By: Bay City Ventures Managing Director, Joji Kokuryo
Twenty-three months since the passing of the Integrated Resort (IR) Implementation Act, Japan’s procedure continues to gradually move forward. However, there are still many major steps that must be accomplished for the gaming industry to lay its roots in this East Asian country.
In order to understand the current timeline, it is vital to take note of the key components of the law. The central government issues a Basic Policy, or Fundamental Policy as some call it, that provides guidelines for the local governments and their IR operators to follow. The local governments, if they wish to apply for IR development approval, will also need to come up with their own Implementation Policy, which applies on top of the national Basic Policy. The IR operators will need to comply with both of these policies when making their bids to local governments.
The central government’s Basic Policy had a draft version released last September and the final version was originally slated for an early 2020 release. Since then, the release has been pushed back once to March, and after bribery scandals and COVID-19, the Basic Policy still remains in a draft state as of today. By government order, the Basic Policy must be finalized by July 26th, 2020, or two years within promulgation of the IR Implementation Act, unless a government order is made to change the date.
The draft versions of the Implementation Policy for all the four current candidate sites, Osaka, Wakayama, Nagasaki and Yokohama, have been released, but they will remain drafts until the final version of the national Basic Policy is released.
The local governments and IR operators have been working all this time with the assumption that there will not be major changes from the Basic Policy draft, and that fact has been a point of uncertainty that the operators and their investors have been dealing with since they first set their sights on Japan. The Basic Policy itself is just a set of guidelines and will not provide all the taxing and casino regulation variables required to make an adequate ROI calculation, but without a final version, operators and investors are left making guesses, and that is for sure not what the gaming business is about.
This delay in confirming the basic set of rules for the Japan IR is even more concerning, considering that the submission period for local governments and their IR partner to make applications for IR development approval runs from January 4th, 2021 to July 31st, 2021. This deadline at the end of July is the most important date during the current phase of the Japan IR procedure. In order to meet this submission deadline, local governments will need to finalize their own Implementation Policy, complete an RFP procedure, select their IR partner and then finally create a business plan together for their submission to the central government. Local governments are assuming that six months is the bare minimum for planning and creating a submission package with their IR operator, and Wakayama prefecture recently pushing back their IR partner selection to next January is a perfect example of this assumption.
As we stand today, despite the impact of COVID-19, the central government has no plans to change the national timeline, meaning we should see a final version of the Basic Policy by July 26, and the submission deadline for applications to the central government remains July 31st, 2021.
This timeline situation aside, the IR operators have all had very unique experiences in Japan. None more so than Las Vegas Sands. Starting with Osaka, then on to Yokohama and a brush in with Tokyo, the gaming giant was always considered a favorite in any major Japanese site. Marina Bay Sands in Singapore was what many Japanese lawmakers and stakeholders envisioned when they talked about IRs. It is a new local landmark that completely reinvigorates the local economy and provides abundant tax revenue. Sands themselves were very alert to the local and political situations in Japan, as their public comments when leaving behind Osaka would show. They were the only operator to state their new focus as “Yokohama or Tokyo”, which differed from what other operators like Melco, Genting or Galaxy had proposed when they went all-in on Yokohama after their short-lived Osaka love affairs.
That is why when Sheldon Adelson and Sands decided to leave Japan, many deemed it an end to the current IR initiative. It is quite clear that Sands did not succeed in making guesses and investing during times of unclarity, and there appears to be better ROI opportunities outside of Japan. However, the minute an adequate return on their investment can be forecasted in Japan, they for sure will not have any qualms about coming back and coming back strong. There were concerns that other major operators would follow suit and leave Japan as well, but that has yet to be the case. IR operators are enormous companies with their own formulas, their own ambitions and levels of optimism and their own unique financial situations. None of them are going to leave Japan just because Sands did, it would always be because of their own volition. That certainly does not mean no one will leave, but in any public offering project, this is a common occurrence.
Tokyo and Aichi remain as possible candidates, but with time running out, it would be a leap of faith for them to officially put their hands up in the current phase of IRs. Going forward, it will be interesting to track the actions of Yokohama and Nagasaki. While Osaka and Wakayama have for better or for worse already started their RFP procedure to mixed results, Yokohama and Nagasaki still have the flexibility to adjust their schedules and communicate more with potential RFP participants. Nagasaki, the rare candidate with clear local support as the majority, postponed their RFP from spring to late summer or autumn of this year, and they have used this additional time to gather regional support of the 9 nearby governors and multiple regional economic leaders. For Yokohama, there is a strange situation in which the vocal public are clearly against the IR initiative, but the fact remains that the city and prefectural council members are in favor. Their major concerns are the potential recall of Mayor Fumiko Hayashi due to her handling of the IR initiative and the likelihood of an anti-IR mayor winning the next election that conveniently takes place next Autumn, right after the July 2021 national submission deadline. Tokyo, while always the most interesting site, is heavily restricted by their upcoming gubernatorial election, uncertainty with the Olympics and the aforementioned July 2021 submission deadline. As long as the central government does not change their timeline, all the local governments can not afford to waste time, regardless of where they stand in the procedure.
We are at a stalemate now where no local government wants to be the one to ask for a delay in the national timeline, while the central government will not budge without a request from local governments. Perhaps that could all change if there is no final version of the Basic Policy by July 26th, but that may also not make a difference. The entire procedure up to now has been done on assumptions that policy drafts will not be significantly altered, and if wholesale changes or clarity on taxes and regulation are not going to be in the final Basic Policy anyways, it could be that the process just rolls forward.
Osaka Governor Hirofumi Yoshimura recently stated that it is likely that the deadline for their sole IR partner candidate, MGM and Orix Corporation, to submit their proposal will be pushed back up to 6 months, meaning the timeline in Osaka is also at the limits if the national submission schedule does not change. Osaka Mayor Ichiro Matsui also stated that he sees the Osaka IR opening in 2027 or 2028, already 3 years later than the simultaneous opening with the World Expo 2025 that had still been the target as recently as last year. Considering the current state of the world, the state of their only operator candidate in MGM, the massive infrastructural development needs for their Yumeshima Island site and the clear need to develop and invest in phases, these statements have a very sound logic. In a time of global unpredictability and local uncertainty surrounding IRs, that is all one can really ask for.
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