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A primer on the proposed casino legislation in Japan

Japan is probably as close to legalizing casinos as it ever has.  While difficult to handicap the probability, - we will take flier and say 50% - what is clear is that if it happens it would be a big opportunity for the gaming operators awarded licenses.  In our universe, LVS and WYNN should be considered the front-runners.  The Japanese like to play slots so IGT, WMS, and BYI would certainly benefit from full-scale legalized gambling. 

A casino advisory group, comprised of legislators, will try to submit a Casino Act to the Diet when session resumes in February. If the bill has enough support, something could be passed as quickly as 6 months.  The chatter is that at least 100 legislators are in favor. At least 241 votes in the House of Representatives and 122 votes in the House of Councillors are needed for the bill to pass.

Japan Casino Act

 

What’s Been Proposed:

Drafted by representative Koga, chairman of The General Assembly of International Sightseeing Industry Development Diet Member Association, and Mihara, the advisor of the Assembly, the preliminary Casino Act consists of 68 articles.  Under the Act, there will be two licensed casino sites and based on the performance of the first two sites, 8 more sites could be considered.  The national government will handle the selection procedure for the casino sites while the local governments will choose the operators, who would need to be licensed by the Casino Administration Organization—a division under the Cabinet.

Currently, the bill does not address the repeal of Articles 185 and 186 of the Penal Code which prohibits most forms of gambling. The only legal forms of gambling are horse, speedboat, bicycle racing, and lotteries.

Who’s Interested:

In the past six months, prefectures from Tokyo, Okinawa, Nagasaki, Osaka, Wakayama, Kanagawa, Chiba, Miyagi, Akita and Hokkaido have expressed interest in establishing a casino.  LVS, who has expressed the most interest in Japan among the overseas operators, believes the two IRs will reside in Tokyo and Osaka, with a bunch of smaller casinos in places such as Okinawa and other suburban areas around Japan. LVS thinks if a bill is successful, a tender will be offered in 2012 and a casino could open by 2015. WYNN could also be in the mix since its largest shareholder and President of Japanese pachinko machine maker Universal Entertainment and also of Azure Gaming, Kazuo Okada, had stated that he along with WYNN would submit a joint bid to operate casinos in Japan once it is possible.  Another Japanese company that would bid is Maruhan Corporation, the nation's largest operator of pachinko parlors and a partner in the Ponte 16 casino.

What’s the Opportunity:

In a White Paper released by the Japan Productivity Center, as of FY-end March 2010, there were 17.2 million pachinko players in Japan. Annual gross wagers hit $245.4 billion, marking the 6th consecutive year of declines after Regulation 5 was implemented which effectively decreased the volatility of the pachislot machines to make them less "slot" like. Estimated gaming revenues reached close to $30 billion in FY 2010.  According to economist Takashi Kadokura, the Tokyo Metropolitan Government may place a 20% gaming tax on the casino's gross sales, a 5% consumption tax on gross sales, and a 30% corporate tax on net profit.

A $30 billion slot revenue market and $200 win per day per slot would imply a market of over 400k slot machines.  Of course, pachislot machines are not casino slot machines so it isn't a perfect comparison.  However, there is clearly a demand for gaming machines.  A roll out of casinos would be controlled and the initial legislation only contemplates a maximum of 10 casinos so 30k-40k slot machines would be appropriate to model.  However, longer-term, the potential is huge.

What’s Standing in the Way:

Not surprisingly, political division and public distrust are the biggest hurdles. One of the reasons the previous casino bill failed was that it proposed an unpopular article stating a state agency to be the collector of casino taxes. Addressing this concern, there is now talk of casino public revenue being directed to a national pension-fund system. There would also be protests from The Japanese Communist Party, the New Komeito party, and pachinko operators who would get squeezed by the proposed casinos.  

History of casino legislation in Japan this past decade:


What happened to the previous casino bill? Below is a timeline of a bill that suggested an IR-type casino, modeled after Singapore’s casinos.

  • 2003: The idea of a casino in Japan started to circulate.
  • 2006: LDP (Liberal Democratic Party) formulated a casino proposal.
  • April 15, 2007: Almost half of the House of Representatives—including some opposition lawmakers— supported the idea of legalizing casinos.
  • July 29, 2007: Passage of bill became shaky as the LDP lost control of the House of Councillors in the election, creating political uncertainty. Vote on legislation was pushed back back from July 2008 to the end of 2008.
  • August 7, 2007: Reports confirmed government considering casino legislation could be approved within 12 months.
  • Early 2008: Discussion between the LDP and Diet began speculating that there may be casinos in Tokyo and Okinawa by 2012.
  • June 2008: Sources said cross-party consensus on a casino law could be as close as two weeks away.
  • July 18, 2008: A cross party study group was set up to examine casino legalization right before end of Diet session.
  • Feb 24, 2009: The casino plan was put on indefinite hold because of political disorganization and economic troubles, despite Prime Minister Taro Aso approving such a plan. In addition, gambling continued to have a negative image in Japan and the new laws was not transparent and trustworthy enough to secure public support. Nevada-based operators also suspended their lobbying activities in Japan.  

What’s Next:


It is hoped that final draft legislation will be ready for submission to the National Diet when sessions resume in February 2011. A coalition of the ruling Democratic Party of Japan (DPJ) and the former ruling party, the Liberal Democratic Party (LDP) is needed to pass this bill. Gambling lobbyists believe if the bill is passed, it would take five years to train enough croupiers and other staff to be fully prepared for a casino opening.

Legislative Procedure:

  1. Bill submission to Diet
  2. Preliminary deliberation in plenary session
  3. Deliberation in a Committee
  4. Final deliberation in plenary session
  5. Passage in House of Representatives
  6. Passage in the House of Councillors
  7. Submission to Emperor for promulgation

JAPAN: A REAL GAMING OPPORTUNITY - japan1

Appendix: Pachinko Market (from Sega-Sammy 2009 Annual Report)

JAPAN: A REAL GAMING OPPORTUNITY - japan2

JAPAN: A REAL GAMING OPPORTUNITY - japan3