Uncertainty over Japan’s foreign ownership laws and the role of pachinko in Japanese IRs were two of the key topics of discussion during an insightful panel session hosted by Inside Asian Gaming at G2E Asia titled Asian Markets Forum.
The distribution of ownership between local and foreign partners developing Japan’s integrated resorts remains the “biggest mystery” for operators as IR legislation creeps closer to becoming a reality, according to Senior Vice President of Gaming and Strategy for 2NT8 Alidad Tash.
The former Sands China and Melco Crown executive raised the issue as a major area of concern for the world’s leading IR operators during a special Asian Markets Forum conference session at G2E Asia 2018, presented and hosted by Inside Asian Gaming.
While issues such as tax rate, the number of licenses to be issued and entry fees have now been determined, Tash believes ownership rules remain the number one stumbling block yet to be resolved.
“Yes there are 11 factors that have now been determined – there will be three cities, the next round will be seven years later, the tax rate is fixed – but I think the most unresolved question is the percentage of foreign ownership,” he said. “That is the biggest mystery I would struggle with.
“The percentage of foreign ownership is a big deal and that may play a part – if that ownership is less than 50% or less than 30% it will upset who we have traditionally viewed as the likely winners of those first three licenses because some of the people who operate IRs in Asia don’t play very well with other partners, let alone multiple partners.
“It would be easy if someone went to MGM and said, ‘You get 40% and this company gets 60%.’ I think that’s very doable. The difficulty will be if they say ‘You get 40% and these 15 companies over here collectively get 60%.’
“That consortia and having to deal with a bunch of different people who are not necessarily into gaming, entering into negotiations and everything that is associated with it, that’s going to be very challenging.”
Despite Tash’s concerns, it is clear that the operators themselves recognize the need to partner with local Japanese companies. Fellow panellist William Shen, Senior Vice President and Managing Director for Korea & Japan at Caesars Entertainment Corp, said, “When Japan is looking for a Japanese integrated resort, a uniquely Japanese integrated resort, you can’t do that as a Western company coming in without Japanese partners. I think that’s going to be a very critical part of the equation.”
Either way, the details of any official government policy will be essential for any companies with an interest in Japan, as these will determine “whether that model is going to be able to justify a return on investment for what will be massive investments,” according to Eric Landheer, Executive Director of Summit Ascent Holdings – the Hong Kong-listed company that runs Tigre de Cristal in Vladivostok, Russia.
Landheer added that some of the most important aspects that the legislation has not yet tackled include credit and insurance details, the full taxation structure and whether junkets will be allowed in the country.
JAMES BOND ELEGANCE
Despite the legal uncertainty, Japan provides a huge revenue opportunity if operators are able to draw an accurate profile of potential customers and take advantage of underutilized infrastructure.
In this regard Tash points to the pachinko segment, noting that he sees “an opportunity” in the sector despite pachinko’s generally negative connotations. In fact, Tash believes it is only a matter of time before pachinko – which generated an estimated US$30 billion in revenue last year despite declining player numbers – finds its way onto Japan’s IR floors.
“When you walk into a pachinko parlour it is an overwhelming assault on the senses with lights and noise – it’s completely different from the typical table games experience, the traditional James Bond style casino where there is a sense of elegance,” he said.
“If pachinko can generate this much volume from players in such an unattractive environment, imagine what it can do when they are able to play in an integrated resort?”
Tash sees pachinko maintaining the status quo away from Japan’s IRs during the early years before gradually claiming a space on casino floors in the future, as “they are naturally targeting the same people.”
