Japan Casino License Renewal Process Pesky For Operators, But GGR Could Be Higher Than Expected, Says Fitch

Posted on: September 19, 2019, 10:58h. 

Last updated on: September 19, 2019, 12:04h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Japanese authorities have not even awarded gaming licenses yet, but some market observers are already fretting about the renewal process for those yet-to-be-assigned permits. Regulators there could force operators to renew their licenses every 10 years, which could present hurdles in procuring financing, according to Fitch Ratings.

Operators’ ability to obtain capital is important regardless of the market in which those companies are planning gaming properties, but could prove crucial in Japan, where Fitch forecasts costs to build integrated resorts could soar above prior estimates.

Before a recent trip to the Land of the Rising Sun, Fitch analysts estimated a Japanese integrated resort would require an investment of at least $10 billion. But “after accounting for supporting infrastructure investment and meeting the stipulated amenities, such as the cultural requirements,” the ratings agency sees costs in the $10 billion to $15 billion range.

That’s well above the $8 billion to $9 billion Wynn Resorts recently said it would spend to build the world’s largest casino in Japan.

Pretty much everyone we talked to agreed that the 10-year license renewal presents the biggest obstacle to securing bank financing,” said Fitch in a note published yesterday. “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.”

An every 10 years renewal process doesn’t jibe with what operators encounter in other Asian markets. For example, Las Vegas Sands opened its first Macau casino in mid-2004, and won’t have to renew any of its licenses there until 2022.

Good News, Bad News

“Other renewal/political issues include a re-approval procedure imposed by the federal government every 10 years, and the local government’s option to close operations if they are deemed not in the locality’s best interest,” according to Fitch.

Analysts from the research firm said they interviewed local sources and that there will be “workarounds” for these concerns, including local governments indemnifying against a closure that is not the fault of a gaming company.

The ratings agency did not comment on specific locations in Japan. Currently, Osaka, Tokyo and Yokohama are widely viewed as the frontrunners to eventually become homes to the country’s first gaming properties.

That $10 billion projection is higher than some other estimates, and would keep Japan in the third spot among global gaming markets, trailing only Macau and Nevada.

Inspiration

While Macau would appear to be the Asian market Japan would draw inspiration from for its upcoming integrated resort effort, Singapore may be the more relevant comparison. In fact, Fitch uses the Marina Bay Sands in Singapore as the baseline for its $10 billion GGR estimate for Japan.

“The $10 billion-plus forecast is a rough estimate and assumes two large-scale resorts and one remote regional resort,” said the ratings agency. “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).”

Japanese regulators have previously said they’d like to follow a “Singapore model,” prompting some to speculate Genting Singapore Ltd. and Las Vegas Sands, the operators of the two Singapore gaming properties, will be among the three initial license winners in Japan.