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Japan – Morgan Stanley warns Japanese gaming won’t be three ‘n’ easy

By - 23 July 2018

Whilst global casino operators jostled to applaud the Japanese Government for Japan’s Integrated Resorts (IR) Implementation Bill, passing into law with approval from the upper house of the country’s parliament, analysts at Morgan Stanley have warned that two key regulations, limiting the size of the gaming floor and a 30 per cent tax revenue, will give ‘lower returns than many expected.’

“Two of the key regulations (casino being only three percent of total gross floor area and 30 per cent revenue tax, on top of consumption, real estate, and income taxes) mean lower returns than many expected,” said Morgan Stanley. “In the case of Osaka to make a reasonable return of 14 percent (earnings before interest, taxation, depreciation and amortisation/total investment) on a US$8bn investment” and a 15,000-square-metre (161,000 sq. feet) casino area, it would need to generate gross gaming revenue (GGR) of about US$4bn – and a VIP and mass table yield of US$36,500 and US$8,500, respectively. That’s much higher than Singapore. We expect the first Japan casino to open by 2025 and the market size could peg at a range of US$11bn and U$20bn gaming revenue.”

The passage of this second enabling bill cleared up several points with an initial limit of three casino resorts and an entry fee of JPY6,000 (US$53) for Japanese players. It will be seven years before any more than the initial three licences will be offered. They will run for 10 years and will then be renewed every five years after that. No time scale has so far been laid out for when local authorities will officially pitch for the chance to develop one of the first licences.

Despite the warnings from Morgan Stanley, the world’s global casino groups were delighted with the passing of the bill.
George Tanasijevich, Managing Director of global development at Las Vegas Sands, one of the front runners to land a licence, said in it provided Japan with the opportunity to develop ‘world-class entertainment and top-level (meetings, incentives, conferences and exhibitions.’

Mr. Tanasijevich added: “These offerings will attract more visitors from overseas, offer many opportunities for the local people, and lead to sustainable development of the Japanese economy, culture and society. Given the opportunity to participate, Las Vegas Sands is confident that we can make a significant contribution together with the Japanese people.”

Jim Murren, Chairman & CEO of MGM Resorts, added: “The process has been very deliberate and transparent. We appreciate the high level of social responsibility reflected throughout the process by creating one of the most comprehensive bills of its kind anywhere in the world. MGM is proud to have provided academic research and economic analysis as well as facilitating numerous study sessions with experts from around the world. Today’s passage allows us to advance our relationships with key stakeholders and together create a coalition of Japanese business partners who will collectively define a vision for a uniquely Japanese, world-class integrated resort.”

MGM Resorts has a full-time development team in Japan and for the past four years has been engaged in discussions in Japan’s cultural and business communities. The company believes it is well-positioned in Japan and has been preparing for this possibility by becoming immersed in Japanese culture to better its understanding of Japan’s unique history and heritage. MGM Resorts has also embarked on enhancing its cultural commitment to Japan in the United States through the sponsorship of two world premiere Kabuki events with the famous Shochiku entertainment company and by showcasing established and emerging Japanese artists in the Company’s art collections across the country.

Wynn Resorts CEO Matt Maddox said: “Japan is known worldwide for a unique culture of customer-focused hospitality known as ‘omotenashi.’ This important Japanese tradition of creating a unique guest experience makes it clear to us that Japan will develop extraordinary integrated resorts that are not found in any other country. Wynn Resorts consistently offers the finest, one-of-a-kind guest experiences in the countries in which we operate, experiences which both embrace and celebrate local culture. We plan to do the same in Japan if afforded the opportunity.”

Wynn Resorts spokesman Michael Weaver added: “Our CEO, Matt Maddox, has been actively involved in Japan for several years, and our focused efforts and the relationships we have built, especially this year, make us more optimistic than ever about our opportunities there.”

Lawrence Ho, CEO of Melco Resorts added: “The license bidding process could start in 2019 or 2020. We believe, we are well placed in Japan with a strong local team actively working on the ground, engaging with the relevant stakeholders. We believe our focus on the Asian premium segment, high quality assets, craftsmanship, dedication to world-class entertainment offering; market-leading social safeguards system and commitment to being an ideal partner will put Melco in a strong position to help Japan realise the vision of developing leading IRs with a unique Japanese touch.”

Mark Frissora, CEO of Caesars Entertainment , commented:” More than 15 years ago, Caesars missed out on the Macau gaming market, which produced $33bn in gaming revenue last year. As we prepare to bid, we are seeking the most creative and respected Japanese partners to help us bring to life an unparalleled integrated resort experience.”

American Gaming Association (AGA) President and CEO Geoff Freeman, added: “Today, Japan took a giant step toward strengthening its economy, attracting international travellers and implementing stringent gaming regulation that protects consumers and eliminates criminal activity. In the years ahead, Japanese communities will realize the many integrated resorts-related benefits that have enhanced dozens of major destinations around the globe. The gaming industry is excited to help Japan achieve its economic goals and eager to partner with the governments and people of Japan to build a world class gaming market and regulatory system.”

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