Inside Asian Gaming

March 2012 | INSIDE ASIAN GAMING 5 Cover Story gaming factors in Japan, we believe IR operators could spend as much as US$7-8 billion on each resort compared to US$5-6 billion in Singapore (a potentially smaller market). If we assume 30% margin on a US$10 billion market, the ROIC [return on invested capital] for each IR would be 20%; and if we assume the [Japanese] gaming market size is US$15 billion, the ROIC would be above 30%, in line with the ROIC seen in Singapore and Macau.” CLSA/Credit Agricole Securities (USA) uses three methods to gauge the potential size of the Japan casinomarket.What it refers to as ‘bottom up analysis’; comparisons with Singapore visitor patterns and comparisons on average gaming spend by adults in the United States, China and Singapore. Bottom up analysis “If we were to assume for now that there willbetwoIRsinJapan,whichcostonaverage 30% more than those in Singapore (US$7-8 billion each given the larger relative size of Japan), then we would also expect each IR to have 30% more tables and slots. Given the assumed capacity and using a slight premium to our estimates for Singapore in 2013 (considering Japan’s greater wealth), we estimate that two IRs could generate roughly US$10 billion in IR revenue.” Comparisons to Singapore visitation “Our second method estimates the Japan market by making comparisons to IR visitations in Singapore, which average roughly 25,000 visits per IR and where local guests represent 30% of total visits. Using a similar proportion of IR visits from Tokyo’s 13 million local population and spend per visit, the domestic contribution to gaming is roughly US$5 billion. For foreign players, we assume that visitation picks up from the current 3 million visitations a year to 5 million a year, which seems reasonable considering that Singapore picked up nearly 2 million visitors after the opening of its IRs in 2010. Thus, given a similar spend per visit as Singapore for foreigners, foreign contribution to gaming [in Tokyo] would equate to roughly US$670 million, for total gaming revenue in Tokyo of US$6 billion. If we run a similar comparison for Osaka, which has a larger population but potentially lower income and propensity to gamble, the estimated gaming revenue is roughly US$4 billion. Thus, we estimate total gaming revenue in Japan is US$10 billion.” Comparisons to gaming spend by adults “Looking at gaming revenue per population age 18 or older (potentially a better measure than gaming spend per capita), we find that, unsurprisingly, Singapore has the highest gaming spend per adult population given two IRs located in the heart of a densely populated city- state,” says the report, adding: “Yet Tokyo is not far behind, with a population density higher than NewYork City and a much larger population of 13 million.” “Japan spends as much on pachinkos as others spend on full-scale IRs with both slots and tables, implying that Japan’s gaming potential could be much larger than our comparisons suggest,” says CLSA/Credit Agricole Securities (USA). “A similar comparison for Tokyo and Osaka estimates that gaming revenue could be at least US$11 billion,” add the authors. Casino resort ROIC comparisons Macau, Singapore and Las Vegas GGR estimates for 1x Japanese IR relative to Singapore market Source: Companies, CLSA Asia-Pacific Markets Source: Credit Agricole Securities (USA)