Sunday, March 2, 2014

A New Casino War in Japan! Who Will Win?

               Investors appear to be over the downswing that occurred in January, with stocks surging in February and closing at or near all-time highs.  Stocks are now poised to continue their march upwards, yet some industries are in the perfect position to outperform the rest of the market. The industry I plan on talking about in this article is the Casino industry.

                Casino stocks have been on a tear as recently as last year, and I have repeatedly expressed my bullish opinions on them. As the global economy recovers people, now more financially secure, are having the opportunity to spend their money on fun, a trip to Las Vegas or Macau for example. All major casino companies have so far reaped the rewards of a resurgent economy and there stock shows it.

MGM Resorts International- Up 121% in the last year

Las Vegas Sands Corp- Up 66% in the last year

Wynn Resorts- Up 108% in the last year

Melco Crown Entertainment- Up 121% in the last year.

                These casino companies (All of which have an international presence) have easily outperformed the Dow and the S&P 500 which were up 16% and 22% in the same period of time. But what drove these particular companies to higher earnings and increased market share was there investments and expansion into Macau, which has become the new gambling capital of the world with six times the revenue of Las Vegas.

                While Las Vegas recovers slowly from the collapse in 2008, Macau has grown in leaps and bounds. As the only place in China that has legal Casino gambling, the gaming the tables of Macau draw in customers from all over Asia (In 2013 Macau generated $41 billion in gambling revenue, at the same time Las Vegas made just $6.5 billion). In 2013 Macau provided 61% of all revenue Sands generated, another 30% came from the Sands casino in Singapore.  

                These numbers show just how important Asia is to the big players in the Casino market. Other Asian countries like Singapore and the Philippines have seen the success of casino gambling in Macau and have legalized it as well. But another enormous gambling market seems to be close to opening, Japan.

                It is well known that the Japanese are enormous gamblers and estimates show that the gambling market in Japan could be as large as $10 billion, making it potentially the second biggest casino market in Asia and potentially the world. With the 2020 Olympic games being held in Tokyo It has become probable that the Japanese government will legalize Casino gambling come spring and if they do the question becomes which companies are in the best position to exploit the new market.

                The top 3 American Casino companies; Las Vegas Sands, Wynn Resorts, and MGM Resorts are all contenders in a Japanese market and all 3 companies have announced that they are willing to invest billions into developing integrated casino resorts in Japan. But which company stands the best chance of gaining the dominant share in a Japanese market?

Las Vegas Sands-

                In terms of capital The Sands might be in the best position to develop Casino resorts in Japan. The Sands is currently the largest Casino Company in the world with a market cap of almost $70 billion, compared to Wynn’s market cap of $24.5 billion and MGM’s capitalization of $13.5 billion.

                Sands also seems committed to Asia, with 5 of its 8 casinos located in Eastern Asia (1 in Macau, 3 on the Coati Strip, and 1 in Singapore, with the intention of building more in the Philippines and Taiwan.) C.E.O of the Sands, Sheldon Adelson has recently abandoned the plan to build a $30 billion mega resort in Spain and instead decided to focus his attention on Asia with a possible $10 billion investment in Japan.

                It is clear Sands is serious about Asia and Japan and the company is already the largest foreign casino operator in Macau, with clear advantages over its rivals in Japan.


Wynn Resorts-

                When it comes to the world of Casino gambling Steve Wynn is a legend, after inventing modern Las Vegas and selling his Mirage Resorts to MGM, Wynn has started another Casino company which he has grown into a company worth over $20 billion with a casino in Las Vegas and Macau (with another under construction).

                Wynn has expressed interest in Japan, saying that the company would invest well over $4 billion once casino gambling is legalized. Wynn is in a strong position to expand into Japan but with another $4 billion casino project currently going on, on the Coati strip it is conceivable that breaking ground on another multi-billion dollar project could be seen as over expanding.

                The casino in Coati is scheduled to be finished in 2016, building a Casino in Japan would take another 5 years. Although Wynn will most definitely expand into Japan the financial burdens of continuing two large projects might adversely affect the company.

                Now I am not saying Wynn will not be a player in the Japanese casino market it will be but Wynn might have to delay the construction of a Japanese Casino until its Wynn palace is finished in Coati.


MGM Resorts International-

                The day after Las Vegas Sands announced that it would invest about $10 billion into Japan; MGM announced that it too would consider investing about $5-10 billion to develop Casinos in Japan.

                Unlike the Sands and Wynn, who derive most of their income from their Asian properties, MGM makes about 65% of its revenue in the U.S and the rest from its sole property in Macau (MGM Macau in which MGM owns 51%).

                MGM’s financial position though is not as strong as Wynn’s and the Sands, the casino company is still recovering from a collapse in 2008 and the company posted a $38 million loss in 2013, even though is a great improvement from the $1.2 billion loss in 2012. MGM will likely see a return to profitability this year but it is questionable whether the company could even afford to expand into Japan.


All three companies have expressed interest in partnering with local Japanese companies such as Mitsubishi to help develop the casinos. Also MGM, Sands, and Wynn are not the only companies planning on entering the Japanese market. Caesars Palace and Melco Crown have also expressed interest.  

It is expected that Japan will legalize gambling by June and once the news is out all the major casino companies of the world will try to get a piece of the market. But in the end the company I think that will triumph and gain the largest market share is Las Vegas Sands, with the greatest financial might of any Casino company in the world, the Sands should have no problem breaking into and taking over the soon to be second largest casino market in the world.