AGB reached out to a number of international IR operators to seek their reactions to the leaked government proposals. Since these operators are competing for what is likely to be only a handful of licenses, anonymity was offered to encourage them to give their frank assessments of the proposed regulations.
One international operator responded as follows: “The government is considering a rate of 30 percent applied to Gross Gaming Revenues, which may be reasonable in jurisdictions where investment levels are low. However, a tax rate this high, combined with a possible restriction on casino size, will not permit the levels of investment that government itself has suggested. Under this scenario, an investment of up to [US$9 billion] would simply not be possible.”
A second IR operator also provided a negative assessment, highlighting the proposal for an escalating tax rate: “Casino tax is not personal income tax. To realistically generate higher revenue, more investment needs to be injected. Instituting an escalating tax rate dis-incentivizes an operator from investing further because of the declining margins from the higher tax rates.”
A third operator did not highlight specific issues, but provided an overall statement of concern: "We can only hope that the legislative framework allows developers like ourselves the pathway to achieve a sufficient return on the capital we want to invest in Japan."
While such negative and worried views of the proposals appear to be predominant among the international IR operators, they are not universal. One operator observed that, “the tax rates, though higher than expected, are a reasonable way to keep some of the economic benefits of IRs in the country and are not excessive.”
If the tax rate proposals came in significantly higher than most observers expected, the proposed individual casino entry fees for Japan residents (but not foreign tourists) to casinos were considerably lower.
Reports last year suggested that entry fees would be set quite high, perhaps in the range of US$40 to US$70. However, it appears that government bureaucrats absorbed the point that there is no scientific evidence suggesting that high casino entry fees are useful in combatting problem gambling. Hence, the new proposal is for a US$19 or perhaps a US$27 casino entry fee.
This proposal seems to have satisfied nobody in the Japanese political world. Strong advocates of IRs are demanding lower entry fees or, better yet, to scrap them altogether. Meanwhile, casino opponents such as the Japan Communist Party denounced the lower-than-expected fee as a mere pittance.
Significantly, the US$19 casino entry fee plan faced considerable criticism from within the Komeito party IR project team, which felt it was too low. One member was quoted as remarking, “Should it really be less than the fee collected in Singapore?” Komeito is a ruling coalition party.
The government proposals for casino floor size restrictions were in line with what had been suggested last year: a maximum of 3 percent of the total IR area and a ceiling of 15,000 square meters.
For months, operators and analysts have been providing different assessments about whether or not these floor size restrictions also present a major obstacle to substantial investment.
Source: GMB/ AG Brief