Manufacturers of slots, table games may cash in on Japan gaming

When Japan finally legalizes casino gambling and auctions licenses to resort operators, it will be a shot in the arm for an industry that has been experiencing sluggish growth in recent years.

Japan could catapult to become the third-largest casino market globally when the first casino lights are turned on in the early 2020s. Analysts estimate gaming revenue in the world’s third largest economy could reach as high as $40 billion within a few years of operation.

However, with only a couple of licenses expected to be auctioned off, few among the major full-scale resorts will get a piece of Japan’s lucrative gaming action. For manufacturers of slots and tables, the opportunities may be more widespread.

”When we think about the equipment suppliers as a whole, it is likely that most all of the gaming manufacturers will have an opportunity to compete and participate in the gaming equipment and systems opportunity for new casinos in Japan,” said John Decree, director of North America research at Union Gaming Securities. The operators that win the concessions though will still be the real winners, he said.

Assuming Japan permits four large, full-scale resort casinos, slot machine demand could reach 16,000 units, equaling the size of Macau, said Marcus Prater, executive director for Nevada-based Association of Gaming Equipment Manufacturers. That number would also be equivalent to 20 percent of yearly North American sales.

”It is a stretch to call it a blockbuster,” said Prater. “Using a limited (full-scale) resort model, Japan will not drive tens of thousands of machines annually, but we welcome any new business out there.”

Japanese gaming equipment producers like Konami Holding Corp. and Sega Sammy Holdings are sure to get a big piece of their home market, said Howard Klein, a 30-year casino industry veteran that held executive positions at Caesars, Trump Taj Mahal and Ballys. He estimates Japanese equipment demand, including slots and gaming tables, could range from 15,000 to 25,000 units. Japanese pachinko machines — or some version of it — could be allowed on casino floors, he said.

”Japanese makers in my view will be a major looming presence in that business,” said Klein, now an industry consultant who runs a casino stock investment column. ”I totally expect global leaders like International Game Technology and Scientific Games to be linking up with Japanese companies — to partner or establish branches there.”

Sema Sammy Holdings didn’t immediately respond to questions for comment.

”Partnerships are certainly a possibility. We do that in many locations around the world,” said Derik Mooberry, Group Chief Executive of Gaming at Scientific Games, adding that the company’s Japan strategy will only be clear when legislation is finalized.

”When it comes to Japan, once you know which operators will be granted licenses, then you will know what relationships you have in place and which ones you need to cultivate,” said Phil O’Shaughnessy, senior director of global communications at IGT, which formed a distribution partnership with Macau-based LG to get better access to the Chinese casino resort.

Regardless of which operators win the licenses, foreign gaming companies will need to adapt some of their current content — or create completely new content — to boost sales opportunities in Japan.

”Some content will be very unique, specifically targeted toward Japanese and their affinities,” said Mooberry. ”But there is content that can be globally successful regardless of where it is in the world and that will find its way onto those casino floors as well.”

Contact Todd Prince at 702 383-0386 or tprince@reviewjournal.com. Follow @toddprincetv on Twitter.