Japan: Local Legend

Reports that Japan’s casinos could end up off-limits to its citizens were dismissed last week. The possibility seemed to be very real as pro-gaming lawmakers, including Prime Minister Shinzo Abe (l.), negotiated for minority party support for a legalization bill under consideration in the Diet. If it happened it would have dramatically diminished the size of the market and its investment prospects.

The legislative caucus steering Japan’s casino legalization bill through the National Diet will not include a controversial provision that would have closed off the industry to the country’s 127 million citizens.

Reports from Japanese media last week held that a locals ban had been agreed in order to secure support for the bill from opposition and minority party lawmakers concerned about gambling addiction and other potential adverse social impacts.

But a source close to the talks told Reuters this is not the case. “We confirmed that we will not exclude Japanese nationals,” he said. “We agreed that we will make a partial change, to address concerns that have been raised, to say that we will take necessary measures.”

One of the changes under consideration is a Singapore-style entrance fee system for domestic players, which if agreed will be included in legislation introduced in the Diet’s next regular session to deal with regulations, taxes, licensing and other issues. That session begins in January.

The current special session, which is expected to pass the bill, concludes on November 30. The bill was introduced last December but failed to make it to a vote in the regular session that ended in June, and negotiations continue to progress slowly.

“We would expect the behind-the-scenes jockeying to continue for the time being,” said analyst Grant Govertsen of Union Gaming Research Macau. “While certain majority party members are seemingly pushing for the passage of the IR promotion law this month, we do not believe they currently have the necessary support of key minority parties.”

Gambling has long been part of the fabric of Japanese society. The parimutuel offerings are large and diverse, and pachinko, a flashy pinball-style game played for money, is the largest machine gaming industry in the world in revenue terms, though it is waning in popularity among younger people. Casinos, on the other hand, generally have been viewed with skepticism, and though prominent interests have been touting the potential benefits for years, they remain a touchy issue, socially and politically. Legalization didn’t gather any real momentum until 2012, when Prime Minister Shinzo Abe took office and he and leaders of his governing Liberal Democratic Party threw their support behind it as an economic development tool aimed at boosting tourism and foreign investment. The government wants to double the number of overseas tourists to 20 million a year by the 2020 Olympic Games in Tokyo, but market researchers say the Japanese people would still be the main source of gaming revenue.

Experts say casinos in Asia’s second-largest economy, the third-largest in the world, could generate upwards of US$15 billion a year in initial annual revenue based on two destination-scale resorts sited in Tokyo and Osaka and possibly a handful of smaller venues in regional markets. The prospects have attracted an A-list of global operators touting investments in the neighborhood of $5 billion or more, which analysts generally agree would not be feasible if the industry was restricted to foreign passport holders, as is the case in South Korea and Vietnam. “A foreigners-only concept in Japan would be a non-starter in terms of attracting major international IR developers willing to deploy significant amounts of capital,” Govertsen said.

As for the Japanese public, it has been difficult to gauge their views either way, though certainly there has been no groundswell of support. With preparations heating up for the Olympics, Tokyo’s new governor, Yoichi Masuzoe, has said casinos are not a priority, and daily newspaper Asahi Shimbun recently published the results of a telephone poll in which 59 percent of respondents said they oppose legalization. Conversely, recent polling conducted by media giant Nikkei show nearly 59 percent in favor.