International casino operators’ pulses have been racing since Japan took its first giant step toward casino legalization in December 2016. But  Japanese authorities seem determined to ruin the party before it ever starts. Details about Japan’s integrated resort implementation bill, the final legislative step to legalize casinos in the world’s third-largest economy, keep dribbling out, and most dismay the gaming industry. The government’s hardline approach doesn’t appear to be working for anyone.

Under the rules outlined, the casino industry is unlikely to build on the grand scale — Las Vegas Sands founder Sheldon Adelson suggested a $10 billion integrated resort — that Japan’s market potential would otherwise dictate, yet the restrictions haven’t convinced the skeptical Japanese public that IRs are a good idea.

Since a panel of academics and businesspeople submitted suggestions to Prime Minister Shinzo Abe’s government last August about creating integrated resorts — not casinos, but multibillion-dollar integrated resorts with features to drive tourism, using gaming as their economic engine — few details revealed about the IR plan have pleased the casino industry. The Abe government’s recent proposals to ruling Liberal Democratic Party lawmakers fit the pattern.

Size limit

Media reports indicate legislation will limit the size of casinos to 15,000 square meters (161,400 square feet), or no more than 3% of the IR’s total area, whichever is smaller. That’s the rule in Singapore, seen as the gold standard for IR development. But Singapore has two casinos for a metropolitan area of 8.5 million, counting Johor Baru across the causeway in Malaysia. The Tokyo-Yokohama metro area has 37 million people, meaning half as much gaming floor for more than four times the people. The Osaka metro area, including Kyoto and Kobe, has 17 million people. Gaming executives accept the principle of casino size limits but reject the 15,000-square-meter maximum as too small.

The government is proposing a laddered tax rate starting at 30% for revenue up to Y300 billion ($2.8 billion), about last year’s gaming revenue at Singapore’s Marina Bay Sands, the world’s most profitable casino, rising to 50% for revenue above Y400 million. Singapore taxes VIP revenue at 12% and mass revenue at 22%. Las Vegas’ gaming levy is 7%, and private casinos in the Philippines pay 15% on VIP and 25% on mass. Macau at 39% is the only jurisdiction in Asia with an effective tax rate comparable to the Japan proposal.

Casino giants are also unhappy with proposed limits on casino visits for Japanese nationals and foreign residents to three within seven days and 10 within 28 days, part of broader measures to combat gambling addiction, a key public concern. There’s also grumbling about requiring specific IR elements, such as convention facilities, as part of the tourism promotion objective, instead of letting developers make their own choices based on local conditions. About the only thing casino operators find palatable is the proposed entry tax of Y2,000, well below Singapore’s S$100 ($70) rate, but a long way from free.

“The good news is that it appears that legislators want to get the bill passed, even if, from an external foreign perspective, it appears as if they are making the entire process rather more convoluted and drawn out than it perhaps needs to be,” Spectrum Asia CEO Paul Bromberg says.

Consensus-building

Jay Defibaugh, an analyst at investment bank CLSA in Tokyo, says it’s simply the Japanese way of doing things. “This is part of the consensus-building process, with the ideas floated to the related parties — operators, potential Japanese corporate and local government partners, politicians, bureaucrats — so that they can be aware and express opinions.”

Japanese public opinion remains strongly against casinos — gaming addiction legislation, promised along with the IR bill, will lift public support, Defibaugh says — and scandal swirling around Abe over a land sale involving his wife won’t help the IR cause. “The level of public opposition is not surprising,” Bromberg, whose company advises on gaming regulation, says. “I do find it surprising, however, that the pro-IR lobby has not managed to implement an effective PR strategy outlining the potential benefits. But it doesn’t seem to be getting in their way.”

Indeed. Abe and LDP casino supporters appear determined to push ahead regardless of public opposition. International gaming companies need to understand that Japan can create IRs without them, too. Once the IR bill is law, expect Japan Inc to enter the game, ready to marshal the financing and skills needed to create iconic, uniquely Japanese IRs. If international companies want to be involved, it will be on Japan’s terms.