The prospect of casino legislation in Japan is by far the most exciting thing to happen to the global gambling market since Macau and Singapore. Japan has a population of 128 million, the 10th largest, and a GDP per capita of US$38,900. The capital city Tokyo is the largest metropolitan population in world with 35 million people.

But the driver behind Prime Minister Shinzo Abe’s endeavour to introduce integrated casino resorts to Japan is not to satisfy domestic consumption, it is to promote tourism.  As a tourist destination Japan has already done well.  The numbers are up 22% in 2016, at 24 million tourists.  There is still room for growth because the UK had 36 million tourists in 2016.  But Abe is ambitious and is looking for a target of sixty million tourists.

Japan’s economy has been stuck with zero growth for many years and tourism would certainly help.  But the Japanese public does not appear to be in favour of casinos. 44% of those asked said they were not in favour of casinos only 12% said they were. This could be put down to a cultural reticence towards gambling which onlookers find surprising given the propensity to bet in Japan.

For example, Pachinko, a hybrid of a slot machine and pinball game, is by far the largest gaming market in the world. Japan’s horseracing gross gaming yield is almost equal to the collective yield for the US, France and UK. 

Any resistance to the proposed IR development is likely to be political.  Japan is a closed society with only about four percent of the population not being born in Japan.  This is quite remarkable given the extent of globalisation and the international companies that are Japanese.

But with tourism comes residency as we have seen across Europe, and the USA where people visit, like the place, and decide to live there.  The Japanese will want people to go home. This is an issue that may cause people to object to integrated resorts and their mission to increase tourism.

Presently China provides most tourists at 6.3 million, followed by South Korea (5 million), and Taiwan (4 million). But the integrated resorts will be successful if the tourists do not come, given the concentration of Japan’s population and the limited supply of gambling facilities.

Japanese companies are holding US$260 billion in cash on their balance sheets, so financing should not be a problem and GBGC believes a joint venture is the best model for companies to pursue.

Tokyo Disneyland is a good case study. It retained the key characters (Snow White, Mickey Mouse et al.) but themed almost everything else to Japanese taste.  It is the third largest theme park in the world, having attracted 125 million visitors in 10 years.  It is the largest retailer of merchandise in Japan.

Disney must have considered many options on ownership but decided the operation should be owned, operated and licensed to a Japanese company. Licensing to a third party in the casino business is difficult because of the professionalism and expertise required to run a casino, as well as the responsibilities required by the gambling licence. 

The principle power broker in Japan is the Zaibatsu, a name given to the major conglomerates that form an integral part of Japanese commercial life. They include companies such as Kawasaki, Sumitomo, Mitsubishi and Mitsui.  All ideal joint venture candidates. Based on research from Morning Star, four integrated resorts are likely to be permitted, two urban and two regionals.  Morning Star forecasts a return of US$2 billion or 20% on an investment of US$10 billion. 

But the resorts’ principle architect Prime Minister Abe may be running out of steam. The popular governor of Tokyo, Yuriko Koike won 79 seats in the 127-seat assembly.  Her rise has been comparted to that of Donald Trump.  Her motto is “Change in order to preserve.”  This should be of no concern to investors in the resorts.  Koike is in favour of the proposed legislation on the grounds it will attract more people to Japan.

So, who will win the licenses? Las Vegas Sands has done it in Las Vegas, Macau, and Singapore and done it well. Galaxy Entertainment has done very well in Macau, producing a great resort in conjunction with Okura hotels.  Genting is going all out, having left South Korea to concentrate on Japan. MGM are prepared to bet US$10 billion and Melco has said there will be no limit to what it will spend. The stakes are high!

This article is a shortened version of Warwick Bartlett’s presentation given at WGES 2017 in Barcelona.