Reinventing the casino
The casino industry has moved from James Bond to embrace entertainment for all the family and it could be coming to Japan. Galaxy Entertainment has some ideas on that.
If Hollywood movies reflect the evolving image of casinos — think Ian Fleming’s suave James Bond to Martin Scorsese’s Las Vegas mobsters — the next image iteration is wave pools, Michelin-starred restaurants, retail therapy and plenty for the kids.
The casino business has been reinventing itself around entertainment for all the family and the next bet on the market to take that model to a whole new level is Japan.
Tokyo passed legislation last year in the first step to legalizing casinos and the prize is estimated at about US$25 billion in annual revenue to be sliced between companies that win licenses. Though it could be worth a whole lot more.
Michael Mecca has had a front row seat to how the casino industry has evolved during his more than 35 years in the business, from the US to Australia and now Macau as president of the Galaxy Entertainment Group.
Nowadays, you can be in a casino resort and never see the casino, he said during a recent stopover in Tokyo. “That’s very very different from the days of old where you were prompted to drag your suitcase through the middle of the casino to get in the lift to go to your room.”
Mecca pointed to the company’s flagship property, Galaxy Macau, as an example of the industry’s drive to become more family-friendly.
The massive complex contains six hotels, from Ritz-Carlton to Japan’s Okura, 100 restaurants, 200 retail stores, and a huge resort deck that includes a wave-pool and waterslides.
Still, Japan’s public remain wary of the government’s push to legalize casinos amid fears about gambling addictions and organized crime.
A poll by the Yomiuri Shimbun, Japan’s biggest daily newspaper, indicated two-thirds of respondents opposed the first legislation that passed in parliament in December to allow what are called integrated resorts wrapped around a casino.
Mecca says gaming operators are well aware of such concerns though he believes it’s based on an outdated view of the industry.
“We understand the sentiment and feel it’s our responsibility to assist the government in going into the community and assisting the citizens in understanding it is not about Martin Scorsese movies,” he said during an interview in Tokyo. “It is a very different business.”
Japan Prime Minister Shinzo Abe is a supporter and has argued the development of integrated resorts will attract foreign tourists and provide jobs and revenue to struggling regional economies. The government is now working on a second bill to flesh out the details of how the industry would function in Japan.
Some of the biggest global gaming companies say they are ready to gamble big money on Japan, which Edward Tracy, the CEO of Hard Rock Japan, said in a recent interview was “a coveted prize” in the industry.
The heads of Las Vegas Sands, Wynn Asia, MGM Resorts Chairman and Melco Crown Entertainment attended an industry forum in Tokyo in February, while Galaxy officials have been visiting Japan regularly over the past two and a half years to build relationships on expectations the legislation would pass.
Japan’s gaming market could be worth US$25 billion in gross revenue a year, according to the research firm CLSA.
This forecast assumes there would be two urban integrated resorts in Tokyo and Osaka, to open by 2023 and together earning US$10 billion annually.
This would be followed by 10 smaller ones in regional areas to be completed from the mid-2020s onwards, with each averaging US$1.5 billion in revenue.
“Japan’s wealthy and large population could provide sufficient gaming demand to fill the 12 [integrated resorts] to be built in the country,” CLSA said in a report titled Samurai Showdown. “As of 2015, Japan is one of the largest economies in the region, generating US$4.1 trillion GDP.”
The report also identified “immense unmet gaming demand” in North Asia, which would likely be a target market for the Japanese developments, given its closeness to Korea and major cities in northeast China, including Shanghai and Beijing.
“Although Macau is growing bigger, its target market remains southern China, with almost 60% of visitation to Macau coming from neighboring areas like Guangdong, Fujian, Hong Kong and Taiwan.
“A lot of the Chinese residing in the northern provinces like Shandong, Liaoning and Heilongjiang are still not traveling to Macau en masse,” according to CLSA.
Some of the obstacles and risks to the projects include higher construction costs as a result of resort work coinciding with other projects for the Tokyo 2020 Olympics. Another is political tension with China and working out a visa policy, the report said.
If you build it…
So what might Japan’s first integrated resorts look like? Galaxy’s Mecca explained the government was looking for a resort that would be iconic and spectacular enough to attract foreign visitors.
But this would not be a case of replicating a resort that had been successful elsewhere, he said, so local designers and architects would be engaged to draw up the plans.
The resort would also host flagship entertainment and sporting events – possibly even sumo – and offer space to existing local businesses to set up shop within the premises, he said.
At the same time, visitors would be encouraged to visit local areas to sample the local food and sights, so the tourism benefits spill over to the broader community.
“We believe that the integrated resort must not only be diverse and integrated amongst all of the amenities of the resort, but by definition an integrated resort should integrate with the city where we do business as well,” Mecca said. “We work together as a community.”
Back to Bond
Galaxy is hoping it has an edge over its competitors, partly as a result of its partnership with Monte-Carlo Société des Bains de Mer (SBM), the owner of major resort and casino properties in Monaco. SBM’s holdings include the James Bond haunt, the Monte Carlo Casino.
Monaco is synonymous with “authentic European style and nobility, haute couture and entertainment, hospitality and luxury,” Mecca said, adding that Galaxy had taken a 5% stake in SBM. Together they could offer European sophistication combined with “Asian heart,” he said.
The support of Prince Albert II of Monaco is another factor that may carry weight in Japan, where the imperial family is held in high esteem. Galaxy also sees its decade-long relationship with Japanese hotel chain Okura “growing in the future.”
What happens next is in a state of flux. The government is working on a second bill that will spell out key details, including how operators will be selected, how they work with local partners, and what responsible gambling controls are needed.
Despite the gaming industry’s attempts to portray a more sophisticated image, anti-gambling advocates worry about the social and financial impact of bringing casinos to Japan.
The existing market for pachinko, the pinball-style game for which monetary rewards are available, is worth about US$27 billion annually, the CLSA report said.
This month, Japan’s government released the results of a survey showing 2.7% of respondents had experienced gambling addiction.
Yoichi Torihata, an economics professor at Shizuoka University’s Faculty of Social Sciences and Humanities, fears casinos will add to the problem.
He said operators would have to make more money to recover the huge investment needed to build the integrated resorts, and he dismissed the family-friendly argument.
“It means that the integrated resort casino will make the casino more familiar and induce ordinary people who have not interested in gambling to experience gambling … and increase the danger to become problem gambler,” Torihata said in an email response to questions.
Mecca said his company believed in identifying people who had gambling problems and would support measures to be drafted by the government.
“We believe we have one of the most comprehensive programs of responsible gaming and from a financial point of view monitoring every aspect of financial transactions in our gaming operations,” he said.
“We again offer to the government our assistance in helping them formulate those measures as well.”