What’s the potential economic impact of a casino smoking ban?

Daniel J. Munoz//March 7, 2022//

What’s the potential economic impact of a casino smoking ban?

Daniel J. Munoz//March 7, 2022//

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Smokers account for 21% of Atlantic City gamblers, according to a February report commissioned by New Jersey’s casino industry.

A February report commissioned by New Jersey’s casino industry warns of a deep economic loss stemming from a potential ban of smoking on the casino floors. Current state law allows the casinos to set aside 25% of their floor space for smokers. The report conducted by Spectrum Gaming Group and paid for by the Casino Association of New Jersey warns that up to 2,500 jobs at the casinos could be lost. Gambling and non-gambling revenue – from dining, entertainment and hotel stays – could fall as much as 10.9% and 6.5% respectively, while tax revenue could fall by as much as $44 million.

That’s because smokers, who account for 21% of Atlantic City gamblers, tend to spend more time and money in the casinos, but would spend less if they had to go outside to smoke, according to the report.

Joe Lupo

“Now is not the time to enact a smoking ban,” Joe Lupo, president of Hard Rock Atlantic City and of the Casino Association of New Jersey, said in a Feb. 23 statement accompanying the study.

Casino visitation is down to a 20-year low in no small part to the COVID-19 pandemic, Lupo noted, and in-person gambling revenue in 2021 was still down 5% from 2019, before the pandemic hit. Meanwhile, the casinos are struggling to reach their pre-pandemic workforce levels, he noted. Online gambling revenue, while strong, is split among dozens of online
gambling companies even though it’s listed as revenue for the nine casinos.

Similar warnings were abundant leading up to the 2006 enactment of the New Jersey Smoke-free Air Act, said former governor and current state Sen. Richard Codey, a Democrat who both sponsored and signed the legislation. He and several lawmakers on both sides of the aisle are sponsoring a bill that would completely ban smoking on the casino floors, and Gov. Phil Murphy has indicated his support.

“If you had asked the tavern and restaurant owners, when we put in the smoking ban, they were upset with me,” he told NJBIZ. “Years later they all said, ‘you know what guv, we were wrong’.”

Lupo pushed back on that notion, saying in a statement to NJBIZ that patrons “do not travel any great distance to go to a restaurant or bar,” meaning it “was not likely for someone to drive to a neighboring jurisdiction to get a drink or meal at a bar or restaurant just so they could smoke there.”

“That is not the case for casino guests, many of whom can just as easily visit a Pennsylvania casino as they can one in New Jersey,” he continued.

The primary concern for New Jersey casinos is not that guests will stay at home, but that they will travel to another casino in Connecticut or Pennsylvania where smoking is permitted instead of coming to Atlantic City.
— Joe Lupo, president of Hard Rock Atlantic City and of the Casino Association of New Jersey

The Federal Reserve Bank of St. Louis, in a 2009 report, noted that the casino smoking ban garners much more attention than at bars and restaurants because the gaming industry employs a much larger share of the local populace and makes bigger contributions than restaurants to state and local tax revenue, which are typically set aside for specific public programs.

Many states have indeed banned smoking on their casino floors and noted that their markets in the gambling sector are still going strong. Some casinos in nearby Philadelphia, one of the biggest competitors for Atlantic City, said they have not allowed smoking on the floors ever since they reopened from the COVID-19 shutdowns.

New Jersey’s casinos for years have struggled with trying “to balance the needs of smoking and non-smoking guests and employees, while also maintaining casino revenues and employment levels,” said Jane Bokunewicz, coordinator at Stockton University’s Lloyd D. Levenson Institute of Gaming, Hospitality and Tourism just outside of Atlantic City, such as through the addition of air quality improvements and new filtration technology.

The 43-page study Spectrum study makes note of several nuances, drawing the conclusion that a causal relationship between a smoking ban and economic pain felt by the casinos might not be entirely clear. “The content of the report has a lot of caveats,” said Peter Chen, an analyst at the progressive think tank New Jersey Policy Perspective. “It seems like there are a lot bigger factors at play, which the authors of the study acknowledged.”

“This is a banner year for the casinos … they issue press releases on how much money they’re making … then they turn around and say, ‘well if we institute this public safety [measure] then the skies will fall and we will be ruined,’” he continued. “It’s a similar kind of ‘if any additional costs are imposed on us, to pay what we owe or to make things safer for our employees or our customers, surely the end times are nigh.’ It’s not borne out by what’s actually happening.”

And Nicole Vitola, co-leader of Casino Employees Against Smoking’s Effects — or CEASE — and a dealer at the Borgata, criticized the study, pointing out that it was “paid for by the casino industry,” saying it “shows once again that they care more about outdated business practices than they do about the lives and health of their workers.”

There are 465 casinos operating in the U.S. across 30 states, according to the federal Centers for Disease Control and Prevention, which generate an estimated $30 billion in gross revenue and employ a combined 361,000 people.

Many of them, like those in nearby New York and Massachusetts, have outright smoking bans at the state level. Others, like Foxwoods and Mohegan Sun in Connecticut, have banned smoking on their floors.

Atlantic City and Las Vegas – two longtime gambling capitals in the nation – have by and large been outliers in that they allow smoking on their casino floors. The New Jersey Smoke-free Air Act passed in 2006 included a carve-out for casinos, and a city ordinance banning smoking at the casinos was later rescinded.

Revel Casino – now the Ocean Casino Resort – opened smoke-free in 2012 but closed two years later along with four other properties amid a widespread financial downturn. Jane Bokunewicz, coordinator at Stockton University’s Lloyd D. Levenson Institute of Gaming, Hospitality and Tourism, noted that while the lack of smoking at Revel was a contributing factor, it “was not the only problem facing Revel.” – AARON HOUSTON

The financially struggling Revel Casino – now the Ocean Casino Resort – opened smoke-free in 2012 but closed two years later along with four other properties amid widespread financial collapse. Bokunewicz noted that while the lack of smoking at Revel was certainly a contributing factor, it “was not the only problem facing Revel.”

Spectrum examined the smoking bans in other gambling markets including Illinois and Delaware. In the case of Delaware, the closest casino to New Jersey is the Delaware Park Casino just west of Wilmington. Delaware’s casino smoking ban formally went into effect on Nov. 27, 2002, and the study noted a drop in profits at their video lottery terminals, the only type of legalized gambling at the time.

Revenue dropped from $565.9 million in 2002 to $502 million in 2003, but steadily rose in the following years to nearly $652 million by 2006, according to data in the study, which relies on figures from the Delaware state government and University of Nevada Las Vegas Gaming Research Center.

Illinois’ casinos, especially those in metropolitan areas straddling two states – like Chicago and the casinos in nearby Indiana, and the Quad Cities and nearby casinos in neighboring Iowa – likewise saw short-term drops in revenues after a 2008 smoking ban went into effect, according to the study.

In the case of Illinois, four of the casinos near Chicago lost revenue after the smoking ban went into effect while the five nearby in Indiana gained revenue. But upon the opening of the 10th casino – Rivers Casinos Des Plaines just 5 miles from Chicago O’Hare International Airport and “easily accessible from the city of Chicago and its suburbs via interstates” – the study notes that “the revenue shifted back to Illinois’ favor” despite the no-smoking rule.

The Quad Cities gaming market straddles the Illinois-Iowa border with two casinos in each state. Here, the report notes that any loss from the smoking ban was offset by considerable capital upgrades on the Illinois side. “Non-smoking patrons may have chosen the new, modern smoke-free casino as a preferred alternative to less-appealing, first-generation casino boats in Iowa,” the report concluded.

The Illinois Gaming Board, in its annual report for 2008, noted also that there was significant overlap between the loss in gaming revenue from the smoking ban and from the Great Recession.

On the one hand, the frequent smoke breaks of “habitual smokers” in non-smoking casinos meant more time where “they do not engage in gaming activity” – something they also warned
about for Atlantic City visitors. But on the other hand, “gaming expenditures are especially prone to reductions during hard economic times.”

Meanwhile, the Pennsylvania Gaming Control Board told NJBIZ that after the state’s Clean Indoor Air Act went into effect in 2008 and limited where on the casino floors a patron could light up, the casinos found that more money was being spent at the smoking sections than the non-smoking sections. But the data was only compiled in the immediate aftermath of the 2008 smoking ban and there were no long-term trends the casinos had to measure, according to spokesperson Douglas Harbach.

Lupo nonetheless cautioned that considering the casino staffing shortages, and the loss in their revenue, “we see no reason to believe that these declines would not last as long as neighboring jurisdictions continue to permit smoking on casino floors.”

He noted that several casinos in Pennsylvania and Connecticut allow smoking, and that a smoking ban in New Jersey’s gambling halls would mean “these properties will likely increase their marketing in New Jersey” to cater to the smoking segment of the gambling populace.

As in New Jersey, Pennsylvania casinos had to go smoke-free when they partially reopened amid the COVID-19 pandemic in 2020. Those mandates have been lifted, and more than a dozen Pennsylvania casinos now allow indoor smoking on the floor.

At least four casinos remain smoke-free indoors: Mount Airy Casino Resort in the Poconos, and three casinos in the Philadelphia region: Parx Casino, Rivers Casino and Live Casino. Parx told NJBIZ that the reception has been positive from guests.

“Even many smokers have given positive feedback and have not minded going to the smoking patio. Employees are extremely happy with the change – especially the table games team,” said their public relations director, Carrie Nork Minelli.

Chen lamented that “a lot of the discussions on what it could do to the revenue for the casinos – it could have impacts on lower health care costs for employees … for society as a whole. We can have jobs that don’t threaten the livelihood [and] health of the people that work there.”

The expectation is that “lack of secondhand smoke exposure will improve team member health and have a long-term positive impact,” while Parx’s increasing market share would offset any loss of revenue from the smoking ban, Minelli continued.