Abe’s Exit: The End of Japan IRs?

The unexpected resignation of Japanese Prime Minister Shinzo Abe (l.) may call into question the long-planned development of a legal casino industry in the country. Abe was advocate-in-chief for integrated resorts with gaming as a way to boost tourism to Japan.What happens now is anybody’s guess.

Abe’s Exit: The End of Japan IRs?

The long campaign to bring legal casinos to Japan has faced repeated obstacles. The latest setback, coupled with the impact of the coronavirus, may spell the end of the industry once projected to reap tens of billions of dollars a year.

In late August, after weeks of speculation, Prime Minister Shinzo Abe announced he will resign due to health concerns, specifically ulcerative colitis. His term ends in September 2021; Abe has said he will stay on until a new prime minister is chosen.

Abe and his allies in the Liberal Democratic Party pushed hard for integrated resorts (IRs) in Japan as a way to stimulate tourism and boost local and regional economies. Without him at the helm, some are questioning the whole future of the industry, which was to have begun with three multibillion-dollar IRs, with the possibility of more after the first seven years.

The odds-on favorite to succeed Abe is Chief Cabinet Secretary Yoshihide Suga, who has been a partner with Abe in the development of IRs. For IR supporters, the choice couldn’t be any better. But Suga faces opposition that may temper his support. First, he has to call an election by October 2021, and he faces some formidable opposition. Suga’s ascension to prime minister was not the most popular choice. The public is clearly behind his rival in the Liberal Democratic Party, Shigeru Ishiba. That and other concerns may cause Suga to pull back from his previous enthusiastic support of IRs.

According to investment website The Motley Fool, “the loss of one of the industry’s biggest proponents in the Japanese government could be the death knell for legalized casino gambling.”

In December 2016 after more than a decade of effort, legal casinos were first approved in the country. At that time, operators and analysts called Japan “the next Holy Grail” when it came to gaming, a possible rival to Macau and Las Vegas that could generate up to $15 a year by 2025 and $40 billion a year at maturity.

But the public, wary about gambling addiction, never got behind the plan, and actively opposed it. Operators objected to what they considered onerous regulations, like limits on gaming floors that could hamper profitability and proposed five-year license terms that didn’t appeal to global firms ready to invest billions in development.

Then came the pandemic, which has quenched many operators’ appetite for risk and caused some to hunker down just to survive. Former suitors including the Las Vegas Sands Corp., Wynn Resorts and Genting Singapore have withdrawn from contention, though many—including Galaxy Entertainment Group, Melco Resorts & Entertainment and others—are apparently still ready to bid.

But the recurring roadblocks seem to have discouraged the most ardent Japan-booster of all: MGM Resorts International. On an analyst call in July, even before Abe’s resignation, Bill Hornbuckle, MGM president and CEO, said, “We like that we are not fully ‘all-in’ on this investment, and we like the fact that there is probably going to be a delay and a reopening of some of the conversations that will hopefully make this a better investment for anyone that is interested in it, most notably us.” It was a much different tune than the one sung by his predecessor, Jim Murren, who practically sent valentines to MGM’s chosen location, Osaka, and frequently referred to MGM’s “Osaka first, Osaka only” policy.

MGM now wants only a minority stake in any IR venture, and Hornbuckle said the U.S. company would “only make this investment if we think it’s going to be prudent, if we think it’s going to pay the kind of returns that it needs to pay and to meet our expectation.”

According to MSN.com, the statement sounds a lot like those of the Las Vegas Sands Corp. shortly before it pulled out of the race.

Abe’s departure may or may not be the final nail in the coffin, but it not the only nail. Others, according to CDC Gaming Reports, are limitations that displeased investors, including a maximum 3 percent of total IR gross floor area allowed for gaming space, the 30 percent tax on GGR, a JPY6,000 (US$56) entry fee for Japanese citizens and residents, and MICE space of at least 120,000 square meters (1.3 million square feet), even for regional jurisdictions.

Despite the negative rumblings, Osaka Mayor Hirofumi Yoshimura and Osaka Governor Ichiro Matsui—both of the Japan Restoration Committee, both committed casino supporters—insist Abe’s resignation will not affect the government’s plan for IRs in Japan, and the LDP will pick up the banner in his absence.

Financial firm Nomura also is confident that after Abe leaves, Chief Cabinet Secretary Yoshihide Suga will shepherd the IR Act through to completion, though likely not according to the original timeline, with the first resorts to open around 2025. In a memo, Nomura said Suga would “continue Mr. Abe’s economic policies.”