Casino Operators Eye Japan As The Nation Moves A Step Forward Towards Gambling Legalization

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Japan is getting closer to legalizing gambling. On June 18, Japanese lawmakers began debate on the bill that would allow casino resorts in the country. [1] This move comes in as an attempt to attract more foreign tourists and investment. Once the bill is passed, the government will be asked to take legislative steps to open up the market for the casino industry. Japan may then see its first casino just in time for the 2020 Tokyo Olympics.

Major casino operators such as Wynn Resorts (NASDAQ:WYNN), Las Vegas Sands (NYSE:LVS) and MGM Resorts (NYSE:MGM) have shown interest in developing casinos in Tokyo and Osaka. Wynn is willing to bet more than $4 billion on Japan casinos. According to a research by CLSA, Japan will generate $40 billion in annual gambling revenues. [1] If we consider the similar EBITDA margins as in Macau, this would translate into annual EBITDA of over $12 billion for the industry. It would thus make sense for casino operators such as Wynn to invest in Japan subject to gambling legalization.

 

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Japan Could Be A Huge Gambling Market

While many forms of gambling are legal in Japan, casinos are currently banned. Japan is the world’s third largest economy and could well be the world’s second largest gambling hub after Macau. Japan itself is home to a wealthy population and is geographically located in close proximity to China, which is home to some of the world’s most prolific gamblers. Developing a casino in Japan would be a great move for any casino operator as it would generate high gambling turnover. Annual gambling revenues of $40 billion will make Japan the world’s second-largest gaming market after Macau, which raked in over $45 billion in annual revenues in 2013. [2]

It is noteworthy that around 9.6% of males and 1.6 % of females in Japan were found to be gambling addicts in a 2010 survey of over 4,000 respondents. This is much higher than 1.4% in the U.S. and 1% in U.K. [1] While this indicates that Japan could be a very big market for gambling, it is also the main issue of opposition to the casino bill. The opponents to the bill have talked about the serious problem of addiction and the consequences of legalizing gambling.

High net worth individuals drive VIP gaming in casinos. According to a report by Research And Markets, high net worth individuals in Japan will grow by 7% to reach 2.34 million in 2018. [3] The rise in high net-worth population will boost the VIP gaming in Japan.

How The Casino Operators Can Benefit?

The casino operators are not only eyeing Tokyo but also the city of Osaka in western Japan. Building a casino in Japan would mean heavy capital expenditure for casino operators. Wynn and Las Vegas Sands currently have cash balance of over $3 billion to their use while MGM has a cash balance of $1.1 billion. In 2013, Macau casino revenues of Las Vegas Sands, Wynn and MGM were $8 billion, $4 billion and $3 billion respectively. Macau’s overall gaming revenues were $45.2 billion. This reflects Las Vegas Sands’ current market share of 18%, Wynn’s about 9% and MGM’s 7%.  In terms of profits, Las Vegas Sands’ and Wynn’s Macau casino EBITDA was $2.2 billion and $1.08 billion respectively in 2013, representing margins of 27%. MGM’s Macau casino EBITDA of $814 million in 2013 reflected margins slightly lower than the other two players at 25%. If we consider similar market share of these three casino operators in Japan as they have in Macau, it will translate into casino revenues in excess of $3.5 billion and annual EBITDA of close to $1 billion for Wynn. Similarly, for Las Vegas Sands it will translate into revenues of $7 billion and EBITDA of $1.9 billion, and for MGM, revenues of $2.8 billion and EBITDA of over $700 million. It is clear that Japan offers a great opportunity for casino operators and it will be interesting to see how events unfold in the coming months in Japan.

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Notes:
  1. Pachinko problems loom large as Japan kicks off casino debate, Reuters, Jun 18, 2014 [] [] []
  2. Macau’s 2013 Gambling Revenue Rose 19% to $45.2 Billion, The Wall Street Journal, Jan 2, 2014 []
  3. Research and Markets: High Net Worth Trends in Japan 2014: The Number of Japanese HNWIs is Forecast to Grow by 7% to Reach 2,340,459 in 2018, Yahoo Finance, May 7, 2014 []
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  • commented 3 months ago
  • tags: WYNN LVS MGM
  • It will be interesting to see how Pachinko (billions of dollar business) fares in the new legislation. JJ Woods