Japan has decided to open its arms to casinos, to a certain degree, but the decision hasn’t come easily. In order to best gauge how the industry will be managed over the long term, the country is putting together strict regulations for its integrated resorts (IR) and these controls are beginning to show their impact. Particularly where financing is concerned, these regulations and restrictions might be problematic and could ultimately cause delays in IR rollouts. This has already started to become an issue and some industry insiders believe that it could cause Osaka’s plans for a 2024 launch to be delayed passed even 2025.
Japan wants all the IRs to be of certain sizes, with limits on casino floor spaces compared to overall square footage and a certain number of hotel rooms. There is also the subject of fees and taxes – the tax rate is 30% – that are going to eat into the venue’s bottom line. As a result, securing financing from traditional banks or financial institutions may prove cumbersome if not virtually impossible.
According to Delta State Holdings Managing Partner David Bonnet, “Due to the huge disconnect between what the Japanese government will write into legislation and what the Japan megabanks are saying they require in order to underwrite a project financing loan, there will be difficulty in obtaining traditional integrated resort mortgage loan financing from local lenders. That being said it creates a huge opportunity for global investment banks to raise senior bonds on a global level. There are significant opportunities for a number of investment groups but the structure needs to be different from what we are discussing today.”
Another industry insider, Kentaro Maruto of KPMG Tokyo, points out that the bids submitted by casino companies to the national government will most likely need to be accompanied by a written letter of commitment from a financial institution. However, banks are going to have a difficult time providing any type of commitment for an endeavor that has no foundation in the country.
Provided Osaka could get passed this and help a casino operator secure all of the necessary paperwork, there is still another issue. There are rumors that the Casino Control Commission will not be ready to start its operations has initially planned. Initially expected to be established in June, it now looks like it won’t be ready until next February.
If that’s the case, the selection process for host cities wouldn’t even begin until the latter half of next year. The delay resulted in Praveen Choudhary of Morgan Stanley to assert, “Osaka will not open its casino before the World Expo. It is impossible to open before 2025. The reason is not that Osaka isn’t doing everything it can, but there are several regulatory processes that need to be signed before they can even start, so time is very much against them.”