — or sooner.

Deutsche Bank gaming analyst Andrew Zarnett, who follows the industry’s high-yield bond markets, said the idea is likelier to happen now that Macau plans to ban smoking on gaming floors in October.

What happens in Macau may not stay in Macau.

But is a smoking ban in Nevada imminent?

Gaming regulators, lawmakers and lobbyists said they haven’t heard any groundswell of support to change the state’s smoking laws.

Wynn Resorts Ltd., Las Vegas Sands Corp. and MGM Resorts International are adding multibillion-dollar hotel-casinos to their Macau resort collections by 2016. All are willingly banning smoking on their mass-market gaming floors.

Macau produced $45.2 billion in gaming revenue in 2013, and the market is up 12.6 percent through June. If the smoking ban doesn’t hurt gaming revenue, the Strip could be next.

Zarnett also cited continued study of secondhand smoke’s dangers.

“It clearly adds incremental pressure for the introduction of similar legislation in Las Vegas,” Zarnett said.

But he threw out some caution: A smoking ban in Nevada might mean a 7.5 percent decline in gaming during its first full year.

In his report, Zarnett included evidence that smoking bans have historically led to “steep declines” in gaming revenue.

Delaware’s gaming market fell 11.3 percent following a smoking ban in 2002. Illinois casinos experienced a 20.9 percent revenue decline after the Smoke-Free Illinois Act was passed in 2007.

Zarnett said the 2006 Nevada law, which eliminated smoking in bars, restaurants and taverns, was partially responsible for the 2010 bankruptcy of Herbst Gaming, which then was the state’s largest slot machine route operator. The smoking ban was blamed for the company’s 20 percent decline in slot route operation revenue.

Nevada’s voter-enacted ban was amended during the 2011 Legislature to allow smoking in taverns that serve alcohol and food but don’t admit minors.

Zarnett said a smoking ban would initially disrupt customer wagering patterns, with many gamblers taking a break from the table to step away for a smoke.

“A break in play often means a player has time to reconsider their play situation,” Zarnett said. “If lady luck has been kind to them, they may decide to call it a day. Meanwhile, if their efforts to beat the house are unsuccessful, they may decide that they have lost enough.”

Still, Zarnett said Macau’s ban might be enough to bring the idea back to the Strip.

Macau casinos agreed to the ban because it doesn’t cover the high-end private gaming salons where enough money is wagered to finance a Third World country.

The resorts are building smoking rooms on the gaming floors, which have their own heating, ventilation and air- conditioning systems. The rooms can’t include table games or slot machines.

Zarnett said Las Vegas casinos might take a similar approach.

The Strip has adopted some nonsmoking ideas. Several casinos have banned smoking in race and sports books. Most poker rooms are smoke-free. During the recently concluded World Series of Poker, the Rio’s 60,000-square-foot convention center, was smoke-free.

Most casinos offer nonsmoking gaming areas, while companies tout modern technology that cleans and filters indoor air at increased rates. Some table game pits and slot machine areas have special ventilation units.

Stephanie Steinberg, chairwoman of Washington, D.C.-based Smoke-Free Gaming of America, took exception to some of Zarnett’s data.

She said Illinois casinos had been in decline before the smoking ban was instituted.

“Bad weather, gas prices, market saturation, competition, casino debt, the recession that began in 2008 that severely affected all gaming revenues, including Vegas, are the other cards missing from his deck,” Steinberg said. “Smoking bans are not the cause of revenue declines, rather, it’s poor business planning.”

However, Steinberg agrees with Zarnett’s assessment that Nevada casinos may eventually go smoke-free.

“Casino smoking bans are everywhere and inevitable,” Steinberg said. “Nevada is next and the gaming industry knows it.”

The smoking ban is one of two issues the resort industry faces that could cool the Strip’s recovery.

Zarnett said a move to further enhance anti-money laundering laws by the U.S. Treasury Department’s Financial Crimes Enforcement Network could target high-end foreign baccarat customers, keeping their gambling dollars in Asia.

Baccarat has kept the Strip afloat following the economic recession.

Year to date, Las Vegas visitation is up 4.8 percent while revenue per available room, a nontraditional gauge profitability used by analysts, is up 11.3 percent. Through May, Strip gaming revenue is up less than 1 percent.

A smoking ban on the Strip might be inevitable, but it could stifle the economic bounce.

“All in all, things are pretty good on the Las Vegas Strip,” Zarnett said.