Japan, once considered the gaming industry’s next lucrative international destination after Macau and Singapore, now seems to pose more concerns than potential.
Nearly three years after the Japanese government established three integrated resort licenses, the effort has slowed, with seemingly little progress made. The departure of Las Vegas Sands last week from the bidding process for one of the licenses left some believing the market may never come to fruition.
“If the best are leaving, it’s never a good sign for the remaining,” Stifel Financial gaming analyst Steven Wieczynski told investors after Las Vegas Sands ended its pursuit for a location in either Tokyo or Yokohama. Company leaders once said that they were willing to spend $10 billion to $12 billion on the project.
“We view the Las Vegas Sands management team as the best in the business. If they are walking away from Japan, it probably means they can’t make the numbers work in terms of adequate returns,” Wieczynski said.
Deutsche Bank gaming analyst Carlo Santarelli said Las Vegas Sands’ decision to end its Japan quest had far larger ramifications than the departure of Caesars Entertainment last summer due to the company’s planned $17.3 billion merger with Eldorado Resorts.
“In our view, a large-scale integrated resort developer, who has long publicly supported and targeted the Japan IR initiative, simply walking away, will likely call into question the ultimate return potential of the market,” Santarelli said in a research note. “When factoring in development costs, regulations, concession duration, and both gaming and corporate taxes, it appears some are taking the approach that the risk may in fact outweigh the potential reward.”
The Japan model – casinos, hotels, restaurants, and non-gaming attractions, such as retail, conference facilities, and entertainment, all within one development – still has supporters, however.
Global Market Advisors Partner Brendan Bussmann said Japan’s central government has not wavered on its announced dates of January through July 2021 to accept applications. Bussmann, who has made countless trips to Japan, said Yokohama, Osaka, Wakayama, and Nagasaki are in their Request for Proposal (RFP) process to choose a licensing partner.
“The RFP process at the prefecture level will continue to move forward,” Bussmann said. “The biggest question that remains is the finalization of the fundamental policy, which is currently scheduled for release this summer. That will provide the final framework and dictate the market opportunity.”
Union Gaming Group analyst John DeCree said in a research note Japan remained “a great opportunity,” but with uncertain timing. DeCree said an integrated resort in either Tokyo or Osaka could be worth $2 billion annually in cash flow.
“However, the bidding process, construction timeline, and ramp period will be lengthy, which is on top of an already slow and arduous process just to get to this point,” DeCree said. He said Las Vegas Sands’ departure freed up $10 billion-plus of long-term capital earmarked for “a realm of possibilities for the company that could generate similar, or better, returns more quickly.”
Who is left?
In withdrawing from the process, Las Vegas Sands Chairman and CEO Sheldon Adelson said in a statement that “the framework around the development of an IR has made our goals there unreachable.” Last fall, company president Rob Goldstein said on a quarterly conference call he was no longer sure investing in a potential Japan project “penciled out.”
With Las Vegas Sands out of the picture, two American-based casino operators, MGM Resorts International and Wynn Resorts, remain in the hunt. Malaysia-based Genting, Hong Kong-based Melco Resorts and Entertainment, and Hong Kong-based Galaxy Entertainment are also still looking at Japan.
MGM has long focused on Osaka, and acting CEO Bill Hornbuckle, who has been involved in the company’s efforts in Japan from the beginning, said on April 30 the process might be delayed.
“Our team has worked hard on this, (and) as you know, we’re the lone standing applicant (in Osaka), and we would submit,” Hornbuckle said on MGM’s first-quarter conference call. “But I think what may happen is that the whole process gets pushed closer to the end of the year, which I think is appropriate and fine by us.”
MGM is a 40% partner in the Osaka venture with Japan-based Orix. Bussmann said MGM “remains bullish on the market” and appears committed to seeing the process through to the end.
“Unless something materially changes, I believe that MGM will submit their RFP to Osaka this summer and continue down the process for a license in Japan,” Bussmann said.
Wynn Resorts’ leadership did not discuss Japan on the company’s quarterly conference call this month. Company spokesman Michael Weaver said in an email that the company is “continuing to monitor the IR situation in Japan.”
Wieczynski said Las Vegas Sands had heard “rumored restrictions” that the Japanese government might place on gaming, which would challenge any returns a gaming company could see from a multi-billion-dollar investment.
“This scares us now, because we believe there are other gaming companies that are so ‘pot committed’ on winning a Japanese gaming license and will proceed with the process, even though the ultimate return could be disappointing,” Wieczynski said.
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
