Gaming operators eager to win one of Japan’s first-ever casino licenses will have to wait a while for the government to issue more complete bidding rules. As they wait, they have time to think about two significant problems that could face the budding integrated resort industry: a potential shortage of Japanese workers to staff the massive complexes, and the proposed five-year license terms, which are likely to hamper investment.
According to Asia Gaming Brief, the government of Prime Minister Shinzo Abe had planned to establish a Casino Management Board and release specific IR bidding regulations by July 1. Now the ruling Liberal Democratic Party has pushed back that deadline until after the House of Councillors elections. In fact, they may not get around to it until early 2020, which puts a monkey wrench in the plans of would-be operators and the municipalities that hope to host a resort.
In particular, AGB reported, such a delay might be “the deathblow” for Osaka’s plans to have its Yumeshima IR open before the 2025 World Expo.
Meanwhile, Japan’s “very low unemployment” could be a major problem for international casino firms hoping to hire thousands of locals, reported GGRAsia. In a May 22 report, investment bank Morgan Stanley noted that unemployment in the country is just 2.5 percent, and the lack of skilled labor could be “a major concern for IRs.”
Chris Gordon, president of Wynn Resorts Development, has said the U.S.-based company would be looking to hire “between 11,000 and 16,000 new employees” if it wins one of the IR licenses. Gordon called it a “daunting task.”
Morgan Stanley said the problem might be “solved by technology,” i.e. robots, or a “higher female participation in the workforce.”
“Operators were also encouraged by recent steps by the government on imported labor, with the enactment of a new bill in December 2018 to attract more than 345,000 foreign blue-collar workers over the next five years,” Morgan Stanley wrote.
The bank said it is “concerned about returns” for international casino operators who have said they’d ante up $10 billion to get into the breaking market. “Given the competition and inflation, we are worried development prices are getting bid up and are diminishing returns.” Those fears may be allayed if Japan becomes a US$15 billion market, which would be “more than double Singapore or Las Vegas.”
But the biggest long-term issue may be the short-term licenses offered by the Japan government. According to CDC Gaming Reports, global giants MGM Resorts and Las Vegas Sands to regional bidders Hard Rock and Mohegan Gaming said the brevity of the term could be a major stumbling block to Japanese IRs becoming a reality. Macau, by contrast, granted 20-year licenses to its gaming operators,
“The one issue banks have raised is this notion of the five-year term of the debt piece and how much cash flow have you got to fully monetize that five-year piece,” said MGM Resorts Japan CEO Ed Bowers.
“Obviously you have to really consider how that happens: do you have to increase the equity or do you have to decrease the investment and what does that mean in the context of bidding to win this license? This issue has made the financing significantly less flexible.”
Global Market Advisors Managing Partner Steve Gallaway noted, “There is also ambiguity with regards to whether the clock starts ticking on those five years from the time you are awarded the license, or from when you open the doors. For many of these facilities, it could take upwards of five years to open after being awarded the license. We assume this will be clarified when the regulations are written, in addition to other items that require clarity.”
Mohegan Gaming CEO Mario Kontomerkos said the short license terms “add a level of complexity that I don’t think folks really anticipated beforehand. When you think of the size of the projects we’re talking about, then you layer on this idea of the five-year licensing threshold, I think what that means is the banks will be there but other tranches of debt will likely be required. You will have to have investors that are willing to take that risk and I’m not sure the national banks will be there for that.”
As the details are worked out, according to AGB, the Miyagi prefectural government has decided to explore the possibility of hosting an IR by engaging an advisory firm to assess the market. But Sasebo City’s plans to create an “All-Kyushu” campaign to strengthen its small-market IR bid fell apart earlier this month when Kitakyushu, the second-largest city on the island, indicated it will go make its own play for an IR.
