Japan passed a gambling bill earlier this month that approved the development of integrated resorts in the country. The casino industry is expected to create thousands of jobs and also bring in billions of dollars in foreign investment. Legislators now have to decide how many gambling licenses will be issued initially and which cities will be awarded these licenses.
The second and more detailed process is to develop robust regulations and procedures that will govern the casino industry. Fitch Ratings released a report which states that Japanese legislators are most likely to follow in the footsteps of Singapore when it comes to designing their gaming regulation. Fitch Ratings state that Tokyo and Osaka are the first two cities that are most likely to be awarded a gaming license.
Fitch believes that gaming licenses will be limited to major cities but multiple smaller satellite licenses could be approved. The first two major integrated casino resorts are expected to be awarded around 3,000 slot machines and 500 table games. They are expected to generate around $6 billion in gaming revenue. Morgan Stanley, the investment bank believes that the Japanese gaming market will generate around $20 billion before the end of 2025. Fitch Ratings believes that gaming revenue could be limited in Japan due to a number of factors.
In a statement, Fitch Ratings said “ROI will likely be pressured by the anticipated high cost of development in terms of labor, materials and land. Other concerns include Japan’s high corporate tax rate (approximately 30 percent despite recent cuts); the sometimes volatile yen exchange rate; potential for South Korea and Taiwan to liberalize gambling; and lingering tensions with China.”
Fitch Ratings also stated that the major international gaming operators are well positioned to apply for a gaming license in Japan as their balance sheets are strong enough to satisfy gaming regulators that they have sufficient financial resources to make major investments in the country. Fitch stated that these gaming operators have strengthened their balances during the last six years as the U.S economy has expanded and also during the early period of 2010 when the Macau casino industry was booming.
Major U.S gaming operators such as the Las Vegas Sands Corp, Wynn Resorts and MGM Resorts have expressed interest in developing multi-billion dollar resorts in Japan. A number of Asian gaming operators including Melco Crown Limited, Genting Singapore and Paradise Co Limited are also looking to set up operations in Japan.
Las Vegas Sands and MGM Resorts have stated in the past that they are willing to invest up to $10 billion to develop an integrated casino resort. Fitch Ratings believes that it will take another two years before construction on any casino can commence and this additional period of time will provide these gaming operators more time to strengthen their financial resources.