Andrew W Scott, Vice Chairman and CEO, Inside Asian Gaming
The Daily Download: Why has casino gaming in Japan taken so long to become reality?
Andrew Scott: Both culturally and commercially, Japan has historically been very careful and very methodical when it comes to planning. This is a new industry in Japan with no real equivalent and it’s been a long time since an entirely new industry has been born in Japan.
The upside of taking so long is that once something does become reality in Japan, it has been planned so well that it usually works straight away. Other markets are quicker but tend to require further revision upon commencement.
There is also a deep concern within Japanese society about gambling addiction. There is a perception that gambling addiction is a big problem and there has been considerable pushback against IRs as a result.
DD: When can we realistically expect to see the first IRs open?
AWS: Wakayama is saying 2025 which is extremely optimistic. Osaka is now saying 2027 or 2028 but if there is one thing I have learnt from visiting Japan for many years it’s that there are constantly delays in the process. The Japanese are very careful and COVID-19 hasn’t aided the situation. With that in mind, 2028 looks quite likely but don’t be surprised if we’re only seeing the first IR open even in 2030. Japan has never been shy of finding a reason to delay.
Efforts to legalize casino gaming in Japan have been going on for more than 20 years, from originally being in a race with Macau to open IRs to talk of opening before the 2020 (now 2021) Olympics. Clearly neither of those ambitions came even remotely close.
DD: What are the major impediments currently to expediting the process?
AWS: The fact that operators need to apply to local governments, go through an IR implementation process with the local government and then as partners go hand-in-hand to the central government in a two-step process has made it more complicated.
It also means candidate operators have had to submit their proposals to local governments without having all the information they need. We still don’t have a final set of IR regulations from the central government which makes it difficult.
There is a perception within the industry that Japan has been quite demanding and that whenever a factor comes up it always seems to go against the operators and for the government. For example, limiting the gaming area floor space to 3% and implementation of a JPY6,000 entry fee. Then you throw in the sheer scale of investment – the figure that has been bandied about for some time now is US$10 billion. This is a bigger investment than any in the history of our industry and there are justifiably ROI concerns. Add in a 10-year license with a 5-year renewal period thereafter and it makes financing difficult. There are significant issues.
DD: What do you make of the withdrawal of Las Vegas Sands from the market?
AWS: It was a big shock after they pursued a license in Japan for more than 10 years. There are two schools of thought. One is they have looked at ROI, looked at investment – Sands is known for having a benchmark ROI of 20% – have realized they’re not going to get 20% and decided to pursue better opportunities for their shareholders instead.
The second school of thought is that this is somewhat of a tactic and they are withdrawing for now to highlight the difficulties in the process and hoping it will lead to changes from the Japanese government or even to arm Prime Minister Shinzo Abe with ammunition to go back to the Diet. Sands may then re-enter the race, particularly if Tokyo comes in.
DD: Do you expect Tokyo to put its hand up?
AWS: It would make sense commercially. They are obviously distracted with the 2020, now 2021 Olympics. Tokyo is the most obvious place to have an IR in Japan given the population base but it’s a political thing. The current leadership in Tokyo has been silent about the process which has led some analysts to suggest they intend to enter the race once the Olympics are over.
But the new candidate for governor, Kenji Utsunomiya, has announced he will run on an anti-IR platform and even if he doesn’t win, it is always more difficult when there is a lack of bipartisan support. So, Tokyo is problematic from a political point of view but makes perfect sense from a commercial point of view.