SMOKIN IN THE BOYS ROOM

We haven't run the regression but we're pretty sure the correlation of male smokers to gamblers is pretty high. It's looking more likely than not that the smoking restrictions will go into effect in January. 

While there might be a delay in the implementation of the new smoking rules from January 1st to January 14th, it is unlikely the casinos will be able to successfully lobby for any further delay.  Once implemented, we believe there will be a major impact on the main gaming floor on table efficiency and labor costs as casinos will have a lot more players per table on the smoking tables.  It is unknown yet whether the casinos will be allowed to push less productive games into the non-smoking section or if regulators will require an equal distribution.

While the new smoking restrictions will likely supress demand and maybe impact margins, we don't believe there will be long-term ramifications.  However, we would caution that Q1 could be disappointing.  Since only the main gaming floor will be impacted, LVS and SJM could be the most at risk due to their Mass based business model.  LVS has built the most spacious gaming floors so that should alleviate some of the productivity issues.  Moreover, LVS is still ramping with Cotai Central and we think it's overall share will continue to grow to the low to mid 20s.

An order from the Macau CEO regarding the smoking ban was published in the Macau Gazette on November 5th and is summarized below:

  • Rules apply to all table games and slot machines
  • Smoking areas cannot be greater than 50% of the total area for the public
    • This rule excludes non-gaming establishments
  • Smoking areas must display the following:
    • Posters addressing no-smoking zones
      • Label with minimum dimension (40cm x 30cm) in Chinese, Portguese, and English 
    • Separation from other installations
    • Ventilation systems
  • Smoking area locations
    • In casinos with several floors and an atrium, smoking areas should be located on the upper floors
    • In casinos with a single floor, smoking area must be located opposite and separate from the non-smoking area.
  • Non-smoking areas can be achieved through the following measures:
    • Air curtain system
    • Transition area with inflation system
    • Transition area of at least 4 meters
    • Installation of a wall or fence with a minimum of 2 meters