WEEKLY FEATURE: Analysts Say Japan Moving Forward

Despite some unsettling reports to the contrary, investment brokers Union Gaming Research Macau maintain that all is fundamentally well in Japan with the process of legalizing casinos. The firm recently brought Toru Mihara (l.), a highly placed Japanese political advisor, to the U.S. to reassure investors.

Union Gaming Research Macau has issued a client note countering news reports that Japan’s casino authorization bill might be delayed until 2015.

Based on meetings with investors the firm recently hosted in the U.S. in the company of Osaka academic Toru Mihara, a professor at Osaka University of Commerce, industry consultant and advisor to the governing Liberal Democratic Party, UGRM said, “We believe that the prospects for gaming to move forward during this year’s legislative session remain very high. These thoughts are echoed by nearly all of our contacts in Japan (politicians, advisors, regional governments, and corporations).”

Debate on the legislation has to occur before the Diet adjourns on June 22 for the bill to become law this year. UGRM believes that could happen by May 19, and if it does, says passage is a “foregone conclusion.”

“This is due to the fact that the coalition of political parties who have already pledged 100 percent member support for the bill already hold majorities in each of the Lower and Upper Diet. With the bill potentially being brought to the floor within the next few weeks, we still believe that a June passage is likely.”

But the note acknowledges that whether a casino will be open by the 2020 Summer Olympics in Tokyo is another matter.

“While this is still feasible, we believe the time frame is tight and doesn’t leave much margin for any sort of delay. For example, should the bill not pass this year and is pushed into 2015, it becomes exceedingly unlikely that any IR could then be open in time for the Olympics. As such, this could potentially have the effect of the bill losing some momentum going into 2015.”

The firm goes on to outline the development of the market, as it sees it. This will begin with the launch of two destination-scale megaresorts in Tokyo and Osaka and will include up to two smaller regional casinos. Assuming all goes well, a second phase will follow at some point with as many as five or six more regional venues.

The tax on gaming revenue will  be “reasonable,” the note says, “perhaps generally on par with Singapore,” and will likely consist of a national tax of 10 percent and a prefecture-level tax at the same rate or less for an effective rate in the neighborhood of 20 percent.

The firm also holds with the general view that Japanese partners will be, if not an explicit requirement, a de facto one, for international operators pursuing licenses. UGRM lists six it believes are serious contenders for the Tokyo and Osaka IRs: Galaxy Entertainment, Genting Singapore, Las Vegas Sands, Melco Crown Entertainment, MGM Resorts International and Wynn Resorts. Pachinko giant SegaSammy could also be in the running with or without a partner. The likely field for the regional licenses includes: U.S.-based operators Boyd Gaming, Caesars Entertainment and Penn National Gaming along with pachinko operator Dynam Japan Holdings, Macau casino operator Macau Legend, Cambodia’s NagaCorp and South Korea’s largest casino operator, Paradise.

“Our gut reaction is that an operator will only be allowed to hold one license,” the firm said.

“Another thing to consider is whether one of the short-listed candidates for a ‘big’ IR license were to focus on a ‘small’ IR license instead. Just as an example, if Melco Crown were to focus on a market like Hokkaido, rather than on Tokyo or Osaka, we believe that such a move would likely make them the front-runner for such a license. Using this type of strategy, we could envision a scenario where all four of the initial Japanese gaming licenses are locked up by the existing Macau/Singapore gaming operators (their potential local partners notwithstanding).”