IR market projections may be too rosy

While many industry analysts continue to assume that either Tokyo or Yokohama will pursue an IR bid, the political realities of Japanese local communities seem to indicate otherwise.

In the case of Tokyo, it’s entirely unclear why analysts should believe there’s a serious possibility that it will seek an IR at this time. The metropolitan government’s administrative bandwidth is already absorbed by preparations for the 2020 Olympics. The potential sites for an IR are earmarked for other Olympics-related construction. Politically, too, there’s no reason to believe that Governor Yuriko Koike desires the kind of political fight that it would take to propel a strikingly unpopular casino initiative.

Yokohama is far more plausible. Mayor Fumiko Hayashi had earlier embraced an IR initiative and the city has conducted various studies. Elements of the business community are strongly in favor, though the local opposition is also quite robust. Mayor Hayashi says she hasn’t made any decision yet, and she may indeed decide that the prize isn’t worth the struggle. At any rate, there’s no reason to automatically assume that there will be a Yokohama bid.

If so, estimates of market size such as Morgan Stanley’s released on April 11 will likely prove to be too rosy.

The Morgan Stanley report projects a Tokyo-area IR of US$6 billion in scale, Osaka with US$4 billion, and a third city with US$2.5 billion market. Together with leakage of about US$2.5 billion, they see a US$15 billion Japanese IR market developing by 2025.

This projection, however, effectively depends upon Yokohama Mayor Fumiko Hayashi making a policy decision that it is by no means certain that she will make.

Otherwise, it will likely be the Osaka IR alone as the only major urban market facility in Japan, with two regional areas—perhaps Tomakomai and Nagasaki the leading candidates—building smaller IRs in the first round of development.

If Morgan Stanley’s other projections are correct, that would suggest a Japanese IR market in the US$10 billion range.