The world’s casino business sees Japan’s casino legalization as a golden opportunity and, even amid the ongoing recovery in Macau, the gaming industry is all abuzz about it. One unscientific indicator: I’m a speaker at next month’s Japan Gaming Congress in Tokyo and I’ve had several industry friends ask for my help to get them get on the conference program. More scientifically, a study by Global Market Advisors indicates, no matter how Japan plays casino legalization – or, as supporters would prefer, integrated resort development – it will be the second biggest market in Asia and number three in the world, behind the U.S. and Macau. That explains why Las Vegas Sands founder Sheldon Adelson says his company will invest $10 billion in a Japan integrated resort, and Melco Resorts and Entertainment Chairman and CEO Lawrence Ho says his company will spend “whatever it takes” to secure a Japan gaming license. But the multiple scenarios also underline how little anyone knows about what Japan has in mind for development of its so-called IRs.
Early this month, Prime Minister Shinzo Abe reiterated his support for casino legalization at the opening meeting of a government task force to help shape IR regulatory legislation. “The world’s highest standards of casino regulations will be introduced, and policies to deal with issues like gambling addiction will be addressed,” Abe said, facing up to public perceptions that IRs will add more problem gambling in a country where citizens already spend billions on pachinko, horse racing and lotteries.
Abe’s statement demonstrates that, despite the negative public reaction, he remains committed to IRs to boost Abenomics and relieve Japan’s quarter century long economic funk. Despite Abe’s latest blessing, casino legalization in Japan remains a big deal but not a done deal. Even after passage of the first IR bill in December, I believe it’s still no better than 60-40 that there will be any legal casinos operating in Japan by 2024. (If anyone wants to bet on never, I’m offering 3-to-2 odds.)
Global Market Advisors, with multiple offices in the U.S. and Asia, sees Japan’s IR licensing contest – if and when it happens – as the most competitive bidding process since Singapore awarded its two IR licenses in 2006. The Japan white paper’s just released executive summary – full report due May 1 – analyzes Japan’s gaming revenue potential under four scenarios, ranging from two IRs in Osaka and Yokohama, neighboring Tokyo, to roughly 10 IRs in top cities and tourist areas, including multiple resorts on an artificial island in Osaka Bay, seeking the benefits of clustering to drive tourism. Under the different scenarios, GMA estimates Japan’s gaming revenue from US$11 billion to US$24 billion.
How many IRs to license and where to put them are just two top of mind issues regarding Japan’s casino legalization. The paper also considers Japanese ownership participation, whether or not it’s mandated by law, and the impact of Singapore style restrictions such as limits on casino size, an entry tax for residents and stringent rules on promoters that have kept Macau junkets from doing business there.
Japan’s approach to these issues will determine how much casino revenue it gets and where it comes from. But those answers, in turn, will depend on how Japan responds to a pair of more fundamental questions. I’m not alone in my thinking: MGM Resorts International Chairman and CEO James Murren cited the very same questions as keys for Japan in an interview with CNBC Asia that aired in early April.
First: Why does Japan want IRs? What do proponents think should be their main contribution to Japan? In Singapore, the authorities wanted a convention center and a world class theme park. Singapore also wanted an image makeover to show that it’s not your father’s Singapore anymore, or, for Prime Minister Lee Hsien Loong, not his father’s Singapore. In the Philippines, IRs are about jobs first, then tourism. Tokyo doesn’t have a convention center, I’m told, and even with 22% growth to a record 24 million visitor arrivals last year, Japan tourism has scope for expansion. But in the nation with the world’s largest debt per capita, revenue may be a greater consideration than many assume.
At the task force meeting, Abe promised its work would pave the way to “create clean, Japanese-style integrated resorts.” Japan collectively needs to decide what will make those IRs Japanese, beyond geisha coasters and cherry blossom wallpaper. What elements of Japanese society, history and culture fit into the IR concept and to whom will they appeal?
Japan wants to avoid Macau’s situation of having some of the world’s biggest and most impressive IRs that, until Galaxy Macau’s phase two, didn’t have any hint of Macau. In a city with its own fifteenth century European buildings, Las Vegas Sands built a phony medieval Venice; Japan probably doesn’t want Marvel’s take on anime. On the economic side, what role will Japan Inc play in IRs? So far, mainstream corporations have been cool to IRs, perhaps mirroring public opinion. But if Abe wants IRs to reshape the national economy, Japan Inc will certainly become involved. And that in turn will change the character of the IRs.
Once Japan addresses those two big questions, the who, what, where and other details will naturally emerge. But if Japan can’t say why it wants IRs and what will make them Japanese, casino legalization will be another dead end in Japan’s journey out of the economic wilderness.