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June 15, 2021

Exclusive interview with Grant Govertsen, Managing Director, Head of Asia Equity Research at Union Gaming

Union Gaming analyst expects Japan to be a “locals' market” with “minimal” long-term impact on Macau gambling industry

Union Gaming analyst expects Japan to be a “locals' market” with “minimal” long-term impact on Macau gambling industry
Amid public concerns over increase in problem gambling and organized crime, Japan's Upper House approved last week a piece of legislation to legalize gambling in a market that could be worth up to USD 40B. Union Gaming analyst Grant Govertsen spoke with Y
Japan | 12/19/2016

Amid public concerns over increase in problem gambling and organized crime, Japan's Upper House approved last week a piece of legislation to legalize gambling in a market that could be worth up to USD 40B. Union Gaming analyst Grant Govertsen spoke with Yogonet about the growth potential of Japan's gambling industry,and the challenges ahead for both casino operators and gaming suppliers.

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hat is the growth potential of the Japanese market?

It is very difficult to estimate the potential size of the market in terms of GGR because we don’t yet know any of the most important variables from which we could estimate a market size. Namely, the government still needs to create and pass the so-called “IR Implementation” bill. It is this bill that contains such pertinent details as the number and location of licenses, the tax rate, whether or not locals will be allowed to gamble, etc.

This being said, we believe it will likely be the second largest market in Asia, second only to Macau

It should be significantly larger than Singapore simply given the much larger population of Japan and of its major cities like Tokyo and Osaka.

International operators such as Las Vegas Sands, MGM, Genting, and Wynn have spent years waiting to pitch for business in Japan. But what will happen to smaller operators who want in for a piece of the action?

We believe that ultimately there could be several licenses issued for smaller cities and prefectures. Hokkaido for example. It is possible that these smaller licenses will hold less appeal for most of the major international developers who are quite rightly focused on Tokyo and Osaka. As such, some of the smaller operators have a better chance at winning a license in a smaller jurisdiction.

However, we expect a significant amount of interest for any and all licenses in Japan so for every winner of a license there will potentially be dozens of losers

What are the cities expected to bid for the resorts?

It is commonly believed that the IR Implementation bill will contain one license in metro Tokyo and one license in metro Osaka, in addition to the potential for several licenses in smaller cities. What we are likely to see is a regional RFP where municipal government’s bid against each other for the right to be the host community. For example, as it relates to the metro Tokyo license, we could see an RFP process where Tokyo, Yokohama, and Chiba all bid against each other for the right to be home to the IR.

How can this affect Macau's struggling industry considering the market could eventually match either Macau or Las Vegas in terms of size and numbers?

On an overnight basis we would expect Japan to notably exceed the GGR of the Las Vegas Strip

Keep in mind that the Las Vegas Strip is just a fraction of the size of Macau. That said, we expect Japan to be more of a locals market than an inbound VIP market so the impact to Macau will probably be minimal over the long term, although we would expect some short term hiccups in the first year or two after the IRs open in Japan as VIP customers will want to see the new facilities.

What does research say about the Japanese player? Based on behavior and interests, which gaming manufacturers are most likely to benefit from the legalization of casinos because of their product offerings?

The opportunity for gaming manufacturers is actually going to be quite small

Keep in mind we are likely talking about a single digit number of new casinos, so the aggregate number of gaming equipment sales opportunities will generally not move the needle for most of the major gaming equipment suppliers.

What will be the biggest challenges facing the Japanese gambling industry from the regulatory perspective?

Much of the regulatory environment will depend on what the government’s ultimate goal is. For example, if the goal is job creation and tourism growth, then the government needs to keep in mind that a lower tax rate is going to result in higher levels of investment. Higher levels of investment mean bigger resorts and more jobs. It would also mean the resorts are more attractive and thus more likely to attract foreign visitors.

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