JAPAN

Taxes, restrictions to dampen investment levels

Operators are still waiting for the details of how Japan plans to regulate and tax its casino industry, however leaked proposals have so far suggested a high tax environment, with restrictions on floor space, which some warn will lead to lower investment levels.

AGB reached out to a number of international IR operators to seek their reactions to the leaked government proposals. Since these operators are competing for what is likely to be only a handful of licenses, anonymity was offered to encourage them to give their frank assessments of the proposed regulations.

One international operator responded as follows: “The government is considering a rate of 30 percent applied to gross gaming revenues, which may be reasonable in jurisdictions where investment levels are low. However, a tax rate this high, combined with a possible restriction on casino size, will not permit the levels of investment that the government itself has suggested. Under this scenario, an investment of up to [US$9 billion] would simply not be possible.”

A second IR operator also provided a negative assessment, highlighting the proposal for an escalating tax rate: “Casino tax is not personal income tax. To realistically generate higher revenue, more investment needs to be injected. Instituting an escalating tax rate disincentivizes an operator from investing further because of the declining margins from the higher tax rates.”

A third operator did not highlight specific issues, but provided an overall statement of concern: “We can only hope that the legislative framework allows developers like ourselves the pathway to achieve a sufficient return on the capital we want to invest in Japan.”

While such negative and worried views of the proposals appear to be predominant among the international IR operators, they are not universal. One operator observed that, “the tax rates, though higher than expected, are a reasonable way to keep some of the economic benefits of IRs in the country and are not excessive.”

If the tax rate proposals came in significantly higher than most observers expected, the proposed individual casino entry fees for Japan residents (but not foreign tourists) to casinos were considerably lower.

Reports last year suggested that entry fees would be set quite high, perhaps in the range of US$40 to US$70. However, it appears that government bureaucrats absorbed the point that there is no scientific evidence suggesting that high casino entry fees are useful in fighting problem gambling. Hence, the new proposal is for a US$19 or perhaps a US$27 casino entry fee.

This proposal seems to have satisfied nobody in the Japanese political world. Strong advocates of IRs are demanding lower entry fees or, better yet, to scrap them altogether.

Meanwhile, casino opponents such as the Japan Communist Party denounced the lower-thanexpected fee as a mere pittance.

Significantly, the US$19 casino entry fee plan faced considerable criticism from within the Komeito party IR project team, which felt it was too low. One member was quoted as remarking, “Should it really be less than the fee collected in Singapore?” Komeito is a ruling coalition party.

The government proposals for casino floor size restrictions were in line with what had been suggested last year: a maximum of 3 percent of the total IR area and a ceiling of 15,000 square meters.

James Murren, chairman and CEO of MGM Resorts International said his company already envisions building a relatively small casino that would be less than 2 percent of his proposed IR’s total floor area.

Music, sports, and other entertainment facilities would dominate an MGM IR in Yumeshima.

“Osaka has two airports,” Murren added, “and it has a wonderful railway network as well. Visitors can travel to Kyoto, Nara, and the Seto Inland Sea. Considering Osaka’s economic scale, we could build a very large IR here.”

The rules were scheduled to be submitted in the current Diet session.

Public can be swayed on IRs, survey finds

A survey conducted by the Nippon Research Center and presented by Las Vegas Sands found the Japanese public could potentially be persuaded to back IRs.

It found 55.8 percent of the public are in favor of “the development of an Integrated Resort similar to Singapore’s Marina Bay Sands in Japan,” and only 44.2 percent opposed, if the question was framed in a certain way. Before answering whether they would support an IR in Japan, the respondents were made to read three information cards highlighting Marina Bay Sands’ economic contributions to Singapore and its measures to combat problem gambling. Then a video was shown highlighting Sands’ rich entertainment offerings.

Only then were the respondents asked if they would like to see something like that in Japan as well.

Limited openings hit Konami revenue

Slot machine supplier Konami Holdings Corp. reported a 4.9 percent decline in revenue from its Gaming & Systems division for the first nine months of FY18. Revenue for the first nine-months of the fiscal year fell to JPY20.7 billion ($193.7 million), while segment profit fell 8.6 percent to JPY 2.7 billion.

Konami said the decrease in revenue was due to a reduction in the number of new slot machine installations - caused by limited new casino openings and postponement of casino management system installations in the quarter.