Regulations may scare off investors
Some gaming analysts and industry observers say Japan is off to a bad start as it tries to build a regulatory structure for its first legal casinos.
Among them is David Bonnet, partner at Delta State Holdings, who wrote in a recent Bloomberg News column that Japan “may cripple its casinos” with problem-gambling regulations that will deter patronage more than they stop compulsive gamblers.
In Bonnet’s view, restrictions that could jeopardize casino gaming in Japan—potentially a $25 billion-per-year industry—include banning cash machines on casino floors; instituting an entry fee for casino patrons; limiting how often Japanese customers can visit casinos; banning VIP junkets; limiting the size of casino floors; restricting locals from using credit cards to buy chips; and prohibiting casinos from extending credit to local customers.
If casinos can’t lend to their own customers, “third-party creditors will fill the void,” Bonnet cautioned. “Japan has a long history of syndicated money-lending at pachinko parlors, and of organized criminal groups attempting to collect debts from insolvent gamblers. If casino patrons had to seek outside sources of credit, they’d be more likely to become targets for these groups.”
David Suzuki, of the private security firm Blackpeak Group, told Bonnet that Yakuza groups may “see the legalization of casino gambling as a massive, historic opportunity to resuscitate themselves.”
That seems to fly in the face of Japan’s clear intention: to build a highly regulated industry whose rules and safeguards will prevent problem gambling and the associated social ills.
Union Gaming co-founder and analyst Grant Govertsen added that Japan could be preparing to “snatch defeat from the jaws of victory.”
“What would happen if Japan threw an RFP and nobody came?” Govertsen asked. “We are becoming increasingly worried about what we’re hearing out of Japan as it relates to the in-progress IR bill. The framework seems to become more restrictive by the day. Coupled with what are likely to be astronomical project costs, they could result in some of the biggest operators sitting this one out.” He pointed out that the policy makers are seriously lacking in experience, a view echoed by Jane Tsai, CEO of gaming consultant JCT Holdings.
Tsai recently told the Asia Gaming Brief, “In order for Japan’s IRs to be successful, it is imperative that the Japanese central government engage experts with tangible IR and gaming operating experience, not just those who have studied integrated resorts from afar. There is a commercially untenable gap developing between the government’s academic theory and practical operational reality.”
Daniel Cheng, senior vice-president of Asian business development for Hard Rock International, agreed. “While the national government has so far come up with an admirable process, there is very little industry consultation,” he said.
By limiting locals gaming and VIP junkets, lawmakers could curtail the casino industry’s “key business segments,” Bonnet said. “This will severely compromise the ability to generate cash flow, discourage institutional investors from committing the billions of dollars of capital needed to get major integrated resorts off the ground, and undermine the industry’s ability to create new jobs and boost economic activity.” Delta State Holdings says such measures may slash potential gambling revenue “by up to 50 percent.”
The excitement about Japan seems to have dimmed alarmingly, in a matter of weeks, but global operators aren’t likely to bail while the bill is still in development. The list of expected bidders includes many of the heavy hitters: the Las Vegas Sands Corp., MGM Resorts International, Hard Rock International, Melco Resorts and Entertainment, Wynn Resorts and the Galaxy Entertainment Group.
Bonnet recommends soft-pedaling the restrictions so as not to scare off such high-powered investors and operators before they even place their bids. Over time and as needed, he said, the government can add or adjust the regulations. “Japan should be careful not to kill off its casino industry before it even has a chance,” he wrote.
Govertsen is clearly concerned. “Japan is on the verge of one-upping the failed gaming expansions of Korea and Vietnam by moving forward with a gaming construct that can’t fulfill the No. 1 stated goal of Japan’s IR development—tourism growth. And it is so poorly designed that ROIs shrink to a level that makes participation on the part of the global IR developers much less likely.”
