Inside Asian Gaming

January 2017 inside asian gaming 9 Cover Story Masaharu Miyachi, Alex Poon, Thomas Allen and Xi Jin Ling notes that 26% of Japan’s 23.5 million tourist arrivals in the 12 months to October 2016 came from mainland China. If those 6.2 million Chinese visitors yielded the same average mass market revenue per Chinese visitor to Macau, it would amount to revenue of US$4.4 billion, in line with a US$20 billion market that’s split evenly between VIP and mass, foreign and domestic. The report also indicates another 47% of visitors came from South Korea, Taiwan and Hong Kong, relatively wealthy places with either none or one casino open to locals. “The success of the Japanese opportunity is primarily dependent on the local population and influx of tourism to Japan today,” Mr Gallaway says. “While I don’t expect the Chinese VIP player to be a significant part of proponents’ business plans for success, the Chinese will travel to Japan and will gamble there. However, this will be an additional outlet where the Chinese will gamble and will grow the overall Chinese gambling pie rather than cannibalize existing locations. “The only jurisdiction that could potentially be impacted is Korea,” Mr Gallaway adds. “I suspect that many of those proposed developments are feasible on the margin only. In addition, given the proximity of Korea to Japan, it is likely that part of these IRs’ business plans are contingent on Japanese patronage. As such, with casinos now located in Japan, this could prove negative for Korean IR development.” Wells Fargo Securities Senior Analyst Cameron McKnight pegs Japan’s potential gaming revenue for two or three large IRs at US$5 billion each, with EBITDA up to US$1.5 billion. Mr Bromberg believes the first two or three Japan IRs could each produce the same gaming revenue as Singapore’s two IRs, roughly US$4.8 billion in 2015. CLSA Tokyo Analyst Jay Defibaugh estimates gaming revenue from two IRs in Tokyo, Osaka and/or Yokohama could “exceed US$10 billion” with US$2.5 billion in EBITDA. One IR in each of Japan’s 11 regions would bring gaming revenue to US$30 billion, down from CLSA’s estimate of US$40 billion in February 2014 – the high water mark for optimism about Japan IRs and gaming in Asia overall. WRITING THE RULES How big the market will be and whether the current rising tide of optimism surpasses the 2014 peak depends largely on the IR Implementation Bill, the next step in the legalization process. That legislation, which also must be approved by both houses of the Diet, will establish key parameters including the number of IR licenses and potential locations, gaming tax rates, rules for locals to play, junket regulations, local ownership requirement and problem gambling amelioration. Making those decisions and writing them into legislation is expected to take 12 to 24 months, though Morgan Stanley Asia Pacific notes that a task force has been working on these issues for more than a year, which could reduce the wait to as little as six months, setting the stage for IRs to open as soon as late 2021. On the other hand, Sanford Bernstein Senior Analyst Vitaly Umansky