When the Victorian Government introduced smoking bans in gaming rooms across the state in September 2002, Tabcorp was caught unawares.
„It came very quickly and we didn’t have the in-depth customer research that we should have,“ recalled former chief executive Matthew Slatter. „The impact was very dramatic.“
The bans eroded the state’s electronic gaming machine revenues, slashing them from AUD 2.56 billion in fiscal 2002 to AUD 2.33 billion in the 2003 financial year. Tabcorp saw its gaming revenue fall 13 per cent in the second half of the year compared with the previous corresponding period.
Five years later, just as the gambling companies are recovering from the impact of those bans — Victorian electronic gaming machine revenue is forecast this year to touch pre-ban levels for the first time — new restrictions, due to come into effect from July 1, are causing new headaches.
The 2002 bans meant that gamblers had to leave the gaming floors to smoke, pushing them to the bar or another area of the venue for a puff. But this time, gamblers will be forced out of the hotels and into the cold, with smoking to be banned from all areas inside licensed venues.
For gaming companies the problem, said CommSec’s Craig Shepherd, was the co-dependency between smoking and gambling. Roy Morgan research commissioned by CommSec has found that while only 30 per cent of gamblers in Victoria are smokers, they contribute 47 per cent of total electronic gaming machine (EGM) revenue.
„So any changes that impacts the behaviour and expectations of this group are vital to revenue growth,“ Mr Shepherd said.
„When you talk to smokers who play poker machines, they are telling us they take breaks currently, have a smoke predominantly inside and then go back to play. When we asked them what they will do once the ban comes in, 50 per cent of them said they thought they would spend less time — and presumably less money — playing.
„The impact to the bottom line is, we’re saying, 2.3 per cent of revenue to 4.5 per cent but … if 50 per cent of people who are regular smoking EGM players who take breaks for a cigarette actually do spend a lot less time playing, then the impact could be larger.“
Victoria University economist and gambling researcher James Doughney said that in 2002, Tattersall’s found that its „high value“ customers — gamblers who spent more than AUD 500 per visit — contributed 9 per cent less to total gaming machine revenues after the bans.
„The main reason was that when they took a cigarette break, people could stop and think and walk away,“ Dr Doughney said.
However, the companies and customers are better prepared this time around.
In the past 12 months, the number of requests to Victoria’s gambling regulator for approvals to modify gambling venues (to include outside smoking areas) have jumped more than 20 per cent on the fiscal 2006 year. Of the 447 approval requests it received for modifications to gaming venues in the year to May, 225 were for changes related to the smoking bans.
The Victorian Commission for Gambling Regulation has another 60 requests to look at before the end of the month, two-thirds of which are related to making it easier for smokers to continue gambling.
The trick in the modifications, according to gaming analysts, is to ensure that customers cannot exit through the outdoor smoking area, but have to walk through the gaming area after a cigarette break before they can leave the venue.
Tabcorp, which operates 13,750 gaming machines across 265 venues in the state, says it has provided strategic guidance to its venues and helped them buy cheaper outdoor furniture and equipment.
While the company expects smoking bans to adversely affect gaming revenue and 2008 market growth in Victoria, Tabcorp corporate affairs manager Bruce Tobin said it was hard to quantify how much revenue would fall.
However, Tabcorp is believed to be expecting a greater negative impact — possibly as much as 10 per cent — on its bottom line than rival Tattersall’s.
Tattersall’s chief executive Dick McIlwain, whose gaming division posted a 3.9 per cent increase in revenue to AUD 1.3 billion in fiscal 2006, is not expecting a big impact.
„Unlike Tabcorp, which was initially talking double-digit declines, we think it’s likely to be somewhere between flat and maybe just a little bit negative, because we’re only talking about the collateral damage that comes with someone who would otherwise only go to a bar because they could smoke in the bar and then choose to go and play poker machines,“ Mr McIlwain said.
„When you lose business it’s because people have somewhere else to go. But in this case where are they going to go? Are they going to stay at home? No, people will still want to go out.“
Pokies boss Bruce Mathieson, who controls 87 pubs in Victoria and about a quarter of the state’s 30,000 poker machines, agrees. Mr Mathieson has spent AUD 10 million upgrading his venues and says the industry will recover far more quickly this time from any negative impact.
Mr McIlwain believes it is a public health issue Tattersall’s should support „because long-term, it will be better for everyone who uses our services“.
VicHealth chief executive Todd Harper said companies could even be pleasantly surprised, given the research into smoke-free bars. „Almost universally it has been confirmed that smoke-free bars are either neutral or slightly positive for business. You may get some venues that complain of a drop in trade (especially in the first month or so) but across industry, the results are almost always neutral or slightly positive.“