The chairman of pachinko machine maker and casino investor Sega Sammy Holdings Inc has outlined the group’s ambitions to enter the casino resort sector in its home market of Japan.
“We will develop the resort business, which is at the prior investment stage, into a driver of long-term growth. We expect integrated resorts in Japan to become a mainstay of this business segment,” stated Hajime Satomi, chairman and chief executive, in a business update titled “Integrated Report 2017”.
Casino industry consultancy Global Market Advisors LLC outlined in a memo following Japan’s snap parliamentary election held on October 22, a possible timetable for the legislative process still required in order to realise a casino industry in that country.
It included a bill to address problem gambling, perhaps as early as this year during an extraordinary session of parliament possibly commencing in early November. That legislation would be followed in likelihood next year by the Integrated Resorts (IR) Implementation Bill, said GMA. The latter piece of legislation would provide a framework for the industry.
“If an IR Implementation Bill is enacted, the government will advance to the stage of area and operator selection, who will then be able to prepare concrete plans,” stated Sega Sammy’s Mr Satomi.
Referring first to a Japanese non-gaming resort Sega Sammy currently runs in Miyazaki Prefecture on Kyushu Island in the south of the country, the chairman added: “The group is accumulating expertise in the development and administration of integrated resorts through Phoenix Seagaia Resort and a joint venture in South Korea with the Paradise Group [sic].”
Paradise City lessons
The update reiterated that Sega Sammy has a 45-percent stake in Paradise City (pictured), a foreigner-only casino resort at Incheon in South Korea, which opened in April. The resort’s majority promoter is South Korean casino operator Paradise Co Ltd. The partners operate the property via Paradise Sega Sammy Co Ltd. The Sega Sammy group also sells casino games via a unit called Sega Sammy Creation Inc.
Mr Satomi said his firm would “step up marketing efforts and add Japanese hospitality” at Paradise City. “We aim to attract customers from Japan because they can visit South Korea with comparative ease thanks to its proximity,” he noted.
“The addition of entertainment and commercial facilities after the second stage of phase one development will be completed in 2018, making Paradise City a truly integrated resort,” stated the Sega Sammy chairman.
“We will ensure the success of Paradise City and then capitalise on our track record and accumulated expertise to realise participation in the integrated resort business in Japan. I view advancement of the integrated resort business as an important personal mission and will work tirelessly to achieve it,” further noted Mr Satomi.
The company stated in the update that it would “flexibly relocate personnel to other fields, such as the integrated resort business in South Korea, in order to accumulate insight pertaining to new businesses.”
The total investment amount for the 330,000-square-metre (3.58 million-sq-foot) Paradise City site stands at about KRW1.3 trillion (US$1.16 billion), according to previous statements by the promoters. Several suitors for a Japan casino licence have said they expect capital costs to be as high as US$10 billion per resort.
Sega Sammy said that in anticipation of entering new segments, and in response to what it termed “structural changes in the entertainment industry” it had with effect from 2015 embarked on a five-year programme – referred to as “Road to 2020” – to bolster its profitability.
Sega Sammy’s Road to 2020 initiative includes a target of achieving in fiscal 2020 an operating margin of at least 15 percent, and a return on assets – calculated by dividing profit attributable to the company owners by total assets of the company – amounting to 5 percent.
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Analyst at Roth Capital Partners