Casino Legal Land-Based From the top: Japan's new zaibatsu? December 13, 2019 By Tim Poole Tim Poole examines US bids to land an integrated resort license in Japan, as the race to build a casino in Osaka in particular begins to capture the imagination. While the legalization of sports betting across the US has been gaming’s main talking point since the overturning of PASPA, there can be no doubting the biggest talking point of gaming’s future: Japan. As the bidding intensifies for the country’s three available integrated resort licenses, all eyes are currently on Osaka, where the race is said to be down to a trio of candidates at the time of writing. MGM Resorts International, which may well hold pole position, faces competition from Galaxy Entertainment Group and Genting Singapore. Wynn Resorts was also rumoured to harbour an interest, with Wynn executives previously suggesting Osaka is the operator’s preferred location. But the firm had generally remained non-committal when singling a region out and, in October, confirmed it will concentrate on the Kanto region, which includes Tokyo. It is due to the interest of MGM, Wynn and more, of course, that integrated resorts are no longer just a hot topic in Japan itself, but rather a key focus for US casinos. Coming as no surprise, Caesars Entertainment announced in September it will not be pursuing a Japanese license: that much was made clear when Eldorado Resorts announced its plans to acquire it for $17.3bn and emphasized a focus on domestic gaming. Las Vegas Sands however, confirmed it will switch focus away from Osaka and firm up its bids in Tokyo and Yokohama. Sands CEO Sheldon Adelson explained: "Our company will target new development opportunities that allow us to maintain our industry-leading returns on invested capital – and we think an investment in Tokyo or Yokohama gives us the best opportunity to do exactly that.” But it is MGM which looks like representing the US’ biggest Japanese interest. MGM President and COO Bill Hornbuckle told Gaming America in July: "Japan is the largest untapped market in the world that we think can be regulated properly and a place we might be able to get to. There will be three coveted licenses. Each one of them will have an audience of about 30 million if they are spread out correctly. So we’re all in. We’ve taken an Osaka-first position." MGM Chairman and CEO Jim Murren was equally unequivocal about the operator going “all in” for Japan. Murren has travelled to the country 30 times in the last three years. An architecture and urban studies graduate, Murren also told Gaming America he is keen to create a “uniquely Japanese proposition.” The prize on offer in Osaka is an architect’s dream. As things stand, the artificial island of Yumeshima could play host to Japan’s first world-class resort, whoever ends up winning the contract. A 143.3 hectare area (1.4 million metres) previously earmarked for industrial use, the Osaka City Planning Council has now approved Yumeshima for commercial ventures. Transformed into a casino resort and tourist destination, the island boasts the capability to become one of the world’s finest gaming venues. Looking at images of Yumeshima now, the cranes and containers might just put you off. But there’s no doubting it’s a venue brimming with potential. Picture a lavish five-star architectural plan – for no less will surely win the tender in Osaka – and you have a location to fall in love with, altering both the landscape of the city itself and the gaming sector as a whole. Standing just off the coast, you can already imagine a player’s anticipation building before they even arrive at the casino doors. Entering through the bridge? Imagine a massive MGM, Galaxy or Genting gate greeting visitors. Entering via boat? Imagine the luxury ferry rides VIP departments could put on for tourists and high rollers. Historically, MGM, Sands and Wynn fit the perfect bill for the Japanese market. Japan’s business culture was once dominated by a handful of zaibatsu – large monopolies consisting of holding companies which owned both banking and industrial subsidiaries. In the 1920s, these organizations controlled a large share of Japan’s economy – and the fact Mitsui and Mitsubishi were two of the so-called “big four” shows you the size of these businesses, their names echoing through history. While the US’ biggest casino firms are not monopolies, their reputations will hold great respect and resonance in Japan, as will even non-US aspirants like Melco Resorts & Entertainment. With the three licenses on offer, one could argue Japan’s gaming market will essentially be run by a new form of (albeit non-Japanese) zaibatsu. Where there will be another nod to Japanese history is the American influence on the country post-World War II. The US worked hand-in-hand with Japan during its reconstruction, as the Japanese economy duly became the world’s third-biggest based on gross domestic product (as of 2018). Should MGM, Wynn, Sands or any other US operator win the right to develop an integrated resort, it will be a historical throwback to that era of American-Japanese co-operation. The only difference? Many suspect we will be discussing gaming’s biggest market, not its third-biggest. As for who should land the Osaka license, MGM has long since made its Osaka-first stance clear and would be a sure bet were the competition judged purely on revenue. Consolidated net revenue at MGM rose 13% year-on-year for Q2, to $3.2bn, taking its H1 total to $6.4bn. By comparison, Galaxy reported a 7% year-on-year fall in H1 net revenue, to HK$26.2bn (US$3.34bn) and Genting Singapore generated H1 revenue of $1.2bn, a 3% rise. Had Caesars remained in the running, its 6% year-on-year net revenue growth for H1, to $4.34bn, may have given it a shot when combined with Eldorado’s H1 revenue of $1.27bn (down 5%). It is however, only natural there are factors other than pure revenue involved, while it is also in the best interests of a fair and diligent process. In October, MGM Resorts Japan confirmed it will sponsor the tenth Yosakoi Osaka Tournament, part of the Dotonbori River Festival – Osaka’s largest. That month too, saw the second Expo/Growth IR/Yumeshima Development Symposium, where MGM and Galaxy delivered presentations on their IR proposals. Ed Bowers, MGM Resorts Japan CEO, said: “The first Japanese IR must be the best in the world. For that purpose, partnerships with the local area are important. For us, it’s only Osaka.” Satoshi Okabe, General Manager at Galaxy Entertainment Group Japan, instead chose to emphasize Galaxy’s appeal to Chinese patrons: “Our strength lies in our ability to attract Chinese customers. Currently half of the overseas visitors to Osaka are Chinese. This is where we can showcase our skill.” This, of course, is where capturing the imagination, with eye-catching projections of exactly what Yumeshima may look like, could make all the difference for prospective candidates. At a time when so many mature markets across the world are being curbed by regulatory pressure and an anti-gambling sentiment, US gaming is showing so much promise by comparison. Much like in recent history though, we must venture outside North America to truly recognize the US’ contribution to global gaming. Look no further than Japan, the most promising market of them all.