Japan’s Big Casino Bet [Wynn Resorts, Limited, MGM Resorts International, Las Vegas Sands Corp.]

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July 1, 2014 11:21am NYSE:BJK

casinoTony Sagami:  Whenever I travel to Macau, China … I am reminded that I’m more American than I am Asian.


First, because I am too fat to be an Asian from Asia, and secondly because I’m not much of a gambler.

The Japanese, Chinese and Koreans are big gamblers. They arrive in droves to try their hand at baccarat, pai gao and blackjack.

I just finished a research trip to Macau and visited four publicly traded casino companies that have significant operations in China — Las Vegas Sands (NYSE:LVS), Melco Crown (NASDAQ:MPEL), Wynn Resorts (NASDAQ:WYNN) and MGM Resorts (NYSE:MGM) — and there was a whole lot of gambling going on.

Some of the casinos were busier than others, but the casino business is thriving in Asia. Proof: The casinos in Macau pull in SEVEN TIMES the gambling revenue than all of the casinos in Las Vegas combined!

While the majority of the Macau gamblers are Chinese, a large portion of them are from Japan, a country with no casinos.

That may be about to change, however.

That’s because the Japanese government is seriously considering legalized gambling and many observers think it is just a matter of time.

Talk of legalizing casinos has been going on for years, but it sure looks like to me that it is it about to happen.

Japanese gamblers have to fly to Macau, Las Vegas or Singapore– and all the dollars they spend on lodging, food, shopping and gambling is money that isn’t spent in Japan.

According to brokerage firm CLSA, the Japanese gambling market could generate as much as $40 billion a year in revenue, six times the size of the $6.5 billion spent in Las Vegas in 2013.

That’s a lot of potential tax revenue that the cash-strapped Japanese government could desperately use.

Also, the 2020 Summer Olympics will be held in Tokyo, so Japan needs to act quickly if it wants to complete construction in time for the 2020 Olympics.

Plus, the political climate is ripe for legalized gambling. Just a few weeks ago, Prime Minister Shinzo Abe said legalized gambling is a key feature of his economic growth plan.

Image Source: CalvinAyre.com

“Integrated resorts will be a main feature of my growth strategy. I want to pass it in the lower house at the beginning of the next session of parliament, then enact it without fail in the upper house,” said Abe.

Yup, it sure looks to me like Japan will soon legalize gambling … and whatever lucky casino company gets the first casino license is going to soar in value.

I don’t, however, have any knowledge on who that will be, but I am confident it will be one of the big four Asian operators;

  • Las Vegas Sands (NYSE:LVS)
  • MGM Resorts (NYSE:MGM)
  • Melco Crown Entertainment (NASDAQ:MPEL)
  • Wynn Resorts (NASDAQ:WYNN)

You could invest in all four companies, but I think the best strategy is to buy dirt-cheap call options on the ones that are already doing to big business in Asia.

If I were the Japanese government, I’d want to do business with the casino operators that have a proven track record of catering to and attracting Asian gamblers.

Here is what I wrote on June 9, 2014:

(One) casino was packed to the gills with customers. Every open Baccarat table was full or close to full with raucous Chinese, Korean and Japanese gamblers.

If I had to make an eyeball estimate, I would say this popular casino had 10 to 20 times the customers of the two above casinos.

The business at the fourth casino wasn’t so obvious. Roughly half of the tables had gamblers on them, so my initial impression wasn’t very favorable.

But when I walked into the cordoned-off, high-limits area, I was completely blown away by both the numbers of high-stakes gamblers and the gigantic wagers many of them were making.

One of the casino call options that I’m looking at go all the way out to January 2015 and are selling for only 25 cents. If this company is awarded the Japanese casino contract, these options could potentially jump to $2, $3 or even more!

This type of investing is only appropriate for investors who have some risk capital they can afford to lose. However, this type of low-cost, high-potential-reward strategy could turn a few hundred dollars into thousands of dollars.

Tony SagamiThis article is brought to you courtesy of Tony Sagami

Money and Markets is a free daily investment newsletter published by Weiss Research, Inc. This publication does not provide individual, customized investment or trading advice. All information is based upon data whose accuracy is deemed reliable, but not guaranteed. Performance returns cited are derived from our best estimates, but hypothetical as we do not track actual prices of customer purchases and sales. We cannot guarantee the accuracy of third party advertisements or sponsors, and these ads do not necessarily express the viewpoints of Money and Markets or its editors.


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