Casino Bill Passed In Japan, But Can It Challenge Other Casino Markets In Asia?

Both upper and lower houses of Japanese parliament recently passed the bill promoting the implementation of Specified Integrated Resort Areas, also known as the ‘Casino Bill’. As fancy as this may sound, making casinos operational will take a long time and will not impact other Asian casino markets such as Macau and Singapore in the short-term. However, in the long run, this bill is likely to help Japan to compete as a new gambling tourism destination in Asia. Japan is the third largest economy in the world and an adult population that is open to the practice of gambling. The region is the next bright spot for the big casino companies as the Japanese market is not at all penetrated due to the ban to date on casino gambling in the country.

What is the way forward? Tokyo Olympics opportunity missed?

The Casino Bill will allow the casinos with government license establish hotels and centers of exhibition, along with gaming setups. However, the passage of the bill does not legalize casinos immediately. The bill provides the overarching framework for further legislation to take forward the development of new resorts where casinos can be set up.

We believe that it will take at least four to five years for casinos to start operating in Japan as the Casino Bill only refers to the intention of allowing casinos in the country. The next step would be to formulate further pieces of legislation for more detailed laws – such as regulating the way casinos are taxed, who will be allowed to gamble, and where gaming will be allowed. It will also be interesting to see the planned size of the casino industry in Japan, which will give us a rough idea of the number of casinos that can be operated in Japan. If Japan decides to develop its gaming sector on a large scale, other Asian casinos such as Singapore and Macau will experience heightened competition.

With the Tokyo Olympics scheduled for 2020, the optimism for higher ROI projects had doubled among the casino companies. Casino operators were expecting this bill to be passed in 2015 itself. Now, three years seems an inadequate interval of time for casinos to be come operational in Japan.  That said, we believe that it is an opportunity missed for Japan, as casinos would surely be a draw for visitors to the Olympics.

What does it mean for LVS, WYNN, and MGM?

Big casino operators including Las Vegas Sands (NYSE: LVS) and MGM Resorts (NASDAQ: MGM) have already expressed their desire to invest in Japan and other casinos are also in line. Both LVS and MGM promised to invest as much as $10 billion in Japan prior to the passage of Casino bill.

LVS mentioned in 2014 that it is willing to invest $10 billion in Japan. However, the market conditions have changed a lot since 2014 as Macau gross gaming revenue plummeted, resulting in LVS’ gaming revenues falling by 30% over the last two years. Nevertheless, we believe that LVS will go after Japan, which offers a new growth opportunity in Asia.

MGM’s management met Japanese businesses in October 2016 to discuss the opportunities in Japan and announced the potential investment of about $9.5 billion. However, MGM will invest via a publicly traded real estate investment trust if the bill legalizing the casino is passed in 2016. Other casino operators such as Genting, Melco crown, and Hard Rock are also in the race for seeking the casino licenses in Japan.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis of Las Vegas Sands and MGM Resorts International.

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