Integrated Resorts in a post-Covid19 Japan: will casinos roll a hard eight ?

A few days ago, Las Vegas Sands announced that it had scrapped plans to open a casino in Japan. Previously, Caesars Entertainment and Wynn Resorts had also backed out of the opportunity. Casino operators in Las Vegas and Macau had previously stressed that Japan should open up its destination market. What has changed? The Covid-19 curve is finally flattening in Japan, but in the process, headwinds are intensifying for potential casino operators.

The scourge of pachinko and gambling addiction

On April 7, Prime Minister Shinzo Abe enacted the "Special Measures Act for Countermeasures against Novel Influenza, etc.", requesting pachinko parlors to voluntarily refrain from operating. These requests were not legally binding, so dozens of owners continued to operate as usual. This prompted the governors of Tokyo, Chiba, Osaka, Niigata, and Hokkaido (among other prefectures) to publicly name these pachinko parlors, shaming not only the owners but also the pachinko customers into temporarily closing their doors, in an attempt to respect social exclusion.

Ironically, this tactic created unintended publicity, encouraging pachinko addicts to move across prefectural borders. Eager to compete for the best seats on the pegs, frontliners formed mile-long lines at each lounge, ignoring the advice to socially withdraw. It was a moment when the entire nation realized the seriousness of compulsive gambling that exists in this country. When gambling addicts chose to continue playing pachinko without question, ordinary people felt that they were finally forced to choose life over money during this pandemic. Inevitably, local TV broadcasts spread skepticism about the casinos opening in the three resort areas that the government promised to designate next year as part of the integrated resort development (IR) plan.

The last straw: the 500. com bribery scandal

Following Carlos Ghosn's great escape at the end of last year, the bribery case involving Shenzhen's 500. com and Tsukasa Akimoto, a veteran advisor to the Cabinet's Casino Legalization Promotion Committee, cast a large shadow on the world's media. 500. com allegedly gave Akimoto 3. 5 million yen in cash and treated him to overwhelming entertainment, including trips to Hokkaido and China, in the hope of being designated as a casino operator in Hokkaido.

It is the first time in 10 years that the Tokyo District Public Prosecutors' Office Special Investigation Division has arrested a Diet member. Even in Japan, it is a de facto standard view that as long as bribery and corruption continue to exist in the political world, Japan cannot be called a true democratic nation. The Governor of Hokkaido did not take the scandal lightly, and subsequently announced that Hokkaido would withdraw from future casino license considerations. Tomakomai City, a short drive from Sapporo's New Chitose Airport, is a port city in southern Hokkaido.

The delicate balance between maintaining compliance and raising funds

When it comes to IR development, Osaka City has always been a leader among Japanese local governments.

In November 2018, the Archdiocese of Kansai won the bid to host the 2025 World Expo. Under the slogan "Designing the future society we live in," they bid on Yumeshima, an artificial island in Osaka Bay, for the site. Toru Hashimoto is a political commentator, founder of the Japan Restoration Party, governor of Osaka from 2008 to 2011, and mayor of Osaka from 2011 to 2015. One of his political achievements was effectively taking advantage of his predecessor's "dark period" and leveraging the influence of the city and port authorities in local issues. Yumeshima was undoubtedly one of his most important projects, and thus he won the battle for both the World Expo and the IR, both of which stood out for their revitalization strategies. MGM Resorts partnered with Japan's largest leasing company, Orix, and registered for the IR as a joint venture on its own in February 2020. Genting Singapore and Galaxy Entertainment had previously expressed interest in the Osaka license race, but dropped out at the last minute.

However, according to the Nikkei Shimbun, the MGM-Orix joint venture now has 140 billion yen in cash to spare, and is therefore seeking minority investment from around 20 Kansai-based companies, including Panasonic and JR West. In the current Japanese legal and compliance environment, capital injections seem to be the safest route, as major Japanese banks are wary of casino businesses, seeing them as entailing compliance risks.

Daniel Chen, former Genting Singapore and Hard Rock International, told Nikkei that "it is important to curb junket activities as a measure to prevent money laundering." Junket is a broker that provides travel arrangements, entertainment, entertainment, financial services, etc. to high rollers, mainly from mainland China, and is said to have played a major role in developing the Macau market into a market larger than Las Vegas. If the Japan Casino Regulatory Commission (JCRC) does not properly check the backgrounds of these junkets and licensed casino operators go outside, it will surely create a large gap for anti-social forces (organized crime) to play this role, a role they excel at in other markets.

Japanese banks, in particular, have voiced their opposition to a scenario in which junkets remain unregulated as they collect debts as long as their licenses remain valid. Even if junket activities are considered taboo by casino operators, banks have no way of knowing until the licenses are revoked by the JCRC. Therefore, at this stage of regulation, it was inevitable that MGM-ORIX would aim to raise maximum capital without relying on bank loans.

Japanese banks are also concerned about the contradictions in Article 10 of the Integrated Resort Implementation Bill. The Japanese government plans to issue casino licenses to the three JCRC-awarded operators next year, which will expire 10 years after issuance. If the three IR operations begin in 2025-2026, there will be only five to six years left until the expiration date. The three major Japanese banks call this the "Article 10 problem." Except for the stage of issuing licenses to coincide with the actual business start date, financial institutions cannot arrange project financing under this contradictory system. However, this is too much for Prime Minister Shinzo Abe, who is facing controversy over Covid-19 and the proposed amendments to the Prosecutor's Law. For casino operators and IR developers, this regime is impressive, as they wanted to discuss the amendments to Article 10 as soon as possible. Therefore, it can be speculated that this is another reason why MGM-ORIX is aiming to raise private capital.

Ultimately, the JCRC is likely to adopt the Nevada model when renewing the license, in which case something similar to Form 7 (casino license application) would apply to the consortium. However, a major obstacle is that the disclosure requirements set out in Form 7 may be viewed as overly strict by licensees and their investors. For example, managers and one or more shareholders with an interest of 5% or more in the joint venture would be required to disclose, among other personal information, their professional profiles, observations of bankruptcy or default history of 5% or more in the past 20 years, etc. This is a big hurdle for companies that are asked to make small investments

Yokohama vs Tokyo: Factional Wars Within the LDP

Since December 2016, Fumiko Hayashi and Mayor Yokohama have been promoting IR invitation as an advantageous way to increase taxable income. Hard rock International, Galaxy, Gentine Singapore, Melco, and Japan's Segasmy have been focusing since the beginning of the Yokohama development. However, the lobby activity is in a disastrous situation, with civil society urging the city hall to cancel the project.

The opposition to this project is Yukio Fujiki, the chairman of the Yokohama Port Agency Association and literally the union member working at Yamashita Wharf in Yokohama. Fujiki is also the president of the Yokohama home base of DeNA Baystars, a local professional baseball team. Since May 2017, he has opposed the IR Yokohama invitation, and it is certain that it has darkened the situation. One of the most reasons he opposed was that he had several feud with the city hall and was abandoned from important local development decisions. In recent examples, there is a plan to renovate the DeNA Baystars Stadium in Yamashita Wharf into a dome stadium.

For Yoshiyoshi Suga, the secretar y-general of Shinzo Abe's Cabinet, installing a casino in Yokohama is an extremely important issue for him, a member of the Diet in Nish i-ku, Yokoham a-shi, Kanagawa. While citizens struggle between security and business opportunities, Yokoham a-based politicians face the difficulties of harmonizing voters and their political agendas.

Meanwhile, the LDP Secretar y-General Toshihiro Nikai prepares a table for the second lesson. Eventually, if Yokohama refuses to accept IR, the secretar y-general of the second floor will talk to the Governor of the Tokyo Metropolitan Governor, Yuriko Koike. Mr. Akimoto, a bribery case described above, is not noticeable because he belongs to the LDP's second floor. < SPAN> Since December 2016, Fumiko Hayashi and Mayor Yokohama have promoted IR invitation as an advantageous way to increase taxable income. Hard rock International, Galaxy, Gentine Singapore, Melco, and Japan's Segasmy have been focusing since the beginning of the Yokohama development. However, the lobby activity is in a disastrous situation, with civil society urging the city hall to cancel the project.

The opposition to this project is Yukio Fujiki, the chairman of the Yokohama Port Agency Association and literally the union member working at Yamashita Wharf in Yokohama. Fujiki is also the president of the Yokohama home base of DeNA Baystars, a local professional baseball team. Since May 2017, he has opposed the IR Yokohama invitation, and it is certain that it has darkened the situation. One of the most reasons he opposed was that he had several feud with the city hall and was abandoned from important local development decisions. In recent examples, there is a plan to renovate the DeNA Baystars Stadium in Yamashita Wharf into a dome stadium.

For Yoshiyoshi Suga, the secretar y-general of Shinzo Abe's Cabinet, installing a casino in Yokohama is an extremely important issue for him, a member of the Diet in Nish i-ku, Yokoham a-shi, Kanagawa. While citizens struggle between security and business opportunities, Yokoham a-based politicians face the difficulties of harmonizing voters and their political agendas.

Meanwhile, the LDP Secretar y-General Toshihiro Nikai prepares a table for the second lesson. Eventually, if Yokohama refuses to accept IR, the secretar y-general of the second floor will talk to the Governor of the Tokyo Metropolitan Governor, Yuriko Koike. Mr. Akimoto, a bribery case described above, is not noticeable because he belongs to the LDP's second floor. Since December 2016, Fumiko Hayashi and Mayor Yokohama have been promoting IR invitation as an advantageous way to increase taxable income. Hard rock International, Galaxy, Gentine Singapore, Melco, and Japan's Segasmy have been focusing since the beginning of the Yokohama development. However, the lobby activity is in a disastrous situation, with civil society urging the city hall to cancel the project.

The opposition to this project is Yukio Fujiki, the chairman of the Yokohama Port Agency Association and literally the union member working at Yamashita Wharf in Yokohama. Fujiki is also the president of the Yokohama home base of DeNA Baystars, a local professional baseball team. Since May 2017, he has opposed the IR Yokohama invitation, and it is certain that it has darkened the situation. One of the most reasons he opposed was that he had several feud with the city hall and was abandoned from important local development decisions. In recent examples, there is a plan to renovate the DeNA Baystars Stadium in Yamashita Wharf into a dome stadium.

For Yoshiyoshi Suga, the secretar y-general of Shinzo Abe's Cabinet, installing a casino in Yokohama is an extremely important issue for him, a member of the Diet in Nish i-ku, Yokoham a-shi, Kanagawa. While citizens struggle between security and business opportunities, Yokoham a-based politicians face the difficulties of harmonizing voters and their political agendas.