Scientific Game

Smoke-Free Macau : Now What?

The partial ban didn’t work. A total ban is next. Or is it?

Thursday, 10 July 2014 12:16
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A Guangdong man in his 40s, Wang Ming, was sitting comfortably at a baccarat table in MGM Macau, releasing one last puff from his cigarette before asking for a card. It was a scene that soon could become history in booming Macau.

“I haven’t heard about a smoking ban on [casino] floors,” said the frequent visitor to the city. “Probably I may smoke less when gambling, but I’ve been smoking—and it’s become a habit—since I was like 14 or 16.”

To retain millions of mainland smokers like Mr Wang, and their wallets, the casinos are rushing to establish airport-style smoking lounges on their gaming floors. But many observers believe the smoking ban that will apply to all public areas of the casinos come October will have only a mild impact on gaming revenues—which totaled MOP360.75 billion (US$45 billion) last year, seven times that of the Las Vegas Strip—as tables in the higher-limit “premium mass” segment can be exempted as long as there are walls around them. The impact, however, could be intensified for many older, smaller casinos, given their limited size and dated infrastructure. 

“Smoking lounges have been a hot topic for Macau casinos in recent times, and we have been in touch with several casinos over the past few months about our products,” says Anthony Lam, managing director of JOL Macau, a local hospitality service. 

JOL Macau joined with Denmark’s Smoke Solution ApS at the beginning of this year to be a local distributor of the latter’s smoking lounge products. No deals have yet materialized from his discussions with gaming bosses, says Mr Lam. He believes there will be progress soon, though, once more details of the ban are publicized.

Macau’s casinos have been partially smoke-free since January 2013, when a new law went into effect allowing for smoking on no more than 50% of their gaming floors. But its enforcement has met with frustration and discontent from gaming workers, labor unions and members of the Legislative Assembly, who complain that air quality in many instances has actually deteriorated.


In March, Macau’s Health Bureau, taking up a proposal jointly filed by the six gaming operators, announced that smoking will be completely prohibited on mass floors after 6th October except for airport-style smoking lounges without any gaming equipment inside. Smoking will be allowed in VIP areas subject to the current 50% rule. The terms of the ban were further clarified in a June dispatch from the office of the Macau chief executive which states that the combined size of smoking lounges on mass floors and smoking areas in VIP rooms should not exceed half of total floor space.

Cheang Seng Ip, deputy director of the Health Bureau, said this month the territory’s six gaming operators “have basically handed in” draft plans for smoking lounges in their casinos and slot parlors for the government’s preliminary review in a bid to shorten the red tape involved in processing their official applications.

Grant Bowie, chief executive of MGM China Holdings, and SJM Holdings Chief Executive Ambrose So Shu Fai have said they are working closely with the government on the matter, without going into details.


But some gaming venues have already put the lounges into operation. SJM, the successor to Stanley Ho’s monopoly and Macau’s largest operator by number of properties, has set up several smoking rooms in Casino Lisboa, its former flagship in the city’s downtown. The technology is Finnish provider Lifa Air International’s. 

Whilst the government has made no stipulations about the size of the rooms or their number, Apollo Kwok, Lifa Air’s technical and operations manager, says each lounge, in an ideal situation, has to be located close to the gaming tables and range from seven to 10 square meters to accommodate up to 10 smokers at a time.

“Then smokers can enjoy gambling and have freedom to smoke when they like without spending their valuable time on unnecessary walking,” he says. “The amount of smoking rooms depends on several factors, but as an average, about one room [every] 300 to 500 square meters is a good guide.”

Assuming 50% of the 19,000 square meters of the casino at Wynn Macau is mass-market the property could need as many as 32 lounges, based on Mr Kwok’s calculations.

“The number and size [of the lounges] ultimately depend on the wishes of the casinos as some don’t have large floor areas,” JOL Macau’s Mr Lam reasons. “The old casinos may have even more challenges with establishing the smoking lounges as their infrastructures are too dated to have separate ventilation systems.”

Gaming analyst David Bain of Sterne, Agee & Leach similarly pointed out in a research note in May that the so-called “satellite” casinos—third-party-managed venues operating under the licenses of SJM and Galaxy Entertainment Group, will be “most at risk” from the smoking ban.

Two casinos had given up on smoking lounges on their mass floors, citing lack of “conditions” to install them, the Health Bureau said in June. The bureau declined to identify them, although both are understood to be SJM satellites. But Mr Cheang said this month the two will now install the lounges and only an unidentified slot parlor will go totally smoke-free come October.

Mr So and Angela Leong On Kei, an executive director of SJM and a member of the Legislative Assembly, have repeatedly stressed that ventilation systems in numerous older SJM casinos are having a difficult time satisfying the official standards of air quality dictated by the partial ban. Indeed, more than half of the 16 gaming venues that failed to meet the requirements in two rounds of air quality tests last year were SJM’s licensees.


The impact of the October ban on SJM’s performance will be limited, Mr So said after a shareholders’ meeting in Hong Kong in June. But analysts do not uniformly share this perspective and are keeping a close eye on developments, especially on whether all the tables in the premium-mass segment can fit into the statutory requirements of private gaming areas in time to avoid going smoke-free.

Premium-mass gamblers have become a prime focus for Macau’s casinos because they play at higher bets than the mass average and yield higher profit margins for operators, which do not have to pay junkets commissions as they do in VIP.

A guideline dated 23rd June released by the local gaming regulator, the Gaming Inspection and Coordination Bureau, has laid down for the first time official definitions of mass floors and VIP floors, or in government’s terms, public gaming areas and gaming areas with limited access for gamblers.

The private gaming floors must be “independent rooms” or “spaces well-separated by physical and architectural barriers” from the main floors, the guideline says. Only gamblers with membership cards may access the private floors, which can be run by either licensed gaming promoters or the casinos.

“As of this instant, not all premium mass tables in Macau would fit within the new guidelines; in fact, quite a large amount would not.This is due to many premium mass tables not being 100% physically separated and/or having ventilation systems,” said analyst Grant Govertsen of Union Gaming Research Macau. “However, I believe that all operators have enough time (three months as of now) to reconfigure their casino floors so that premium mass fits within the new requirements.”

Before the publication of the definitions analyst Karen Tang of Deustche Bank Research already noted in a gaming report on 30th June: “We believe premium mass lounges can still allow smoking as long as the casinos pay VIP table tax (MOP300k/year vs mass table tax of MOP150k/year), and build walls around to make premium mass ‘separate rooms’.”

Ms Tang believes the smoking ban will drag down mass revenue by only 3-5%, or 1-2% in terms of overall casino revenues, as there is a “lack of alternative gaming venues”.

In a slightly gloomier tone, Morgan Stanley analysts Praveen Choudhary, Alex Poon and Thomas Allen said in a June report, “Based on US, UK and Australia, revenue could drop by 5-15% in the first year and could recover eventually.

“We believe a full smoking ban in the mass area could move some of the customers to VIP rooms and thus drive margins lower for the operators, but could [raise] VIP revenue growth estimates,” they added.

However, workers and the labor unions vow to keep a close eye on the casinos and the progress of the October ban 

“The government’s policies are still formulated behind closed doors with its business friends. It should implement a full smoking ban in casinos to safeguard the workers’ health,” said Gaming Industry Workers Association Vice President Leong Sun Iok.


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