With Japan open for casinos, now the real games begin

Thursday’s passage of an integrated resort measure in Japan’s parliament was more than just a needle-mover.

As the country opens its doors to casinos and gaming, analysts and executives are salivating like Pavlovian dogs over the prospects of a potential $30 billion market –- that would be topped in East Asia only by Macau.

But as any industry observer who has witnessed the opening of new a market can attest, the notion of “playing the long game” doesn’t quite do justice to describe all of the fits and starts involved in bringing a new gaming market from concept to reality – not to mention the jockeying for position that the global casino conglomerates will undertake in the coming years in search of a slice of the Japan pie.

Most of the major casino companies – including the big players in the U.S. and Macau, along with Crown, Genting and Bloomberry in the Far East have expressed a desire to seek licensure in Japan -which is likely to authorize casino construction in highly-populated metropolises like Osaka and Tokyo.

But there a laundry list of items that need to be worked through before slots and table games are humming away in the Land of the Rising Sun.

For starters, Japan’s Diet must pass separate legislation that sets the overall number of licenses to be issued, stipulates the casino resort locations and finalizes the regulations and rules – i.e. tax rates, problem gambling requirements – that will ultimately govern the activity. This is expected to take in the neighborhood of nine months.

Then comes the bidding, license issuance and construction process.

When all is said and done, Japan’s first integrated resort isn’t expected to open until 2022. This is date well after the 2020 Tokyo Olympics, an event that would have reaped a bumper crop of well-off foreign tourist customers to test their luck at the flashy new properties.

Another key theme to watch over the coming months will be the nature and tightness of local ownership requirements. It appears likely that foreign operators seeking a license will need to pursue a consortium model and forge partnerships with local groups to be eligible to participate in the bidding process.

How these rules are written will have substantial impact on the attractiveness of these casino resort opportunities to a foreign operator.

“In our view, it’s far too early to tell which operators and approach will ultimately secure a license. We do think there will be a strong emphasis on local ownership, and it’s possible US operators could end up with 25-40% ownership interests, which is likely below expectations,” said Cameron McKnight, a gaming analyst with Wells Fargo Securities.

But the potential gains to the global gaming giants from a Japan opening are difficult to understate, particularly given that Japan is the third-largest economy in the world. Its potential gaming market is estimated to be in the $5-$6 billion range initially and then work its way up to $30 billion – roughly 0.7 percent of the country’s gross domestic product – as it matures and more supply is brought online.

“After years of study in the region, we believe the opportunity exists to drive significant growth in sustainable travel and tourism — particularly from international segments — along with the creation of thousands of jobs and long-term economic benefit,” MGM Resorts proclaimed in a statement Thursday.

Gaming equipment manufacturers and technology providers also have plenty of reasons to be excited.

“It is important to note that the new market opportunity should also present an opportunity for the gaming equipment and technology providers, given that we expect there to be a meaningful gaming machine presence in Japan relative to the table focus in other Asian markets,” wrote David Katz, a gaming analyst with the Telsey Group.

As with any new market opening, there will no shortage of roadblocks and headaches, but there should be something for everybody once the Japan domino completely falls.