Tokyo is likely to miss out on a Japanese casino licence due partly to the “unclear stance” of the local government, says a report from investor services firm Morningstar Inc. Urban-centre permits are likely to go instead to the port city of Osaka and to Yokohama, south of Tokyo, via respective successful bids from MGM Resorts International and Las Vegas Sands Corp, added the report.
The 100-page document adds that regional licences are likely to go to Nagasaki, a prefecture on the island of Kyushu, and the northern Japanese island of Hokkaido, with all four projects announced by 2019, and in likelihood developed by 2024.
“We think Tokyo is less likely to receive a licence because of an unclear government stance, the [2020 Summer] Olympics, and site location challenges, as well as the city not needing an economic boost relative to Osaka,” said Morningstar analysts Dan Wasiolek, Chelsey Tam and Daniel Ragonese in the report.
Yuriko Koike, the governor of Tokyo, said in an interview last year that she was in favour of a casino project for the capital. But in May this year, Bloomberg News observed that Ms Koike “hasn’t made casinos a priority”.
Her political party, Tomin First, gained seats in Sunday’s election for the Tokyo Metropolitan Assembly, while the national governing group – the Liberal Democratic Party (LDP), a proponent of casinos – lost nearly two-thirds of its representation.
Brokerage Union Gaming Securities Asia Ltd said in a Wednesday note that the LDP’s losses in the Tokyo poll could make it harder for Prime Minister Shinzo Abe to build the consensus necessary to pass in parliament the IR (Integrated Resorts) Implementation Bill.
Morningstar’s report – written prior to the Tokyo poll result – said it expected Osaka to be a winner in the casino race, “due to strong government support, an already-identified location close to airports and businesses, and the need to improve its local economy and build convention space, which we believe will be important criteria in the eyes of the government”.
The institution added Yokohama was likely to receive the other urban licence, given its population density and “high per capita income, the advantage of having convention and exhibition facilities near Tokyo, and the fact that it already has a location identified for an integrated resort”.
Front runner operators
Morningstar further noted: “We expect operators to garner 33 percent ownership in the two urban integrated resorts, as Japanese corporates will likely form consortia to participate in the IR project, and the government will require local partnerships to ensure proper integration of native culture.”
Las Vegas Sands was the existing casino operator “most likely to win” an urban licence “due to its strong resort experience in Singapore, Las Vegas, and Macau,” said the institution.
“Additionally, we see its partnership with the Macau government and strong balance sheet as positive attributes,” stated Morningstar, adding it was working on economic modelling that foresaw Las Vegas Sands opening a Yokohama resort in 2024.
MGM Resorts was “positioned right behind” Las Vegas Sands to win the other urban gaming licence, which Morningstar thinks will be for Osaka, “due to its [MGM Resorts'] strong resort experience in Las Vegas, as well as a healthy track record of dealing with partners”.
Other operators were “less likely” to receive one of the urban licences, due to factors including “relatively weaker non-gaming resort experience, lack of presence in Singapore and/or the United States; questionable practices, or portfolio restructuring,” suggested Morningstar.
Of the regional frontrunners, the institution regarded Nagasaki as having an advantage, “given government support, its proximity to [South] Korea, and availability of land, while … Hokkaido’s popularity as a winter destination will be viewed as a positive”.
In a December report, credit rating firm Fitch Ratings Inc said U.S.-based gaming operators were well positioned in terms of balance sheet to deal with the scale of investment that might be required to build a casino resort in Japan.
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Analyst at Morningstar Asia