The most anticipated gaming license in over a decade could become available in the next year and every major gaming company is watching negotiations closely. After agreeing to open gaming at a small number of integrated resorts, Japanese officials are now laying out what the rules of the gaming industry will look like. Locations, tax rates, table limits, floor space, and access for locals are among the topics of discussion.
At stake is a gaming market with the potential to be worth $25 billion, about four times the size of the Las Vegas Strip. And with only two or three resorts likely to be built, Las Vegas Sands (NYSE: LVS), MGM Resorts (NYSE: MGM), Wynn Resorts (NASDAQ: WYNN), and Melco Resorts (NASDAQ: MLCO) are all waiting to see if this will be a massive opportunity they're willing to bet $10 billion, or more, on, or a risk that isn't worth taking.
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Rules make the opportunity
In a highly regulated market like casino gaming, the devil is in the regulatory details. Japan is particularly interesting because the introduction of casinos is opposed by over half of the residents there, and officials are worried about the problem gambling that already takes place in pachinko parlors and racing.
Ultimately, Japan would like two or three integrated resorts that would draw tourists to the country. Sites in Osaka, Tokyo, and Yokohama are believed to be in the lead for development. However, some locations are as much as an hour from the nearest airport, making transportation for tourists difficult, which is something to consider.
The rules for what those integrated resort have to have regarding accommodations (entertainment, meeting space, restaurants, etc.) and the rules governing the casinos themselves are what should interest investors. If casino size is limited or there's a cap on table games (as there is in Macau), it may be difficult to justify building a resort that could cost $10 billion. Sheldon Adelson has said that if locals aren't going to be able to visit it would be a deal breaker. But there could be limits on how many times locals can visit in an attempt to reduce problem gambling. There's also tax rates to consider, which can reduce the return on a megaresort very quickly.
We don't currently know what officials are contemplating for any of these rules, but before you get too excited about Japan's gaming market it's worth waiting on the final ruling.
Rules are coming and then bidding begins
An open comment period in Japan will end in the middle of September, at which time the central government will determine rules and the locations of the resorts. If regulations aren't too onerous we could be seeing the second largest gaming market in the world open up and a hotly contested bidding war over the licenses.
Las Vegas Sands has a strong track record, winning the right to build in Macau and Singapore, and as the biggest gaming company in the world it has a lot to offer. Wynn Resorts saw the Singapore opportunity pass it by and may go all-out to be the winner in Japan. Then there are MGM and Melco Resorts, which have made Japan a top priority for growth. We could also see one, or all, of these companies choose a local partner for development, which may help them win the bid. And come 2018 when a winner could be announced, gaming investors will be waiting in anticipation.
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