Most Americans consider Las Vegas to be the mecca of casino gambling. In 2016 alone, the Las Vegas strip generated $5.95 billion in gaming revenue.
However, as impressive as it is when it comes to raking in the chips, Las Vegas pales in comparison to the gaming markets in Asia. Last year, Macau generated an incredible $27.9 billion in gaming revenue.
Macau has delivered some incredible growth numbers since casino licenses were first granted to major international gaming companies back in 2002. Perhaps that growth should come as no surprise considering China’s economy is the largest in Asia.
In December, after years of debate, Japan’s parliament voted to legalize casino gambling as well. Not only is Japan the second-largest economy in all of Asia, Hong Kong-based investment group CLSA estimates that the Japan casino market alone could eventually grow to be a $40 billion industry.
All of the major players in Macau, including Melco Crown Entertainment (MPEL), Las Vegas Sands Corp. (LVS), MGM Resorts International (MGM) and Wynn Resorts (WYNN), have either opened big Macau resorts in the past two years or plan to open one by the end of this year. With all of the new openings, it may take Macau a few years to growing into its new capacity. In the meantime, Japan will likely usurp Macau as the new focal point for Asian gaming growth.
It’s not often a potentially $40 billion virgin market opens for business overnight, and major gaming companies are poised to pounce on the opportunity.
“We will absolutely spend whatever we need to win,” Melco Crown CEO Lawrence Ho said of the Japan market in February. Ho said Melco is committed to spending up to $10 billion on a new Japanese casino resort.
Las Vegas Sands and MGM Resorts International also intend to invest up to $10 billion each on tapping the Japan market. Las Vegas Sands may already be getting its finances positioned for a major Japan push. The company is reportedly in negotiations to sell its Sands Bethlehem resort for an estimated $1.2 billion.
There is plenty of evidence that the Japanese market will be receptive to casino gambling. In fact, other gambling businesses are already thriving in Japan. Japanese gamblers are allowed to bet on a popular pinball-like game called pachinko. While there are only about 170,000 slot machines in Las Vegas, there were roughly 2.8 million pachinko machines in Japan as of 2013. According to Bloomberg, Japanese gamblers place $187 billion on pachinko bets each year.
Y H & C Investments analyst Yale Bock says the existing Japanese gambling market is a good sign for potential casino operators.
“Japan currently has other forms of gaming like pachinko parlors and boat and bicycle races, so legislators and potential licensees can be certain of existing demand,” Bock says. “The politicians in Japan have visited Singapore as they are thought to favor large integrated resorts offering non-gaming amenities, convention and meeting spaces, hotels, shopping and entertainment venues.”
Investors are understandably excited to get in on the Japan casino action in its early stages. However, determining which stocks to buy and exactly what to expect from Japan is a difficult proposition at this point.
“Yes, Japan will be massive and could represent the last major green field opportunity for major international developers for the foreseeable future,” says Grant Govertsen, co-founder and managing director of Union Gaming. “However, given that we don’t know the rules of the game yet (the number and location of licenses, the tax rate on gaming revenues, or if locals will have to pay entry fees), it is premature to try and peg a countrywide revenue estimate.”
Despite the uncertainty, CLSA analyst Jay Defibaugh believes there is so much potential in Japan that all the major Macau players will likely get a sizable piece of the market. CLSA recently hosted a Japan forum that included four casino industry leaders. “The Japan opportunity was referred to as ‘the holy grail,’ and the executives cited a range of $6 billion to $10 billion each for investment in a major integrated resort in Japan,” Defibaugh says.
“Among the operators, we believe that Las Vegas Sands, MGM Resorts, Genting Singapore, Wynn Resorts and Melco Crown are best-positioned for Japan.”
The bad news for Japan casino investors is that it may take a while for the bet to pay off. Legislation could take another year to finalize. At that point, politicians will begin…
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