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Japan's Casino Gambling Looks Like It's a Go Again

By Rich Duprey – Oct 26, 2017 at 7:07AM

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A risky political maneuver sets the stage for the next round of laws to be passed.

The on-again, off-again nature of Japan's casino gambling push looks like it's back on again. A risky political maneuver by Prime Minister Shinzo Abe to hold early elections paid off handsomely as his Liberal Democratic Party (LDP) notched an overwhelming victory last Sunday and kept control of Japan's lower house by a two-thirds majority.

That means because the current session of the Diet doesn't end until Nov. 30, there's still enough time to pass the necessary legislation to make casino gambling a reality. Although it's said the public opposes the measure by as much as 2-to-1, the LDP is staunchly in favor of it as an economic boost to the country and its legislative gains will make passage easier.

Tokyo, Japan

Image source: Getty Images.

Betting on a big rollout

Las Vegas Sands (LVS 0.11%), MGM Resorts (MGM -1.66%), and Wynn Resorts (WYNN -1.77%) are all angling to obtain one of the very few licenses that will be initially awarded when casino gambling is legalized, as are regional casino operators like Melco Resorts & Entertainment (MLCO -0.86%) and Chinese casino magnate Lawrence Ho. Most have said they'd be willing to spend upwards of $10 billion to construct an integrated resort in Japan, a currently untapped market that is estimated to be worth as much as $40 billion or more even than Macau was worth at its peak.

Recently, however, Australia's Crown Resorts (CWLD.Y) dropped out of the running, with its director, James Packer, saying it was "unrealistic" for the resort operator to think it could win a license. Crown is more interested these days on the opportunities in Australia for expansion.

Yet it's been a difficult process for casino gambling to gain traction in Japan. Studies suggest the country has five times the rate of gambling addiction than other countries. While casinos are not permitted, various other forms exist, most notably pachinko, where parlors are numerous.

A pachinko parlor

Image source: Getty Images.

A long, winding path

It wasn't until the LDP had secured large legislative majorities that the first enabling laws were able to be passed, but the nuts and bolts and regulatory framework of how casinos would exist and operate still needed to be decided.

Hope started to fade this past summer as legislative impasses mounted and Abe's popularity began to wane. In something of what could be considered a stroke of luck, bellicose bantering between North Korea and the U.S. allowed Abe to take a strong nationalist stance on protecting itself that caused his popularity to make a U-turn. Seizing the opportunity, Abe called for early elections.

It was a risky strategy because earlier elections in Tokyo sent Abe candidates down to defeat. A similar failure in national elections, or even significant weakening of the LDP's majority in the Diet, could have doomed the casino bills. It might have served to delay their passage until the next session, which would have given casino gambling critics an opportunity to rally the public against it.

Instead, Abe's plan seems to have worked and coupled with a number of other stratagems, such as appointing casino backers to high-level positions, there is a much greater possibility casino gambling will become a reality. Even if legislation is passed in a timely manner, however, it will be several years before one opens its doors. Bloomberg Intelligence has suggested 2023 as the earliest date for a casino to go live.

Macau skyline at night

Image source: Getty Images.

Can't count on Cotai

The casino operators need a new, big market. While Macau is in the midst of a recovery with a resurgence in VIP gamblers helping to prop up the industry once more, Macau remains under pressure from Beijing to diversify away from gambling. It's been pushing for more family-oriented entertainment to make the Cotai district of Macau a Disney-like tourist destination for mainland families.

MGM Resorts is buying into that plan in a big way, opting for the high-risk decision to open its oft-delayed MGM Cotai resort without any VIP gambling tables. Melco Resorts tried that with its City of Dreams casino, but quickly reverse course as revenue plunged. Both Wynn and Sands have ensured that their new casinos have plenty of VIP tables, even though it's meant taking tables away from its existing resorts.

A new opportunity in Japan could help alleviate the pressure on the operators' performance in Macau but, as noted, it's still years away even though the casino gambling effort seemingly is getting the green light again.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Mgm Resorts International Stock Quote
Mgm Resorts International
$36.65 (-1.66%) $0.62
Wynn Resorts Stock Quote
Wynn Resorts
$82.55 (-1.77%) $-1.49
Melco Resorts & Entertainment Limited Stock Quote
Melco Resorts & Entertainment Limited
$8.68 (-0.86%) $0.07
Las Vegas Sands Stock Quote
Las Vegas Sands
$46.89 (0.11%) $0.05
Crown Resorts Limited Stock Quote
Crown Resorts Limited

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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