New Orleans Smokefree Casino Update

Gaming Revenue Trends and Harrah’s New Orleans Casino

We know that secondhand smoke is a top cause of disease and death for casino and hospitality sector workers and musicians. The New Orleans Smokefree indoor air law, which took effect April 22, 2015 is saving the lives of thousands of people in the community who no longer have to get sick breathing at work in order to make a living.  The law is popular with residents and visitors alike.  After all, more than 82% of the U.S. adult population is nonsmokers.  Even many smokers don’t want to breathe other people’s smoke.

But what about gaming revenue?

In February 2015, Harrah’s New Orleans revenue was down more than 6% compared to February 2014. http://www.theneworleansadvocate.com/news/11889963-123/new-orleans-casino-winnings-post .

Harrah’s New Orleans seems to have been the only gaming property in Louisiana with a year over year revenue drop that month.  We should blame this February gaming revenue decline squarely on the New Orleans smokefree law, right?  Wrong!  The smokefree law wasn’t in effect until April 22nd. The reality is that gaming revenue for Harrah’s New Orleans, and for casinos in general, is volatile and subject to seasonal fluctuations and many other factors that have nothing to do with smokefree rules.

Look at this gaming revenue chart from the Louisiana Center for Tobacco Free Living. You can see that Harrahs’ New Orleans has experienced a long, slow downward trend in Gross Gaming Revenue (GGR) that started long before the smokefree law.

image depicting gross revenue for Harrah's Casino February 2006 to April 2015image depicting gross revenue for Harrah's Casino for January to april 2006 to 2015

In addition to reduced GGR, Harrah’s said it was experiencing declining slot revenue and attributed it to the smokefree law. So what is happening?

Millennials

First, let’s look at some facts. The casino industry as a whole is facing declining slot revenue across many states and markets – which has nothing to do with smoking or smokefree rules.

http://www.washingtonpost.com/local/maryland-casinos-shed-slots-as-demand-grows-for-table-games/2015/06/07/e6c0fbb8-0b0c-11e5-95fd-d580f1c5d44e_story.html

The ongoing decline in slot revenue is one of the most urgent issues being discussed across the gaming industry.   The basic problem is that younger people, or “Millennials,” do not like playing slots. Millennials now account for approximately one-third of the US population and are coming into their prime earning years, so this is a big deal. The gaming industry is working hard to create new skill-based and social games that might appeal to these younger players. States like NJ and NV recently approved laws allowing for skill based game development for this reason. It’s worth noting that Millennials have largely grown up in smokefree environments, expect smokefree environments, and have the lowest smoking rates of any recent generation.

Non-Gaming Revenue is Now a Thing

Another big trend underway in the casino industry is the changed ratio of gaming to non-gaming revenue streams, in part due to uneven economic recovery after the Great Recession and less discretionary income for many customers, and changing demographics. Today, much greater percentages of revenue for many casino companies are earned from non-gaming activities: nightclubs, restaurants, shopping, meetings and conventions. In Las Vegas, many casinos now get only one-third of their revenue from gaming –something that was unthinkable just a decade ago. The ratio is different in regional markets, but the shifting balance is still significant. An example of this would be the popular nightclub at Harrah’s (which appeals to – you guessed it – Millennials). But Harrah’s New Orleans doesn’t have nearly as many of the convention and other non-gaming amenities and revenue streams that one finds at Caesars’ other smokefree properties such as Horseshoe Cincinnati, Cleveland, and Baltimore, Maryland.

Staffing

Harrah’s New Orleans has implied that it wanted to layoff workers because of the smokefree law. The fact is they are on the record seeking the exact same changes to their staffing levels long before the smokefree law. Since the recession, the gaming industry and Gulf Coast regional gaming markets have evolved drastically. It’s understandable that they would want to adjust staffing levels to meet today’s needs. The implementation of the smokefree law provided an opportunity for Harrah’s New Orleans to resurrect an old request using the myth that the smokefree law has negatively impacted revenues, and is again asking to change its staffing level law. Casinos are supposed to be about job creation. But those jobs don’t have to come at the expense of sickening the very people those jobs are supposed to be helping.

Smokefree Casinos are Growing Trend

For context, Harrah’s New Orleans is now one of 18 smokefree indoor air casino workplace worldwide for Caesars – thanks to smokefree workplace laws. Caesars has even invested significant sums in recent years opening casinos that are 100% smokefree indoors, including Horseshoe Baltimore, Horseshoe Cleveland, and Horseshoe Cincinnati. Caesars recently sought to build billion dollar smokefree indoor air casinos in Massachusetts and New York, but didn’t win licenses in those markets. The bottom line is that smokefree indoor air isn’t an issue when casino operators don’t want it to be an issue.

There are now more than 500 smokefree casinos and gambling venues in the US thanks largely to local and state smokefree laws. Twenty states, Puerto Rico, and the US Virgin Islands all require commercial gaming facilities to be 100% smokefree indoors. This includes many of the U.S.’s hottest gaming expansion markets such as Maryland, Ohio, Massachusetts, and New York. A growing number of sovereign Tribes are making their gaming facilities smokefree indoors too.

Outdoor Smoking Patios

Success of smokefree indoor air casinos comes down to a thoughtful approach to design and placement of outdoor smoking patios located conveniently off the gaming floor. Although Harrah’s New Orleans did put up some positive signage, the property did not make renovations or otherwise seem to invest much effort into making the law work compared to the thoughtful approach Caesars used in other markets. Maybe they thought it was a better use of the 90 day phase-in to fight the law rather than making the new law work.

People get up from table games or slots to use the restrooms, to eat, to go to nightclubs, or to do other things. Stepping outside to a smoking deck for a couple of minutes isn’t a big deal for someone wanting to light up. It is a big deal though for the health of the thousands of other people breathing inside the building.

Factors for Regional Gaming Competition

Many factors affect gaming revenue, especially travel distance relative to population centers. For example, Indiana’s smoke-filled casinos have lost significant revenue and market share to Ohio’s smokefree indoor air casinos. Ohio gaming revenue is up 35%, and Indiana gaming revenue is down 11%.

Ohio casinos are also taking significant market share away from neighboring gaming properties in Michigan, Indiana, Pennsylvania, and West Virginia despite the fact those states’ casinos still have indoor smoking. This is why new (smokefree) casinos coming to Massachusetts , New York, and Maryland are huge competitive concerns for (smoky casino) states like Connecticut, Rhode Island, and New Jersey regardless of indoor smoking status.

Example of Atlantic City

In Atlantic City, there was a smokefree law in effect for just 30 days back in 2008. Caesars and other operators were quick to blame the smokefree law for a 30 day decline gaming revenue declines – even though the declines started in 2006 – two years before the 2008 law. Under casino lobbying pressure, the Atlantic City council rolled back the smokefree law after 30 days. But it did not stop the decline in gaming revenue or solve Atlantic City’s problems (largely the result of growing regional gaming competition). Atlantic City gaming revenue is down more than 47% since 2006 despite allowing indoor smoking. Recently, four of 12 casinos closed there (and all allowed indoor smoking).

Health

The science is clear that smoking sections, smoking rooms, and casino ventilation systems do not address the health hazards of secondhand smoke. People can simply step outside to light up at smoking patios without harming the health of the thousands of staff and patrons breathing inside.

Parity

Harrah’s New Orleans is frustrated that the New Orleans smokefree law doesn’t cover some of their nearby competitors. This is because the Louisiana legislature failed to include bars and casinos in the statewide law. Would Caesars support strong smokefree indoor air laws moving forward quickly in surrounding gaming markets and statewide in Louisiana and Mississippi? This would not only help achieve with competitors on this regulatory health issue, it would also save the lives of their own staff.