COMMENT:
For almost two decades, the prospect of Japan legalising casinos and becoming an estimated US$20 billion-a-year gaming market has been mouth-watering, elusive and, in effect, uninvestable.
But statements late last week may have finally given investors the chance to place some meaningful bets. First, the city of Yokohama said it would bid to host a casino, then US operator Las Vegas Sands announced it was no longer interested in building a resort in Osaka, focusing instead on Tokyo-Yokohama.
On the face of it, the statements seem to be yet more markers in a process notable for having never quite given investors precision on when, and under what rules, Japan's first legitimate roulette wheel would spin. Three years ago Prime Minister Shinzo Abe barrelled through parliament the necessary legislation to legalise integrated resorts (IR), but the industry still awaits the announcement of details on the application process (maybe in November) and the establishment of a casino management board (possibly early 2020).
More critically, it is still not known which three cities will be given licences to host the IRs and, once that is known, which among the many salivating international operators will secure each prize.
In the meantime, brokers have had a good stab at producing lists of stocks, both Japanese and global, that could offer investment exposure to the Japan gaming story. As well as the big listed IR operators, names range from producers of gaming machines such as Konami and Sega Sammy to property developers, hotel operators, construction groups and railway companies.
There is even greater potential upside for whichever Japanese companies — Orix, Sumitomo and others — partner with the successful foreign operators on the financial side. Even the brokers, however, will only push so far: they know that investors need firmer signals before the great gaming narrative is unleashed.
Despite all the unknowns, it has been clear since 2016 that as well as a licence going to a small regional city in Hokkaido or Kyushu, Osaka — population 9 million — would host the country's first casino. Accordingly, all the big operators, including LVS, have talked effusively and with pledges of multibillion-dollar investments about how badly they want to be in Japan's second city.
It has been nearly impossible to guess the likely winner. But LVS, it seems, had focused attentions on Osaka because until now it was unclear whether the larger prizes of Tokyo and its neighbour, Yokohama, would bid to become hosts at all.
With that uncertainty out of the way, much of the next few months becomes clearer and the odds on many of the stocks in the various brokers' baskets shorten considerably.
MGM, with its partner Orix, emerge as the strongest bidders in Osaka while LVS looks well placed to win something in or around the Japanese capital, using its successful resort in Singapore as a calling card. Les jeux — enfin — sont faits.
Written by: Leo Lewis
© Financial Times