5 minute read
JAPAN
Yokohama bid holds promise and perils
The announcement by Yokohama Mayor Fumiko Hayashi on August 19 that her municipal government would be moving forward with an IR bid reshaped the licensing race in a way that few other events up to this point have done.
Advertisement
Major international IR operators and gaming industry analysts had been hoping that at least one of the governments in the Kanto region - with a population of about 38 million people the most populous urban area in the world - would raise its hand and enter the race. The fact that it was Yokohama, which is already a stylish and wealthy port city that draws millions of foreign tourists annually, made it a much more attractive prospect.
Yokohama’s entry into the race was not such good news for rival Osaka, which had previously been drawing the lion’s share of attention. For many months it had looked as if Osaka would be the only major market municipality that would make an IR bid, giving Japan’s second city a unique feature that would draw visitors from all parts of the nation and beyond. Now, it is quite possible that Osaka Yumeshima will be partially eclipsed by a major IR with closer andeasier access for most visitors to Japan.
Osaka’s chagrin only deepened when two of the top competitors left it standing at the altar.
Las Vegas Sands Managing Director of Global Development George Tanasijevich had declared in June that his firm was pursuing an “Osaka First” strategy, and by mid-August was sponsoring a music festival in the city. Tanasijevich stated, “We seek to find a long-term role for Las Vegas Sands to contribute to Osaka’s music and entertainment scene by bringing our relationships and expertise in global entertainment to Osaka, and supporting local artists and events. Given the opportunity, we will build an Integrated Resort in Osaka that incorporates performing venues that rank among the best in the world.”
It was only about a week later, after Yokohama entered the IR race, that Las Vegas Sands made a policy u-turn with breakneck speed. Las Vegas Sands Chairman and CEO Sheldon Adelson released a press statement indicating that his firm was abandoning its effort to partner with Osaka and would instead aim for “Tokyo or Yokohama.”
“Consistent with our long-held strategy and our track record of success in achieving it, our company will drive organic growth by strongly reinvesting in our existing portfolio of properties in Macau, Singapore, and Las Vegas, reward our shareholders through our dividend and share repurchase programs and target new development opportunities that allow us to maintain our industry-leading returns on invested capital – and we think an investment in Tokyo or Yokohama gives us the best opportunity to do exactly that,” Adelson said.
Melco Resorts & Entertainment Chairman and CEO Lawrence Ho’s policy shift was only slightly less dramatic. While Melco had never actually declared an “Osaka First” policy, it had clearly been close to doing so. At the Japan Gaming Congress in May, Ho announced that his firm would dramatically raise the global standard of the IR industry, presenting a stunning array of visual demonstrations of his “City of the Future” concept for the Osaka Yumeshima site.
By mid-September, however, Ho had consigned all of that spectacular work to the dumpster, and declared that “‘Yokohama First’ is a plan that gathers a top-notch team of experts to focus on creating an IR in Yokohama city thelikes of which the world has never seen. We are well prepared to carry out activities contributing to the future of Yokohama and to push forward the further development of the city as an international tourist destination. Melco is a suitable partner for Yokohama and its surrounding areas.”
There is no danger that Osaka will lose out completely, however, because MGM Resorts has, in a long term and stable fashion, been pursuing a partnership with the Kansai region, and it remains committed to the strategy they have long been pursuing. Indeed, the departure of Sands and Melco just means that two of its most dangerous competitors cleared out of their way.
Dancing visions of the supreme bounty of the Kanto market do have a major downside for companies like Sands and Melco, however, and that is much more political risk at this location.
The local residents in Osaka have been mentally prepared for an IR bid over several years, the big business community is all for it, and public opinion seems to be basically tolerant of the development plans.
The same cannot be said for Yokohama by any stretch. Public opinion can fairly be described as hotly opposed to opening a casino in their city, and even the business community is split. Mayor Hayashi is moving forward, but only by ramming it through in a not very democratic manner.
Ten-year renewal presents financing hurdle: Fitch
Fitch Ratings has revised some of its previous estimates about the prospects for the Japan IR market, but also raised a warning flag over the implications of the IR license renewal system.
“Pretty much everyone we talked to agreed that the ten-year license renewal presents the biggest obstacle to securing bank financing,” Fitch reported, “Japan’s gaming law presents several facets of risk, including political risk; notably, the local government (including the legislative branch) must actively seek renewal every ten years.”
Fitch also expressed some concern about Return on Investment (ROI) rates: “The IRs in Japan are far from slamdunks in terms of generating a decent ROI (EBITDA/cost), which we think of as roughly 10 percent or higher.
Besides the higher gaming tax rate that we were well aware of before our trip, operators will have to deal with high development costs and bureaucratic red tape.”
Okura revenue falls as pachinko appeal fades
Okura Holdings, a pachinko hall operator in Japan, reported lower revenue for 2019 after it closed some parlours due to a drop in appeal, triggered by changes in regulation, which reduced the gaming element of the machines.
The Hong Kong-listed company operates 17 halls under trading names Big Apple, K’s Plaza, YOUPARK and Monaco. Total revenue decreased by approximately 6.4 percent, from approximately JPY8.7 billion ($81 million) for FY2018, to approximately JPY8.15 billion for the year ending June 30th, 2019.
“The pachinko and pachislot industry has continued to be affected by the continuous decline in pachinko and pachislot players during FY2019,” it said.
“As pachinko manufacturers’ progress in developing new models that meet the new standards was slower than expected, pachinko hall operators’ selection of machines were limited by the machines available in the market,” it said.
