Japan | Analysts: Many complications ahead of integrated resorts bill

Gaming analysts are confident that Japan’s recently approved integrated resorts bill will present both a popular and profitable venture to investors. However, these analysts note that many complications must be dealt with before the first resorts open, and Japanese homegrown brands will likely command a majority share.

The Integrated Resort Promotions Bill, which was passed in Japan’s lower parliamentary house late last year, is expected to lead to the creation of a market worth around USD40 billion annually according to analysts at CLSA. This figure outstrips the annual gross gaming revenue recorded last year for Macau, which stood at just under USD28 million (MOP223.2 billion).

Though numerous legislative obstacles stand in the way of the bill’s implementation, proponents expect it to help revive Japan’s sluggish economy by doubling the number of foreign tourists, lifting the figure to approximately 40 million each year.

According to Global Market Advisors managing partner Steve Gallaway, this is unlikely to diminish the number of mainland tourists who typically visit Macau. Though there will be some Chinese tourists who visit Japan as a result of this new sector, Gallaway predicts that “the success of the Japanese opportunity is primarily dependent on the local population and influx of [general] tourism.”

“While I don’t expect the Chinese VIP player to be a significant part of proponents’ business plans for success, the Chinese will travel to Japan. […] However, this will be an additional outlet where the Chinese will gamble and will grow the overall Chinese gambling pie rather than cannibalize existing locations,” said Gallaway, adding that South Korea was the only jurisdiction that might be impacted by Japan’s foray into gaming.

If foreign backers agree with Gallaway’s analysis, they might be eyeing the opportunity to invest in Japan’s first integrated resorts. Indeed, Spectrum Gaming Asia CEO Paul Bromberg believes that almost every gaming company looking to expand will be considering Japan.

Bromberg implied that the uncertainty over the number of licenses for integrated resorts may also make competition fierce, especially given the potential for a minor company to make its name in the country, as Sheldon Adelson did in Macau for Las Vegas Sands.

Nevertheless, Bromberg warned of major hurdles that still lie in the path of potential investors, namely the number of licenses, the authority given to industry regulators, and whether a Japanese company will need to own a majority stake in the resorts.

Wells Fargo Securities analysts suggested that foreign investors could own as little as one-fifth in Japan’s integrated resorts.  DB