Japanese Legislators Reconvene to Discuss Casino Bill

Today marks the convocation of the special autumn session of Japan’s parliament (the National Diet). During the previous session which ended last June, a bill was introduced by a cross-party coalition of lawmakers representing both the ruling LDP party as well as opposition parties. Passing this preliminary “enabling bill” is seen as the first step toward the establishment of casinos in Japan, and it would lay the legislative groundwork on a conceptual level. Once passed, a second piece of legislation would be required, outlining the specifics of casino implementation, administration, and regulation in Japan.

Toru Mihara, an Osaka professor who advises pro-casino lawmakers, has said that he sees the bill’s passage as likely occurring by November, barring the introduction of pressing legislation that would distract the Diet from the casino bill. Similarly rosy forecasts of swift action by the Diet have been made many times in the past. The clock is ticking as Tokyo commences preparation for hosting the 2020 Olympics, and many are beginning to wonder whether or not Japanese IRs will be able to open in time for this major international tourism event.

A coalition of LDP and opposition party legislators is working to legalize Japanese casino development.

How Big is the Market?

The consensus among bullish analysts has been that with one integrated resort (IR) in Tokyo and another in Osaka, plus up to ten smaller casinos in other Japanese localities, gross gaming revenue could reach $40 billion annually. This would place the Japanese gaming market far ahead of both Las Vegas and Singapore, and it would approach the size of the world’s largest gaming market, Macau, where revenue was $45.2 billion in 2013. By contrast, a Morgan Stanley report published earlier this year has suggested that Japan might not be as profitable a market as many are expecting. Their analysis has projected Japanese annual GGR to be about one half of the consensus’ estimate, amounting to $21-$22 billion.

Locations Under Consideration for a Japanese IR

More than 20 locations in Japan are vying to be chosen as locations for IRs. There are campaigns underway to attract casinos as far north as Hokkaido and Akita, further south in Tokyo’s neighboring Chiba and Kanagawa Prefectures, in Osaka to the west, as far south as Nagasaki and Miyazaki, and in the southernmost islands of Okinawa. One of the frontrunner sites for an IR is a partially man-made island in Osaka Bay known as Yumeshima. As of this month, seven developers have held meetings with the Osaka prefectural governor, who is recommending this location. Although Tokyo’s governor has been notably lukewarm to the idea of an IR in the nation’s capital, many see Tokyo’s waterfront location of Odaiba as a leading candidate for a casino resort. Another Tokyo location under consideration by developers is the current site of the Tsukiji Fish Market which will relocate nearby in 2016. Tsukiji is one of the largest contiguous parcels of land ever offered for redevelopment in Tokyo, and its prime location is ideal for an IR.

02_Odaiba

The waterfront Odaiba development in Tokyo is one of the leading sites where a Japanese IR might be located.

Contenders for Japanese Licenses

MGM Resorts International has already unveiled images of its plans for an MGM Osaka casino resort, and it has been rumored that they have also been scouting out the Tsukiji site in Tokyo. MGM has held discussions with Universal Studios Japan, and they have pledged to invest $5-$10 billion in the Japanese market, with a 51% requirement for their stake in a Japanese partnership. Las Vegas Sands is said to be eyeing a Tokyo location, and Sheldon Adelson has stated that he would spend “whatever it takes” to gain a foothold in Japan, citing numbers between $7 and $10 billion. Melco Crown is reported to have met with Osaka authorities this past July, while Wynn Resorts is thought to be exploring sites in Tokyo. Caesars Entertainment CEO Gary Loveman has stated that his company would have no problem financing an investment in Japan of at least $5 billion. Another potential foreign IR developer is Genting of Malaysia, while domestic bidders for licenses include pachinko companies Dynam and Konami, Keikyu Railways, and a joint venture of Fuji Media, Kajima Construction, and Mitsui Real Estate.

Contributed by:

Anthony Mumphrey III
Principal, TMG Consulting
anthony@tmgconsulting.net
(504) 569-9239, Ex.22

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Disclaimer
The views, interpretations, or strategies expressed are those of the authors, and do not necessarily reflect the position of TMG Consulting. This site is meant for educational purposes only and does not constitute professional advice. TMG Consulting makes no representation as to accuracy, completeness, or suitability of any information on this site and will not be liable for damages arising from its display or use.

G2E Conference Summary: Key Takeaways

At this year’s Global Gaming Exhibition and Conference, TMG staff attended over twenty conference sessions, covering issues such as gaming on the Internet, U.S. and Asian gaming expansions, operations models for revenue maximization, player tracking and marketing programs, and the state of financing for gaming projects.  This blog post includes a few key takeaways from such discussions.

Capital Investment in Gaming

Throughout the conference sessions and our discussions with gaming executives, it became apparent that capital is currently available for existing gaming operators.  However, during this recovery period, debt leverage needs to be lower for commercial lenders to be comfortable.  Across the board, the scale of capital investments is expected to remain lower than in pre-recession times.

Social Media

Simplifying the myriad of communications and streamlining the social media experience for conference attendees was the G2E Mobile“App”.  Developed with Konami, the mobile device application put the entire conference in your hand.  Conference organizers were able to send direct messages to attendees, as well as to live-stream all conference mentions in the Twitter universe.  The integration of the conference with social media such as Twitter was reflective of the gaming industry as a whole, as smartphones now allow casinos a way to send real time offers to their patrons.  In his Conference Keynote, James Murren, CEO of MGM Resorts International urged the gaming industry to monetize social media now.

New Forecasting Models to Improve Operations

One of the more interesting sessions at this year’s G2E was led by Chris Anderson of the Cornell School of Hotel Administration.  He and the other panelists pointed out that revenue management begins with a simple demand model that only focuses on inventory (RNA) and demand for the day, but does not consider length of stay.  However, length of stay is a very important variable in a casino revenue management model because the implications of a guest staying at a casino hotel are not one-dimensional.  More complicated revenue management models consider length of stay, constrained and unconstrained demand, and market mortality (guests not captured).  The revenue management model best suited for casinos is one that allows for maximum gross operating profit on a per room available basis.  Achieving this type of modeling is possible, yet it requires investment in IT and databasing, and can only be achieved in incremental steps from more simple revenue management models.

Gaming on the Internet

Existing land-based casino operators see iGaming as an opportunity to create a new experience that immerses patrons into an experience that could not be had before.  Further, it initiates people who are unfamiliar with casino gaming, potentially leading to new customers at bricks and mortar casinos.  According to MGM Resorts International’s James Murren, the “next big thing” in the gaming industry will be the collision of casino gaming and video gaming experiences.

Gaming on the Internet is set to be commoditized, and governments will have to think competitively when setting tax rates.  If operators are taxed too highly in one jurisdiction, they will have the ability to move to one with more favorable rates.  In the end, the cost of taxes will be passed on to the customer.

For more, please see the previous G2E Conference Summary blog post: iGaming Congress. 

Contributed by:

Nicholas Farrae

Analyst, Economics & Gaming

Disclaimer
The views, interpretations, or strategies expressed are those of the authors, and do not necessarily reflect the position of TMG Consulting. This site is meant for educational purposes only and does not constitute professional advice. TMG Consulting makes no representation as to accuracy, completeness, or suitability of any information on this site and will not be liable for damages arising from its display or use.