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Commentaries

No Jeff, It Is Not Breaking News

By Ken Adams

Breaking news is an important topic around the campfire at CDC.  We do our best to keep gaming industry insiders up-to-date on events and issues that concern gaming.  When a story surfaces after the regular reports have been issued, it poses a question; is this breaking news?  Can it wait until tomorrow, or should we issue a special “breaking news” report?  The discussion goes something like this: “Ken, is this breaking news or can it wait?” The ensuing discussion helps us better understand which events are really important for industry decision makers and which are simply interesting stories.

One of those events occurred recently when the Diet in Japan voted to approve casinos or rather approved legislation that sets the stage for a “real” casino bill.  The next bill will include all of the necessary details, such as the number of locations, the tax rate, the investment to be required, a timeline and even the nature of the customers. The last issue is very important in the region as some Asian countries have banned or limited access to casinos for local citizens.  Ultimately for a casino to generate enough revenue to justify the billions of dollars of investment, it needs local customers as well as tourists.

The timeline element in the story was the most important one for our discussion.  It is hardly breaking news if the actual enabling legislation has yet to pass or if no casino will open for at least five years.  Don’t get me wrong, the possibility of casinos in Japan is a really important issue for the gaming industry.  Growth opportunities are getting fewer and fewer, especially opportunities in countries with a significant gaming culture in place, but no casinos.  Singapore, Macau and the Philippines appear to be nearly built-out and Vietnam, Cambodia and Korea are limited in part because casinos in those countries discourage local patronage.  In fact, what the region does not need is one more jurisdiction that targets Chinese high-rollers almost exclusively.

If the Japanese legislation does not restrict local gamblers, it is an exciting opportunity for the industry.  Japan has a very active gaming culture; pachinko parlors annual draw $200 billion in wagers with a 14 percent win – $28 billion, a number that dwarfs any jurisdiction in the United States.  The horse racing annual handle is $22.5 billion, nearly double the handle here.  All of that is good news for the industry and it has certainly excited the press – enthusiastic analysts are predicting as much as $30 billion a year in casino revenue from Japanese casinos.

However, Japan may not turn out to be the opportunity that has so excited the press.  Getting the first bill passed was a long slow process, it was fifteen years in the making and the next step is not likely to be a slam dunk either.  Polls released in the days following its passage showed the government of Shinzo Abe had lost popularity because of the gaming bill.  That raises a serious question, how much of his hard won political capital is Abe willing to wager on casino gaming?  Even if he is willing and successful with his efforts to pass a full-fledged casino bill, the finish line is at least five and by some estimates as many as eight years away.  The industry’s giants, MGM, Sands, Wynn, Caesars, Genting and Crown have the staying power and possibly the political will to stay the course.  But there will be no increase in revenues or stock prices from casinos in Japan for a long time.  MGM and Wynn have some experience with long waits, by the time both open casinos in Massachusetts eight years of potential revenue will have been lost in delays, lawsuits and a tedious process.  Like Massachusetts, Japan might have some obstacles lying in wait for innocent developers.

Japan has a significant constituency that does not want more gambling. In fact anti-gambling forces would like to rid Japan of pachinko parlors.  Horse racing does not raise the ire of as many people because it is not as ubiquitous as those damn pachinko joints.  There are between ten and fifteen thousand pachinko places in Japan.  The gaming opponents are certain to fight the new legislation, fight the current government and most probably mount legal challenges, especially over sites in major population centers, such as Tokyo.  So, even if a casino bill did pass, it was not a signal for joyous celebrations.  Still, Japan does offer a glimmer of hope for expansion for an industry that has nearly exhausted all of the major expansion possibilities.  But it also offers a word of caution: Any casino development in Japan is in the distant future.  And thus, I said to Jeffrey, “No I don’t think this is breaking news; it is important for certain, but we will all of plenty of time to digest its real value over the next decade or two.”

Gaming operators got the green light they’ve been waiting for after Japan’s parliament approved Thursday an “integrated resorts” law that is a first step toward allowing casino gambling. Passage of the new law left its opponents in tears, but big players said they were keen to get started. Kelvin Chan, Associated Press, 12-15-16

The approval by Japan’s parliament of a bill to legalize in principle casino gambling in the country is fuelling excitement among several U.S.-based casino operators. Las Vegas Sands Corp, Wynn Resorts Ltd and Caesars Entertainment Corp have reconfirmed to the Wall Street Journal their respective interest in investing in Japan.  MGM Resorts International went one step further, proposing to “create a coalition of Japanese business partners” to build a casino resort in Japan.  GGRAsia, 12-15-16

 

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