Japan’s IRs to generate GGR of more than $10b

The rating agency Fitch says that the first round of integrated resorts (IRs) in Japan will generate annual GGR of US$10 billion.

Japan.- Fitch Ratings has released a new report on the upcoming casino industry in Japan. The agency says that integrated resorts (IRs) in Japan will generate annual gross gaming revenue (GGR) of around US$10 billion. Fitch also said that the ten-year licence renewal is an obstacle to securing bank financing.

The new estimate of US$10 billion is US$3 billion higher than the previous GGR estimations from Fitch. If Japan features one regional and two metropolitan IRs, Fitch is positive on the 3% cap on casino floor space. “This greater freedom will come from the considerable size of the total investments planned and the measurement methodology of the casino area, which excludes walkways and casino floor amenities (similar to Singapore),” the report says.

“We assume about 6,000 slots and 700 tables at each at the major resorts with win/unit/day similar to that of Marina Bay Sands (US$792 for slots and US$9,563 for tables in 2018),” said Fitch.

Ten-year licence renewal problems

After its Japan tour, Fitch affirmed that most of the people they talked to agreed that the ten-year licence renewal is the biggest obstacle to securing bank financing. “Japan’s gaming law presents several facets of risk, including political risk; notably, the local government (including the legislative branch) must actively seek renewal every ten years.”

Cost of infrastructure

Fitch said the development costs of IRs in metro areas and said that the figure could increase to US$15 billion. “The IRs in Japan are far from slam-dunks in terms of generating a decent ROI (EBITDA/cost). We think of as roughly 10% or higher,” Fitch said.

The agency added that besides the higher gaming tax, operators will have to deal with high development costs.

“We estimated US$10 billion in costs before the trip. We now think the proper cost range is US$10 billion to US$15 billion after accounting for supporting infrastructure investment and meeting the stipulated amenities such as the cultural requirements.

“EBITDA margins could be closer to those in Macau and Las Vegas (about 25%-30%) as opposed to Singapore (about 50%).”