Casino Brand 2020

IRs in Japan: Who has the best hand?

Casino legislation has just passed in the most recent Diet session. Now the bureaucrats must finalize the contents of the basic Integrated Resorts (IRs) regulations. With Japan set to become the second largest casino market in the world, many local governments are attracted to the forecasted growth in tourism and the potential boost to their stagnant economies. What is the timeline and who are the stakeholders?

Join Timothy Langley and Michael Penn, from the Shingetsu News Agency, as they discuss casino regulations and the outlook for IR developments in the near future.


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Full Transcript below:

Tim: Integrated resorts in Japan: when can we start gambling? Don’t forget to hit like, subscribe, and share. Hi, everyone. Welcome back to Brand 2020, today is March 19th 2019. Integrated Resorts, the legislation passed, we’re going through implementation of how that will be selected, who it’s going to be selected, what cities, what regions will get the bid for that. I’m joined today by Michael Penn, the foremost authority on legislation and the casino gambling law here in Tokyo, Michael!

Michael: Foremost authority? Let’s put it this way, I may be the journalist who’s most eagerly working on this for AGB Nippon on a daily basis.

Tim: Okay. Well, you’re feeding a lot of the information that comes out: it’s balanced, it’s well thought-out, everybody’s reading what you publish.

Michael: I hope so, and I hope that soon we have more than everybody, because we’re trying to expand our readership for those who are interested in the development of this industry, which is still in the launch phase as we’re talking.

Tim: Sure. Well, a lot of people, you know, know about it but it’s rather complicated and there’s a long draw line, isn’t there?

Michael: Well, it doesn’t exist yet. I mean, the legislation was passed in July 30th of last year and you know the starting gun really hasn’t even been shot yet. And, of course, until the very day when the first ones of these facilities open their doors, and the crowds walk in and look around at what there is, until that day you know it’s all going to be kind of theoretical in most people’s minds.

Tim: Right, but there’s a lot of excitement before that. I mean, we haven’t selected even the sights, the winners of the bids haven’t… I mean, they’re lined up, right?

Michael: Certainly in terms of the business community, and that circle of those who think they might get contracts and those who are likely to get contracts, there is a lot of interest. A lot of companies are setting up sort of their IR divisions within their companies and their teams all in eagerness to get those contracts, but again we’re still at a very early stage. And, as you say, we don’t know where these facilities are gonna be and we don’t know who the consortiums gonna be run by them are gonna be yet, but that’s what we’re doing now. Now, we’re figuring out where and who.

Tim: Okay, before we get into that, Michael, let’s just talk about the scope of what is involved in the Integrated Resorts. So, apparently about 7% (3%*) of the complex will be devoted to gambling and the rest of it is restaurants, hotels, shows, that sort of thing. What kind of things are going through the minds of the bidders now? They must have, you know, plans; they’ve got to have a strategy; they have to have maybe an office here, I’ve got to imagine they have an office here, and maybe staff it with 10, 15, 20 people and hire some consultants. This is a big deal, just getting into the game, right?

Michael: Well, according to the law, the limit for the casino floor facility is not 7%, it’s 3%! So, that means that 97% is going to be things which are not casino. And, you’re absolutely right that a lot of the big companies, the big operators, are have been opening up offices, you know, they’re announcing it even now. Recently, there’s new big companies saying, you know, our new office in Marunouchi is being opened, our new office in Hokkaido is being opened. In total, there’s something like around 18 different companies who are bidding for these three spots.

Tim: What are the three spots?

Michael: The three spots haven’t been decided yet, but the legislation says that there’s an absolute limit of only three licenses which will be given, at least for the initial 7 years. Now, it could be expanded in the future, but in this first wave of IR openings there will be 3, up to 3.

Tim: Okay, so now, we have regional governments or maybe even cities that are vine: “I want to be one of those spots” or” I don’t want to be one of those spots, my voters have told me keep Integrated Resorts away from us”. But, the people who are vying for have realized the windfall that is going to be due for tax rebates or tax payments that they could generate as a result of having an Integrated Resort in their community.

Michael: Well, if you’re talking about the companies the eagerness is pretty universal. They, you know, look around the world today they think that Japan is sort of the great untapped market for casino development. It’s widely expected to be the number 2 casino country in the world after

Macau. So, they’re almost everybody, who’s anybody, wants to be in on it. Now, if we’re talking about the local governments, that’s a different story. This is quite interesting, because you know the national government passed this legislation over the fierce objections of the opposition parties and, according to almost every poll ,over the disapprove of about two-thirds of the general public.

Tim: Yeah, but who cares? I’m just kidding.

Michael: No, but the thing is it does blow back on. And, where it’s blowing back on them now is this battle that is going on in the local areas, because on the one now the local governments that want to put up their hand and say “okay, we’d like to have it here”, well maybe one part of the local government thinks that, but then their own public and a lot of other institutions are saying” no, we don’t want these things here”. So, what’s happening is that they’re having a lot of trouble even finding enough candidates, where maybe they might even not be able to build 3 of them if there aren’t 3 local governments which actually solve their local political problems and make a bid.

Tim: That sounds astounding, because, of course, for the business community they want something like this: the construction, the employment, the flourishing of arts and entertainment in that district. But, the other side is the social side, you know, the gambling and the crime and the drugs, and everything else that people think that go hand in hand with…

Michael: That’s sort of the two-faced side of it. It can even exist in the same individual. So, for example, recently I had a little trip down to Wakayama City, which is one of the main bidders (looks like they’re gonna be trying to get one of these IRs) and I was talking to local business people and even these businessmen say : “well, you know, from the point of view of the economy and my business, I want the Integrated Resorts to be built, but you know, on the other hand I have a little bit of worry about what it’s going to do to the community and sort of gambling addiction issues, public peace and these sorts of things”. So, you know, on the one hand they see it as a great driver for tourism and the local economy and employment, but on the other hand, even those who are involved in it, many of the Japanese, are concerned that there may be negative effects and this idea is very widespread in the Japanese community.

Tim: The LDP is traditionally looked at as big business, this is where big business represents its interests and Komeito is the party for social good (and for mothers and children and for making sure that old people have a good welfare and a good foundation). So, there seems to be a bit of a clash going on there, but they are in a coalition government, so this must produce all sorts of really interesting results in the evening in Tokyo, but for example in Osaka as well, and Hokkaido.

Michael: This was a big part of the issue a couple years ago. So, as far as why was the delay of the passage of the legislation until, first of all 2016 for the initial step, and then last July for the second step, that delay was largely because Komeito was putting up a fight against the establishment legislation. However, at this point Komeito has completely rolled over, their opposition has been given up and there’s even members of the Komeito party who are now on board about this development. So, this did create tension in that coalition but Komeito put up the white flag and now they’re on board.

Tim: Okay, where are the hot spots? I know Tokyo is a hot spot… Yokohama, Osaka, what else is hot? What else looks pretty attractive to some of the people who would like to have a casino in their region?

Michael: Well, from the point of view of the business people, obviously, it’s the two major urban markets, which they would really love to have one of these. So, in the case of the Kanto probably you’d have to say Yokohama is the leading possibility and then Tokyo as well. We can talk about each of these individually, if you want. And then, of course, in the Kansai area the main the main major urban markets bid is likely to come from Osaka, a man-made island, a bay called Yumeshima, is the place where they want to put it. Wakayama is also part of the Kansai, theoretically, but it’s some more of a rural part it’s a little bit outside of the major urban area. And hungry for it, particularly the governor. And then, another place where is a major bitter likely will be the theme park facility in Sasebo in Nagasaki prefecture, and then in Hokkaido, Tomokamai city in particular is eager to bid for this. At least, we’re talking about the city governments here, we’re not necessarily talking about every institution within those cities. So, I should say first of all, though about Yokohama and Tokyo, at this point as we sit here today, they have not openly declared their interest. The Mayor of Yokohama, Mayor Hayashi, has said that she is a so-called ‘blank page’, but at the same time she’s well thought to have been interested in doing it, but there’s heavy duty political resistance within Yokohama against it. In the case of Tokyo, it’s also thought that probably Governor Koike would like to make a bid perhaps, but again it’s a matter of political capital and timing, and right now the main focus in the Tokyo case is the post Olympics Tsukiji site, which already Governor Koike has proposed will be a big entertainment convention center area ,but so far, she’s saying that a casino facility would not be part of that. So, it would serve as an Integrated Resort without a casino. But, exactly what her intentions are down the line, different people have different perspectives.

Tim: So, the political makeup of the district is probably, right now, the guiding point because the district or the community has to say “we’re open for a bid” and then there’s another step after that, but first of all they have to qualify through a local referendum or a vote of the people?

Michael: No, there’s not much democracy going on here. So, essentially the prefectural governor is the person who is sort of the first point of contact in a sense, because it’s the prefecture which will apply to be the host ,and then of course the mayor of the area where they actually want to have it also has to be on board. In the end, to finally endorse this, you will need the governor, the prefectural assembly and the mayor, not even the City Council. There’s no referendum, there’s no vote, it’s quite possible that this will be run through in some local areas with most of the public being against it.

Tim: Okay, but the public does have a vote, because generally the candidates for election, we’re seeing this in Osaka, we’ve seen it in Hokkaido and we also saw in Okinawa, where the referendum, it wasn’t really a referendum, the candidate says “I commit to you that I will support the the bid or they say not in my backyard”.

Michael: It can work that way but, as you know as a political specialist yourself in Japan, the playing field between the conservative parties and the opposition parties is not an even playing field, and, of course, in any election people vote based on a variety of issues often whether they like the particular candidate or not, on a personal basis. So, if we talk about one policy, the policy of building this IR facility, that gets kind of watered down in a representative democracy. One very interesting point about the whole way this is played out in Japan, which isn’t necessary the way it does in other countries, is that you can take a ideological spectrum of a candidate to a party and essentially the more conservative and the more right-wing that they are, the more absolutely in favor of the IRs and the casinos they are in Japan. And, the further left that you go, the more dead-set opposed they are. It’s almost completely you can map it out about that: every candidate, how left are they, you could pretty much predict exactly where they’re gonna come down on the casinos; how right are they, you can pretty much predict.

Tim: We’ve got an interesting selection going on in Osaka right now, gearing up for a double election. We’re gonna have an episode on that with Michael Cucek and I, after this series. But once a city has decided “we are good for it, we have the space, we qualify for it, the prefecture has voted that we can move forward”, then what happens? Now, there’s a beauty contest, isn’t there?

Michael: Well, presuming that there are more than 3 local governments who do put up their hands, and that’s quite likely there will be 3, 4, 5, and Osaka, I think, is considered to be the closest thing to a sure thing of all of them, because they’ve already gone a long way, the entire business community has bought onto the project, there’s already going to be the 2025 World Expo in Yumeshima. So, if the Osaka Restoration Association, or Ishin no Kai, whatever you want to call it, if they are emerged victorious again after these elections on April 7th, then you can guarantee that this project will go full force, full speed, and they want to open it up in 2024 for about a year or so ahead of the Expo. If the LDP wins, or takes charge of say the prefectural assembly or the City Council, then they could slow things up, and in fact, the LDP candidate for governor has already indicated that he doesn’t see moving fast as a priority. He’s saying more like “well, first we need to get the consent of the people, then we might move forward”. But the idea that the construction must be before the expo doesn’t seem to be a priority for him. Another big place to be watching for on April 7th is Hokkaido. In Hokkaido, you have a competitive left versus right election for governor and at the prefectural assembly level, and as I just told you if the right wins then it’s pro IR, if the left wins, then it’s no IR.

Tim: Okay, but we’re skipping a step here. Let’s say that they do have a vote to begin it, now we have the beauty contest. Let’s get into that process: everybody’s going to be showing their wares: this is our design, this is our design, which one do you like? What’s the process that goes on there and who actually decides?

Michael: Okay. So , the way that the law has been written, and that the bureaucrats are kind of filling out the details now. The first step will be that in the coming months, maybe even very soon, the central government will be putting together, will be publishing, what are the basic regulations: if you’re going to have an IR what are the central facilities that it must have, what is going to be the bidding process and all this. Now, part of this will be coming from the Cabinet Office and part of it will be coming from the Ministry of Tourism. Next step is that the local governments have to choose their operator and consortium partners, so the picture then moves away from the central government and moves to the local scene. So, let’s take as a hypothetical example Osaka, so then the Osaka government, the prefectural and city government, will then have their own process which they’ll conduct in their own way and they’ll say okay: “Las Vegas Sands, MGM, Melco, Caesars and several others guys are interested, so you put together your consortium, your individual consortiums with Japanese companies and then you give it to our committee and then our committee will decide which of you is our partner and the other ones you’re out”. Then, the local government and their consortium IR operator partners together will make a bid to the central government and then, in some way, the schedule hasn’t been quite published yet, but this will be soon, the central government will say “okay, we endorse this regional government to have an IR, this prefectural government, and we don’t license this government”. Like I said, there’ll be a maximum of 3. So, the interesting point is that, for the companies, they make their partnerships with the local government in advance of even the local government being selected as a licensed IR.

Tim: It’s all a gamble! So, they have to actually put together a consortium of sorts and, I don’t know if a consortium member is thereby forbidden to be a consortium member to another opposing bid, for example a construction company or something like that, but I imagine they would have certain safeguards there, but …

Michael: Probably not, actually. You may have double dippers. You may have cases where there are certain companies who are involved in multiple

bids. There’s certainly many who want to do it that way. The question is: will the IR operators themselves or the local governments be happy with a situation where you have a company working here and working there. But, I don’t think there’s necessarily gonna be any formal rules against it.

Tim: The thing that strikes me about this, because it’s very complicated, you have to pass this gate and then you have to pass the other gate is that there is tremendous room for facilitation. How can I influence you to make a decision with regard to me and then two weeks later we have to do the same thing again? And, there’s an awful lot of money at stake here, so it seems like there would be a temptation to kind of “yes, we’re gonna pay you over-market for the cement that you’re going to pour; we’re going to pay a little bit more for the steak that we serve at the restaurants for a period of two years” or that sort of thing.

Michael: Well, about that issue… it really depends on how, shall we say, cynical or realistic or your appreciation of the political system, however you want to put, is how much effect that’s gonna have. So, for example, there are powerful central government figures, so let’s say in the case of Wakayama, you have Toshihiro Nikai who’s the secretary-general of the Liberal Democratic Party. Some people think that well because you have Nikai in that powerful position so close to Abe, this means that Wakayama’s bid is strengthened, because he’s going to help pull strings from there. Whereas of course, if you say that officially to other people, they’ll say: “no, no, no, the whole process is going to be done by a third party panel, which is completely isolated from all of these outside influences because, and this is an argument, because we know that unless we do this without that kind of hanky-panky, the public is gonna eat us alive”.

Tim: Well, even if there is none, there’s always going to be people who rabble rousers who throw…

Michael: But, imagine if there’s actual evidence that comes out!

Tim: But, the point is that, eventually they’re going to pick the best-looking bidder and how do you project yourself as being the best-looking. Is it architecture, is it cost, is it performance, it’s all of these things, right?

Michael: Well, again it depends on which level you’re talking about. If we’re talking about the companies trying to romance the local governments, yes they’re going to show, they’re going to have to prove to local government what will be your best partners, “we’re gonna create a facility here that’s really gonna jump up your tourism and your economy, we’re gonna hire all kinds of local people; we’re gonna be partners that you can trust for the long term”. From the point of view of the local government and consortiums romancing to the central government, in that case they’re going to want to say: “first of all, the central government’s going to be convinced that it’s going to be an economic success so if one of these bombs out, that’s going to look really bad politically”. So, mainly it’s about economy. “If you license our local government and our consortium, then we’re going to do more to promote for Japan; we’re going to have more of an economic effect in the local community and to stimulate the entire nation”. So, the romancing has different aspects to it, but at the heart of it the idea is that stimulating tourism and stimulating economies in Japan.

Tim: Well, I mean, it seems to me that it all boils down to confidence and believability: is this somebody that I can believe in, will they go all the distance with me? Because, you can dress it up any way you want to, but when the casinos finally open, or when the integrated resorts finally open, that’s where the proof will be in the pudding.

Michael: Absolutely, and so, I presume it looks like the most likely date for the first ones to open up at this point is 2024, that may end up being a little too ambitious, it could it could end up getting delayed after that, but let’s say 2024. And, like I said, it’s really when the general public and their families in toe go and they walk into these facilities with not just a casino, luxury hotels, the convention centers, the meeting places, the restaurant shows, the gardens and all of it. So, if the public gets in there and says “hey, you know what you know we thought this was going to be some kind of crazy gambling den of thieves and it’s actually this beautiful shopping center and luxury hotels”. I think that there will be a little bit of a shift in ideas. But, at the same time, right up until the day that that happens, I think there’s going to be quite a bit of concern that this is something which is going to be destructive to Japanese society.

Tim: Right, before we wrap this series up, Michael, what do we expect now to happen that has an impact on the IR movement going forward? Is there going to be a deadline for the consortiums to be together or to present themselves to the prefectural government?

Michael: All right, so first thing we should be looking at is the April 7th unified local elections, because then we’re going to see what’s the situation in Osaka and what’s the situation in Hokkaido, and maybe a couple other places. But, because Osaka and Hokkaido are two of the key locations, the outcome of the elections there is big, then at an undetermined date, but maybe in the spring or summer, the central government is going to say these are the more fuller regulations about how the bids are conducted. Then, July 1st will be the establishment of the, doesn’t have an English translation yet, but I I’ve been calling it the “Casino Management Board”, which will be the main regulatory authority for the casino floors, which will be an independent agency of the Cabinet Office.

Tim: Before an entity becomes a ministry, it’s an agency. It will be an agency that is the creation of a new agency just for this process.

Michael: Correct, it’ll have a staff of about a hundred and basically their idea is that they’re the policemen to make sure that there’s no money laundering and that people are paying their taxes, and all of that sort of the regulation that needs to be done for the casino element correctly. And, then also there’ll be a whole another set of regulations from the Ministry of Tourism which will obligate these IRs to play a role to promote tourism in their own regions.

Tim: Okay, and that’ll be in midsummer?

Michael: Possibly, that part is not set on a firm date, but it will be this year within a few months.

Tim: Integrated Resorts in Japan, it is coming ! Please stay tuned.

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