For months, the chief executive of the world's largest casino
operator by market value has insisted he's the person to beat in
Japan as it moves closer to legalizing casinos, with parliament
expected to start deliberating an initial bill in May.
Adelson's aggressive, go-it-alone strategy is, however, worrying
lawmakers and businessmen who want domestic firms to play a
significant role in any casino business. At the same time, rival
operators including MGM Resorts International <MGM.N> and Wynn
Resorts <WYNN.O> and local firms like slot machine maker Sega Sammy
Holdings <6460.T> are also gunning hard for the few licenses
expected to be up for grabs.
"I think this process will be so extraordinarily clear, transparent,
deliberate and organized that no amount of early pioneering will
carry the day," James Murren, chief executive of MGM Resorts, told
Reuters in an interview.
Adelson apparently disagrees.
In October, he told investors that anyone, including politicians,
would agree that Las Vegas Sands was in the pole position, according
to a transcript of an earnings call.
A month later, he gave a spirited presentation to Hiroyuki Hosoda, a
heavyweight in the ruling Liberal Democratic Party and head of an
intra-party group promoting the casino bill. Adelson went through
slide after slide, some with mock-ups of what his resort might look
like on Tokyo Bay, according to a person who knows what happened at
At the end of the pitch, Hosoda offered Adelson some advice, the
person said. Hosoda told Adelson that Tokyo had its own culture, and
just replicating the type of complex Las Vegas Sands built in
Singapore wouldn't necessarily work.
It was a gentle reminder that the government would have a say in
what was built and by whom. It also reflected general concerns about
Adelson's openness to local involvement, the person said.
Adelson did little to dispel these concerns at a media briefing in
Tokyo this week, saying he would prefer not to take on equity
partners. He also questioned the ability of the Japanese companies
interested in casinos to take on the scale of risk required for the
massive complex he wants to build.
"No one is talking about implementing foreign capital restrictions
but many lawmakers in the casino group want Japanese companies to
have the opportunity to invest. They want to make sure some money
stays in Japan," the person said.
Las Vegas Sands did not respond to a request for comment on that
meeting and did not make executives available for interviews. The
person who told Reuters about the meeting also declined to be
identified as they are not authorized to speak to the media.
Japan is widely viewed as a prize market for casino operators due to
its wealthy population and proximity to China, home to some of the
world's most prolific, and wealthiest, gamblers. Brokerage CLSA
estimates Japan could be the world's third biggest gambling market
after Macau and the United States, raking in revenues of at least
$40 billion annually and with many more years of growth before it
starts to mature.
After more than a decade of deliberations, the chances have never
been higher that Japan will move to allow casinos. If parliament
approves the initial bill, as expected, bureaucrats can then start
working on concrete laws that would be incorporated in a second bill
proponents aim to pass in 2015.
If the legislation is approved, Japan may see its first casino in
time for the 2020 Tokyo Olympics, which would attract more
big-spending Chinese gamblers and help boost an economy struggling
with deflation and sluggish growth.
The developments in Japan come as U.S. operators and Asian players
like Genting Bhd <GENT.KL>, Melco Crown Entertainment <6883.HK> and
Galaxy Entertainment Group <0027.HK> are setting up large-scale
integrated resorts across Asia to emulate the booming revenues
generated in Macau and Singapore.
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Adelson's success in building casino resorts in both locations gives
him an advantage in Japan, where lawmakers consider his
Singapore-based Marina Bay Sands — which combines a multi-floor
casino with a luxury hotel, convention space and high-end shopping
mall — as the benchmark.
Adelson is also banking on Sands' ample finances and its
competitor-dwarfing $66 billion market capitalization as
differentiating factors. "We can spend 10 billion dollars without
borrowing money. They can't," he said in Tokyo.
But capital is unlikely to be a major constraint for casino
operators given that banks will be eager to lend to such a promising
business, with the first round of licenses likely to be limited to
Tokyo and Osaka, said Aaron Fischer, a CLSA analyst. He said
political connections could also play an important role.
As the casino debate nears, all the big operators are calling on the
same list of parliamentary power brokers, local government officials
and business leaders in Tokyo, hoping to gain an edge.
Topping the list are Hisashi Hieda, chief executive of broadcaster
Fuji Media Holdings <4676.T> as well as senior executives at
property developer Mitsui Fudosan <8801.T> and builder Kajima Corp
<1812.T>. Those three companies are crucial because they have
already forged an alliance for the Odaiba district, the preferred
site for a casino development near Tokyo Bay.
Some of Sands' competitors have made it clear that they are willing
to jointly invest with domestic partners.
MGM's Murren said he was meeting with Japanese companies in various
sectors, hoping to form a consortium in which his company would like
to have a majority.
U.S. firm Caesars Entertainment Corp <CZR.O>, which has yet to set
up a casino in Asia, is also seeking a "strong consortium of local
partners" said William Shen, its vice president of Asia development.
Melco, which pledged $10 million for cultural projects in Japan in
December, is trying to distinguish itself from the pack by
incorporating Japanese culture and philosophy in its resort instead
of replicating the Las Vegas experience, the company said in an
email to Reuters.
The battle for Osaka, the commercial centre of western Japan, is
also heating up.
Masayuki Inoue, director general of the city's economic strategy
bureau, said a growing number of operators had visited his office in
recent months, including Las Vegas Sands President Michael Leven in
November and Murren last week.
Osaka is looking for an operator that will invest a large amount but
that will also help the city become a major tourist and convention
destination, Inoue said, adding that he'd like to see the winning
operator use some of the environmentally friendly technology
produced by local companies.
For foreign operators looking at Japan, addressing the needs of the
various domestic stakeholders could prove a major challenge, said
David Green, head of Macau-based Newpage Consulting which focuses on
the gaming industry.
"It is going to be a difficult entry for any foreign company," he
said. "How do you qualify your partners, their expectations? It is
going to be a real learning experience for these guys."
(Editing by Miral Fahmy)
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