Integrated resorts: Japan’s axis of future growth
This is the second in a series of contribution pieces to highlight the opportunities and challenges of integrated resorts and help Korea to better cope with heated competition among Asian countries to attract more international tourists and revitalize the economy. – ED.
Japan will open its first casino in Osaka in the fall of 2030. Japan, the sole Group of Seven member country that has no casinos, has given the go-ahead to the 24-hour operation of an open casino that doesn’t limit the admission of its nationals. It’s the result of 35 years of elaborate public debate.
In 1996, citizens and scholars who had thought that casinos must be nurtured as a healthy amusement industry founded a casino society. Around that time, some local governments emerged, claiming the introduction of casinos was needed for increased tax revenues and regional revitalization.
The “Odaiba casino plan” the then Tokyo governor mentioned as an urban tourism resource in 2001 ignited a campaign for casino legalization. Both governing and opposition parties also moved to enact a law designating casinos as a new amusement industry.
The casino in Osaka is named “Osaka IR.” Casinos were legalized through a law promulgated in 2018, popularly called the “IR (Integrated Resort) Act.” At first, it was a casino law, but after accepting Singapore’s IR model, it was transformed into the casino integrated resort act, IR act including casinos, IR maintenance act and then IR Act.
The purpose of the IR Act is to “utilize the proceeds from the casino business” and “realize the attractive stay-at-home tourism that is internationally competitive.” As most of the proceeds come from the casino business, it is stipulated that strict casino regulations are necessary to attain the purpose of the law.
The Japanese government established the IR Promotion Headquarters, a unit designed to promote countermeasures against gambling addiction and the Casino Regulatory Commission, believing that the casino business must be operated soundly under its proper monitoring and management.
The IR Act stipulates the world’s highest level of regulation. It was the declaration that Japan will build a new “Japanese-style IR” by benchmarking regulations concerning crime prevention, security maintenance, sound development of youth and gambling addiction conducted by leading countries of casinos.
Pre-entry regulations include up to three integrated resorts, casino facilities having less than 3 percent of the resort's total floor area, regulations on ads and a ban on junkets and complimentary items and services. Regulations after entering the casino include three visits for seven days (10 visits for 28 days), identification by ID card, admission fee (6,000 yen, $37, or for a single visit), restriction of admission when requested by family members, prohibition of credit card use when purchasing chips and ban on ATM installation.
The core of those regulations is how to deal with gambling addiction. The financial resources for these measures will come from admission fees and casino taxes (30 percent), which will also be used for tourism promotion, welfare of residents, crime prevention and anti-prostitution measures.
The direction of the IR Act, which envisions creation and operation by the private sector, is different from that of the gambling industry, which envisions creation and operation by the public sector. This means that for the growth and development of the casino industry, casinos must be built and operated by private operators under the management and supervision of the central and local governments.
An aerial view of an integrated resort planned for Yumeshima island in Osaka Bay / Courtesy of Yang Hyung-eun
The central government oversees local governments and resort operators as the responsible entity of the IR Act, and local governments cooperate with the operators and supervise them, while the operators play the role of promoting projects effectively. Profits are divided 50-50 with the central and local governments with responsibilities assigned.
The draft of the IR Act was authored by the Japan Academy of Integrated Resort and Gaming Studies. It publicized the economic effects of casinos in lectures for local governments and meetings with members of the ruling and opposition parties. To persuade the administration claiming that it would be difficult to establish special provisions under the criminal law, some concessions were given to non-partisan lawmakers.
Later, a parliamentary federation was formed to promote international tourism and the prime minister and the deputy prime minister were named as advisers. Citizens’ enthusiasm has created a new amusement industry.
In 2012, under then-Japanese Prime Minister Shinzo Abe's Abenomics, Japan regarded integrated resorts as an “axis of future growth” and focused on legalizing casinos as part of a national growth strategy. Around that time, the Osaka Prefecture governor’s remarks on “attracting a casino to Osaka” after his inspection of Singapore’s integrated resorts reignited the local governments’ casino campaign.
Non-partisan lawmakers pushed legislation in two stages unprecedentedly in the world. Stating its intention to enact the IR Act, the Diet asked the administration to make a decision after scrutinizing its legality. It was the result of an elaborate approach combining parliamentary legislation and government legislation in consideration of the characteristics of casinos.
As the IR Act passed in 2018, the Ministry of Land, Infrastructure, Transport and Tourism set its 2030 target of visitors to Japan at 60 million. The ministry asked the Japan Tourism Agency, its affiliated organization, to launch the department of international tourism to support “Japanese-style IR.” Among the local governments, Yokohama, Osaka, Wakayama Prefecture and Nagasaki Prefecture prepared their applications, and some of the world’s top-class casino companies participated.
The size of Japan’s gambling industry amounts to 8.911 trillion yen ($59.4 billion based on 150:1 conversion). If the sum of 14.6 trillion yen ($97.3 billion) of highly speculative Pachinko, which is classified as an amusement industry, is added, the total would amount to 23.511 trillion yen ($156.7 billion).
Japan's Prime Minister Fumio Kishida speaks during a press conference at the prime minister's office in Tokyo, June 21. Reuters-Yonhap
U.S. casino company Sands Group planned an investment of $10 billion from its judgment that profitability equivalent to that of Macau is possible. But it suddenly decided to withdraw.
Sands cited the provisions of the IR Act as the reason. As the IR project period is 35 years until 2058 (30 years if renewed), the validity period of an integrated resort's renewable license is five years and the validity period of a renewable casino license is three years. On top of that, there were no pre-set standards, given that Japan says it will judge after seeing the return of profits to the region at the time of license renewal. The unexpected competitive environment also played a part. When five years have passed since the first IR recognition, the law is supposed to be reviewed and whether addition is possible or not will be decided two years later.
Meanwhile, as regional opposition mounted, Yokohama and Wakayama dropped out. The remaining two regions applied, citing economic effects despite public opposition. The selection committee of the IR Promotion Headquarters first approved Osaka in April 2023, but Nagasaki was disqualified in December because of the uncertain funding source of the resort operator.
America’s MGM Resorts International participated in the Osaka IR project, highly assessing the potential of the city, which is rich in tourist attractions. Osaka’s will to become an amusement city with a new tourism resource was also strong. Orix Group and 22 small and medium-sized companies in the region formed a consortium to establish Osaka IR KK in 2022.
The Osaka resort will be built in Yumeshima, a landfill in Osaka Bay, with an investment of about 1.27 trillion yen ($846 billion). Its economic effects are estimated to be 19.87 million annual visitors, including 6.29 million foreigners (30 percent), 520 billion yen ($3.5 billion) in annual sales and 93,000 employees.
A colorful red sunset in Osaka is seen over sea the from the top of a skydeck skyscraper tower. / gettyimagesbank
Unexpectedly, Osaka IR received low marks. Regional linkage, facility design and tourism effects received failing grades. The selection committee pointed out the lack of attractive facilities unique to Japan and anti-gambling addiction measures, noting such problems as an increase of overseas tourists and the expansion of visitors from specific countries and calling for the increase of non-gaming income and good relations with the region.
Osaka's goal is to build the “world’s best Japanese-style IR.” As this will become an important variable in the review of the IR Act and the increase in the number of integrated resorts in the future, the central government will also actively support it. Only when integrated resorts are opened in large cities in metropolitan areas such as Tokyo, economic effects will be doubled, and it will be in line with the national growth strategy.
Just six years later, East Asia’s largest “Japanese-style IR” will come into being. It will pose a big threat to Korea’s casinos with a 60-year history. This was already predicted from the early 2000s. The Korean government focused on regulation rather than promotion for the future. It’s difficult to find a solution with the image of social evils.
One can find a hint from Japan’s casino legalization process. Japan, which had been avoiding change, made an important choice after moving into the 21st century. The vision and philosophy of a national leader turned the casino into the image of an integrated resort. The casino is recognized as the “axis of future growth” while strict regulations are enforced. It is managed separately within the framework of the integrated resort industry, rather than the gambling industry.
Even after the law is enacted, regular seminars are held for citizens to help maximize the image of integrated resorts. In the meantime, a gambling addiction awareness week has been designated as part of pan-national activities in which local governments, companies and schools across the country participate simultaneously.
The innovation of the Korean casino industry begins with a shift to the integrated resort industry policy in terms of future growth. Public perceptions should be altered first, and policymakers and the relevant industry should reflect on themselves. A “casino white paper” is needed to prevent the same mistakes from occurring again.
For the sake of a “Korean-style IR,” a civic meeting of intellectuals should carry out a comprehensive review. At least, it’s necessary to establish an integrated resort promotion headquarters, tourism agency and casino regulatory commission. Now is the time for a future vision and philosophy for the national leader for the Korean casino industry.
The writer, Ph.D., is a researcher of the Institute of Amusement Industry Studies at Osaka University of Commerce.