Vol. 4, No. 2, February 2007
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Up in Smoke
Why a city council proposal to ban smoking would truly kill… the Atlantic City gaming economy
Late last year, the city council of Atlantic City approved a bill, to be finalized in late January after Casino Connection's press time, that would, if not changed, ban smoking in Atlantic City casinos as of April 15. In doing so, council members decided to ignore the warnings of casino executives that giving them such a short time to prepare for a smoking ban would have severe impacts on casino employees, the state economy and the future of the Atlantic City gaming industry.
The bill is just part of a troubling confluence of events that could disable the economy in Atlantic City, stifle casino development for the foreseeable future and result in thousands of job losses in and around Atlantic City—and not just in the casino industry.
Atlantic City now faces competition from Pennsylvania slot parlors—where smoking, by the way, is permitted. New York City racinos are off and running. Construction on a massive Indian casino in Monticello, New York, less than 90 minutes north of New York City, is ready to get under way—where smoking will never be banned. And if that isn’t enough, New Jersey’s own governor is now considering the feasibility of installing slots at the Meadowlands racetrack just outside of New York City, an idea that would devastate Atlantic City gaming.
So a “perfect storm” is brewing that could result in dire consequences for the city’s gaming industry and the state economy. And the last thing it needs is fuel from within. But that’s exactly what the potential city council action to ban smoking represents.
No one is disputing the dangers of secondhand smoke or the damage that smoking causes. But the economic damage about to be unleashed by the city council decision may impact far more people than anything that could result from secondhand smoke.
The state legislature recognized the importance of the tax revenue derived from the gaming industry and its special circumstances when it approved an exemption for smoking on the casino floors in a bill that went into effect in April 2006. In taking this action, the legislature was not discounting the negative impact of secondhand smoke, but was merely concerned about losing tax revenues that benefit millions of New Jerseyans who would suffer if those funds declined precipitously.
To Your Health
Few will argue that secondhand smoke is dangerous. Anti-smoking advocates most frequently cite the U.S. Surgeon General’s report as proof of the danger. The effect of secondhand smoke on every individual, however, is different. Some people can go their entire lives without damage, others are damaged with minimal contact. Some of the inconsistencies of the result of exposure to secondhand smoke were cited in a report issued recently by the British Parliament.
But science isn’t an issue for the Atlantic City casinos. They understand that a certain segment of the employee base is concerned about their health as it relates to secondhand smoke. And they want to address that concern (see Joe Corbo’s CANJ column on page 8), while considering the equally important issue of protecting jobs in the Atlantic City casino industry.
That’s also the reason behind the position taken by Local 54 of UNITE HERE, the largest union in the Atlantic City casinos. “It’s not about whether you are supporting or opposing a smoking ban,” says Local 54 President Bob McDevitt. “Our job at Local 54 is to protect the health and welfare of our members. And that makes it a delicate balancing act. Sure, it’s important to ensure that there is a safe and healthy work environment for our members, but if they can’t put food on their tables because they’re losing their jobs, then it defeats the purpose, in our view.”
Assemblyman James Whelan (D-Atlantic) has proposed to eliminate the smoking-ban exemption for the casino floor. “How can you tell a mom-and-pop restaurant or bar that smoking is bad for their employees and then ignore the huge casino employee pool?” he asks. “It’s not fair, and we need to protect the casino worker, as well as every other employee in the state.”
Whelan says he tried to compromise with the casino industry on this issue, but was rebuffed.
Industry sources say they were disappointed that Whelan didn’t take a greater leadership role on this issue. As Atlantic City’s former mayor, Whelan understands the casino industry better than most politicians, and has the ability to build bridges between the two sides.
“There is still room for compromise. Some of the anti-smoking groups were willing to discuss options, and I think that’s still possible,” Whelan says, while pointing out that some of the groups won’t be satisfied with anything but an immediate and total smoking ban.
Maligned Study
In 2005, the casino industry funded a study by PricewaterhouseCoopers that estimated the economic damage that would occur if a smoking ban were implemented in Atlantic City. The results were startling.
The study estimated that almost 3,400 jobs would be lost in the first two years of a smoking ban, representing more than $175 million in wages for those employees impacted. In addition, tax revenues from gaming would decline by almost $100 million during that period. That reduction in tax revenues would have a serious impact on senior citizens and the disabled who depend on the PAAD program that provides them with discounted prescriptions and other benefits.
These estimates were made after reviewing the effects of a similar “real” smoking ban imposed on the Delaware racinos in 2003. Revenues declined by more than 20 percent in Delaware, with a similar result predicted for Atlantic City because it faces the almost identical issue of competitors that permit smoking.
“Our revenues had been growing by double-digits up until smoking was banned in November 2002,” says Ed Sutor, the president of Dover Downs Entertainment, which runs the property of the same name in Delaware. “Immediately after the smoking ban, our revenues declined by 10 percent. So adding that to the loss in growth, and we lost 24 percent.”
Even though the PricewaterhouseCoopers study is based on factual evidence, it has been dismissed by almost everyone favoring a smoking ban because it was funded by the casino industry. While in some instances it may be appropriate to criticize funding by the industry that would be negatively impacted, in this situation, the results are too strong to criticize or ignore. The study was based on actual results in the same geographic region with similar economic and competitive realities. It doesn’t even consider results from other gaming jurisdictions where a smoking ban was imposed, such as in Australia and more recently, in Ontario, Canada. Everywhere a smoking ban has been implemented in the gaming industry, business has declined. While not all circumstances were identical, the results were always the same: Business suffered.
In Delaware, it took two years for revenues to return to the November 2002 level, but not without help from the state. “The legislature allowed us to offer more machines and be open extended hours to make up for the loss of business from smoking,” says Sutor. “Without that, it would have taken even longer to rebound.”
The state will not be able to help Atlantic City casinos rebound in the same way. Additional machines will not apply, nor would expanded hours. Delaware did not, at that time, have to contend with increased competition from other jurisdictions, as Atlantic City does today.
And even though the revenues returned, the revenue lost during that two-year period was never recovered. The same people who got laid off rarely assumed the jobs regained. And the opportunity to advance industry growth in the form of jobs, tax revenues and economic development was gone for good.
Anti-smoking advocates have cited several university studies, most frequently a new one produced at the University of Nevada, Reno. In a nutshell, the study concludes (through assumptions and some questionable research, not real numbers) that the gambling population mirrors the general population—that only 20 percent of gamblers smoke. It contends that if only 20 percent smoke, then those smokers lost to a smoking ban can easily be made up by non-smokers looking for a smoke-free gaming environment.
Nice sentiment, but not backed up by reality.
“We did three separate surveys of our customers leading up to the smoking ban,” says Sutor. “Every one showed that smokers and non-smokers were split evenly, 50-50. The surveys and our experience have shown us that many of those smoking gamblers left for casinos where they were allowed to smoke.” Studies in Atlantic City have reached the same conclusion. So rather than attracting new, non-smoking gamblers, the Boardwalk gaming industry can expect to lose more smoking gamblers than gaining the non-smoking variety.
Asian Impact
As serious as the impact of a smoking ban was on Delaware (and more recently in Ontario, where casinos in Windsor and Niagara Falls saw revenues drop by 20 percent or more because gamblers simply went to smoking-allowed casinos in Detroit and Niagara Falls, New York), a smoking ban could devastate revenues, gaming taxes and jobs in Atlantic City. There are several reasons why the Atlantic City casinos would not rebound as quickly as even the two-year period that afflicted Delaware.
The Asian market in Atlantic City is extremely important. It represents 20 percent of the casinos’ gross gaming revenues. A large portion of this market comes from Chinatown in New York, where customers are transported to Atlantic City via limousines and buses. While not all casinos in Atlantic City cater to this Asian market, some casinos depend heavily on this market, which sometimes can represent as much as 30 percent to 40 percent of the casino’s revenue.
Most casino executives agree that Asians smoke in a greater percentage than the average gambler. And most frequently, the head of the family is a smoker, the same family leader who decides where the family will go to enjoy casino entertainment.
“In the Asian culture,” says one casino host, “it’s an insult to tell the head of the family that he can’t smoke when and where he wants. If we are required to do that, or at least not have a reasonable option for him, he’s going to take his family to a casino where smoking is permitted. And once we lose that gambler, we’ll never get him back.”
Undoubtedly, the Connecticut casinos of Foxwoods and Mohegan Sun, where smoking will never be banned because they are governed by sovereign Indian nations, are already preparing to welcome these disgruntled Asian customers. It’s just as easy for them to hop in a limousine or on a bus going north as it is going south.
Time on Device
One of the key measures to gaming profitability is “time on device,” which means how long a player sits at a particular slot machine. Slot manufacturers are constantly introducing new and entertaining slots in order to increase this measure. The bonus features, second screens and the bells and whistles are all designed to keep the player at the machine.
Let’s assume that, despite a smoking ban, smokers continue to travel to Atlantic City (a little far-fetched, but let’s pretend). If it’s the average player, who spends six hours in Atlantic City, he plays a little over three hours at a slot machine. If he gets up for a smoke break once an hour and spends 15 minutes away from the machine each hour, you’ve just reduced his “time on device” by 25 percent. That’s a substantial amount of time and money, which will be reflected in the casino’s bottom line and result in cost-cutting measures that would undoubtedly include layoffs. And this calculation envisions all smoking customers continuing to gamble the same amount as they do currently in Atlantic City. It doesn’t take into consideration those players may go elsewhere to casinos that permit smoking; that’s when Atlantic City will really suffer.
And also consider a smoker on a “hot streak.” He’s enjoying a machine and returns from his smoke break to find another player at his favorite machine. Can’t be good news for the casino host.
“That’s just a small problem for us at Dover Downs,” says Sutor. “For the very good player, we can reserve machines, but for the average player, it’s hit or miss.”
Who will be impacted by a business slowdown and layoffs? The above examples demonstrated clearly that casino floor workers will be cut, but it will also affect other departments. When overnight visitors go elsewhere or when convention delegates spend time in other cities, all departments will feel the pain. Jobs will be lost in housekeeping, food and beverage, hotel ops, cage, security, administration and other back-of-the-house areas. The impact of an immediate smoking ban will cause job losses in every department.
Possible Solutions
As with many issues, casinos have different views. Some want to fight a smoking ban tooth and nail. Others are willing to accept it and move on. Still others want to compromise.
Talks are ongoing between members of city council and the Casino Association of New Jersey to reach a compromise on this thorny issue. Discussions range from glassed-in smoking areas on a specific percentage of the casino floor, staffed by volunteers in the workforce, to a complete ban, mitigated by indoor smoking parlors immediately off the casino floor, allowing smoking breaks for customers, but within feet of their favorite games.
As for Whelan’s proposal to remove the casino-floor exemption, he says he’ll wait to see what action the city council takes before considering whether to re-introduce his bill at the current session of the legislature.
“We’d all like to work this out to the satisfaction of all parties,” he says. “It will probably be something that no one likes but we all can live with.”
Whatever the shape of the final agreement, members of city council must realize how much a complete smoking ban, imposed in a narrow timeframe, would damage the Atlantic City casino industry. And when it is combined with the other competitive challenges to the city’s gaming industry—factors controlled by neither the casino industry nor Atlantic City government—the impact could be fatal.
Up until now, most of the casino employees who have testified before city council have not been residents of Atlantic City. And, in general, they also have been longtime casino workers, the level of employee who would not be threatened by a smoking ban layoff, which would spare employees with seniority and focus on the new employees of a company.
Members of the city council of Atlantic City need to hear from residents whose jobs will be in jeopardy. They also need to hear from non-residents who want their incomes protected at the same time new rules are being considered to protect their health. Seven of the nine council members are up for re-election in 2007, so they will be responsive to your concerns.
No one likes smoking. No one likes the health issues brought by secondhand smoke. Within a few years, smoking will be eliminated in all public places. Let’s just make sure that the cost of getting rid of secondhand smoke doesn’t cost the Atlantic City gaming industry its continued prosperity.
ATLANTIC CITY COUNCIL MEMBER CONTACT INFORMATION
First Ward
Bruce Ward 347-5232
Second Ward
Marty Small 347-5231
Third Ward
Joyce Mollineaux 347-5230
Fourth Ward
Council President William "Speedy" Marsh 347-5242
Fifth Ward
Dennis Mason 347-5233
Sixth Ward
Timothy Mancuso 347-5238
At Large
George Tibbitt 347-5241
Eugene Robinson 347-6491
John Schultz 347-5243
