Inside Asian Gaming

inside asian gaming May 2014 40 two megaresorts in Tokyo and Osaka and another $2.4 billion each from 10 smaller regional casinos. The Morgan Stanley analysts have their doubts. They point to weaknesses in Japan’s overall appeal as a destination, particularly with regard to visitation from China. The ability to attract Chinese high rollers is essential to fostering a Macau-like VIP market, in their view, and it’s a prospect they rate as questionable, especially if the regulatory line on junkets is drawn closer to Singapore’s than to Macau’s, which is likely. The Locals: a Closer Look It’s an argument seconded in its essentials by Chris Jones, senior Gaming & Lodging analyst for Telsey Advisory Group, a consumer- focused brokerage based in New York. He’s written an even longer report that also zeroes in on the slow progress the country has made in meeting the government’s tourism goals. Japan has set a target of 18 million visitors in 2016 and 25 million in 2020, but it has yet to attract even 10 million, in light of which, comparisons with Singapore largely fall away, in his view, considering that the tiny city-state draws 15 million visitors annually. Nor does he believe the allure of the 2020 Olympics will be enough to redress the shortfall. Nearby competition could also arise to dent the potential, he says, especially if Korea responds by opening its casinos to domestic play. He also questions the prospects for significant growth from an underserved domestic market, an assessment that figures prominently in Morgan Stanley’s research as well. Mr Jones notes that Japan’s population is expected to shrink from 128 million today to 97 million by 2020. Messrs Choudhary, Poon and Allen, for their part, point to the limited impact of Japanese gamblers worldwide, to declining trends in pachinko revenue and to challenges the industry “The average [GGR to GDP] is about 0.43% in Asia and US gaming markets. If we apply this percentage to Japan’s 2013 nominal GDP of US$4.9 trillion, Japan’s GGR would be roughly US$21 billion, only half of the market consensus of US$40 billion. Even more importantly, this could be divided among 10-12 casinos across Japan and thus the Tokyo market’s GGR could be as low as US$5-6 billion.” Assuming 20% of pachinko players convert to casinos, the Tokyo slot market would be worth $1.2 billion based on $5 billion in current pachinko revenue—a market, interestingly enough, that would be smaller than Macau’s. Source: CEIC, Morgan Stanley Research Casino Gross Gaming Revenue as Percent of Nominal GDP Source: American Gaming Association, Spectrum, DSEC, CEIC, Singapore Totalisator Board, Morgan Stanley Research The Highest Casino GGR to Lottery GGR Ratio is 3.0x Feature