Goal is to triple tourism
Foreign investors hoping to get a Japan casino license may be playing second fiddle to local partners, say some analysts.
“We are pretty certain that anyone who is looking for 100 percent ownership will be disappointed,” said Praveen Choudhary, managing director of Morgan Stanley Asia, speaking at G2E Asia. Morgan Stanley believes the government will favor consortiums of up to five member groups. The firm also said the likely ownership structure will be 40 percent for the primary foreign investor, 40 percent for a Japanese partner and 20 percent for other local partners, according to the Asia Gaming Brief.
Union Gaming Managing Director Grant Govertsen said more local ownership could keep Japan from achieving its goal of tripling tourist arrivals from 20 million to 60 million. “If you really want a high degree of local ownership, you don’t have that expertise among local companies in terms of developing fully fledged IRs that are capable of driving that level of visitation,” Govertsen said.
Lawrence Ho, the chairman of Melco Resorts & Entertainment, told GGB News he’d have to think long and hard about taking a minority position in any Japanese casino.
“That would be a tough one,” he said. “We’d really have to see how the rules played out. Our single goal is to be part of that market. So it wouldn’t be a flat ‘no’ but we would really want to understand how many licenses and what the rules are before signing any deal like that.”
The government is now developing legislation that will set forth the regulatory structure, tax rate, and selected the locations for two or more integrated resorts. The bill could be submitted to an extraordinary Diet session this fall.
Morgan Stanley expects two IRs in major cities and a third regional gaming hall. The likely major contenders are Osaka and Yokohama, though Tokyo is often mentioned as well; regional favorites include Sasebo in Nagasaki, as well as Hokkaido, Nagoya and Sendai.
The bidders—a crowded field that’s likely to include the Las Vegas Sands Corp., Hard Rock International, Galaxy Entertainment Group, MGM Resorts International, as well as Melco and among others—can expect intense scrutiny by the government, according to Peter Cohen, director of regulatory affairs at the Agenda Group and a former Australian regulator. Cohen said the candidates should be prepared for a “quite intrusive” process regarding background checks.
Many of the would-be players are already indicating that they’re fine with the checks. “What’s positive about the IR industry in Japan is that it will come with the most robust regulation,” said Jeremy Walker, vice president for international development at Galaxy. “It’s very important to think about what is the vision that the Japan government will set forward in their legislation and make sure that we create the right approach to support growth and economic development.”
Ed Bowers, senior vice president of global gaming development for MGM Resorts, said the firm wants to see “strong regulation in Japan” and is “perfectly happy to go through the necessary checks” to bag a license.
Regulators are also likely “to want performance guarantees to make sure that things get build in a timely fashion,” said Cohen. “There will probably be a lot of regulatory oversight to ensure that every promise made during the licensing process is delivered and that these integrated resorts are operated in the most professional and world-class manner.”
AGB reports that Japan is likely to see two urban integrated resorts in major cities by 2023, according to CLSA analysts.A second phase could add as many as 10 regional casinos, the brokerage added.
CLSA said a mature Japan gaming market could generate up to US$25 billion in gaming revenue per year.“We estimate each massive urban IR in the first phase to amass US$5 billion revenue. For the regional IRs in the second phase of build-out, we expect them to have a smaller footprint and hence a lower average revenue of US$1.5 billion,” said the brokerage.
Meanwhile, foreign and domestic operators are adjusting to the news that locals may play a greater role in the billion-dollar developments. According to Reuters, Japanese pachinko manufacturer Sega Sammy is keen to get a majority stake as a local partner.
“We definitely want to take a bigger stake in Japan—not just the entertainment part, but the whole casino resort,” President and Chief Operating Officer Haruki Satomi recently told reporters in Tokyo.
One big gun, U.S.-based Hard Rock, says it doesn’t need a 60 percent stake in a Japan casino venture. “It doesn’t matter to us frankly,” said Edward Tracy, CEO of Hard Rock International’s Japan division. “But we are a company that has partnerships, so our preference is always to have a local partner wherever we go. We are in 74 countries around the globe and we have local partners in all 74 countries.
“It’s not a matter of ‘Do we want 100 percent?’ We don’t think that’s what Japan wants. We think Japan wants us to have local partners, and we’re prepared to do that,” Tracy said.
Meanwhile, the Japan Times reports that the government could propose a system that would allow pachinko parlors and other gaming halls to bar entry to “serious” gambling addicts. Other preventive measures could include limiting the number of visits to a facility or even assessing gambling addiction through medical certification.
