Apart from attracting large investments from renowned IR operators, the establishment of a gaming industry could potentially drive significant and sustainable future growth in international travel and tourism to Japan. The stakes are high.
However, much is left to be discussed and decisions made in terms of practical implementation and control. It is understood that the first step will be to set up a Casino Management Board, which will fall under the auspices of the Ministry of Land, Infrastructure, Transport and Tourism. This is likely to take place by next summer.
Following this, the RFP (request for proposal) process for the initial three IRs will be launched. Local governments seeking an IR licence will then need to seek investment partners with whom they will submit their bids. It will therefore not be before 2020/21 that the government will identify the three destinations for IR development. Given this timeline, we would not expect any IR development to eventuate before 2025/26.
It is expected, and quite rightly in our opinion, that no more than three IRs (possibly two large and one smaller satellite properties) are allowed as part of the legacy following the Olympic Games. We expect, despite most expectations, that investment here will be largely locally driven, with the highest potential for the involvement of international companies being through either a joint venture or management agreement.
Investment in the sector in Japan is likely to be significantly expensive and our recommendation would be for potential investors to work with the Japanese government to perhaps secure Olympic sites that can be readily converted. This will potentially drastically reduce construction costs, and not to mention shorten the time to bring to fruition. The high level of investment required combined with higher operating costs, and challenges to be faces especially in regard to labour, is likely to extend the payback periods for investments in Japan.
Gaming in Asia has moved on from the heady days of first IRs in Macau. As such, anyone expecting a Macau or Singapore level of return would be advised to consider this in their financial models. As such, whilst payback in some destinations for IRs costing circa US$10bn were expected to be within three to four years, for Japan this could well be five to seven given the higher spec and quality that would be demanded.
We expect the Japanese gaming regulation model including taxing to follow that of Singapore, albeit with a few tweaks especially in regard to VIP gaming and allowing of locals to gamble.
We anticipate by 2025, when the first IR construction may open, the potential gross gaming revenues in Japan would be in excess of US$25bn. This places it second behind Macau and higher than Singapore and Las Vegas. The key source markets, apart from domestic, is likely to be mostly North Asia, which may well impact properties in Vladivostok, South Korea and even Macau, especially in the early years of operation as the novelty effect takes hold. In addition, as with the changing Macau model, we would expect IRs to be positioned towards attracting a sizeable mass market, with facilities to include significant non-gaming activities. This, in our opinion, is perhaps what would appeal to the national government when considering its decision to licence.
The passing of the IR Implementation act is but a first step in a long journey. The chips are down and how the ‘game’ plays out for Japan will have a lot to with its ability in ironing out the details, including regulation, policy implementation, community engagement and stakeholder management. Nothing should be left to chance.