The US gaming industry wants to put together a $65-billion development pipeline that would see the construction of new casinos and resorts across Asia. The plan is an ambitious one and looks really attractive on paper, but that’s where its glory ends. Union Gaming analysts believe that the plan is complete overkill and that the rate of economic growth in the region doesn’t warrant an investment of that magnitude.
According to a memo published by the brokerage yesterday, “We estimate the Asian gaming development pipeline currently exceeds US$65 billion. Approximately two-thirds of this pipeline is in existing gaming jurisdictions, while the remaining one-third is in a solitary, green-field jurisdiction (Japan).”
The Union Gaming analysts, Grant Govertsen and John DeCree, added, “Given the scale of the pipeline relative to the earnings before interest, taxation, depreciation and amortisation (EBITDA) required to justify it, we think – for the first time in Asia – the amount of new supply is simply too much over too short a period.”
The result of such a lofty endeavor would be catastrophic. Returns for everyone involved would be much lower than expected and the failure of certain projects, as a result of a lack of a decent return, would cause entire companies – and possibly communities – to fail. If the casino industry wants expanded growth in Asia, they should consider spreading the plan out over 15 years, not the five years currently being considered, assert the analysts.
Govertsen and DeCree further offered, “The reality is that the current pipeline in just the existing markets (forget about Japan for now) requires EBITDA in Asia to literally double, even as the boom years in China gross domestic product (GDP) growth are behind it, and as so many of Asia’s wealthy individuals have already been captured. The math simply doesn’t work from a GDP perspective (excepting Japan).”
As a play is made to enter the Japan gambling market, the situation could become worse. Union Gaming explains, “Regulatory factors like the locals entry levy could force operators to try and capture a greater-than-anticipated share from other Asian markets, like Macau. If this is the case, then the result will be even more depressed return-on-investments for the current excepting-Japan pipeline via some combination of share loss to Japan and increased marketing expenses as they try to stop the share loss from happening.”