The emergency stimulus measures approved by the Japanese government on January 11 do not include specific reference to legalization of casino resorts, but there is mention of promoting tourism, encouraging business investment, and creating employment opportunities. Fitch Ratings continues to believe that Japan gaming liberalization remains a good likelihood within the next several years.
The potential for Japan casino legalization is important to monitor as it could result in increased competitive risk to established markets and operators in the region as well as development risk for potential gaming license bidders.
The current ruling Liberal Democratic Party (LDP) supported legalization of casino resorts when it was previously in power. The LDP set up research groups to study the issue; in June 2006 it recommended a basic policy of developing two or three casinos and in January 2007 it set up a subcommittee to study legal structure. However, the LDP lost control of the upper house in the July 2007 election and then lost a majority of the House of Representatives in 2009 before regaining power in last month's election. LDP's coalition partner, New Komeito Party, also appears to be in support of casinos.
Gaming expansion tends to be contagious, albeit lumpy in its trajectory. Passage of gaming initiatives is fueled by multiple years of political backing, competition from nearby markets that result in potential tax dollars being siphoned to other jurisdictions, and increased social acceptance. Since the LDP was last in power, the integrated resort model has been proven to be largely successful in Singapore as a means of stimulating tourism and the economy. Overall visitation to Singapore increased by 20.2% in 2010, the year its two integrated resorts opened, and then 13.1% in 2011. Visitors to Singapore from Japan in 2011 numbered 656,417, accounting for 5.0% of total visitation, reflecting a 24.1% increase from 2010.
Additionally, we expect the Philippines and Vietnam gaming markets to ramp up materially over the next few years, and South Korea and Taiwan have also been considering gaming liberalization measures. As discussed in our 2013 Asia-Pacific gaming outlook, "Rising Regional Prosperity Underpins Growth," we believe gaming proliferation in southeast Asia over the next decade may be similar to the contagious growth of various markets in the U.S. over the past 20-25 years.
Companies that would likely be aggressive in pursuit of a Japan gaming license include the U.S.-based multinational gaming companies, namely Las Vegas Sands (rated 'BB+' with a Stable Rating Outlook by Fitch), Wynn Resorts (rated 'BB' with a Stable Rating Outlook by Fitch) and MGM Resorts (rated 'B' with a Positive Rating Outlook by Fitch). Other more domestic-oriented U.S. operators such as Caesars Entertainment (rated 'CCC' with a Negative Rating Outlook by Fitch) may also express interest, but its pursuit would be more financially constrained and would likely require partners. Notable Asia-Pacific operators that could be interested include Genting Berhad (rated 'A-' with a Stable Rating Outlook by Fitch) through one of its subsidiaries.
Japan has long been touted as an attractive gaming market with a large, relatively rich population base and close proximity to South Korea (which restricts gaming by nationals) and northern provinces/cities of China, including Beijing. As a result, the small South Korea gaming market would be the most negatively affected market in the event of Japanese gaming liberalization.
Macau, the regional hub for gaming, received over 1 million visitors from Japan, Korea and Beijing year-to-date through November 2012. However, this represents only 4% of total visitation, while 57% of Macau visitation comes from nearby Hong Kong and the province of Guangdong. As a result, the impact to Macau would be limited since Macau remains largely a day trip, local market, but it would still be notable because Japanese casinos would likely target and attract a broad southeast Asian and international visitor base.