Smoke ban hits gaming hard
Analysis By Cole Boehler
Gaming machine route operators who collect machine play data weekly say the ban on smoking in taverns and casinos has produced early and substantial hits. But they also emphasize three weeks is merely one frame in a running movie that will play out slowly in the next weeks, months and years.
In fact, a near industry consensus has developed through observation of other jurisdictions, and intimate knowledge of their own enterprises and customers, that business declines caused by smoking bans are typically temporary, and that recovery is eventual. The question always is, "How deep and how long."
Montana is a unique jurisdiction in that most businesses licensed for adult beverage sales are also licensed to offer limited, small-scale gambling. So impacts on hospitality businesses in other smoke-ban jurisdictions may not translate here. And the gaming departments in Montana hospitality businesses are generally important revenue centers and, in some, are vital.
Another consensus has been developing, and perhaps is now being proven: that a smoking ban would affect gaming departments significantly more than beverage, food and entertainment. That presumption is being supported by the evidence.
However, hard gaming numbers are readily available so they can quickly and accurately be quantified, whereas food, beverage and entertainment revenues are almost impossible to capture in such a micro timeframe.
Yet even with solid gaming numbers in hand, definitively linking cause and effect – "causation" – is always more difficult than establishing a correlation.
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Industry authorities will first note gaming revenues were already seeing some declines as a result of generally poor prevailing economic conditions – 2.16 percent last year, and 5.7 percent in the first quarter (July 1-Sept. 30). In addition, early October featured record-breaking cold weather, which some say keeps players home. Finally, an apparently serious flu epidemic is upon us and people may be avoiding congregation.
Those factors may go a ways, along with implementation of a smoking ban, in explaining a startling dip in the first three business weeks of October. Only time will reveal to what extent each factor contributed. Only in early February next year will the full quarter's results (Oct. 1- Dec. 31) be known.
Century Gaming, which operates and services 4,209 devices (according to the Gambling Control Division website as of Sept. 30) at 340 locations across the state, reports gaming revenues fell 7.46 percent in the first full business week under the ban (Oct. 3-9), declined 14.97 percent in the second week (Oct. 10-16), and was down 16.73 percent Oct. 17-23.
The
Montana Tavern Times talked with Century COO Steve Arntzen and CFO Heidi Schmalz Oct. 20 and again Oct. 27. The duo said they had already been budgeting for around 3 percent declines due solely to poor economic conditions.
The company principals stressed that they were comparing the three weeks of October to the average weekly revenues for the previous 90 days, July 1-Sept. 30. This comparison, they said, reveals a more precise smoking ban impact on revenues, than a same-period-year-previous comparison would, since gaming revenues declined in Fiscal Year 2009 (July 1, 2008-June 30, 2009) due to a contracting economy. Using the July 1-Sept. 30 2009 period allows a comparison of current machine revenues with figures already incorporating the downward impacts of a suffering economy.
However, if a same-period-year-previous comparison is made, Arntzen and Schmaltz report the three-week period is down from the same period last year by 17 percent. Some individual locations were down as much as 30 percent, Arntzen said. "It was the worst three weeks we've ever had."
"It's the double-whammy," Arntzen said, a poor economy now compounded by a smoking ban.
They said in any case an anomalous dip or spike in the range of 2 to 3 percent would not be cause for alarm. Anything above or below that magnitude would command investigation and require explanation. So when they saw 7.46 percent, then 14.97 percent, and 16.73 percent, they believed this was no mere anomaly.
Tim Carson, operator of Amusement services, a distributorship with 782 devices in 130 locations, said he was seeing the same thing on his routes. He told the
Tavern Times Oct. 15 his business was down 18-20 percent, though conceded some of the decline – perhaps as much as 40 percent of it – might be attributed to unseasonably cold weather early in the monthly cycle. And he agreed the flu outbreak could be another mitigating factor.
Carson said he saw "outlying areas that have remained consistent," but more purely gaming enterprises in urban areas have been harder hit. For them, "It's not the status quo," Carson said. "It's my larger casino accounts that are being affected."
Schmalz and Arntzen concur. They say businesses that rely more heavily on beverage, food and entertainment departments, are faring better than those whose major offering is gaming.
Carson said, "Pro-active places that have made adjustments such as comfortable outdoor smoking areas, are not seeing the same hit as the others."
"I've been inundated with calls" from some location owners, Carson said. "They're saying, 'We've got to do something!' We've been trying to prepare them for months now. It's chaotic." Carson said some seem on the verge of panic.
Arntzen said no location operator he has talked to is panicking yet. "But they're all nervous. They're asking, 'How far and how long is it going to go?'"
Schmaltz said, optimistically, they may have glimpsed the bottom, at least for a few locations whose slide had halted and flattened, however temporarily or short-term.
Arntzen said, "We're hoping to establish a bottom a rather quickly. We don't want to think it can go lower. We think we're seeing some locations coming in with revenue the same as the week before. We're looking for some encouragement."
Schmalz adds, "It's totally a guessing game at this point."
Perhaps curiously, Arntzen said they observed numbers during the first few days of the ban and that first weekend that "looked close to normal." He said he thought maybe non-smokers who weren't casino patrons actually did come out to show support for the ban. "Then something happened," he said, as play dropped substantially.
Carson said other route operators at a recent meeting said they saw the same phenomenon: no big hit for the first few days, then the declines began.
Arntzen said he was delighted at how many establishments were in voluntary compliance with the ban.
"I know of not one establishment that is not complying," he said. "Owners will try to keep it (smoking ban) intact." If business is down, that's one thing, he said; if it's down because a competitor is breaking the law, that's something else again.
"I want to reiterate," he said, "we want businesses to stay in compliance" and to work through the transition together on a fair and level business playing field. "Otherwise it would be self destructive."
Carson said, "It's a collision of multiple ingredients in the gaming recipe." There is less discretionary income and now gaming customers who smoke may be playing less or not coming in at all, he said.
Arntzen said, "They're just not playing as long on that same $20 bill," he said. "In many locations, they're not coming as often or staying as long. And the customers are upset; they are blaming the businesses for the smoking ban: 'How'd you let this happen?'"
The weakening economy was already affecting gaming operations, with cost cutting being implemented wherever possible, Carson and Arntzen said.
"All of the traditional ways we have done business before, both from a location operator's standpoint as well as a route operator's perspective, are being carefully evaluated," Arntzen said. "When revenues are falling, every expenditure has to be watched closely."
In addition, capital investments are likely to be reduced, affecting gaming machine manufacturing and sales operations, Schmalz said.
Schmalz said pressure to cut costs now makes mounting aggressive and expensive advertising campaigns to attract new customers all the more difficult.
Carson warned that now is also the time to be very careful about reigning in costs of gaming promotions.
"Some are really starting to grind promotions," he said, "but you need to be very careful to manage these; make sure you are keeping costs of promotions at the same percent of revenues."
Another expense department operators are expected to be watching closely is labor, they said. Businesses will keep labor costs in line with revenues and if revenues are down, labor expense will have to follow, they said.
However, all three said now is the time to be paying the utmost attention to customers service.
"Operators need to be focusing on quality customer service," Schmalz said. "Regular – and new – customers need to be treated very well. This is just huge."
Arntzen pointed out replacing smoking drinkers with non-smoking drinkers may be easier at first than replacing veteran gamblers with new gamblers.
"Anyone knows how to enjoy a drink," he said, "but not everyone knows how to enjoy gambling, how to play the machines. Staff needs to be trained to patiently teach and explain how the games work; how customers can get the most fun out of them. You'll have to service your customers in a different way, especially new ones."
Carson said, "Some operators have paid attention and found solutions. It's time for everyone to start finding solutions," and that includes governments and agencies counting on gaming revenues.
"The state has been seeing declining revenues, and that will continue," Carson says. "Maybe its time to start looking at new technology going forward."