The global casino operators eyeing Japan with expectations of getting at least a 20 percent return on their multibillion-dollar investments could end up with less than half that, according to a new report released by Morgan Stanley.
High labor and construction costs, increasing taxes, legal delays and the inability to attract enough Chinese VIP customers as junkets will probably be forbidden in the country are the main reasons, according to the report.
Japan’s parliament is expected to approve a legalization bill this year, paving the way for the development of regulations and a licensing process. Investor consensus is that Japan could become the world’s third-biggest gaming market, after Macau and the United States, generating US$40 billion dollars in annual revenues by 2025 from destination-scale casinos in Tokyo, Osaka and several regional tourist spots.
The bank estimates annual gaming revenues in Japan will be considerably less than that, between US$21 billion and US$22 billion. In line with that the report underlines that to get a 20 percent return in Japan, gaming companies should not spend more than US$5 billion. Yet news reports say operators are planning to spend up to $10 billion on the Tokyo and Osaka resorts, and that “implies less than a 10 percent return on invested capital,” the bank said.
