Japan Lawmakers Signal 2020 Olympics Window Closing for Casinos

Japanese lawmakers supporting a bill to legalize casinos said it would be tough to pass the law by next month, a sign that the opportunity to link approval with the 2020 Olympics in Tokyo is diminishing.

“Passing the casino bill in the current session of parliament will be tough,” Sakihito Ozawa, a lower house member, said today at a forum in Tokyo. Japan’s parliament, or Diet, meets until June 22 and the bill must be sent to the upper house at least 20 days before the session ends, he said.

The country’s ruling party and business leaders including Lawson Inc. Chairman Takeshi Niinami have promoted casinos as a tourism-boosting complement to the 2020 Summer Games in Tokyo. The current Diet session offers the last chance for passage of a casino bill in time to have gambling resorts open by then.

“We are doing our utmost to start deliberations on the bill this month,” Takeshi Iwaya, secretary general of the pro-casino group of lawmakers, said today at the Japan Gaming Congress in Tokyo.

Iwaya is in Tokyo with executives from global casino resort operators including Las Vegas Sands Corp. (LVS), MGM Resorts International (MGM) and Melco Crown Entertainment Ltd. (MPEL), who are supporting passage of the bill to end Japan’s ban on casinos.

Photographer: Lam Yik Fei/Bloomberg

Pedestrians walk past the MGM Macau casino resort, operated by MGM China Holdings Ltd., in Macau. Close

Pedestrians walk past the MGM Macau casino resort, operated by MGM China Holdings Ltd., in Macau.

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Photographer: Lam Yik Fei/Bloomberg

Pedestrians walk past the MGM Macau casino resort, operated by MGM China Holdings Ltd., in Macau.

“Time is of the essence,” James Murren, MGM chief executive officer, said yesterday in an interview. “There seems to be a very strong political will to move this forward and who knows what that environment will be a year or two from now.”

Tracking Macau

For MGM, Japan’s casino market could be bigger than that of Macau, the world’s biggest gambling hub, Murren said.

The MGM chief and billionaires including Sands Chairman Sheldon Adelson and Melco Crown co-Chairmen Lawrence Ho and James Packer have said they’re prepared to spend billions on gambling resorts in Japan. The country’s casino market could be worth as much as $40 billion a year as early as 2025, making it Asia’s largest after Macau, according to CLSA Ltd. estimates.

Officials in Prime Minister Shinzo Abe’s party have said casinos can add hotels and provide an economic boost as the country draws tourists to its capital for the Olympics. Abe is looking for ways to broaden an economic recovery that’s stalling, adding to pressure to end the ban on casinos in this session of parliament to maximize the tourist boost.

“The powers-that-be in Japan have decided that the one-two punch of the Olympics and the opening of integrated resorts in 2020 would provide a boost to the country’s profile and we would agree,” said Grant Govertsen, an analyst at investment bank Union Gaming Group. “If, for whatever reason, the first gaming bill is not passed in 2014, we believe it will be exceedingly unlikely that the first integrated resort could open prior to 2020.”

Betting Big

Adelson, the world’s 13th wealthiest person, said earlier this year he was prepared to spend “whatever it takes” to build a casino resort in Japan. That could come to $10 billion, he said at the time. Murren also said he’d spend as much as that, should legalization succeed.

Ho and Packer, whose venture operates casinos in Macau, have indicated they are ready to spend at least $5 billion on resorts and are looking to form alliances with real estate developers and trading houses in Japan.

“These type of developments would generate millions of incremental tourists and a tremendous amount of jobs and economic benefits for the country, and of course for the host communities,” Murren of MGM said. “The longer the delay, the more the missed opportunities.”

Junket Question

Macau, home to China’s only legal casinos, has boomed by attracting high rollers from the mainland and offering ways to skirt limits on taking money out of the world’s second-largest economy. Gambling industry revenue in the former Portuguese enclave jumped 19 percent last year to $45.2 billion, about seven times that of the Las Vegas Strip.

Murren said Japan’s market could be bigger for MGM because there would be fewer operators competing.

“MGM is one of six concessionaires in Macau,” Murren said. “In Japan, the market has potential of being $20 to $40 billion and there would be far fewer integrated resorts than in Macau.”

Japan’s ruling Liberal Democratic Party has yet to win full support for the bill from its coalition partner the New Komeito Party.

“New Komeito has not traditionally been keen on gambling legislation, so it may be a little difficult to get their support as a whole party,” Iwaya said on the sidelines of the Congress. “I’m seeking support from individual members of the party.”

Gambling Opponents

The legislation, introduced in December, isn’t likely to pass in the current Diet session, the Nikkei newspaper reported April 28, without saying where it got the information. New Komeito draws support from the Soka Gakkai sect of Buddhism, which has expressed concern casinos would “worsen public safety,” according to the Nikkei.

Once the current Diet session ends, lawmakers typically come back for an extraordinary session starting in Japan’s autumn, which means the casino bill could have an additional chance to pass before the end of the year.

Gambling resorts would help the government reach its goal of attracting 30 million foreign visitors a year by 2030, Hiroshi Mizohata, former head of the Japan Tourism Agency, has said. That number is triple the 2013 level, which was a record high, according to the Japan National Tourism Organization.

Tourism Bet

Casino supporters have said the resorts would attract wealthy tourists from China and around the world, along with Japanese gamblers.

The current casino bill asks the government to create a legal framework for casinos within one year of the law’s enforcement. A subsequent bill detailing rules for casino operations would also need to be approved.

Politicians including former Tokyo Governor Shintaro Ishihara have failed for more than a decade to legalize casinos amid opposition from groups concerned that the gambling complexes would promote money laundering, gambling addiction and organized crime.

Pro-casino groups’ current emphasis on the potential for boosting tourism follows the success of Singapore, which opened its first legal gambling complexes in 2010, in drawing visitors from outside the country. Integrated resorts, or IRs, combine casinos with luxury hotels, entertainment venues and shopping to broaden the appeal and supplement revenue from gaming.

Singapore Model

Tourist arrivals in Singapore jumped 40 percent in the four years after the two resorts opened in the city state. The two resorts raked in $6.3 billion in revenue last year and accounting for 2 percent of Singapore’s GDP, according to CLSA. After opening four years ago, Singapore’s two casinos are already generating almost as much as the Las Vegas Strip, which tallied $6.5 billion last year.

Visitor arrivals in Singapore are expected to grow as much as 8 percent this year from 2013 to a record 16.8 million. Related revenue may climb by as much as 5 percent to S$24.6 billion ($19.7 billion), the Singapore Tourism Board forecasts.

Lawmakers will consider in the second phase of legislation whether to emulate the Singapore model, which includes charging entry fees to local residence to curb gambling addiction risks.

Middlemen

Japan’s pursuit of casinos also follows the booming success of Macau as a gambling hub. One key to that growth is the use of the so-called “junkets,” or the middlemen that lend money to high rollers in China, enabling them to skirt limits on taking money out of the country.

High-stakes gamblers contributed about two-thirds of Macau’s $45 billion casino revenue last year. The more than 200 licensed junket operators in Macau generated more than 90 percent of high-roller, or VIP, revenue last year, according to Praveen Choudhary, a Hong Kong-based analyst at Morgan Stanley.

Japanese officials have signaled concern that junkets provide openings for possible criminal activities, Choudhary said. This may discourage emulation of the Macau model in Japan, he said.

“If Japan, like Singapore, does not allow junkets to operate in the casinos, we expect the market size to be significantly lower than consensus estimates of between $20 billion to $40 billion,” Choudhary said. “Gaming companies might also face significant bad debt provisions” because junkets handle debt-collection from high rollers who borrow to play, he said.

The battle to legalize casino resorts could continue should the bill fail to pass in the current parliament session, Aaron Fischer, head of consumer and gaming research at CLSA, said by phone.

“We don’t see 2020 Olympics as a deadline for Japan having integrated resorts per se,” he said by phone.

To contact the reporters on this story: Vinicy Chan in Hong Kong at vchan91@bloomberg.net; Yuki Yamaguchi in Tokyo at yyamaguchi10@bloomberg.net

To contact the editors responsible for this story: Stephanie Wong at swong139@bloomberg.net; Frank Longid at flongid@bloomberg.net Dave McCombs

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