Earlier this month, Tokyo’s first female governor, Yuriko Koike, spoke out in favor of opening a casino in the Japanese capital. Unfortunately for Asian casino stocks, Melco Cown Entertainment Ltd (ADR) (NASDAQ:MPEL), Wynn Resorts, Limited (NASDAQ:WYNN), Las Vegas Sands Corp. (NYSE:LVS) and MGM Resorts International (NYSE:MGM), unlocking the massive potential Japanese casino market has proven to be easier said than done.
MPEL, LVS, WYNN and MGM all have large presences in the world’s largest gambling hub — Macau, China. Unfortunately, for the last two years, running Macau casinos has been a constant battle with the local government.
Since hitting record highs in February 2014, Macau has reported 26 consecutive months of year-over-year revenue declines. The downturn started when the Chinese government began a crackdown on corruption in Macau that spooked many of the city’s high-rollers.
Since then, Macau has banned phone betting and expended smoking bans in the casinos as well. The Macau government has also been extremely stingy in allotting table games to newly opened Macau resorts.
Macau casino stocks have been butting heads with the local government constantly in recent years. At the same time, the Japanese market remains untapped.
A 2014 CLSA study estimated that Japan’s casino market was a $40 billion market. Innovation Group estimates that the market could be between $30 to $60 billion. That’s certainly not chump change. A fresh source of growth could certainly ease the pain of the Macau downturn for casino stocks.
Casinos Have Powerful Allies in Japan
Koike’s remarks earlier this month created fresh headlines about casino legalization in Japan. Unfortunately, high-level government support hasn’t been enough in the past. Japan’s Prime Minister Shinzo Abe has supported casino legalization for years. However, Buddhist-based Komeito and other minority parties have blocked all attempts at a casino vote.
A casino bill was originally submitted for a vote way back in 2013. In mid-2014, Prime Minister Abe anticipated that the bill would be passed by the end of the year. “I hope in my capacity as leader of the LDP that we can aim to pass it in the next extraordinary session of the Diet,” Abe said on July 2014.
Since then, a vote on the bill has been repeatedly delayed. The most recent delay came back in January.
Bottom Line on Casino Stocks
MPEL, WYNN, LVS and MGM investors have been burned in the past by anticipating an open Japanese market. However, the most recent Japanese elections may have provided the best cause for optimism yet. Prime Minister Abe’s Liberal Democratic Party recently won an out-right majority of both houses of the Diet for the first time since 1989. If the LDP wants to push the casino bill through, is should now have the votes to do so.
Macau casino stocks MPEL, WYNN, LVS and MGM have been lousy bets in the last couple of years. However, investors may not be fully appreciating the impact of the latest Japanese elections. The elections may have created the best opportunity yet for legalized Japanese casinos.
If Japanese casinos are legalized, a $60 billion growth market could open up over-night. On top of that, a growing number of analysts are expecting Macau to return to positive growth by the end of 2016. Macao casino stocks have some major potential catalysts ahead in the near future.
As of this writing Wayne Duggan was long MPEL.