The Japanese government has yet to decide if two integrated resorts (IRs) will be built in the country, nearly a year after developers filed their proposals and more than six years after the resorts were first legalized.
MGM Resorts International, for one, has proposed an $8.5 billion resort in Osaka. On a recent earnings call, company CEO Bill Hornbuckle expressed mild exasperation with the delay, saying if lawmakers don’t OK its license soon, the U.S. casino giant would be “challenged … to get this thing open before the decade close in 2029.”
“But we’re being patient,” added Hornbuckle, who was born in Japan, “and we believe we will hear soon.”
IRs withgaming were first approved in the Japanese parliament in late 2016, with the goal to “achieve attractive, long-stay tourism that is competitive on an international scale,” according to a statement from the Japan Casino Regulatory Commission.
In the first wave of enthusiasm, analysts called Japan “the next Holy Grail” of gaming, and “the crown jewel” of the Asian market. They projected super-sized revenues of $25 billion to $40 billion a year, and predicted Japan could be second only to Macau as the world’s leading gaming market. Companies including the Las Vegas Sands Corp., Wynn Resorts, Caesars, Melco and Galaxy jockeyed to be first to market, eying potential locations that included Tokyo, Wakayama, Yokohama, Hokkaido and Osaka.
Then came the Covid-19 pandemic, which shut down the world, caused many would-be bidders to back off, and put the whole process on pause. In the end, only two proposals were filed for three available licenses; in addition to MGM, Casinos Austria and its local partners want to build a $3.2 billion IR in Sasebo City, Nagasaki.
Despite the protracted wait, analyst Josh Swissman, founding partner of the Strategy Organization, says multiple factors make Japan a potentially winning jurisdiction: first, the country’s “sheer population density” (126 million people), and the appetite of the Japanese for gambling—according to Business Insider, pre-Covid they spent up to $200 billion a year on pinball-like slot machines called pachinko.
“There is strong, strong domestic demand in Japan, so the government should continue to be of the mindset to provide free and easy access to locals,” Swissman says.
Also in Japan’s favor, says Swissman: “It has and will continue to have relatively low inflation. All this ties into general sentiment around bullishness in the market.”
Then there are the tourists. In December, the leading inbound travel markets for Japan were Korea, Taiwan, the U.S. and Thailand. Chinese visitation, though historically strong, remained at a trickle that month due to Covid-19, and even though Chinese borders have since opened up, Beijing’s ongoing clampdown on cross-border gambling will likely limit China as a feeder market for Japan IRs.
While Japanese lawmakers are taking their time to approve the resorts, Swissman adds, it doesn’t mean they’re hesitant about the developments.
“When you add something like a gaming offering, it requires an additional level of due diligence,” he says. “It’s not going fast enough for anyone’s liking, but I don’t think many people are surprised by the pace either … Just looking how far the legislation and the licensing process have come, it’s clear the government is still very much behind this, even if it’s moving slowly.”
Meanwhile, the bidders and local governments continue to plan. For the coming fiscal year, Nagasaki has budgeted $3.16 million for IR promotions—up 147 percent from last year. Other funds have been allocated for meeting and convention spaces, with an additional $1 million-plus for responsible gaming and addiction services. The Casinos Austria-backed IR will be developed near the Huis ten Bosch Dutch-themed entertainment park, with Phase 1 is expected to open by 2027.
Osaka, meanwhile, has set aside $4.5 million for IRs, about 6.4 percent less than the funding in last year’s budget; of that, $852,035 has been allotted for “political measures,” while the rest will cover staffing. The MGM-backed IR, if approved, will be built on Yumeshima Island in Osaka Bay.
Development plans could still be affected by higher construction costs, ongoing supply chain issues and pandemic-related “uncertainty about timing,” says Swissman. Given those dynamics, analysts are no longer speculating about the value of a mature gaming market in Japan. “It’s hard for people to really read the tea leaves right now,” he adds.
Bottom line, Swissman believes both MGM and Casinos Austria “have the bandwidth, resources and desire to play the long game,” and are justified in making multibillion-dollar investments in Japan. Not that it’s wholly without risk, he adds. “As development costs continue to rise, that may be something they need to right-size. But I don’t think the risks are so great that they would overcome their ability to create really special resorts that are impactful and bring the economic benefit” the Japanese government is betting on.