Japan is embarking on a casino adventure and it is carving its own unique path. In December, the Japanese Diet passed initial enabling legislation. The law as it stands is too vague and could not be implemented without more structure. It needs the where, when, how many, how much and who before anyone puts a shovel in the ground. But it does not appear lawmakers will find common ground on some issues easily or quickly. The idea of legalizing casino gaming has been floating around in Japan for most of the 21st century and has run aground in previous efforts. At one point analysts were predicting casinos would be open in Japan in time for the 2020 Summer Olympics Games, which is clearly no longer possible.
The issue of how to protect vulnerable Japanese citizens is the stickler in the process. Some of the opposition political parties in the Diet are determined to address the social issues such as organized crime and gambling addiction before any of the casino-specific issues. The debate is centering on limiting the number of visits to a casino by Japanese citizens and an entry fee intended to discourage would-be gamblers from going to a casino very often. The opposition also wants to limit the size of a casino to 15,000 square feet and not more than 3 percent of the total floor space of the resort. The passion behind the debate can be found in pachinko parlors, the country’s shadowy gambling industry. While casinos were illegal, slot- like parlors existed in abundance. The parlors functioned much like their counterparts in other countries. Currently, there are 11,000 parlors in Japan with literally millions of pachinko games. There is an ongoing trend of fewer games and less revenue year over year for at least five years. The industry may have peaked and gone into decline, but in 2015 the revenue was estimated at $203 billion.
The existence of such a huge gambling industry in a country that has banned casino games has undercut the casino discussion and reflects a basic conflict in Japanese values. On the surface, Japan maintains gambling is anti-social and harmful. However, gambling in Japan is very big business. Besides several million pachinko games, Japan has a very large and healthy horse racing industry. There are approximately 21,000 horse races held in the 288 annual race days; the handle is estimated at $30 billion. Lawmakers have tightened down on pachinko, but have stopped short of banning it or horse racing. Still, they have been very reluctant to authorize casinos and the opponents are clearly dragging their heels now.
However, the government of Shinzo Abe has been pushing the idea. Abe is seeking to strengthen the country’s tourism appeal and generate additional revenue, employment and investment. The idea has certainly been met with enthusiasm by the gaming industry. Many international gaming companies are extremely interested; it is being estimated that a Japanese casino industry would generate in excess of $20 billion annually. Given the size of both horse racing and pachinko games in Japan, the estimate does not seem unreasonable. Initial investment proposals by companies such as Wynn, MGM, Sands and Genting have been in the neighborhood of $5-10 billion. And while the strict limits on Japanese gamblers and casino size pose a problem, they may not be a deal breakers. However, both will likely have an impact on the amount of money gaming companies are willing to invest.
Limited access to casinos by locals and casino size are not the only issues that darken the picture. The tax rate is singly the most important detail that needs to be added to the legislation. Because the debate has centered on social issues, very little discussion on taxation has taken place. However, recently the government floated a 30 percent gross gaming tax rate. Although there are jurisdictions that charge more, thirty percent of gross is a steep price to pay. It is especially high when the government is expecting each licensee to spend at least $4 billion on a resort that will only have a very limited local clientele. By implication, casinos would have to spend at least four billion dollars to compete with casinos in Macau, Cambodia, Vietnam and the Philippines for Chinese gamblers. The lawmakers and the government are working through all of the issues that are important to them. But it seems to me that little consideration is being given to the operators. However, I have yet to hear of any of the major casino companies being ready to jump ship because of increasingly complicated and much less appealing opportunity to build a casino in Japan.
