Inside Asian Gaming

17 16 C asinos have been legalised in 120 countries and Japan is the only G8 country not yet to have joined the party. Casinos are no longer considered a hive of illegal or im- moral activity but rather a major drawcard for domestic and international tourists and business visitors and a generator of taxation revenue. Along with a few other Asian gov- ernments, the Japanese government recog- nises the potential lost opportunity and is currently framing policy for the introduction of casinos in the coming years. We understand that the Liberal Demo- cratic Party (LDP) and opposing parties have agreed in principle to make a proposal to the Diet for the legalisation of casinos. The LDP Policy Research Council established a Special Committee on Tourism Casino Entertain- ment Study Group, which published a draft paper titled the Basic Policy for the Introduc- tion of Casino Entertainment into Japan on 16 June 2006. The policy recognises that “casino en- tertainment is currently being introduced in Japan’s Casino Opportunity CLSA’s Aaron Fischer believes the Japanese government will legalise casinos in the next couple of years, with Okinawa a frontrunner for the first license. Mr Fischer discusses the approval process currently in progress, and considers what form future casinos in the country could take many locations around the world based on the Las Vegas model of an entertainment complex which can be enjoyed by all ages and sexes and even families, comprising not only casinos but also theme parks, theatres, cinemas, shopping and restaurant malls, sports facilities, international conference centres, hotels and so on.” While casinos have been banned by the Penal Code in Japan since the Meiji period, the prevailing view in other developed coun- tries is that ills from casinos do not derive from the casinos themselves but from those who use casinos to conduct improprieties or become addicted to gambling. On the sec- ond point, it is recognised that non-casino gaming such as suburban clubs create more problems with respect to gaming addictions. The benefits The policy document outlines several benefits to be derived from introducing ca- sinos, including: increasing tourism; increas- ing government revenues; subsidising and boosting the entertainment industry; and benefiting the Japanese public through economic ripple effects.These are discussed below. The policy document also recognises that legalised casinos decrease the funds flowing to illegal casino activities, which are often associated with underground organi- sations and other illegal activity such as loan sharking, drugs and prostitution. However, we would note that the policy does not ex- plicitly state that illegal casino activity is a major concern in Japan. We agree that this is more of an issue in other Asian countries such as Thailand. The direct beneficiaries of an increase in tourism include hotels, airlines and retailers, while indirect ones include food producers and cleaning companies. Global tourism is a high growth industry, particularly in Asia - incomes are increasing at a rate that is trig- gering a disproportionate growth in spend- ing on leisure activities. This is particularly true in China, India and other developing Asian economies. Easing visa restrictions, increasing leisure time and shifting demo- graphics are also driving growth in these countries. In the past 15 years, outbound tourism has increased by around 300 million trips to 694 million per annum. Over the next 15 years, the World Tourism Organisation ex- pects absolute growth to be three times as great; increasing by 900 million to 1.6 billion by 2020. In terms of originating countries, the Chinese are likely to become the most pro- lific travellers. We estimate that Chinese out- bound travellers will reach around 115 mil- lion by 2020 based on a compound annual growth rate of 9.6%. Opportunities to gam- ble, particularly for Chinese, would clearly in- crease the attractiveness of Japan as a tourist destination. Currently, the number of outbound Japa- nese tourists is three times the number of inbound tourists to Japan. Since 2002, the Japanese government has been working to achieve a “Japan that is open to the world as a tourist destination”, promoting strategies which will increase the annual inbound tour- ists to 10 million by 2010. Japan, as the dominant Asian country over the past few decades, economically and culturally, is an obvious candidate for travel- ling Asians. According to the policy docu- ment, “Japan’s extremely attractive tourism resources, typified by its history, traditions and culture, as well as the richness and beau- ty of the natural environment that forms the basis of Japanese culture and exhibits chang- ing faces with each of the four seasons, are highly acclaimed worldwide and constitute a large motivation for foreign tourists to visit Japan”. The committee will be looking to lever- age these existing resources but recognises the need to develop new tourism resources to cater for the diversifying needs of overseas tourists including business people, and the changing lifestyles of Japanese citizens. Recognising the prolonged boom ex- pected in global, and in particular, Asian tourism, other countries within the continent are moving quickly and aggressively to tap into the growing pool of international tour- ists. This includes countries or regions such as Singapore or Macau that are not blessed with any major natural attractions and are successfully overcompensating with enter- tainment and business convention facilities. Both these countries have legalised casinos and are expected to see significant growth in inbound tourist numbers. However, it is worth noting the differences between the two regions and the implications for Japan. Macau: More gaming focused in short term Macau will be primarily focused on targeting tourists from China and Hong Kong. In the short term at least, the emphasis will be on gaming with low levels of revenues gener- ated from other entertainment activity, retail, hospitality and conventions. This is expected to change over time, particularly as construc- tion of larger complexes are completed in the Cotai Strip. Singapore: Targeting tourists and business visitors The more conservative Singapore govern- ment is seeking a more balanced approach with a greater focus on business visitors and other entertainment. Two ‘integrated resorts’ have been ap- proved, with Las Vegas Sands Corp securing the site at Marina Bay, which will be more in- tegrated into the CBD and focus more on the convention market and overseas business visitors. The development at Sentosa, which was recently awarded to Genting Interna- tional, will focus more on attracting tourists with a Universal Studios theme park being a feature of the development.The government is also taking more strides to minimise the negative side effects of gaming – examples include implementing entrance fees for Sin- gaporeans. It seems clear that Japan will take a more similar approach to the Singaporean government, particularly with respect to regulations, taxes and restrictions that will be implemented. There is also talk of other Asian countries seeking to legalise casinos. In particular, we believe that Thailand could eventually be a major player in this industry as the country offers so much for tourists – a stunning natu- ral environment including islands, beaches and jungles. One might also argue that Thai- land is more culturally interesting than Ma- cau or Singapore. However, corruption and the current political environment might pre- vent Thailand from becoming a player in the near term. We expect that operators in these regions will be able to generate significant returns on investment given the huge demand for such facilities. Should other countries legalise and establish casinos in the short term, there might potentially be less interest for over- seas visitors. Nevertheless, we believe the lo- cal market is sufficient to generate material returns for casinos established in Japan. New source of revenue for government The policy document recognises that rev- enues obtained from gaming can be utilised in a productive manner.The document high- lights that revenues can be used “as a fund- ing source for education, welfare, regional development and so on, and significant em- ployment has also been generated”. Further, the committee recognises that 1995 2000 2005CL 2010CL 2015CL 2020CL CLSA forecasts for outbound departures 140 120 100 80 60 40 20 0 Germany China Japan (m) United Kingdom United States Obaida, one of the liikely sites of a Tokyo casino