Japan casino bill faces best odds

Published in: Latest Intelligence Lobbying groups are making unprecedented headway in pushing for legislation that would pave the way for casinos in Japan and the landslide victory of the ruling Liberal Democratic Party in last Sunday’s election for the Diet’s Upper House improves the odds of seeing a bill passed this year.

“[A] Japanese casino bill is now more likely to be passed than ever before,” said Mia Nagasaka and Praveen Choudary of Morgan Stanley in a report last month..

Their report was issued days after the Japan Restoration Party, a small conservative party, submitted a casino legalization bill to the Diet. Toru Hashimoto, the party’s controversial co-leader and the mayor of Osaka, previously called for construction of a casino in his prefecture to raise funds for welfare programs and relieve pressure to raise other taxes; equally controversial part co-leader Shintaro Ishihara similarly lobbied for casino development when he was governor of Tokyo.

Japan Restoration’s bill preempted plans by a 140-member cross party group of gaming advocates to submit legislation after the election to avoid bringing casinos into the campaign. Japan Restoration indeed fared poorly on Sunday after an alliance with the Your Party fell apart over comments by Hashimoto about the wartime necessity of sex slaves.

Prime Minister Shinzo Abe, who returned to office last year, told legislators in March he could see benefits in casino legalization though he disappointed advocates who hoped he would include the measure in his economic growth strategy last month. His ministers for economic affairs and education are both former members of the Diet gaming caucus. Given that high-level support and backing from many members of the opposition, Toru Mihara, director of Osaka University of Commerce’s Amusement Industries Research Center, expects casino legislation to pass in late autumn.

The growing momentum comes after years of frustration for advocates who have watched the ranks of gaming supporters grow in the Diet without any action being taken. Caesars Entertainment Corp., the US casino operator, has been providing information to the government to make the case for casinos for more than a decade, according to Steve Tight, president of international development.

Caesars, which has been frustrated in efforts to open casinos in Macau, Singapore and South Korea, eyes Japan as a crucial prize. Morgan Stanley calculates that a Japanese casino could bring in $8 billion-$11 billion in revenue in its first year of operation.

Tight, who is based in Hong Kong, believes Japan could easily be the second-biggest casino market in Asia behind Macau. Japanese were the biggest customers for South Korea’s 16 foreigner-only casinos until last year when they were surpassed by Chinese, and high rollers from Japan are important customers for casinos around the region and Las Vegas too.

Legal gambling in Japan is currently restricted to sports betting, lotteries and, indirectly, pachinko. Legal sports betting includes horse racing, motorboat racing, bicycle racing, motorcycle racing and, via a pool or toto system in which bettors buy tickets linked to the outcome of a set of matches, the domestic professional soccer league. Pachinko, a pinball-like game involving steel balls, skirts prohibitions on gambling by requiring players to exchange prizes for cash outside their premises. Total monthly pachinko sales in May reached 388.3 billion yen ($3.86 billion), according to government figures.

While the pachinko operators represent a powerful political force with an interest in either stalling casino legalization or winning casino licenses themselves, international casino groups such as Caesars are seen having a good shot if licenses are issued.

Carl Wahlin, a casino lobbyist involved with gaming groups Pacific Gaming Investments Pte. Ltd., Inter-Active Entertainment Systems Technologies Inc. and Asian Gate Consultants Group Ltd., said international operators will be welcomed for their experience. Dr. Mihara says that any casino law “will not dictate the nationality of investors or developers”.

"We are pursuing the potential for integrated resort development [in Japan] with great enthusiasm and optimism," Sheldon Adelson, chairman and chief executive of Las Vegas Sands Corp., told analysts on Thursday. "We have been lobbying there for five years. We have had a very strong presence there. We know everything that's going on," he added, suggesting the gaming caucus casino bill will be submitted in November.

The Singapore unit of Malaysia’s Genting Group told AGB the company is “prepared to make a significant investment in Japan and is confident that we can work with local Japanese stakeholders to play a big role in boosting Japan's tourism, economic, and employment numbers.” Tan Hee Teck, president and chief operating officer of the unit, in May put the chances of Japan passing a casino bill this year at 70 percent to 80 percent. A week earlier, he had said: "This is a big opportunity for us. If you look at companies which can afford to build an IR (integrated resort) of this magnitude, there are only two or three companies in the world which can do it."

Tight, though, told AGB that a potential Caesars casino resort "is not meant to be a wholly owned foreign project; it is meant to be a collaboration between those that bring value to the project.” The company would “marry it with Japanese sensitivities and cultural elements that we think would make it more unique, differentiated and appealing,” he said.

Among the domestic companies publicly angling for licenses are pachinko operators Universal Entertainment Corp. and Dynam Japan Holdings Ltd. and pachinko machine supplier Sega Sammy Holdings Inc.

Universal is developing a $2 billion casino resort in Manila but its proposal to build one in Incheon, South Korea was rejected by national authorities last month and the shareholdings of a company affiliate in US casino operator Wynn Resorts Ltd. were forcibly redeemed amid a dispute between the two companies’ chairmen last year.  The Asahi Shimbun reported that Universal improperly sent three staff to work on the successful Lower House campaign in December of Hirotaka Ishihara, a son of the Japan Restoration leader, and it also faces legal troubles over the Manila venture.

Sega Sammy this month became the first major foreign investor in a South Korean casino as its 45/55 joint venture with local operator Paradise Co. took over Paradise’s existing casino in Incheon in a step toward the development of a 140.7 billion won ($125.4 million) casino resort there that is due to open in 2016. Sega said it would send directors and staff to "directly acquire the operational know-how of a casino facility" as it sets up a business unit to operate gaming resorts, with an eye on the Phoenix Seagaia Resort complex in Miyazaki that it acquired last year.

Dynam this month was the sole cornerstone investor in the initial public offering of Macau Legend Development Ltd., taking a $35 million stake in the company, which owns a casino hotel and a casino-equipped theme park in Macau, “to obtain valuable know-how”.

But passage of the Japan Restoration Party’s bill or its expected rival will not necessarily lead to casino licensing. Dr. Mihara said the bills are “just promotion legislation” that will allow lawmakers to negotiate conditions for building and managing casinos and necessitate further legislation. He expects the process, which he sees taking up to two years, producing a decision to allow casinos in designated places and then the local governments would choose among interested developers. Tight said Caesars could have an integrated resort open by 2019 if legalization proceeds apace.

“It will be done in a very controlled way,” Dr. Mihara said. “The number may be restricted to three or four or even two.”