Macau Casinos Faced with Blanket Smoking Ban

Macau’s casinos have been informed that a new smoking ban will be implemented during the early part of 2016 and will completely ban smoking within casinos. The previous smoking bank issued by the Macau government banned smoking within casinos but permitted a smoking lounge to function within the casino. The new smoking ban does not permit any smoking lounges and makes it extremely clear that Macau will no longer tolerate smoking within casinos.

The smoking ban is just one of the many restrictions that the Macau government has imposed upon the casino industry during the last 24 months.

The stringent regulations have driven away VIP gamblers from Mainland China who used to frequent Macau’s casinos on a regular basis and enjoy the luxuries the casinos used to offer them.

The new smoking bill received a majority approval as 26-2 voted in favor of the bill. Macau’s government is aware that the new smoking bill will hinder casino and government revenues but states that the health of its citizens must be prioritized before casino revenue. Casino analysts believe that Macau’s casinos could post a 42% YoY drop in earnings before interest, taxation, depreciation and amortisation (EBITDA) for the 2nd quarter of 2015.

In a statement, UBS analysts Anthony Wong and Angus Chan said

We expect second quarter 2015 sector EBITDA to drop 14 per cent quarter-on-quarter and 42 per cent year-on-year, compared to -18 per cent quarter on quarter and -42 per cent year-on-year in the first quarter. We expect additional operating costs from new opening[s], and operating deleverage to drive a sequential contraction in sector EBITDA margins; cushioned slightly by beneficial business mix (mass contracting slower than VIP).

Macau’s government recently relaxed its visa restrictions on Mainland Chinese tourists and the casino industry reacted favorably as they believed that Macau’s government was finally taking a step in the right direction to reviving the struggling casino industry. Macau’s gaming revenue in April 2015 stood at 38.8%, May 2015 stood at 37% and improved to register a 36.2% drop in June 2015. Casino’s expected the market to continue to recover in July but the roll-out of the new smoking ban could hinder that progress.

The concerns over the state of the Chinese economy and Macau’s economy might mean that the government decides to relax its rigid stance over the casino industry with regards to anti-corruption stance.