There are still a lot of unknowns surrounding the prospects of Japan’s integrated resort (IR) success. It isn’t yet clear where the first casinos will be allowed to be set up and what final rules will be established to oversee the space. The biggest question is how much money the industry will take in, and analysts with Fitch Ratings think they have a good idea. They believe that it’s going to be much higher than previously expected, but caution that it could come at a cost.
Previously, some analysts predicted that Japan’s gross gaming revenue (GGR) would hover around $7-$8 billion a year. In a report released yesterday, Fitch thinks the amount could be at least $10 billion, which doesn’t include additional revenue brought in from ancillary services and amenities that the resorts could offer. Analysts with the firm explain, “The $10 billion-plus forecast is a rough estimate and assumes two large-scale resorts and one remote regional resort. We assume about 6,000 slots and 700 tables at each at the major resorts, with win/unit/day similar to that of Marina Bay Sands ($792 for slots and $9,563 for tables in 2018).”
Reaching this level won’t come easy, though. Estimates have put initial investment costs at around $10 billion. However, Fitch analysts recently took a road trip to Japan and were forced to up the cost after evaluating the situation first hand. Now, after “accounting for supporting infrastructure investment and meeting the stipulated amenities, such as the cultural requirements,” $10 billion is at the lower end of the spectrum and it wouldn’t be unrealistic to consider metropolitan venues carrying a price tag of $15 billion.
The firm continues, “Pretty much everyone we talked to agreed that the 10-year license renewal presents the biggest obstacle to securing bank financing. Japan’s gaming law presents several facets of risk, including political risk; notably, the local government (including the legislative branch) must actively seek renewal every 10 years.”
That renewal issue is another stumbling block that will have to be dealt with in a sensitive manner. Fitch believes that a casino operator looking for financial assistance from banks to cover the initial cost of getting started in Japan will have difficulty finding the support needed to cover the ramp-up expenses.
Still, there is a lot of optimism about Japan’s IR future and Fitch is optimistic that, with the right infrastructure upgrades, Japan could see a “great opportunity” with an established IR industry.
