Inside Asian Gaming CEO Andrew W Scott sits down with Rush Street Gaming’s founder and Chairman Neil Bluhm and Chief Financial Officer Tim Drehkoff to discuss the US-based casino operator’s recently announced plans to pursue an IR license in the northern Japanese prefecture of Hokkaido.
Andrew W Scott: Thanks for speaking with us Neil. First of all, can you tell us a bit about Rush Street?
Neil Bluhm: We’re principally, originally in the real estate development business. We have developed and invested in some US$60 billion worth of prime real estate. For example we have developed most of Century City in Los Angeles, in Chicago the Mercantile Exchange, many Four Seasons hotels and Ritz-Carlton hotels, so we’re used to developing very high quality real estate.
About 20 years ago we got involved in casino development. Our first project was in Niagara Falls in Canada where we developed a US$1 billion project for the government of Ontario. Actually, any casino in Ontario by law has to be owned by the government but they needed someone to build it and run it, so they picked us in an RFP.
After that we started doing projects in the United States but only regional casinos, nothing in Macau or in Las Vegas, but in regional cities. We have the only casino in Cook County in Chicago, the only casino in the city of Philadelphia, the only casino in the city of Pittsburgh and are one of four casino licenses that were awarded in upstate New York. We won the license in the capital region where Albany and some other cities are.
The regional casinos are totally different from building in Las Vegas or Macau because we go into a city that has never had a casino in that city, so we have to make sure that what we develop is something that is acceptable to the local community. We have to deal with all of the concerns that people have over whether they really want gaming in their city, is it going to create crime, problem gambling, will it fit into the feel of the city – that’s what we specialize in. Doing something in Tomakomai, Hokkaido fits right into what we do so that’s why we’ve set our sights on Hokkaido and Tomakomai.
AWS: So there is no interest in any other regional locations in Japan?
NB: Our only interest right now is Tomakomai. We’re putting all of our efforts there. Somebody asked me, ‘What would happen if Hokkaido decided they didn’t want an integrated resort?’ Well if that were the case we’d have to reconsider some other locations but right now we’re just focusing on Tomakomai.
AWS: How do you feel about the likelihood of needing to be part of a consortia with local partners?
NB: Well we are used to doing projects with local partners. That’s true in virtually everything we’ve developed. In New York, the land owner contributed the land and owns 9.9% of the project (Rivers Casino and Resort). In Philadelphia we have local partners too so we have no problem partnering up with people and we expect to be part of a consortium in Tomakomai.
I can’t comment on what percentage we would own. It could be a majority or it could be a minority interest. That might depend on how much local interest there is in that connection – there may be more interest in the major cities like Tokyo, Osaka or Yokohama. Some of the huge Japanese companies may have less interest in a smaller regional project.
But we certainly welcome good partners as long as they are suitable partners and can be approved by the gaming board. We’re used to strict regulation in the United States where we have a very successful casino business and we certainly wouldn’t do anything to jeopardize that by partnering up with anyone who didn’t meet our very high standards.
AWS: Can you give us some sort of indication of what level of investment you’re expecting should you win a license to develop an IR in Hokkaido?
NB: We don’t know exactly how much this would cost but we’re estimating somewhere in the range of US$1.5 billion to US$2 billion. We think there would be around 2,000 hotel rooms and 15,000 employees given the large number of employees needed for the hotel and all the other amenities that we would have.
As you know, Japan’s IR rules provide that the casino can only represent 3% of the total space so our real estate expertise, our real estate development is very critical for what we are thinking in that respect because we’re going to have to build a lot of other real estate to qualify and that’s what we specialise in. We’ve built billions of dollars worth of very high end retail, hotels, convention facilities and things of that sort, plus we’ll have a lot of entertainment – restaurants, bars and so on, all of which will be vitally important. And we need to have some cultural aspects to fit into the environment.
Tim Drehkoff: On the other elements that we’re playing around with, one is to try and involve as much as we can the natural beauty of that area and that site in particular, which is in the woods with rivers and rocks. We’re thinking bike trails, hiking trails, rock climbing excursions, bird watching – all sorts of things of that nature. We’re also trying to involve an equestrian center given the rich history the region has in horse breeding and horse racing.
In addition to all of those cultural elements, we’re looking at an art exhibition or museum. Neil happens to be a world renowned collector of modern art and is on the board of the Art Institute of Chicago and The Whitney Museum of American Art in New York City. We can leverage that capacity to bring art exhibitions to the site as well. We’re trying to be very broad, appealing to all demographics with a definite regional, local, cultural flavor to it.
AWS: Japan is renowned as a very modern, technically advanced society. Can you see Japanese IRs implementing any specific types of technology that will likely one day be adopted by IRs around the world?
TD: Yes, one thought is skill-based gaming. In this market in Japan you obviously have pachinko and pachislot. We’re going to be very differentiated from that but there is this element of skill-based gaming here – maybe there is new game technology here that blends the software of a traditional slot machine with a skill-based gaming machine. That’s one idea we’ve had.
Another completely separate idea that we’ve heard here in Japan is player tracking – particularly as it relates to problem gaming. This market is very focused on being very protective in that area. We’ve heard talk of the My Number facial recognition software to track players and their problem gaming spend.
Your question also reminded me that I paid for my hotel in a kiosk last night which I don’t think I’ve ever done before. Payment transaction technology – as you know everything in the US is cash-based in casinos. Eventually that is going to change across the whole industry and I can see Japan being at the forefront of that.
AWS: What are you most proud of when it comes to Rush Street’s achievements in the US gaming industry? And how might that apply to Japan?
NB: We do exclusively regional casinos and I must say that if someone here wants a Las Vegas or Macau type IR, we wouldn’t be doing that. We don’t think it fits into the culture or the environment of Hokkaido or Tomakomai.
In terms of what we’re most proud of, we have a casino that we built in Chicago near O’Hare Airport. The government unfortunately limits the size and the number of gaming positions we are allowed to have but we built a very upscale casino and we generate the highest revenue per gaming position of any casino in North America. We’re very proud of the fact that each one of the regional casinos that we have developed is either the first or in one case the second most successful in terms of revenue per gaming position of any of the competition.
Obviously the one I described in Chicago is number one – we compete against, for example, other major players like Caesars. We do more business but we’re one-third the size. It’s because of the quality of what we’ve built and the way we run it, what we offer our customers. We’re also number one per position in Pittsburgh. There are four casinos that have recently been allowed in New York State and we won the right to build one of those four. We all opened up about the same time almost a year ago and we are doing far better than any of the others.
I think part of that is because we’ve built something that is very attractive and fits into the environment, and also we’ve got very good operations. We’re proud of what we do and we’re very well recognized in the regional casino business.
AWS: What do you see as the biggest hurdles Rush Street faces in winning a Japanese IR license?
NB: We think the biggest hurdle is to make sure that the area we’re interested in, Tomakomai, raises its hand and says that it wants an integrated resort. We think that the city of Tomakomai clearly does, but that decision will ultimately be made by the prefecture which is Hokkaido and they have an election coming up in April. While we’re reasonably confident and certainly hopeful that they will approve it, that remains one hurdle we have.
The other is the final regulations when they come out. We know many of the critical rules and we think we can live with that. Last but not least is getting selected, but we think that because of our expertise in real estate – which is 97% of the whole project – and our success in regional development, we have a reasonable chance of being selected.
AWS: Finally, can you tell us a little about Rush Street’s efforts in Japan so far in terms of preparing to launch a bid?
TD: We decided to refocus our efforts around a regional license in Hokkaido specifically almost two years ago now. We’ve been coming out here – myself or Neil or our consultancy partner in this, Steve Rittvo at The Innovation Group – on a semi-regular basis for the past two years. We also have a team of consultants here in Japan. We just recently opened up our office in Tomakomai and we’re going to be staffing it on at least a part-time basis so that we’re there to answer questions from the local people. We’re also actively looking to hire a project manager for this project on the ground in Japan that would split time between Hokkaido and Tokyo.
