Betting on Russian Casinos, Is That a Joke? Place Your Bets Here Instead

Betting on the Russian gaming market? With all of the other great options, why would you? Investors who seek the next big growth story should keep watching this country instead.

Jun 15, 2014 at 10:08AM

Russian Casino Via Nytimes
Could Russian casinos be a good bet for gaming investors? Maybe... but there are much better options. Photo: NYTimes

While Las Vegas once dominated international gaming, a host of other countries have risen to take its place, such as Macau, Singapore, and others. International expansion has helped U.S. companies like Las Vegas Sands (NYSE:LVS) and Wynn Resorts (NASDAQ:WYNN) post huge gains in recent years, while Hong Kong's Melco Crown (NASDAQ:MPEL) has been incredibly successful without any U.S. locations. Smart international expansion should be the deciding factor on which gaming company will be the most successful in years to come, but a bet on Russia is not your best bet. Instead, bet on this potential new market in Asia, which could be the second largest in the world.

Putin's potential plan for Crimea
International expansion has been a good bet for casino companies and host countries. However, this development still comes as a shock. Vladimir Putin is the same Russian president who has made more than a few waves over the last few years with strict policies on human-rights issues, threatening political actions in regard to neighboring regions, and a somewhat botched Olympic games in Sochi. He has now reversed his previous crusade against gambling by supporting gaming in Crimea.

Sochi Sucks

The country's poor preparation for the Sochi Olympics does not provide encouragement for the argument that it will establish revenue-gaining casinos. Photo: Eonline

Putin had previously lambasted the gaming industry on ethics and the problems it can bring to citizens and countries. However, after his crusade to establish control in Crimea, the Russian leader has been forced to find ways to make the controlled area economically significant, with a $1.5 billion budget deficit expected in 2014. Putin has now claimed that gaming might be that saving grace for Crimea.

Russian gaming could be a "growth market"? You must be kidding
For a "gaming growth market" to take hold, it needs a catalyst for tourist visits and a sizable market in close proximity, such as Macau with neighboring Mainland China. 

As Andrew Gellatly, head of global research at the research group Gambling Compliance, has said, "You have nothing like that in Crimea." He also said that the peninsula has "no road connection at all" to the Russian mainland and it is too far for convenient travel from any major city. Putin has discussed plans for a bridge to connect the peninsula to the mainland, but that would be years away.

Gellatly dealt the final blow with the reminder that even those Russian elite gamers who would potentially make up the target audience for this will not want to play in Crimea. "Russian high rollers are more likely to gamble in London or Monaco than in one of the former Soviet republics."

Lawrence Ho Melco Crown Via Businessweek

Melco Crown CEO Lawrence Ho has been expanding to less-than expected markets, such as the Philippines and now Russia. Photo: BusinessWeek

Melco Crown is taking a position in Russia, a better one
Melco Crown, the Hong Kong-based company that is expanding in Macao and the Philippines, is seeking further international expansion. The company has invested in a consortium which is building a new casino in Vladivostok, Russia, and recent reports have claimed that Melco Crown recently raised its stake to 85%.

Vladivostok is on the Eastern coast of the country, far from Crimea and very close to China. This area has all of the gaming growth catalysts that Crimea lacks, such as accessibility, more stability, and proximity to China and other Asian countries. Still, with all of the opportunities present in this world, is Russia really where gaming companies and their investors should focus?

Where you should be betting: Hint, not Russia
While Macau and Singapore have been Asian growth drivers in the last few years and will continue to be in the coming years, Japan is the next industry-changing gaming hub that will drive profits. That is, if the government legalizes gaming there.

Japan Dice

m

With its high average income and residents who already love gambling, analysts expect that Japan could have a $40 billion gaming industry by 2020. Now, everyone waits as a bill to legalize gaming sits to be heard by Japanese legislators. The allowance of casino building by companies like Las Vegas Sands and Wynn Resorts will be the next event that causes huge moves in the industry.

Wynn Resorts already gets 75% of its global revenue from Macau, but is now hoping to expand further with a bet on Japan. Speaking on his company's prospects for winning a bid in Japan, Wynn President Matt Maddox recently said:

Japan is known for hospitality, high quality and precision. The culture of almost perfection here fits very well with Wynn and its details-oriented focus. That would allow Wynn to be a strong contender in the Japanese market.

An even stronger bet than Wynn, however, is Las Vegas Sands. Its CEO Sheldon Adelson said, "We will spend whatever it takes...would I put in $10 billion? Yes." Sands has bet even more on Asia than Wynn has, with 88% of global revenue coming from Macau and Singapore. With its own expectations of winning a bid in South Korea soon, Sands is aggressively expanding in Asia, and Japan will be a great addition to this already industry-dominating company.

Lvs Resorts
Las Vegas Sands got 88% of its revenue from Asian operations in Q1.

Foolish conclusion: Place your bets where you know money will be made
Betting on the Russian gaming market might be an alright idea, at least on the Eastern coast as Melco Crown is doing. However, with all of these other great options around Asia, why would you? For investors who seek the next big growth story, keep watching for the legalization coming in Japan. While Wynn and Melco Crown are both hoping to get spots in Japan, Las Vegas Sands is still probably the best bet for a winning bid when the legalization comes, as shown by its success in Singapore and its more aggressive Asian expansion history.  

Why gamble on Russia when you can invest into dividends instead?
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That’s beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor’s portfolio. To see our free report on these stocks, just click here now.

Bradley Seth McNew owns shares of Las Vegas Sands. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers