Japan’s integrated resorts don’t have to be a gamble
The Japanese government must soon provide details on proposed legalization of Singapore-style gaming complexes, which differ markedly from casinos
With six months remaining until the Japanese government is required to provide details on the implementation of its legislation on integrated resorts, there remains a need to clarify misconceptions on the differences between IR operations and traditional casinos and to offer areas of consideration for legislators and guidance for IR applicants.
The term “integrated resort” has been used somewhat carelessly and to a certain extent incorrectly. Because of certain negative perceptions regarding casino gaming, the conversation has sometimes trended toward focusing on potential negative consequences of casino gaming at the expense of highlighting tangible benefits of IR.
In fact, unlike a pure standalone casino, with an IR, gaming is just one of many diversions offered to customers.
To a large segment of the Japanese public, the term “integrated resort” is analogous to “casino”. And many consider casinos to be in the same category as pachinko gaming.
Pachinko is usually carried out in solitary buildings, with noisy and smoky playing areas primarily dominated by male patrons. Similar to gaming products in other countries, pachinko has its share of critics due to the addictive nature of the game.
Understandably, after experiencing pachinko, many Japanese are wary of additional gaming products in their country. However, while perhaps visibly similar, pachinko and the offerings of integrated resorts are different because of IRs’ diverse customer base and entertainment options.
The term “integrated resort” was first coined to describe the resort developments that would contain Singapore’s first legalized gaming products. In reality, while Las Vegas and Macau already contained mega-sized buildings with a wide variety of casino, hotel, food and beverage, and entertainment offerings, they were only described as IRs after Singapore had created this terminology.
To be fair, Singapore did this as a way of de-emphasizing the casino-gaming portion of the IR product offering in the public debate. That being said, it would be very difficult to argue with the success of Singapore’s two IRs, Marina Bay Sands and Resorts World Sentosa. Amazing public spaces were constructed, significant jobs were created, and Singapore has largely benefited from the introduction of IRs into its already world-class city.
While casino gaming was hotly debated prior to its introduction, Singapore has taken a proactive approach in addressing responsible gaming. Restrictive policies are in place mandating those with Singapore passports to pay a fee of S$100 (US$72) upon entry to gaming areas – a significant cover charge to say the least. As a result, as a percentage of gaming revenue, the customer base is primarily non-Singaporean.
Engaging in the public discourse, Japan’s lawmakers could propose a similar model, reducing domestic casino gaming and thereby assuaging their constituency’s concerns.
While addressing responsible gaming is an important focus area, IRs also significantly engage with their respective regions’ wide variety of stakeholders.
In Macau for example, IRs undertake a role in the community far different than what traditional enterprises would normally commit to. For instance, several IRs have undertaken the sponsorship and coordination of major annual sporting events. Companies such as SJM, Galaxy Entertainment and Sands China have historically supported the Macau Grand Prix, the Macau Marathon and the Venetian Macao Open golf tournament respectively.
These types of events bring worldwide recognition to Macau and help to promote the region’s tourism offerings, and Japanese legislators should take note of the synergies these events bring to their surrounding communities.
While sporting events are indeed popular, Macau’s six gaming operators are also involved in supporting the local economy and community through a number of initiatives including but not limited to the following:
- Creating long-term plans for employee advancement through training and development programs;
- Supporting learning opportunities with continuing education for existing employees and internship opportunities for university students;
- Working with small and medium-sized enterprises to stimulate the supplier segment of the local economy;
- Sourcing from sustainable suppliers and reducing the impact of the supplier value chain, thereby minimizing the carbon footprint;
- Charitable and community outreach programs and the donation of under-utilized convention spaces for community events;
- Commitments to improved responsible-gaming programs and having related mitigation procedures thoroughly vetted.
While Macau and Singaporean IR operators have struck a balance between resort operations and community involvement, it has been a long process in both understanding the market and working with the regulators.
Gaming operators take on a tremendous amount of risk and subject themselves to many requirements when undertaking IR projects. And because of the limited competitive nature of IR operations, these companies sometimes have an obligation to operate businesses or offer products that may not be profitable in the long term or sustainable without the casino. These include the following:
- Supporting cultural exchanges through concert exhibitions by world-renowned orchestras and musical groups offered at reduced prices to patrons;
- Catering to a wide variety of customer demographics by having a number of multinational employees fluent in many languages;
- Offering discounted food and beverages to local residents;
- Donations to educational institutions;
- Offering a sustained portfolio of diversified products.
These and other types of initiatives would never be possible without gaming as the economic engine driving the entire operation. Critics will argue there is a negative aspect to casinos, but while there are a few undesirable aspects surrounding casino operations, the benefits largely outweigh the costs, with more jobs, tourism and related economic growth.
With six months to go, one hopes that Japanese legislators are taking a measured approach to the proposed regulations. Taking a page from the IR playbook, they could implement practical measures that mollify their concerns.
For instance, while gaming areas already represent a minority of gross floor area because of the large scale of the IR complexes, the legislation could place limits on the maximum size of casino areas. Or as in the case of Macau, they could restrict the number of gaming tables and slot machines that can be in operation at any one time.
These and other types of policies could achieve both factions’ objectives while allowing the Japanese IR industry to grow in a healthy and sustained manner.
Options for potential Japanese IR applicants
Objectively, there are legitimate concerns surrounding IR operations, notably responsible gaming, entry age, and noise, and applicants might consider coordinating their approach in addressing these issues. Through the recommendations of already proven industry practices and by communicating these as a group, an “applicant lobby” could inform and educate legislators and committee members.
Sensible rules and regulations could be developed while reducing the risks associated with potential problem areas.
The implementation bill could be a proactive document that provides the government a level of comfort while not being overly draconian. Legislators would benefit by having a useful set of regulations while gaming operators should have more clarity on how best to develop a business model that caters to Japanese concerns.
The end product would be legislation that is ultimately beneficial and useful for all parties.
David Bonnet is a partner at Delta State Holdings providing corporate finance and gaming consulting to institutional investors. He spent more than 10 years in the gaming industry, including stints at Sands China and Galaxy Entertainment in Hong Kong and Macau. He can be contacted at firstname.lastname@example.org.