G3 INSIGHT JAPAN
INTEGRATED RESORTS
Most details in the regulations are acceptable. Tey’re not especially business-friendly, but perhaps they could be accepted. However, there is one thing that has definitely gone too far, and that’s the obligation for the licence to be awarded for a five year duration. And that the prefecture has to pass through its assembly a renewal order that then passes to the Tokyo government for final approval. Tis means that operators are essentially looking at a five-year licence.
Jonathon Strock, Principal, JS Consultancy
Licensing requirements, huge financial investments and a nervous public – has the initial interest in Japan waned to the point that it’s become difficult to see the advantages?
Yes, it has waned. When I started looking at the market in 2014, you had every company in the world seeking a spot in Japan: LV Sands, MGM, Caesars, Rush Gaming, Galaxy, SJM, Melco, Barriere, Crown Resorts, Casinos Austria etc. Everyone wanted a piece of the action.
What happens if the government that has awarded the licence loses the next election? Are you out? Possibly…
Our Wakayama project represented a US$4bn investment, the one in Nagasaki is a little more at $4.5bn and the MGM project in Osaka is currently $9bn, but oscillated up to $13bn at one point. Te now dropped Yokohama bid was around the same amount – and a Tokyo IR would probably demand a $15bn investment. Tis money has to come from somewhere – and despite the size and scale of some of the bidders, the majority of the capital must be borrowed. Unfortunately, the bank or the lenders for these types of projects want to be repaid during the term of the licence.
“Te project that I was looking into was a US$4bn investment, the one in Nagasaki is a little more at $4.5bn and the MGM
project in Osaka is currently $9bn, but oscillated up to $13bn at one point. Te now dropped Yokohama bid was around the same – and a Tokyo IR would demand a $15bn investment. Tis money has to come from somewhere – and despite the size and scale of the bidders, the majority of the capital must be borrowed.” Jonathon Strock, JS Consultancy
Now, a few years down the road and we have three cities that remain with bids for the licences; Osaka, Wagayama and Nagasaki. What happened to Tokyo, what happened to Yokohama? And more importantly, what happened to Hokkaido, which from a tourism point of view was the perfect location for the stated purpose of opening Integrated Resorts in Japan – to encourage tourism to remote areas. Hokkaido is the perfect place – so why is no one interested in creating an IR in the place that most fulfils the brief?
Why has Sands, Melco, MGM, Crown, Galaxy etc., all pulled out? I think the reason is that the Japanese government looked at the international interest and rubbed its hands. It believed that it could do whatever it wanted with regulation because such was the interest in the bids. Tey thought that meant the big gaming companies would do whatever was required to get their projects over the line. And I think they over- played their hand.
P36 WIRE / PULSE / INSIGHT / REPORTS
Tere’s a big difference between borrowing on a 20-year licence in Europe or the US, as opposed to repayments of extremely large sums in a very short period as we see in Japan. It becomes economically unviable. When I tried to make our projections work on a five-year payback, the whole model falls apart, and I presume the other operators have come to the same conclusion.
Is the IR project in Japan a lost cause? Probably not. Osaka remains viable thanks to its economic status. It’s the third largest city in Japan after Tokyo and Yokahama (which actually touch to become one massive urban area).
Osaka, though, is large, financially rich and very powerful. Tokyo wouldn’t be able to say no if Osaka pushes ahead with its bid for an Integrated Resort. Next is Nagasaki and then Wakayama. Neither of which have large populations or the economic power of Osaka. I don’t see both locations being awarded a licence.
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