Japan Integrated Resorts Update: Nearing The End Of Round One

By Joji Kokuryo Managing Director, Bay City Ventures

n 2018, the government of Japan passed

Ithe Integrated Resort Development Law, which would allow for up to three IRs to be built in the country. Over 20 international gaming operators and more than 30 local city and prefectural governments began to look into the Japan IR initiative. The international gaming community and the finance world reacted to this news with much fanfare. As we stand today, all the buzz and excitement from those times seem like a long-lost memory. The April 2022 deadline for actual IR development approvals came and passed with only two submissions made by Osaka and Nagasaki. Already assured that only two of the maximum three slots have a chance at being filled, there is also no assurance that these two submissions will receive the green light to kick off the Japanese gaming industry.

Osaka

Osaka has always led the Japan IR push. Despite a rough patch when major operators dropped out of their RFP due to overbearing national and local requirements, the Osaka IR always had the political and economic gusto to push through to the submission phase. The robust development plan submitted to the national government has a clear structure centered around local business giant Orix and MGM Resorts. The prefecture and city’s majority political party, the Osaka Restoration Party, has a strong foothold on the region and their members in the prefectural and city council were voted in with pro-IR stances. The quality of the IR development plan submission should be up to the minimum standard expected by the national government.

While the situation looks smooth on the outside, there are concerning land pollution and sink issues with the proposed Yumeshima landfill site, along with no assurances that the city’s US$580 million budget and four to six years of time is enough to solve them. This has been the basis of a recent audit request by a citizens group that mostly went under the international media radar. The result of the audit was split with even the city’s own audit committee unable to agree on whether public spending for the land had a clear ceiling. This was an unprecedented result, especially considering that the city government selects its audit committee members. In short, the audit committee could not agree that this budget for the landfill restoration would be sufficient in the long-term. The next step for this citizens group will likely be a case action against the city. It is mind-boggling that such issues with the proposed site have come up this late in the procedure. Until this issue is cleared up, it could be interpreted that the site itself is currently not slated to be ready for development within the required timeline.

Nagasaki

The Nagasaki IR story checks a lot of boxes for the national government’s intent to use the IRs to revitalize smaller markets. A regional port city called Sasebo first came up with the goal to develop an IR. They next gained prefectural support, then regional Kyushu support. The pro-IR majority party withstood multiple elections at the city and prefectural levels. Nagasaki is the regional IR story that Japan wants. Casinos Austria International was chosen as their eventual IR development partner, but recent developments seem to hint at a savvier and more experienced team offering their support. In September, Nagasaki revealed Cantor Fitzgerald and Credit Suisse have joined in on the project investment, alleviating some concerns that existed with the financing of the project.

While Nagasaki’s IR development plan lacks in world-class brands and mind-blowing design, the extent of the regional support is unmatched. All the prefectures of Kyushu, their governors and the Kyushu Economic Federation have all shown their full support. It would be very difficult for a regional IR in Japan to function without this regional support structure.

Reinforcements in the financing side of the project has certainly helped the Nagasaki IR outlook, but this does not necessarily mean that the general quality of the development plan, which was submitted under a weaker lead team in April, has improved much. It is also important to note that securing financing is a requirement and not some sort of merit achievement. The scale of an IR in a regional market will also be a challenge and perhaps new operator leadership is the first step to take on this hurdle. Their application is certainly stretching the limits of Japan’s consortium structure by adding and revealing more information about their stakeholders during the submission process.

Looking Forward

We are all waiting for the results of the first two IR Development Plan applications from both Osaka and Nagasaki. It is continuously being reported that this autumn will be the timing for IR Development Plan approvals, but this has not been confirmed by the national government. Most of the work is being

done behind the scenes, but there are some public steps the Osaka and Nagasaki submissions must go through that should give some hint on progress.

One such step is the evaluation of the submissions by the headquarters of IR promotion, namely their so-called “experts committee.” This step was always going to happen after the upper house elections this July and after any cabinet reshuffling. Prime Minister Fumio Kishida reshuffled his cabinet on August 10th. The key roles are now set and while the evaluation is only a recommendation, it is still a required step to take in the IR development-plan-approval procedure.

Working our way forward, under the condition that this evaluation is completed before the end of September, decisions on the first two applications could still be out “this autumn,” which technically lasts until mid-to-late December. Therefore the status quo points to a mid-November or early December announcement.

We are assured that not all three IR slots will be filled this turn and it is almost a given that there will be a re-opening of the applications for both new applicants or “resubmissions” if either Osaka or Nagasaki or both are not initially approved. The “when” and “how” for this procedure is still under debate, but one given will be that garnering international IR operator interest will be an uphill battle. There is also the issue of local governments being wary of their political standing at a time where IRs are still unpopular in most communities.

What was once the next big thing in gaming has now become one hot mess, and we can only wait to see if either Osaka or Nagasaki will be given the opportunity to prove doubters wrong by kickstarting the gaming industry in Japan.

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