Japan IR effort rolls snake eyes

No one thing transformed Japan’s casino legalisation from the most enthusiastically received initiative in Asian gaming history to snake eyes with two applicants for three integrated resort licences. Top IR sites, including Tokyo, Hokkaido and Yokohama, and many of the world’s leading casino operators, notably Las Vegas Sands and Wynn Resorts, chose to pass the dice.  

“The single biggest factor discouraging bidding for IR licenses in Japan is death by a thousand cuts,” Strategic Market Advisors managing director Matthew Landry says. “The tax rate, license duration, taxing winnings, chip passing, limiting entries, entry levies; each presents a challenge to operators that can be overcome. However, taken in aggregate, the cumulative impact to operations is substantial.”

That doesn’t mean IRs can’t succeed. “Japan, being the third largest economy in the world, can’t possibly be bad for IRs,” Maybank Investment Banking Group associate director Samuel Yin Shao Yang says.

With input from more than a dozen sources, some requesting anonymity, here’s a rundown on how IR interest in Japan went from torrid to tepid.

Japan believed the hype

After Prime Minister Shinzo Abe declared his intention to legalise casinos in 2013, Las Vegas Sands founder Sheldon Adelson suggested creating an unprecedented US$10bn IR. Lawrence Ho declared Melco would do “whatever it takes” for a license. Sponsorship funding gushed across Japan.

That enthusiasm emboldened policymakers. They imposed a 30% tax on GGR, second highest in Asia, a ¥6,000 (US$46) entry fee for residents, limiting visits to three weekly and 10 monthly. They barred junket promoters.

Authorities also envisioned creating a global convention power, mandating each IR provide more MICE space than any existing Japan facility and more guest rooms than all but one current hotel. Local governments piled on their own infrastructure demands. A source tells ICE365 Yokohama’s IR list led to the withdrawal of LVS, pioneer of the convention-based IR model authorities hope to recreate. Other gaming names followed Sands’ lead.

Japan speed

If it pursued IRs legalisation in earnest from 2013, “Japan would be where Singapore is in the global gaming landscape,” The Innovation Group senior vice president Michael Zhu says. But Japan didn’t. 

“No one could have predicted the slowness of the process,” Spectrum Gaming Group managing director Frederic Gushin adds. Singapore, which Japan seeks to emulate, opened two IRs within seven years of its prime minister proposing them.

“The lack of speedy action is a phenomenon typical to Japanese administration, but the process of formulating legal framework has been undertaken quite steadily,” National Council on Gaming Legislation chairman Toru Mihara counters.

“It just took huge efforts and time consuming processes to initiate the legal framework. Here in Japan, political intent is never sufficient enough to proceed.”

The lengthy process dragged into the Covid outbreak and China’s overseas gambling crackdown. “The central government needs to review its initial plan since so much has changed under the pandemic,” ReNeA Japan CEO Masa Suganuma says. “But it has not. That is not smart.”

Legal matters

IR laws and related policy regulations seven years in the making laid a minefield for IR operators.

“The law contained some serious flaws,” Gushin says. He highlights the Area Development Plan with an initial 10 year term and five year extensions. “Each IR is likely to be exposed to local politics at the time of each extension.”

An IR adviser to Abe’s government, Mihara says foreign IR aspirants’ “lack of knowledge of the Japanese legal framework, practices, cultures and behavior accelerated very distorted views of the market. I have conversed with almost all of owners, CEO, CFOs of these big firms and been surprised to find that they had been badly advised, not knowing the detailed legal framework, practical relations with the authorities and how you mitigate and manage administrative and political risks.

“This is not the USA, where licensing is primordial, and you can do anything when you get a license,” Mihara says.

“There is still much work to do with regards to master planning and messaging to both the public and private sectors,” Hogo Digital managing partner in Japan Chris Wieners says. “For any IR to be successful, it will need the full support of both, and I think that is where many of the current bids have faltered.”

“The state is a huge [IR] stakeholder through the benefits derived in tax revenue, job creation, and inducing tourism,” Landry says. “While the industry needs to be regulated, the results as we see them today demonstrate that Japan has not struck a balance that exists in other jurisdictions.”

Lack of public support

Failure to win public support is the government and gaming industry’s original sin from which other roadblocks arise. Polls indicated roughly two-thirds of Japanese oppose IRs, many viewing them in the same light as pachinko, the wink-and-nod gambling pasttime associated with the underworld.

“The lack of proper understanding of the huge benefits of IRs among local governments and citizens has not been changed,” Suganuma, whose industry experience spans the US and Asia, says. “Lack of appropriate education about IRs has created many hurdles to clear.”

“I would guess we’re at the floor of [public] support now,” The Carter Group CEO Dominic Carter says. “Competent leadership is needed move support up.”

From his consumer research, Carter believes, “The public needs to be sold on the idea overall and that the development will be so innovative, groundbreaking and critical to the future of the city that it will reposition the current concerns held by many about the integrity of the project, centering on the social impact of problem gambling and the possible involvement of anti-social forces.”

“It is not clear why there was not a far greater effort to develop public support for the IRs,” Gushin says. 

Maybank’s Yin, who follows Genting Group closely, adds: “I suspect the government already knew that locals don’t support IRs – multiple polls exhibited this – but tried to bulldoze the idea past them anyway.”

IRs became a rallying point for opposition candidates, Mihara observes. “IR proponent candidates or parties were normally not smart enough to cope.” Last August’s Yokohama mayoral election became an IR referendum, and, with Genting and Melco as IR bidders, the pro side got trounced. 

Widespread consequences rippled from grassroots opposition. Major Japanese companies largely shunned IRs instead of joining projects and building constituencies among employees, suppliers and stakeholders.

National politicians ran away from their IR votes, leaving implementation to prefectures that often lacked political will and practical expertise. Amid polls showing widespread opposition, newly elected Hokkaido governor Naomichi Suzuki dropped IR efforts in November 2019 despite serious interest from renowned resort developers Hard Rock and Mohegan Gaming among others.

Nagasaki authorities rejected a bid featuring Mohegan, which envisioned synergy with its Inspire IR under construction in Incheon, Korea. Instead, Nagasaki chose Casinos Austria, with no IR development experience or Asia operations. 

Wakayama governor Yoshinobu Nisaka chided lawmakers that last month rejected Clairvest Neem Ventures’ IR proposal for misunderstanding its financing plan. Last year, though, the prefecture was prepared to name Macau junket promoter Suncity as its casino operator despite Japan’s junket ban.

IRs aspirants seek another chance
With two applicants for Japans’ three integrated resort licences, at least five major casino operators are ready to compete for the unawarded permit(s). Abundant new round whispers notwithstanding, it’s uncertain whether Japanese authorities will let them.

“We never left,” Hard Rock Asia president and CEO Edward Tracy says of the global hospitality group previously linked to Hokkaido and owned by Florida’s Seminole Tribe.

“We are still maintaining an office there, keeping a lookout for opportunities,” Solaire owner Bloomberry Resorts executive vice president, CFO and treasurer Estella Occena says. Philippine billionaire Enrique Razon Jr’s group hopes “to enter Japan on an asset-light basis.”

Other active aspirants include putative Wakayama bidder Clairvest Neem Ventures with partners including Caesars Entertainment, US based Rush Street – “We’re continuing to monitor conditions and assess opportunities” – and Bally’s Corporation, which awkwardly proclaimed interest in Fukuoka on March 30.

Mohegan Gaming, previously active in Hokkaido and Nagasaki, tells ICE365, “We are not pursing any opportunities in the Japan market at this time.” Osaka and Yokohama competitor Genting Group has reportedly suspended Japan efforts to focus on its US$3.5 billion Resorts World Singapore expansion. Japan may no longer be a good for fit for Macau operators in a third year of Covid crimped revenue with licenses expiring amid heightened oversight.

Whether Japan will reopen the bidding for unawarded licenses is a “delicate question,” National Council on Gaming Legislation chairman Toru Mihara explains. Nothing will happen until the central government decides on the Osaka and Nagasaki applications. New bidding would require national level support from the ruling Liberal Democratic Party and strong interest from local jurisdictions, Mihara says.

After local legislators rejected a bid days before submission, Wakayama governor Yoshinobu Nisaka says the prefecture will try again, given an opportunity.

Fukuoka joined an all-Kyushu pact to back Nagasaki’s bid; if the national government rejects Nagasaki, Fukuoka could step forward. Other bidders could include Nagoya, the industrial hub between Tokyo and Osaka, Hokkaido, Kanto areas such as Chiba and even Tokyo. 

Bidding rules would be unchanged for a new round, in fairness to the initial applicants. However, if authorities reject the Osaka and Nagasaki bids, that could open the window to rewriting the rules, triggering a do-over in the so far underwhelming IR process.

Former US diplomat Muhammad Cohen has covered the casino business in Asia since 2006, most recently for Forbes and Inside Asian Gaming, and wrote Hong Kong On Air, a novel set during the 1997 handover about TV news, love, betrayal, high finance and cheap lingerie.