Japan's gambling sector has experienced significant challenges since the introduction of the Integrated Resort Implementation Law in 2018, which initially drew interest from major international casino operators. However, progress has been slow, causing many potential bidders to pull back. Today, MGM Osaka stands as the only new player in the integrated resort (IR) market, targeting a launch in 2030.
With the expectation that Japan will open two more IR licenses by 2027, various bidders are now positioning themselves for competitive advantage. Nonetheless, Japan's government has sent mixed signals regarding the future of the casino industry. While it has taken steps to liberalize gambling, aiming for the economic gains associated with casinos, the regulatory framework remains stringent and societal attitudes toward gambling are not overwhelmingly positive.
The regulations impose strict limitations: casino space is restricted to just 3% of the total area of an IR, and Japanese citizens may only enter casinos three times a week, totaling a maximum of ten visits within 28 days. Moreover, each entry incurs a fee of ¥6,000, aligning with government efforts to prevent gambling addiction while permitting casino operations.
Japan’s journey toward legalizing integrated resorts was far from straightforward. The IR Promotion Act was enacted in December 2016 after much deliberation, followed by the IR Implementation Act nearly two years later, which established the regulatory framework including entry limitations and addiction safeguards. Despite government assertions that IRs would drive tourism and generate economic growth, there has been significant dissent. Notably, Kenji Eda, a member of the House of Representatives and part of the opposition, has criticized the IR initiative, highlighting concerns about gambling addiction and its economic repercussions on local businesses.
The allure of Japan’s IR licenses for international operators has diminished, especially after major players like Wynn Resorts, Las Vegas Sands, and Caesars Entertainment expressed hesitations over the complex regulations and uncertain profit margins. Although Sheldon Adelson, the late chairman of LVS, referred to Japan as a "holy grail" for business opportunities, the company ultimately withdrew from its proposed $10 billion investment.
Japan has taken cues from Singapore's integrated resort model, which successfully marries significant economic ambition with strict regulations. However, Andrew Klebanow from Klebanow Consulting believes that Japan's regulatory focus has shifted excessively towards crafting stringent rules. As new regulations were introduced, developers revised their revenue predictions downward, leading to a critical point where returns no longer justified the necessary capital investments.
Japan aims to reap the benefits of casino gaming while mitigating gambling's social costs, emulating successful strategies used in Singapore and Macau. Singapore has successfully incorporated diverse entertainment forms alongside its casino offerings, allowing integrated resorts like Marina Bay Sands and Resorts World Sentosa to thrive. These venues not only provide gambling but also feature luxury retail, high-class hotels, and various entertainment options. Genting Singapore emphasizes that a well-rounded attraction strategy helps diversify visitors' experiences, thereby enhancing duration of stay and overall spending within the local tourism ecosystem.
Macau exemplifies another model, generating MOP293.3 billion (around $36.3 billion) in gross gaming revenue by 2019, amounting to a significant part of its GDP. The appeal of Macau’s integrated resorts extends beyond mere casino gaming, offering a wealth of luxury accommodations and entertainment options. For Japan, the challenge lies in determining whether a broader range of activities can make casino resorts more culturally accessible while encouraging tourism.
Klebanow suggests that effective regulation in other markets has allowed for creative development, proposing that Japan also adopt a more flexible framework enabling operators to design projects tailored to both locals and tourists. However, Japan's current bureaucratic approach to gambling regulation raises questions about its future viability.
Interest in Japan's next IR licenses hinges on the regulations policymakers will implement. Operators may shy away from investing over $10 billion if the government enacts overly restrictive policies that affect profit potential. One possible candidate, however, may be the Seminole Tribe of Florida, which is working on a Hard Rock Resort Casino project in Tomakomai, Hokkaido. The Tribe has been expanding its brand aggressively in various regions and appears to have secured backing from local authorities.
Japan's cautious regulatory stance may stem from observing the pitfalls encountered by other markets. Suzanne Perilloux Leckert from Convergence Strategy Group points out that the government is proceeding in a way it deems most appropriate. Some investors may have abandoned plans after feeling uncertain about evolving regulations, especially as two of the major urban sites, Tokyo and Yokohama, opted out of the bidding process.
Another critical concern for potential operators is the relatively short license duration, with casino licenses expiring every three years, in contrast to longer terms offered elsewhere. This environment can significantly undermine the viability of projects. Klebanow underscores that conditions like restricted visit limits for residents have contributed to the reluctance of developers to engage in the IR market.
While online sports betting is largely prohibited in Japan, some sports such as horse racing and keirin racing are exceptions. In terms of social gaming, the pachinko industry paints a different picture. With around 8,000 parlors across the nation, pachinko has a storied place in Japanese culture, generating significant revenue. In 2020, the industry was valued around $130 billion, representing a sizable share of GDP.
Though pachinko's popularity tends to draw primarily young male players, there is a potential lesson in engaging diverse demographics, particularly women over 40, who constitute a sizable portion of gaming patrons in other markets, such as the US.
Developers may benefit from examining how to create a welcoming environment that includes all demographics while learning from the success of integrated resorts in other regions. Leckert remains optimistic about the prospects for Japan’s IR opportunities, stressing that a stringent regulatory regime can yield a prosperous industry, provided it successfully merges effective governance with economic incentives.
Klebanow notes that the convenience with which past large casino operators might have favored tax and regulatory regimes must be updated. To attract significant investment, Japan’s government must craft a regulatory framework that balances economic development with social considerations while offering developers the necessary leeway to manage their investments and risks effectively.
