LAST WORD

Curbing enthusiasm

Sharon Singleton | Managing Editor, AGB

After two decades of trying, Japan has finally bulldozered its IR Implementation Bill into law, paving the way for casinos at some point in the next decade.

International operators have been salivating at the prospect of access to a large and wealthy domestic market, with a propensity to gamble, combined with a vibrant tourism market. The purpose of the legislation was initially to attract more tourists, though Japan pulled in 16 million visitors in the first half of this year, up 16 percent, without the help of casinos.

Forecasts are for Japan to rapidly become Asia’s second-biggest gaming market after Macau.

However, the irrational exuberance shown by many towards gaining a license in Japan may now need to meet a hard dose of reality.

Many operators have been working on the ground for years to build up a network and base for a license push, already having spent many millions of dollars in the process. But at the end of the day, in the first round of bidding only three IRs will be permitted, which will leave a great many disappointed stakeholders.

Add to that, the industry will be tightly regulated and highly taxed, with a maximum ratio of casino floor size to total IR set at just 3 percent. Visits by locals will be restricted to three times a week, or ten times over four weeks, while operators will need to pay 30 percent revenue tax, on top of consumption, property and income taxes.

As a result, some analysts are cautioning that the returns may not be as high as had initially been expected.

Morgan Stanley has run the numbers on what it will take for a resort in Osaka to make a reasonable return of 14 percent (EBITDA/total investment) on an US$8 billion investment. “Assuming 15,000 sq. m of casino area, GGR of US$4 billion, VIP and mass table yield of US$36,500 and US$8,500, respectively, are necessary. That’s much higher than Singapore,” the firm says.

Forecasts are for Japan to rapidly become Asia’s second-biggest gaming market after Macau.

There are also many other issues that still have not been determined, such as the level of foreign ownership.

David Bonnet, managing partner at Delta State Holdings, reckons foreign operators may only wind up holding a minority stake in the first round of resorts, which is unlikely to sit well with some.

To date, few Japanese companies have put their heads above the parapet to suggest an interest in stepping into the IRbusiness. Though that’s expected to change now the bill has actually been passed, perhaps giving a clearer picture of the potential shape of the industry.

Another element not to be underestimated in the rush to open up an IR in Japan is the level of public opposition. Although trillions of yen are spent each year on pachinko, the industry has not yet won over hearts and minds when it comes to the idea of casinos.

Three opinion polls taken by major media outlets the weekend after the bill was passed showed disapproval levels running at 60 percent and above. Prime Minister Shinzo Abe and his cabinet have also raised public ire in the way they have handled the bill, showing little regard for public opinion or tact in pushing on with debate on the legislation despite deadly flooding.

These factors may come back to haunt the industry if IR friendly local politicians are unseated in the next round of local elections.