Tapping the brakes on Japan’s casino potential
Japan’s casino legislation and regulation package has finally been legalized, and a number of international casino operators are reportedly fine-tuning bids in hopes of capturing one of the nation’s coveted casino licenses.
But those gaming companies looking to enter Japan with the assumption it will be the next Macau or Singapore had best think twice; the Japanese casino market will be operating under a unique set of rules, which may keep the nation from emulating the economic success of neighboring casino jurisdictions.
As with any piece of gaming legislation, there are numerous issues for potential operators to contemplate; in the case of Japan’s rules and regulations, the biggest obstacles lie in the following two areas:
The first problem is the short duration of the casino operating license and vulnerability of exclusivity. Unlike Macau, Japan casino licenses will be valid for only 10 years upon approval. This period begins from the date of approval, not from the time of the casino opening. Even if operators begin development and construction immediately after obtaining a license, it will take at least three years to open a large casino hotel. Therefore, the actual casino operating period may be less than seven years. Since it is mandated operators will need to invest $6-$10 billion in Japan integrated resort casino projects, it is unlikely the operator will recover this investment and earn a profit in a six to seven year time period. In addition, there is currently no guarantee the government will renew an existing casino operator’s license after the 10 year time period.
To make matters even dicier, the Japanese government requires that the casino management law be reviewed and revised five years from the time of the first casino approval. In other words, there is a possibility that the rules may alter after casino development and construction are completed and operation has begun, and changes in restrictions, casino management and tax levels may occur.
Finally, the Japanese government is considering granting about 10 additional casino permits seven years after the initial phase, which means the initial group of Japan casino operators will not be able to predict how many competitors may surface nearby after four years. There is no guarantee that an operator will have regional market exclusivity which, given the level of investment, should be a cause of concern.
The second problem is that unlike in Macao and Singapore, it is clear that the wealthy Chinese player, also known as “whales,” will not visit Japan casinos as frequently. This is due to strict Japanese foreign exchange regulations and income taxation system which will apply to casinos aswell. Hence, there is little incentive for whales to visit Japan for gaming purposes… they will instead continue to visit Macau and Singapore.
Another potential visitation hurdle: Japanese citizens will have limited access to casinos, at least initially. Casino admittance will be managed and controlled with individual ID cards, but this card is not widespread in Japan yet, and only 10 percent of the Japanese population possesses this card. It is impossible to predict how many of the remaining 90 percent of the population will go through the trouble of applying for this card just to be able to enter a casino.
For these reasons, interest among Chinese and Japanese players will surely fall far below initial expectations, which will likely lead to lower than anticipated revenues.
Indeed, with these issues, those gaming operators seeking the next “can’t miss” casino market should perhaps eye Brazil instead of Japan.