The unexpected announcement on Wednesday that Las Vegas Sands will no longer pursue a casino in Japan is yet another sign that the country's thick layer of red tape will deter foreign operators. Japan has a history of self-isolation, and it's incredibly difficult for outsiders to do business there. That said, Japanese cities desperately need international expertise. And cash.
Las Vegas Sands (LVS) said on Wednesday that it is walking away. Japan has approved the granting of three licenses for "Integrated Resorts," the euphemism for casino-hotel-retail projects coined in Singapore. But Japan is struggling to drum up international interest. Most big global casino companies have been sniffing around. Then they've walked away.
Chairman and CEO Sheldon Adelson says he has a "fondness for the Japanese culture and admiration of the country's strength as a tourism destination," built up over 30 years of holding conventions there. But the "framework around the development of an IR has made our goals there unreachable."
That sounds like an issue dealing with the bureaucracy around the projects. Caesars Entertainment (CZR) and Wynn Resorts (WYNN) have also expressed interest, then bailed on opening a Japanese casino.
The Japanese government said in response to the Sands announcement that it would not be changing its schedule regarding the launch of the casino resorts. The government has authorized bids from interested cities by July 30, 2021, with the cities meant to pick a private-sector partner, then apply for the right to have a project.
It seems to be an interminable process of getting the resorts off the ground. The Japanese government is due to unveil its "basic policy" on the integrated resorts by July 26. But that may slip. A draft of the basic policy was released last September, and the authorities had indicated they would have the policy in place by March.
The three largest cities -- Tokyo, Osaka and Yokohama -- are all likely to table bids. Sanford Bernstein analysts estimated last year that Japan's casino market would be worth $8 billion a year.
Adelson had estimated any casino resort he built in Japan would cost around $10 billion. But the company had already pulled out from interest in Osaka, shifting to Tokyo and Yokohama. It was a controversial move for Prime Minister Shinzo Abe to push through the legislative changes to allow gambling. Now it seems pencil pushers are shoving as many pieces of paper at would-be operators as they can.
The difficulties in Japan bode well for the operators in Macau, the only Chinese city that allows casino gambling. Japan is an extremely popular travel destination with mainland Chinese tourists, who engage in bouts of bakugai, or "explosive buying," of basics like rice cookers and cosmetics. So Japanese casinos could siphon away gamblers with a shopping habit.
Of course, the casino industry has been absolutely hammered by the Covid-19 crisis. Macau shut down its casinos for 15 days in February. While the tables and slots are back in action, no one is coming, because neighboring Guangdong Province has put in place a mandatory 14-day quarantine for returning citizens, while Macau has barred all entry by non-Chinese citizens. That resulted in gambling revenue shrinking 97% in April, the city's worst month on record, as my colleague Rob Lenihan explained.
However, the operators are not in danger of going under. J.P. Morgan analyst D.S. Kim said in early April that all the casino operators have ample liquidity that would allow them to survive an unprecedented period of near-zero revenue for at least a year.
Sands was the first Las Vegas operator to open in Macau, with its business there listed separately as Sands China (SCHYY). The Vegas company also operates the Marina Bay Sands in Singapore. With the Japan decision, Adelson said it is "time for our company to focus our energy on other opportunities," with significant new investment at its operations in Macau and Singapore "to create meaningful growth from our existing portfolio."
It sounds a lot like the company wants to keep its war-chest of capital stocked up, doesn't need the painful headache of assigning teams of executives to deal with reams of paper in Japanese, and while the tourism industry recovers will focus on the casinos it already has.
In March 2019, it brought in soccer icon David Beckham to announce its rebranding of its Holiday Inn hotel in Macau as The Londoner, with a replica of Big Ben and the exterior resembling the Houses of Parliament. That's part of a $2.2 billion makeover of its assets in Macau. It already operates The Venetian and The Parisian in Macau, with mini-replicas of the canals of Venice and the Eiffel Tower.
