After years of talk, Japan is officially allowing casinos to open their doors in the country. Despite public opposition, the Diet passed a casino legalization bill last Friday that will make way for three casinos in the island country.
It's no surprise that U.S-traded Las Vegas Sands (LVS 2.42%), MGM Resorts (MGM 0.02%), Wynn Resorts (WYNN 2.62%), Caesars Entertainment (CZR), and Melco Resorts (MLCO 0.33%) have all expressed interest in spending as much as $10 billion to build one of the resorts. Whoever wins the bids will have a lot to gain if lofty projections for the region come true.
Image source: Getty Images.
What we know
We know that Japan will allow three casino resorts. For comparison, that is more than the two allowed in Singapore when gaming was legalized there.
To appease local concerns about gambling addiction, Japan's residents will be limited to 10 visits per 28-day period and will have to pay a $53 entrance fee, while foreign visitors will gain access to the casinos for free. This isn't out of the ordinary in Asia. Singapore has had similar restrictions and other countries have considered foreigner-only casinos.
We also know that gaming space will be limited to about 3% of a resort's total square footage. Furthermore, a 30% tax will be levied on all gross gambling revenue. For context, Macau's gross gambling revenue tax is about 39% when all taxes are added up, so this isn't a bad deal for gaming companies.
Who is interested in Japan
It's worth breaking down the biggest companies vying for the Japan licenses and where they might stand in the process.
Las Vegas Sands is the biggest gaming company in the world, and with a presence in Macau and Singapore, it's a natural fit for Japan. It could also easily finance $10 billion or more for a resort, so this would be a low-risk pick for regulators.
Melco Resorts is based in Macau and also controls a resort in the Philippines. It's fairly small compared to Las Vegas Sands, but it could play up its Asian roots over the other four on this list.
MGM Resorts and Caesars Entertainment are both based in Las Vegas and are synonymous with the Las Vegas Strip. MGM Resorts also has a concession in Macau, recently opening its second resort there. Not surprisingly, MGM has spent years lobbying for its vision of gaming in Japan, so this wouldn't be a surprise pick. Caesars has a more checkered past, recently emerging from bankruptcy. But it was shut out of Macau and Singapore last decade, so expect it to push hard to win a gaming license in Japan.
The company with the most uncertain future in Japan might be Wynn Resorts. It is emerging from a scandal-ridden start to the year, which ended with founder Steve Wynn being forced out and the company buying back all of his shares. New CEO Matt Maddox has reduced expansion plans in Las Vegas and set his sights on Asia. Even with a governance cloud over the company's past, expect Wynn Resorts to fight hard for a spot in Japan.
How a Japan deal might get done
I wouldn't be surprised if gaming companies partner with local companies in order to increase their likelihood of winning a gaming license. Giants like SoftBank, Mitsubishi, and Nippon could give gaming companies some local legitimacy and help navigate the Japanese bidding process. We don't know yet, but look for this to be an attractive structure for both U.S. and Japanese companies.
The billion-dollar question
The biggest unknown for investors and gaming companies is: How big is Japan's gaming market?
Morningstar Research estimated that Japan could generate $21 billion per year in gaming revenue, compared to $33 billion in Macau. But I've seen estimates as high as $40 billion, so it's anyone's guess where the real number will end up. All we know is that this will be a big market, and the winner of a license will have tremendous business right off the bat.
Expect bidding for the licenses in Japan to be fierce. The big U.S. gaming companies have as good a shot as any to win in Japan, but we won't know who the winners will be for months. In the meantime, companies will begin jockeying for position in the biggest gaming license opening in more than a decade.
