Analysts divided on future of Japan IRs

For decades, Japan considered the risks and benefits of a legal casino industry. The idea gained traction under the late prime minister, Shinzo Abe, who pushed integrated resorts (IRs) with gaming as a way to boost international tourism.

In 2016, during Abe’s tenure, lawmakers passed the IR Promotion Act, followed by enabling legislation in 2018. The government planned to award three licences in the first round of bidding, with the possibility of more after the industry launched.

Analysts soon dubbed Japan “the next holy grail of gaming”. The most optimistic projected revenues of up to JPY6 trillion (£30.8 billion/€36.7 billion/$40 billion) at maturity. Some, like Morningstar’s Dan Wasiolek and Chesley Tam, reined in those outsized expectations. The team called for a $25 billion opportunity: $19 billion per annum in gaming and $6 billion in non-gaming.

Even so, global operators jockeyed for position. Wynn, LVS, Caesars, Genting, MGM and Melco were all-in at the start. Macau concessionaire Galaxy Entertainment Group Ltd proposed building two IRs.

IR interruptus

But within a year, the process was derailed by Covid-19 and many of those operators ran for cover. In the end, only two consortiums placed bids – MGM in partnership with Orix Corporation in Osaka prefecture and Casinos Austria with local partners in Nagasaki.

Ultimately, only MGM got the OK. The US gaming giant is now building a $10 billion showpiece on Yumeshima Island in Osaka Bay. Originally, MGM pushed to open in 2025, in time for the World Expo. But that date has been repeatedly pushed back. The resort is now expected to debut sometime in 2030.

Meanwhile, momentum toward a Japan casino industry has withered. “Gaining approvals alone was somewhat of an arduous process,” observes Steve Gallaway, managing partner at Global Market Advisors. “Many operators began to suffer investor fatigue.”

But once again, the industry is showing signs of life.

Will bidding reopen this year?

In January, the World Financial Review reported that Japan’s Casino Regulatory Commission could reopen bidding for the remaining licences sometime this year.

The election of a new prime minister in September also sparked hopes that the plan would get back on track. Shigeru Ishiba is said to have supported IRs in the past. He’s also pledged to maintain his predecessor’s economic policies. And former prime minister Fumio Kishida was a fan of IRs, calling them “a necessary initiative in promoting our country as a tourism-based nation”.

However, the new PM has more pressing problems: three decades of deflation, national security concerns and widespread public distrust in politicians, including those in his own Liberal Democratic party. Ishiba got off to a bumpy start, according to CNN. He called for a snap election that cost the LDP and coalition partner Komeito their majority in the lower house.

MGM as bellwether

For all the slings and arrows faced by Japan’s IR industry, Gallaway believes there’s a market for additional casinos “with the right location and local support”.

“MGM demonstrated staying power and I believe will ultimately be successful,” he says. Its success could ease lingering fears about the perils of casino gaming, such as gambling addiction and other social ills.

“As we’ve seen in other jurisdictions, many often have a fear of the unknown,” Gallaway continues. “With casinos, people often conjure up images and situations that occur in poorly regulated jurisdictions [and] give our industry a bad reputation.”

MGM’s performance could allay those concerns. “As it demonstrates its ability to act as a strong member of the community, provides good-paying jobs and is sensitive to the needs and wants of the local population, people’s fears of IRs will dissipate and there will be a push for additional development.”

A changing landscape

Ben Lee, managing partner at iGamiX, isn’t so sure and cites shifts in the Asian gaming landscape since Japan legalised IRs. That includes Beijing’s renewed scrutiny on Chinese punters who go abroad to gamble.

Casino proponents in Japan “never meant to target locals, which is why they adopted Singapore-style levies and South Korean-style restrictions” on monthly visitation, says Lee. The intended target market was Chinese VIPs. “We can safely say that segment would no longer be available given geopolitical considerations and recent crackdowns on money channeling and the Chinese junket operators.”

With MGM “the only one left standing” and a completion date six years away, “operators are free to pursue the biggest potential new jurisdiction – the Thai market.”

Journalist and industry commentator Muhammad Cohen is equally pessimistic. “No Japanese national politician has shown any inclination to expend an ounce of political capital on the IR issue since Shinzo Abe brought it up,” Cohen says.

“Beyond Japan’s internal factors that shovel sand into the gears, with the way the world has changed unless Tokyo or Hokkaido become available [as a location], no one will take a chance, given the required investment. The ROI just won’t be there.

“I’m afraid the issue is moot at this point.”