Legalizing integrated resorts may have been the easy part. Now the heavy lifting begins for Japan’s national bureaucracy, local governments, domestic businesses and international casino operators to open IRs by the mid-2020s.
Passage of Japan’s Integrated Resort Implementation Bill in July culminated more than a decade of effort to legalize casinos in the world’s third largest economy. That might have been the easy part. Now Japan has to put flesh on the bones of thousands of regulations to govern a nascent industry that virtually every current and would-be casino operator on earth wants a piece of and a decisive majority of citizens appear to oppose. The bill passage hands stakeholders – actual and aspiring – a lengthy to-do list featuring key next steps, including tough decisions long put off until Japan actually approved IRs.
“Now that we have a real law, everything we do on a daily basis has real consequences,” MGM Resorts Japan CEO Ed Bowers says.
Some major decisions have already been made regarding Japan’s IRs (see column by Global Market Advisors’ Brendan Bussmann on Page 32), the most notable being that Japan will grant up to three licenses for IRs to include convention, exhibition and tourism facilities. The national government will award licenses via bids from local jurisdictions’ legislatively endorsed investor groups.
“Throughout these next stages, local Japanese governments, Japanese corporates and casino operators will be working to form consortia, based on shared visions for the IRs and comfort with each member’s leadership teams, among other factors,” CLSA Senior Analyst in Tokyo Jay Defibaugh says.
Defibaugh estimates initial IRs, two in major urban centers and one in a so-called regional setting focused on domestic and foreign tourism, will generate US$13.9 billion in gross gaming revenue, with US$25 billion annually in a fully developed market of up to 10 IRs. Morgan Stanley analysis, headed by Managing Director Praveen Choudhary in Hong Kong, pegs the initial market GGR at US$11 billion to US$20 billion, depending on IR locations and final rules. Goldman Sachs Vice President in Tokyo Masaru Sugiyama and colleagues estimate GGR at the low end, ¥1.2 trillion (US$9.05 billion). No IR is expected to open before 2025.
The junket question has been answered: no.
“Casino activities are allowed only for licensed operators and cannot be entrusted to any third entity, including credit to patrons,” adviser to the government on integrated resorts Toru Mihara explains. That’s thumbs down to “Macau type junkets … that take risks, grant credit to patrons and recoup gambling debts.”
It’s a Singapore-plus regulatory step for Japan. The Lion City allows junkets but has barely approved any, notably none from Macau. Industry insiders suggest that, as believed to occur in Singapore, junkets will discreetly source and assist players, with accounts settled in Macau. The absence of junkets may lead development groups to favor gaming partners with Asian player databases.
The Diet must pass legislation to establish and fund the Casino Control Commission with primary responsibility for creating regulations for IR operations and enforcing them. That bill is expected to pass within the next 12 months, though casino legislation has consistently taken longer than forecast for adoption. The Ministry of Land, Infrastructure, Transport and Tourism will need about 12 months to establish what Mihara calls “Fundamental Policy” for the selection of sites to compete for IR licenses.
“The Japanese bureaucracy has to build everything from scratch,” ReNeA Japan CEO Masa Suganuma, a longtime gaming machine executive turned consultant, says. “Establishing technical standards is one of the most important tasks the bureaucracy has to start ASAP, since it is deeply related with responsible gaming.”
CAN WE TALK?
“We only have one request: in developing the detailed regulations, allow for a proper period of consultation from industry experts and operators before approving specific regulations,” MGM’s Bowers says. “Providing an opportunity to operators and experts to comment on specific regulations will avoid many adverse unintended consequences in the future practice of those regulations.”
“Prime Minister Shinzo Abe, who led the fight for IR legalization, and his cabinet can’t rest on their laurels,” Spectrum Asia CEO Paul Bromberg suggests.
“What they should be doing is talking to the public. They need to explain clearly why they passed the legislation and why it will benefit the public.”
The IR legislation includes funding for public outreach and Mihara says a nationwide campaign to boost grassroots approval for IRs will begin following the ruling Liberal Democratic Party’s leadership ballot in September.
ROLLING THE DICE
Informing the public falls to the national government because many local jurisdictions and businesses remain reluctant to gamble on IR promotion when they may not win the licenses. But some operators keep laying chips on the line.
“MGM will continue to put the case for tourist-oriented IRs in Japan,” Bowers says. The company already has sponsored cultural exchange events in both Japan and the US, notably kabuki at the Bellagio fountain in Las Vegas and Blue Man Group in Osaka.
“We spare no effort to contribute to promoting to the public what an IR is,” Galaxy Entertainment Japan General Manager Satoshi Okabe says. “I am invited by stakeholders to give lectures from Hokkaido to Okinawa.”
Localities have their own tasks while the national government works on regulations.
“First of all, the prefecture governor has to have firm consensus with the city mayor about participation in an IR,” Suganuma says. “Even with the strong responsibilities the prefecture has, actual operations will be conducted by the city.”
Osaka appears far ahead of rivals in terms of city and prefecture cooperation. There’s consensus around an IR site on Yumeshima island and a Request for Information (RFI) process took place in 2016. Osaka is presently vying to host World Expo 2025 on Yumeshima and IR development could provide accommodation and other supporting facilities, as well as a target date for completing at least some IR components. The expo decision is due in late November and some speculate Osaka could launch a Request for Concepts ahead of that date.
For casino operators that want to be in Japan, first, “They have to look seriously at the law and decrees – not everybody has read or understood the entire version of the legal text – verify constraints and issues, and re-conduct business feasibility studies in detail with more precise evaluation on potential market,” Mihara, a faculty member at the Osaka University of Commerce’s Institute of Amusement Studies, says.
“Now that the bill has passed, it’s more difficult to be all things to all people,” a casino executive speaking on background adds. “You can’t bid everywhere.”
Operators are watching carefully whether the government will evaluate applications for all three licenses at the same time, as Macau did, or award the licenses in stages, as Singapore did. Mihara says that operators can bid for multiple locations, as long as jurisdictions permit it, though “it may not be a wise move to play with a number of local governments … even if allowed, it may create a bad impression.”
The partnership dance will also involve difficult choices.
“In Singapore, originally the proposed partners were the leading local real estate developers. Why wouldn’t it be the same in Japan?” Spectrum’s Bromberg asks. “Possibly, there will be consortia that include the operator, financial source(s), a real estate developer and/or a construction company.” Multiple partners can complicate equity sharing and decision making.
Whatever the shape of the development groups and regulatory regime, Japan represents a brave new world.
“Asia is unique from the way IRs exist on the Las Vegas Strip,” MGM Resorts International Executive Vice President for Global Affairs Alan Feldman says. “Macau faced challenges with its IR initiative to produce world class architecture plus Las Vegas excitement. There’s a distinctly different challenge in Japan. There’s really nothing in the world today that you can point to that’s like it.”