Japanese Casino Market Will Be Third Largest in World, Not Second: Sanford Bernstein

Japan’s impending casino market will generate $8 billion in gross gaming revenues per year, according to a new report by Sanford Bernstein analysts. This would make it a smaller market than Nevada’s, which produced around $11 billion last year.

Analysts have long pointed to the Japanese casino market’s potential to become the second largest in the world, behind Macau ($37.5 billion last year), but the new report suggests it may have to make do with third for the foreseeable future.

These projections fall well below the $40 billion predicted by CLSA in 2014, and even the $15 billion Morgan Stanley touted in April of last year.

But some context is needed. That $40 billion was put forward at a time when Macau was generating $45 billion a year, and it presupposed a far more liberal market than the one that will actually emerge.

Market Limitations

Regulations limit the market to just three integrated resorts, one per city or prefecture. Sanford Bernstein’s analysis is based on two major properties in big cities and one regional property – although if only one metropolitan area is chosen, with two regional resorts, revenue would be lower yet, the analysts said.

The three Japan IRs that will be authorised in the first round will be located across the country in three different municipalities. This is [a] very different market structure of creating a centrally located critical mass (like Macau, Manila, and Singapore which all benefit from their critical mass locations),” the Sanford Bernstein analysts wrote.

Other limitations on the market include a restriction of gaming floor space to no more than three percent of the entire property and an entry fee of $56 for Japanese residents.

But the analysts also noted that non-gaming revenues at the resorts would be higher than in Macau, adding another $2 billion to $3 billion to their total haul, or some 20 to 30 percent. In gamble-centric Macau, non-gaming attractions contribute around 10 percent to total revenues.

Osaka Timing Off

Sanford Bernstein also had bad news for Osaka, which is desperate to get an integrated resort up and running before 2025 in time for its staging of the World Fair. The analysts believe this timeframe is unrealistic.

Lawmakers have not yet produced the so-called “basic policy” – a framework of regulation for the casinos that was originally due in July.

“The process of setting up regulations and guidelines has continued to be slow-moving, and the bidding process will likely take another 12 to 18 months,” the analysts wrote. “The development process after bids are announced could take another five years. Realistically, the first IR is not likely to open in Japan before 2025.”