Philippine outlook clouded by smoking ban, RWM attack

The attack on Resorts World Manila, a likely public smoking ban and a proposed casino entry fee are putting pressure on the Philippine gambling industry.

It was the best performing in Asia in 2016 and had been tipped for another year of strong growth.

However, the recent attack on Resorts World Manila, a likely blanket public smoking ban, and plans to introduce a PHP3,000 (US$60) casino entry fee may negatively impact visitation and revenues.

Smoking bans have historically had a negative impact when they have been introduced elsewhere, while the attack hits a country that has long struggled with a perception that it is not safe.

President Rodrigo Duterte announced a draconian nationwide ban on smoking in public places in May, including vape cigarettes, alarming the local casino industry. However, as yet, details are thin on the ground as to what form the ban will take, or whether the government would consider Macau-style smoking rooms.

Views are mixed on the likely outcome.

According to Andrew Klebanow, senior partner at Global Market Advisors, the historical precedents have proved punishing for casino revenue.

“In most jurisdictions where total smoking bans were implemented, gaming revenue initially declines about 12 percent. In some jurisdictions and casino environments, the drop can be as high as 20 percent.

“After this initial drop, gaming revenue starts to recover due to customers gradually accepting the ban as a trend throughout wider society, as well as general market growth,” he adds.

On the face of it, though, a public smoking ban should be good for business. Every time a player walks away from a slot machine for a cigarette, they are not gambling. It also gives them time to assess their winnings and losses.

“When the craving for nicotine becomes too great, taking a break allows customers to step away from the game, take stock of their winnings and decide whether to leave with the money they have made or cut their losses,” says Klebanow.

A ban should prevent the spell from being broken and keep punters wagering for longer. But in reality, there is no jurisdiction on the planet where the implementation of a ban has led to an increase in visitation numbers and ultimately revenues.

This would be especially true in the Philippines, where the majority of international casino visitors come from other Asian countries where the incidence of smoking remains relatively high.

According to the 2015 Global Adult Tobacco survey by the World Health Organization, about 23 percent of the Philippine population smokes, or 17.3 million people. That rises to about 42 percent for adult males. In China about 52 percent of men smoke, the same survey found.

It is important, then, for the gambling industry to act quickly and effectively and reach some sort of compromise with Duterte and the government to stave off a major drop in visitation and revenues.

It is something operators in Macau have achieved with great effect through designated smoking rooms located just off the casino floor. But given Duterte’s dogmatic approach to ruling the country, it might be difficult to achieve.

The key will be ensuring the health of casino employees and non-smoking patrons remains protected. This can be achieved through outdoor smoking areas, or deploying state-of-the art air conditioning, fans and swamp coolers.

“I am certain the gambling industry and the government will reach a suitable outcome,” says Michael Foxman, CEO of the RiskWise Global Capital Group.

“President Duterte, PAGCOR and other stakeholders all recognise the many technological opportunities at hand to keep the air clean and safe, while securing the value of a strong gaming and tourism marketplace.”

Rodney Hall, chairman of Bromhead Holdings agrees: “Yes I’m sure that a compromise will be found .. too many powerful vested interests to think otherwise."

But Klebanow is a little less certain: “I just don’t see Duterte as a political leader that is open to compromise on this issue.”

The likelihood of reaching compromise may have been significantly hampered in light of the Resorts World attack. While the initial purpose of the ban was to improve the health of the Philippine population, that could now shift to include the issue of security.

The ban also extends to popular vaping devices, which Foxman says is intended to limit the release of polluting substances that can be used for nefarious actions into the atmosphere.

“Vaporizers can easily disperse bio-toxins that can be used by terrorists to launch an attack. So removing this threat is more important than making the air cleaner by removing cigarette and vapour smoke.

“Policy limiting people the rights of freedom of choice shouldn’t be the focus with this smoking ban. It should be about providing exceptional air balancing controls and fire suppression technology leading to better customer service and additional security.”

Bromhead points out that legislators are lashing out after the attack, but ultimately, there is more than the gaming industry to blame. “Enhanced security for the protection of customers is a good thing BUT remember PAGCOR is not a fire and safety regulator, it’s all about gaming. Local authorities are responsible for issuing building occupancy, safety and fire inspection certification.”

If a compromise can’t be reached, the Philippine gambling industry looks set to come under attack from two fronts after a House of Representatives bill was filed seeking to impose an entry fee for all casinos.

According to a note from Morgan Stanley, if implemented it would have a significant impact on the mass segment of the market.  

“Filipino gamblers view gambling more as an entertainment compared to Chinese gamblers in Macau, in our view. The Philippines' GDP per capita is 60 percent lower than China's, and the entry fee may deter grind mass and family customers. But the note also added that Morgan Stanley “remained positive” on the long-term development of the industry because a similar bill surfaced back in 2014 but made no progress.

That, combined with improved infrastructure and a strong economy, should drive higher traffic and spending per capita. When it comes to VIP and premium mass, Morgan Stanley also said the impact would be “less”.

“[This is because] the minimum bets of premium mass and VIP tables are generally PP3,000 or above and hotel room rates are generally PP8,000 or above (PP11,000 during the weekend). Also, this will not affect proxy/phone betting in VIP rooms.”

If Duterte and the government can be brought to compromise on the ban and designated smoking rooms established inside casinos, the impact may be minimal, though the fallout on the image of the country from the Resorts World Attack may be harder to gauge.