Inside Asian Gaming

21 20 mand for casino facilities). • It shall be prohibited to install ATMs of banks or credit card companies in casinos or designated area surrounding casinos. Simi- larly, it shall be prohibited in principle to lend money to persons in casinos or in the des- ignated area surrounding casinos, for use in casino games. However, it is possible to grant credit to pre-registered important overseas customers and high roller customers as part of their customer service activities. Such debts owed by customers shall be legally en- forceable. • It is considered that at least to begin with, it is appropriate to suppress the effect of casino facilities from fuelling excessive passion for gambling among the Japanese public. Thus certain regulations shall be implemented preventing excessive adver- tising and active promotion of casinos do- mestically. Most of the document makes sense Having reviewed similar documents and government commentary for Macau and Singapore, the draft policy document ap- pears straightforward and fairly logical – the benefits of legalizing casinos, the mispercep- tion about casino ills, operational framework, taxation, revenue disbursement, etc. I guess what is slightly strange is that the local government is the official operator of the casino, but in practice the private contrac- tor will assume total responsibility aside from transferring the taxes to the government.Even so, we believe it might be difficult for some lo- cal governments to even manage the admin- istrative functions. It seems more likely that a new central government department would need to be established to manage the various casino operations across the country. The policy document does also suggest that ATMs will not be allowed in the casino or nearby – I have not heard of a casino without ATMs and I am not sure that this would make a huge difference in preventing gaming ad- dictions. The unknowns Location, timing and foreigner involvement are the big unknowns: Location One of the big unknowns is the locations of the future casinos. Discussions with various industry participants suggest that Okinawa and Tokyo are the most likely options. Okinawa would appeal to Japanese and the development would provide an added economic boost to the area, which continues to be negatively affected by the downsizing of the US armed forces. As an island off the mainland, Okinawa represents a good test- ing ground for casinos. Kyushu and Hokkaido have also been mentioned as areas which urgently require regeneration and new eco- nomic tools to boost both tourism and em- ployment. Early casinos could just be placed in ar- eas such as Okinawa, Kyushu and Hokkaido. Okinawa, and especially Kyushu, is very well placed to develop new international tour- ism; whereas, with respect to Tokyo, a casino would be just one more attraction in an area where there is already probably too many at- tractions. According to Hakubun Shimomura, the chief secretary of a Diet panel called the Study Group to Promote International Tour- ism, “More than 20 local governments have already expressed an interest in hosting the first multi-entertainment complex and I myself spoke with the Okinawa Chamber of Commerce in July. Personally, I believe Oki- nawa would be the ideal place for the casino because around 5.5 million tourists visit the prefecture every year - but we could very easily double that number.” A casino based in the heart of one of the world’s largest and wealthiest cities would attract huge demand from locals. No other major city in the world – including New York, Paris, London, Shanghai, etc – boasts a major city casino. London does have casinos, but they are much smaller than the casino that would be expected in Tokyo. Tokyo would be by far the most success- ful casino operation in the world, but for the past two plus years there’s not been any en- ergy out of the Tokyo administration for a ca- sino. We understand that the focus is on the 2016 Olympics. There is some debate about the loca- tion within greater Tokyo – Yokohama and Obaida are among the various locations dis- cussed.We understand that the government has sufficient land available for the casino de- velopment.However,we understand that the land is being reserved should Tokyo secure the 2016 Olympics. Timing We believe the bill seeking the legalisation of casinos could be proposed for approval in the next 12-18 months. Using Singapore and Macau as a guide and factoring the pace of change in Japan, casinos would not likely be operational until post 2010. Although Hakubun Shimomura stated“in the best-case scenarios in which a new law is passed in 2007, we believe we could have the first two venues operating by late 2008.” We believe this timing is too aggressive and unlikely. We understand that most local and even prefecture jurisdictions are not geared at the moment to move the process forward. Interestingly we understand there has never been an independent feasibility/economic study produced by any jurisdiction in Japan, although we understand that Nagasaki is in the process of completing a study. Foreigner involvement Without a casino industry in Japan at pres- ent, it is difficult to imagine a Japanese com- pany securing the rights to manage a casino. However,as casinos with limited competition generally generate reasonably high returns, there may be some political backlash should only foreign operators be awarded the rights to manage the casinos. We therefore expect some consortiums consisting of local and foreign companies to bid for the rights. Pos- sibly, local companies would secure the of- ficial casino rights and be responsible for dealing with the government, while foreign companies would be responsible for casino management. We understand that the model could be different for Tokyo and other regional casinos. We expect the government would have greater involvement in the Tokyo casi- nos – where the returns would be very sig- nificant.The government would be expected to finance the development and outsource the management of the casino to an expe- rienced operator – a similar structure to the hotel industry. With respect to operator selection, in ar- eas other than Tokyo the one selected will be the one who became “embedded” early in the process and gave the jurisdiction the tools and funding to help them put together their presentation. Finally there’s the consen- sus. Without consensus the government will not grant licenses, and that’s another reason for gaming companies to be “embedded” in order to provide the economic facts which help in building a consensus. Who could win the mandate? We believe the local government will con- sider the following factors when deciding on which companies are most appropriate to manage the casino developments: • Iconic developments – as the casinos will be major developments for Japan, we ex- pect the government will go for the contrac- tors and architects with impressive track re- cords. We would expect a development that encompasses modern design but leverages Japan’s rich culture and long history. • Strong drawcard for international and domestic tourists – using Singapore as an ex- ample, we believe that Genting International was favoured due to the impressive track re- cord of attracting tourists in Malaysia along with the incorporation of Universal Studios. • Rejuvenate local economy – in the case of locations such as Okinawa, Kyushu and Hokkaido an objective of the casino development will be to rejuvenate the local economy. Therefore, we expect the govern- ment will favour operators that have a track record of working with the local community and adapting to local cultures. • Overall positive for Japanese residents - we believe the government will be looking for operators that minimise social implica- tions by effectively managing any potential “ills”of the casino industry including address- ing problem gaming. • Generate revenues for local community – we believe the government will be looking for an operator with a history of successful developments,more likely operators from the US, Australia and other parts of Asia. Success- ful operators will generate more tax revenues from gaming and non-gaming activities. Increased visitors following openings of major casinos in Las Vegas (%) 20 15 10 5 0 (5) 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05E Mirage opens Luxor, MGM Grand, Treasure Island open Venetian, Bellagio, Mandalay Bay open Wynn LV opens The soon-to-open Venetian Macau