Premium Japanese players no longer abound in the gaming world, so the impact of Japanese IRs will come from luring VIP and mass customers from other Asian destinations.
By Muhammad Cohen in Tokyo
Have you heard the one about the Japanese high roller? Not lately, according to a range of sources in the gaming industry. Even though Japan remains the world’s third largest economy and whales like Akio Kashiwagi made casino owners such as Donald Trump sweat as they rolled millions during the 1980s and early 90s, Japanese premium players are little more than a footnote in Asia these days.
If Japan goes ahead with casino legalization, the main impact on other destinations won’t come from Japanese VIPs who stop gaming overseas, but premium players from other destinations choosing to play in Japan, plus the introduction of another attractive destination with gaming competing for a share of the Asian travel and leisure wallet.
“The Japanese account for around 1% to 3% of a casino’s total database, depending on the location of the casino,” says The 13 Senior Vice President for VIP Services Lorraine Koo, who has worked with the premium market for properties in Singapore, Manila and Macau. A property president with experience in multiple markets puts Japanese at the back end of the premium player top 10, at the level of Thailand or Indonesia – more premium mass than VIP.
“In the old days, Japanese players were bigger and better,” Neptune Group CEO and Executive Director Nicholas Niglio adds. Mr Niglio was an executive in Atlantic City during Japan’s economic boom, when visiting businessmen making deals in New York were valued patrons. “There have been changes in the [Japanese] economy, changes in how people see themselves and spend their money. In the 1980s and 90s, Japanese VIPs were being treated like royalty. That’s less important these days to the new money guys.”
According to a variety of industry sources, Japanese premium players currently scatter across the gaming landscape, most visible in Macau, Singapore and Manila – where they enjoy a degree of anonymity among the much larger Korean playing population – plus Australia, Las Vegas and even Atlantic City.
Mr Niglio, whose company stands among the top three junket promoters in Macau, says he doesn’t know of any Macau junkets with Japanese customers, adding that Japanese players usually prefer to deal directly with casinos’ local representative offices. In most Asian destinations, he says, you’ll be hard pressed to find more than one Japanese casino host, if any.
Neptune Group Executive Director and CEO Nicholas Niglio says Japanese whales are few and far between these days
The exception in the region is South Korea, where Japanese rank second to Chinese, comprising approximately 20% of visitors to the country’s 16 foreigner-only casinos, according to Daemin Consulting Director Tim Lee. Korea also remains the most popular country for Japanese to visit.
“They are truly important to the Korean tourism and casino industries,” the Seoul-based consultant says.
“Japanese high rollers used to account for a majority in Korea but have since been overrun by the Chinese,” CLSA analyst in Tokyo Jay Defibaugh says. “The natural disposition for a Japanese is towards modesty, so they’ll be outshone to an even greater degree.”
“The bulk of the [Japanese] business, a guy playing US$10,000, is going to Korea,” Mr Niglio says. “The US$250,000 player is going to the US. For players in between, the US is still very alluring to Japanese, especially ones with money.”
Adds Mr Lee, “For the gaming industry, Korea is quite ahead of Japan. It has long experience with foreigner-only casinos and has already started building IRs, although not comparable in size to those in Las Vegas, Macau and Singapore.”
Paradise City, a US$1.2 billion joint venture between Korea’s top foreigner-only casino operator Paradise Group and Japanese gaming giant Sega Sammy, opened its first phase in April on the fringe of the gateway Incheon International Airport. US operators Caesars Entertainment and Mohegan Sun head partnerships that Korean authorities approved to build US$1 billion IRs in the special economic zone near the airport in 2014 and early 2016 respectively. Neither has started construction, though both say they expect to begin this year. A fourth Incheon IR license went begging after more than 30 companies that expressed initial interest didn’t lodge bids. Genting Group sold its interest in an IR on Korea’s resort island Jeju to project partner and mainland China developer Landing International.
“Once Japan starts building mega IRs, invested by global operators,” Mr Lee warns, “Korean casinos will be in crisis without any economic [and/or] political plans to enhance the current infrastructure, while actively competing with Japan to attract foreign investments from big names like Las Vegas Sands and MGM that have repeatedly shown interests in both countries.” LVS and Wynn Resorts have said they’re interested in Korea, but only if locals are allowed casino access.
If casinos are legalized in Japan, it’s likely that some Japanese players visiting Korea and beyond will stay home, while others will still play overseas, based on the experience of Singapore, according to a casino executive familiar with that market who asked not to be identified. VIPs are more mobile and may opt for “convenience visits” to local IRs, while traveling to collect new experiences and change their luck.
“I’m sure any operators impacted by the loss of Japanese players would be happy with the decision for Japan to legalize gaming, given the opportunity that it presents in Japan,” Global Marketing Advisors Managing Partner Steve Gallaway says. For premium players from outside Japan and tourists throughout the region, IRs expected to be the world’s most expensive and among the most unique, in major cities such as Tokyo or Osaka, would be huge draws.
In the VIP segment, the big question is whether Japan will allow junket promoters, agents that find high rollers, to facilitate their gaming trips and, crucially, provide them with credit. The top casino executive requesting anonymity says junket regulations will determine whether Japan’s foreign business is big or enormous, adding, “Junkets are becoming more, not less, important in Asian gaming.”
Japanese Prime Minister Shinzo Abe toured Singapore’s IRs on a visit to the city-state in 2014. Since then, Singapore has been seen as a model for Japan’s casino legalization, with the Diet even using the Singapore term “integrated resort” for its casino legalization legislation. Others cite Singapore as an example of what Japan hopes to achieve with casino legalization.
Singapore’s casino regulations don’t explicitly bar junkets, but the embedded regulatory hurdles have meant that only three promoters have been approved, none of them from Macau, which specializes in players from mainland China, the most lucrative source of high rollers. Beijing’s ever-tightening restrictions on moving money overseas and the inability to collect gambling debts through the mainland China legal system means junkets are virtually indispensable for Chinese VIP play. Thus, they’re an integral part of the gaming market in Macau and several other jurisdictions. If Japan allows junkets, those markets may feel some marginal impact.
“It’s clear there will be high value players here,” Spectrum Gaming Managing Director Fred Gushin said at the Japan Gaming Congress in Tokyo in May. “If they’re coming from China, they’ll come from junkets.”
A former New Jersey gaming regulator whose company advised Singapore on its regulatory framework, Mr Gushin warned that junkets often raise “serious issues” regarding their ownership, money laundering and criminal links. He urged Japanese authorities to “do your homework and make a policy decision.”
“Chinese junkets [are] not part of the model that is necessary for Japan to be successful,” Mr Gallaway says. Global Market Advisors’ Japan Integrated Resorts White Paper released last month estimates gaming revenue of US$11 billion to US$24 billion by 2030 for Japan IRs, depending on their number and locations, with domestic players accounting for 53% to 77% of revenue. Every scenario envisions Singapore style restrictions on junket promoters, projecting Japan as the world’s number one casino market with few if any junkets.
“I would suggest that the Diet work with the American Gaming Association and seasoned international operators to further understand junkets and then determine if they want them as part of their casino model,” Mr Gallaway adds.
Korea’s new Paradise City could be among those hit hardest once Japanese IRs open their doors
In any case, Chinese VIPs will want to try Japan.
“I’ve found Chinese players will go anywhere once,” Mr Niglio says. “For a return visit, there are a lot of factors: Was it fun? Did they win? Did anyone speak their language? Did they have the right food? Was transportation easy?”
On the non-gaming front, Japan will likely emulate Singapore by using IRs to expand MICE – meetings, incentives, conventions, exhibitions.
“The MICE market is terribly underdeveloped in Japan,” Mr Defibaugh says. “Perhaps there will be a bit of chipping away at the international MICE market, but I don’t know who the incremental loser would be.”
More broadly, IRs are expected to provide new momentum for Japan’s extraordinary growth in tourism, from 8.4 million arrivals in 2012 to 24 million last year – 85% from Asia. The government has a goal of 30 million arrivals in 2020, when Tokyo hosts the Summer Olympic Games, and 60 million by 2030.
“Given its history, its cultural, its political and economic standing, Japan is one of the most under-visited places in the world,” a casino property president in the region says. This executive believes that difficulties commonly associated with Japan tourism, such as high prices and lack of foreign language ability, are overstated, while travelers will overlook other issues such as distance from Southeast Asia if the IRs are spectacular enough. The executive suggests keeping total taxes low and allowing junkets in will let Japan’s IR developers maximize the wow factor and increase tourism.
At the Japan Gaming Congress in Tokyo, Bloomberry President and Chief Operating Officer Thomas Arasi, who was CEO for Marina Bay Sands’ debut, recalled employees counting chandelier crystals to meet Singapore requirements that the property be 50.1% complete before opening. Mr Arasi, now running Solaire Resort and Casino in Manila, noted that Las Vegas has no such property restrictions yet has the greatest investment in non-gaming attractions and the most revenue from them.
With legislative approval and all the right moves, a half-dozen years down the road Japan could be a strong number two gaming market in Asia.
“Macau will remain the spectacular center of the gaming universe for a long time to come,” Mr Niglio says. “Operators are doing a magnificent job of fine tuning resorts to mainland China appetites.”