Japan’s gamble with casino licences sets pulses racing

Last updated: March 2, 2014 5:45 am

Japan’s gamble with casino licences sets pulses racing

By Jonathan Soble in Tokyo

At the Japan Casino School in Tokyo, students can train as blackjack dealers or take specialised English courses so as to better direct the world’s gamblers to place their bets.

The one thing they cannot do is get a job in Japan after graduation. Casino gambling remains illegal in the country, even as it has flourished in nearby jurisdictions such as Macau and Singapore. That looks likely to change soon, however: a law that would allow the first casino licences to be issued is expected to pass parliament this year.

The prospect of the world’s third-largest economy opening itself to casinos has excited the gaming industry. CLSA, a brokerage, estimates that with a dozen or so facilities Japan could generate $40bn in revenues a year – compared with about $51bn a year in Macau and $7bn in Singapore. That seems more than feasible, given the size of Japan and its proximity to China, with its seemingly limitless supply of high rollers.

At an investor conference sponsored by CLSA in Tokyo last week, Sheldon Adelson, the billionaire chief executive of the Las Vegas Sands group, which runs casinos elsewhere in Asia, promised to pour vast resources into Japan if his company were allowed to build.

“We will spend whatever it takes,” he said. “Would I put in $10bn? Yes. Would I rather do it at seven? Yes.”

Japan’s casino lobby has been pushing for 15 years, ever since Shintaro Ishihara, then the governor of Tokyo, declared in 1999 that he wanted to open a casino in the capital. Japan already allows betting on horse, boat and bicycle races, as well as lotteries and pachinko, a version of pinball whose operators have found ways around anti-gambling laws and dole out cash prizes.

Draw of foreign punters trumps Seoul’s gambling squeamishness

South Koreans in search of a game of roulette must either leave the country or take a trip to the isolated mountain resort of Kangwon Land – deliberately situated several hours’ drive from the nearest city.

The government’s squeamishness about allowing its citizens to gamble contrasts with its growing appetite for the business of foreign punters, particularly from China.

South Korea has 16 “foreigners-only” casinos, mostly clustered in Seoul and the holiday island of Jeju. Revenue at these casinos increased from $657m in 2007 to $1.1bn in 2012, according to the brokerage CLSA, and analysts expect this growth to continue.

Takashi Kiso was a student when Mr Ishihara made his pitch. He enrolled at the University of Nevada Las Vagas to learn the gambling trade, only to see the legalisation movement founder. Today he is a consultant in Tokyo, with a roster of clients who hope to break into the still-hypothetical market.

“Ishihara was an eloquent speaker but there was no political consensus behind his words,” he says. By the time one began to form, Japan had fallen under a series of weak and shortlived governments, none of which was willing to take on the socially contentious issue.

Conditions are different now. Shinzo Abe, the prime minister, is the most powerful Japanese leader in close to a decade and is keen to add tangible examples of economic liberalisation to his “Abenomics” growth programme. He is listed as a senior adviser to the cross-party group of lawmakers behind the casino bill, and last year he told parliament that he saw “significant merit” in legalisation.

Also contributing to the shift have been Japan’s worsening government debt, the China-fuelled profitability of casinos in Macau – the world’s biggest gambling market – and Singapore, and a fresh emphasis on promoting tourism. Many believe Tokyo’s selection last year as host of the 2020 Olympics added fresh impetus.

How fast will casinos actually spread in Japan, and how much of the business will go to foreigners? There are reasons for caution on both fronts. Some 20 municipalities are gearing up to lobby for casinos but most people close to the debate believe that a maximum of three will be licensed at first.

It will take a number of years to draft regulations, choose investors and build – a tightening market for construction materials and labour in the lead-up to the Olympics would make any 2020 opening “difficult, though not impossible”, Mr Kiso believes.

Then, if and when they proved their worth over several more years – generating big tax revenues without noticeably contributing to crime or addiction – the government would consider issuing a new round of licences.

At the CLSA conference, the dauntless Mr Adelson argued that Sands should be allowed to set up a casino on its own, given its stature as the world’s most valuable gambling company and Japanese groups’ inevitable lack of experience.

Mr Kiso calls that attitude “naive”.

“In this country, it simply doesn’t happen that foreigners come in and do big projects completely on their own,” he says. Joint ventures are likely the only route in.

A number of Japanese groups are positioning themselves as local champions. Fuji Media Holdings, a television and publishing group, has allied with the property developer Mitsui Fudosan and Kajima, a big construction company, to lobby for a casino in Tokyo’s seaside Odaiba area, not far from the main cluster of Olympic venues.

Sega Sammy Holdings, a maker of pachinko machines, is also hoping to expand into casinos. Last year it bought the struggling Seagaia resort on the southern island of Kyushu and partnered with Paradise group, one of South Korea’s largest casino operators, on a planned $1.7bn casino near Seoul in what analysts say is an attempt to gain experience. The company is well connected: Mr Abe and two former prime ministers attended the wedding of its chief executive’s daughter in September.

Whoever gets the business, it will be good for the Japan Casino School and its students. “This has been debated for more than 10 years,” says Masayoshi Oiwane, its principal. “There will never be another chance like this.”