Tuesday, August 16, 2022

Will Japanese take lead in IR projects?

In early September, MGM Resorts International CEO James Murren emphasized in a public presentation that his company was looking for a “Japanese-led” IR consortium in a major urban market. He wasn’t specific about what he meant in practical terms, but clearly MGM envisages its Japanese partners playing a major, perhaps a predominant role in a future IR.

MGM isn’t alone. When AGB interviewed Steve Tight, president of international development for Caesars Entertainment, in late July, he described his company’s competitive advantage as being that, “it is sort of in our DNA to partner in all of our various ventures, and we know in Japan the government is going to want a consortium represented by both Japanese investors and international operators to be successful.”

International gaming industry analysts have speculated that the Japanese government would set legal caps on the percentage of IR ownership that could be held by an international operator. Perhaps it would even be legally required that the majority stake go to Japanese enterprises.

In reality, there has yet to be any hint that the central government is planning any such limitations. There were no limits on foreign ownership suggested by the Experts’ Committee report, which is expected to form the basis of the IR Implementation Bill. Moreover, politicians on both sides of the debate have not—so far—raised the ownership issue as a pending matter. IR advocates proactively welcome large-scale foreign investment, and opponents largely don’t care if it’s a Japanese company or a foreign company—they are against casinos whoever owns them.

These facts are likely what provoked Seth Sulkin, the head of the American Chamber of Commerce in Japan’s task force on IRs, to tell AGB in late August, “I would say there will not be any informal or formal guidelines on that. I think it is really going to be a matter of the power balance between the international operators and the local companies. And so I think that the balance will be different in each location.”

If some of the IR consortiums are indeed to become “Japanese-led,” there obviously need to be major Japanese enterprises willing to take the lead. But in contrast to the many international casino operators who have been vocally and repeatedly expressing their strong interest in participating in an IR, major Japanese companies have so far been comparatively silent.

The one exception that is routinely cited is the Keikyu Corporation, which has openly positioned itself as taking strong interest in a prospective Yokohama IR, should the local government decide to brave public opposition and move forward with a bid.

Indeed, Keikyu seems a very strong candidate for leadership of an IR consortium. Known mainly for its transportation services—especially the Keikyu train lines connecting Tokyo and Yokohama, including a branch to Tokyo Haneda Airport—it is also deeply invested in real estate, leisure services, and other businesses that are a good fit with the IR concept.

It was over three years ago in August 2014 that Keikyu announced that it was setting up a new section within its corporate strategy office to investigate the possibility of entering the IR business. Last year, the Japanese-language publication Business Journal reported that Keikyu was planning to set up an IR consortium for the Yamashita Pier location at an investment level of about US$5 billion.

In response to AGB’s inquiry about this figure, Keikyu’s media relations department offered a sort of “non-denial denial” by responding: “We have not officially launched a consortium nor published any details about investment figures.”

They did, however, admit that the president of the Keikyu Corporation, Kazuyuki Harada, has served since last May as the chairman of the “IR Research Association” within the Yokohama Chamber of Commerce & Industry.

Beyond Keikyu, however, no other major player on the Japanese side has made overt moves toward leading an IR consortium.

Osaka, for example, has a political and business community that has been keenly supportive of establishing an IR at Yumeshima, but that doesn’t mean that any particular local corporation has been signaling leadership ambitions.

The chairman at the head of the IR promotion group within the Kansai Association of Corporate Executives is Shinichi Fukushima, president of the Osaka International Convention Center Corporation—an interested party to be sure, but not an enterprise engaged in a wide breadth of related businesses such as Yokohama’s Keikyu.

This does not mean to suggest that plenty of Japanese companies are not willing to take smaller, supporting roles in IR consortiums. There is likely a wide variety of companies willing to consider, for example, 5 percent stakes in a consortium. Dozens of Japanese companies have joined IR promotion organizations and are clearly looking for opportunities to either directly invest in a development project or, more often, to offer their services and products to whatever consortiums are eventually formed by other parties.

At this point in the consortium-building process, the present evidence suggests that far more Japanese companies are interested in following an IR development than in leading one.

Asia Gaming Brief is a news and intelligence service providing up to date market information for worldwide executives on relevant gaming issues in Asia.

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