Inside Asian Gaming spoke with Managing Partner at Global Market Advisors, Steve Gallaway, to gain a deeper insight into the company’s 2017 White Paper on Japan Integrated Resorts.
By Andrew W Scott
Andrew W Scott: Global Market Advisors released its White Paper on Japan Integrated Resorts earlier this year. What was the motive behind it and how did it come about?
Steve Gallaway: The goal was to educate the local Japanese in terms of realistic projections for the IR market. We had seen numbers out there but there was no backup to them, so we wanted to really understand what the realistic numbers were to put some reality into the discussion.
Secondly, we wanted to educate stakeholders in terms of what an IR is because people don’t really know. And we wanted to explain to people what mistakes have been made in other jurisdictions and learn from them so we can design legislation that maximizes the potential of IRs while doing what’s best for the local population. That’s why we had a large section dedicated to responsible gaming.
Bo Bernhard, who is obviously an expert on responsible gaming, participated in our problem gambling section. As part of that we looked at Singapore, which had a fantastically run RFP process with the right idea going into it. But there are certain things that we hope not to see in this legislation such as an entry levy. The entry levy is basically nothing more than an artificial tax and there has been no sound research to prove that it does anything in terms of preventing problem gambling.
AWS: So you advocate no entry levy or if there is one, a small one?
SG: Yes, a small one only. And we did assume an entry levy in our numbers to be consistent which was ¥2,000. The reason we chose ¥2,000 was because it is basically the same price as a movie ticket. It’s not really going to deter people whereas if you make it a high levy, say the equivalent of US$100, many players might actually want to increase their gaming budget to sort of chase their levy and increase their chances of winning it back.
AWS: Your White Paper introduced the concept of an Osaka Strip of integrated resorts on Yumeshima Island, but more recently we’ve heard that a monopoly situation is the likelier option. What are your thoughts on this?
SG: I think the prevailing wisdom concerning monopolies is based around the original concept of having individual IRs following more closely to the Singapore model. But one of the biggest things the government wants to see is an increase in tourism and the number one thing you can do to increase tourism in regards to IRs is the Osaka Strip concept.
This is because the Osaka Strip – which is actually bigger than the cluster of casinos in Cotai in terms of land mass – would generate an international destination. If you truly want to increase tourism you have to have a cluster of entertainment activities that the world wants to come to.
What’s nice about the Osaka Strip is that it’s already adjacent to Universal Studios, so it’s already started. You have easy access to three international airports, two of which have a high speed ferry service. The Osaka Strip is really perfectly situated, has great levels of access and already has strong levels of tourism.
AWS: Would you advocate the Osaka Strip to be the only IR venue in Japan?
SG: No, I would like to see other IRs because I believe other IRs would generate jobs, would generate tax revenue and would still help tourism. But the Osaka Strip, the reason we like it is because it is such a fantastic site. And we travelled around to every single site in compiling our report. We didn’t see anything else of that standard.
AWS: What is the maximum number of IRs Japan could handle?
SG: It depends on the ultimate goals of the government. If you were to maximize the number I don’t think you’d want to see more than 10.
I believe the most we assumed was closer to six but the goal, if you want to maximize it, is to figure out the most number of IRs you can have before they start to cannibalize one another.
When you look on a map there are other logical areas regionally where you could build IRs with minimal cannibalization. But you know, maybe the next goal after this first round of IRs is to let people realize that casinos are not detrimental to the population and that, as we’ve seen in Singapore, responsible gaming programs can actually make problem gambling numbers go down.
Today problem gambling is rampant in Japan because of pachinko and there is no responsible gaming. Once you start implementing responsible gaming programs, the instances will go down around the country. Once that occurs and once the population becomes comfortable with casinos as a form of entertainment, you might find that in a second round they start allowing regional casinos in addition to the integrated resorts.
But the other thing with the Osaka Strip is that Japan wants to host the 2025 World Expo and there is no better way to do that than through IR development. Let the IRs build your facilities for you for 2025. You need to have all the exhibition space and you can’t have exhibition space on the island without thousands and thousands of hotel rooms. Let the operators develop those IRs and then use those facilities for the World Expo. It’s win-win across the board.
AWS: Over the past few decades we’ve seen the expansion of gaming throughout the world and a lot of countries have opened up to resorts and gaming. What will make Japanese IRs unique from those seen elsewhere?
SG: I think you’re going to see that, while table revenue will still be extremely important and probably make up half the casino floor, it will be less dominant than what you see in Macau, for example. The Japanese culture is very different from other Asian cultures and I think a lot of people don’t recognize that.
AWS: But how will culture make the whole process different? What will they have to be mindful of that they didn’t have to be mindful of in Macau?
SG: I think one of the bigger items will be that, typically with casinos, when they open you over-staff to make sure you open with the proper levels of service. Once you’ve been open for a while you identify those employees that aren’t performing and you let them go to get your staffing down to normal levels. I don’t think the laws in Japan allow for them to do that. When you hire someone it’s a much longer term of commitment and the IR operators are going to have to be sensitive to that.
In terms of building, they will face a lot of challenges in that the local population has a lot of say in what is allowed to be built.
For example, if a large building is to be built and the shadow of the building will impact residents, those residents have a voice to prevent the building from going up. So it will be challenging, but overall I think the whole RFP process will be very similar to Singapore and the way they are built will be similar to other jurisdictions. The amenities will mirror amenities that have been proven to work in other jurisdictions.
AWS: Finally, it has been suggested that each Japan IR will likely be a collaboration between a local company and a foreign operator. If we look at the financial clout of many of these Japanese companies and then consider a company like Galaxy, who had no IR experience before launching in Macau and is now hugely successful, do these Japanese companies really need foreign operators?
SG: I think the number one reason is that international operators have the experience in terms of having to develop and operate IRs properly to maximize revenue while being sensitive to local populations in terms of problem gambling. The pachinko industry is huge in Japan and they have not done anything about problem gambling, so that is a huge concern and they are going to need the operators to do it right.
It’s also worth remembering that it is very difficult to build a US$10 billion resort. There are very few people in the world that can do that. I would doubt the ability for someone to do that who had not done it in the past.