Casino charge hits political wall

It was all systems go in Japan at the beginning of 2017, with global operators and cities stepping up their efforts to snare an IR license after a bill legalizing casinos was finally pushed through parliament in the final hours of the last session of the prior year.

However, the path towards what is expected to be one of the most lucrative gambling markets in the world has never been smooth and the process has hit another stumbling block that may cause delays. Prime Minister Shinzo Abe, once again seeking an opportunity to shore up his support, called snap elections at the end of September, stalling work on a crucial bill setting out the details of how casinos will be regulated.

Although Abe won a resounding victory, political events have once again slowed the progress, although key officials involved in the process have given assurances that the IR implementation bill and separate legislation to tackle problem gambling will move forward as soon as possible.

Survey highlights problem gambling levels

Around 3.6 percent of the Japanese population have suffered from gambling addiction, according to a government survey released on Friday. The number amounts to around 3.2 million people nationwide, said The Japan Times in a report. The survey also shows that around 700,000 people, or 0.8 percent of the population, were addicted within the past year. Among them, pachinko accounted for the most money spent on gambling. Gambling addiction has become the centre of public debate in Japan over the last year, with many fingers pointed at the forthcoming establishment of IRs.

Fitch more cautious on GGR potential

The Japanese gaming industry is expected to produce gross gaming revenues of $6-9 billion, depending on whether two or three integrated resorts are opened initially, according to Fitch Rating’s All in: Global Gaming Handbook. While other analysts and operators have placed Japan’s GGR estimates in the $20 billion range, Fitch says that these predictions fail to take into account “the limited footprint of the initial casinos relative to other jurisdictions that are more liberal in terms of gaming positions (e.g. U.S. and Macau).” “Given the likely physical restrictions, we do not think that estimates based on Japan’s GDP or loosely regulated pachinko industry are practical,” said the ratings agency.

The legislative delay doesn’t seem to have dampened the enthusiasm among international operators, who appear to be forging ahead with plans to tap the market, which CLSA estimates could hit annual gross gambling revenue of about $25 billion once fully mature, with a model of two urban IRs and 10 in smaller, regional cities.

MGM Resorts International has been among the most aggressive building out its Japan presence, with eight permanent staff in a new office in the Otemachi district of Tokyo and its Osaka branch office. The U.S. company also recently launched a Japanese-language website. 

It and rival operator Las Vegas Sands have said they may be willing to invest as much as $10 billion if the conditions are right, and as long as locals are permitted to gamble. 

Sands in its attempts to get ahead brought out the star power, holding events in Tokyo and Osaka, with international footballer David Beckham and Eagles guitarist Joe Walsh to convey the message that an LVS-run IR would be accompanied by top-level international talent in a variety of fields that would enrich the nation’s entertainment options.

Macau operator Galaxy Entertainment Group has teamed up with Monaco’s Societe de Bains de Mer to bring a dash of riviera glamour to its bid, while it has announced it will be working with the Japanese architect firm, Tange Associates, to ensure its design is appropriate for the market.

Melco Resorts & Entertainment is also forging ahead, appointing Ako Shiraogawa as the president of Melco Resorts & Entertainment Japan, and announcing the opening of two offices—one in Tokyo and the other in Osaka.

Caesars Entertainment, Genting Singapore, and Hard Rock International are among the host of other international operators also raising the curtain on their plans should they win a license. Although most IRs are expected to be Japanese-led, or involve a local partner, potential entrants so far have kept their cards close to their chests.

Advertising giant Dentsu and Sega Sammy, which opened an IR in South Korea earlier this year with Paradise Co, have said they are interested. And Universal Entertainment, the owner of the Okada Manila resort in the Philippines is also a candidate.

While the companies position their offerings, the cities and sites most likely to become hosts are also becoming clearer, as is the fact that many areas still face strong opposition from locals opposed to gambling. 

Among Japan’s smaller, regional governments, Tomakomai city in Hokkaido maintains a distinct lead over its peers in terms of the degree to which their engagement with IR operators and other related businesses has advanced. The deadline for their initial RFI process was reached on September 22, and they received a total of fifteen responses from various companies.

The Nagasaki prefectural government has also made a pitch as has the city council of Iwanuma, in Japan’s northern Miyagi Prefecture. The former has proposed that its existing Huis Ten Bosch theme park in Sasebo city become the base of a regional IR, while the latter is seeking a resort as a way to rebuild the community after the devastating earthquake and tsunami in 2011.

Tokoname, in Aichi Prefecture, took its first steps toward a possible bid to locate an IR on Chubu Airport Island, though has faced strong opposition from the local communist party. While efforts by Yokohama to locate an IR at the city’s Yamashita Pier took a heavy blow when the Yokohama Harbor Transport Association declared its opposition to a casino. Among the larger locations, Osaka has been the most pro-active, although again, it is facing strong opposition. 

Those working on drafting the actual legislation are acutely aware of how unpopular the idea of casinos remains among the Japanese people and some planned provisions designed to minimize potential harms have concerned operators, in particular provisions limiting casino floor space.

Sands head Sheldon Adelson warned such provisions if incorporated into the final legislation wouldn’t allow for the best kind of IR and would lead to lower investment levels.