Here’s Why Las Vegas Sands Is Willing To Invest $10 Billion In Japan

by Trefis Team
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Late last year, Japan legalized casinos in the country, opening up a gaming industry that could generate as much as $30 billion a year in revenues and become the second-largest casino market in the world. As several players scout for licenses, Las Vegas Sands (NYSE: LVS) is ready to invest heavily in the region, committing to an initial investment of $10 billion. While this is a significant number, if Las Vegas Sands is able to capture a decent share in the market, it would make sense given the revenue potential of the market. Currently, Macau and Singapore are the largest value drivers of the company, together accounting for more than 80% of its valuation.

The company is heavily dependent on Macau for revenues, and regulation changes in the region have impacted it negatively. At its peak in 2013, Macau’s gaming market had reached a size of $45 billion. However, after stricter regulations imposed by Chinese regulators, revenues started slumping. In 2016, the total amount won by casinos in the region stood at nearly $28 billion. Japan is likely to emerge as a huge market for casinos, with annual revenue estimates ranging from $10 billion to $30 billion.

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Source: Bloomberg

While Las Vegas Sands is a strong player in Macau, it appears to be losing ground in the region. In Q4 2016, the company’s revenues missed consensus estimates due to underperformance in Macau. Las Vegas Sands has five properties in the region, and carries the risk of cannibalization in Macau. It also faces intense competition from other players such as Wynn and MGM. Further investments in Macau might not generate a high return for the company since it already has a large presence there, which could limit future growth opportunities. However, as a new market opens up with massive potential, Las Vegas Sands is looking to invest heavily to gain a foothold there. The company invested $6 billion in Singapore and is likely to increase this number for Japan. Once the regulatory and licensing process is completed, casinos are likely to be functional in Japan by 2023. Investing heavily in the region will ensure that Las Vegas Sands captures this strong growth opportunity, which should diversify its revenues and drive growth in the long term.

Related Article: Casino Bill Passed In Japan, But Can It Challenge Other Casino Markets In Asia

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