Hard Rock is a Dark Horse in Race to Win the Integrated Resorts

A U.S. company with close tie with Donal...

May 2, 2018

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A U.S. company with close tie with Donald Trump works behind a political pact between LDP and Komeito. The main battlefield is Hokkaido, but that may be a poisonous carrot partnered with Macao.

It was an unexpectedly smooth agreement. On April 2nd and 3rd, the ruling coalition working team of the Liberal Democratic Party ("LDP") and New Komeito ("Komeito") agreed on an implementation bill on integrated resort facilities ("IR"), including casinos.
The focal point was how the LDP conceded to the New Komeito who has been less positive on casinos, while the Diet was in combative mood with a finance ministry top official grilled with the document-alteration scandal in a process to grant license to a school of Moritomo Gakuen. The bill limited the maximum number of casinos at 3 and decided the entrance fee of 6,000 yen. The LDP was in a hurry to sign the agreement because the already-enacted IR Promotion Law sets a deadline of the implementation law in coming May, and it seems a big American dark horse was trying to make inroad to Japan.
Thus far, "Las Vegas Big 3", Sands, MGM, Wyn's Resorts, plus Malaysian-Chinese owned Genting were rumored to be candidates of IR operators. But low-profile giant called Hard Rock which globally operates 24 hotels and 11 casinos is prepared to squeeze in.

Casino Operator owned by Native American Riches
Hard Rock? Average Japanese may remember the name of a café in London two Americans hippies opened. The cafe gained a smashing tourist popularity after Paul McCartney played live in 1973, and in 1977 Carol King's song "Hard Rock Cafe" made the place sacred to musicians of all stripes. It opened the first café in the U.S. in 1982, opened one in Roppongi, Tokyo in 1983, and currently deployed approximately 200 cafes in 68 countries.
Expansion to hotel and casino was achieved in 1995, when co-founder Peter Morton built a 670-room hotel in Las Vegas. In 1996, along with another founder, he sold their stakes to Rank Groups Plc, a U.K.multiple casino operator.
In 2004, Seminoles, native-American tribesmen in Florida participated in the management and opened hotels & casinos in Tampa and other places. In 2007, they bought out hotels, and turned out to be the first native-American-owned casino company. In 2010, Hard Rock opened a full-fledged IR in Dominica, the first hotel in Europe (493 rooms) was opened in 2013, and in Asia it opened hotels in five locations: Bali, Pattaya, Penang, Sentosa, and Macao. It is now ripe to enter Japan.

Edward Tracy, who became CEO of Hard Rock Japan came to Japan in November 2017. He
has been working in gaming industry for more than 30 years and was the president and CEO of Sands China since 2010 and has a track record of generating high profitability in Macao. More notable is that he was once the president and CEO of conglomerate Trump Organization, ("TO") the business empire of Donald Trump. Chairman and CEO of the parent company Hard Rock Corporate, Jim Allen was also a TO director in the past.

Indeed, Donald Trump himself failed in casino management, but looks like Hard Rock plays role of his proxy. Trump owns his summerhouse in Mar-a-Largo, Florida, and operates golf courses in the state. Trump's business concerns are eying at Japan, with his inauguration felt as a follow wind.

Tracy in Japan said that he studied Japanese IR well and placed more emphasis on town development rather than casino. A person involved told that he sounded like aiming at Hokkaido. Vast lands are available there, as Sapporo's Shinchitose Airport is located on route to Tokyo connecting the U.S and Japan via Alaska. The IR sites in Hokkaido are bigger than in the metropolitan area of Yokohama, or Odaiba of Tokyo, and less hassle expected with local interests. In addition, "Trump Brand" is effective to Abe Administration who is afraid of thorny trade issue and Trump's tendency to deal with China. That might have been the reason of the LDP decided to have three sites for the proposed IR.
In fact, Hokkaido is crowded with 4 candidate locations for the IR. The likeliest being the city of Tomakomai. It is known as an industrial city where Oji Paper has long standing operations. Toyota also has a factory. The biggest sales point is proximity to Shinchitose Airport. Haneda- Shinchitose route is a cash cow line for domestic airlines and enjoying massive influx of inbound tourists. The operational right of the airport will be auctioned to private sector in 2020.

Shinchitose Airport area is the most promising candidate
The Tomakomai City who eagerly wishes to invite the IR, received business proposals from 15 companies including overseas operators and domestic contractors. One of them, CEO Mark Fressola of Caesars Entertainment said at a press conference held in February, "I want to make facilities which will disseminate Hokkaido's beautiful nature to the world," indicating his strong interest. Hokkaido Prefecture conducted a questionnaire in August/September 2017, and 11 overseas operators replied, of which 8 indicated Tomakomai as suitable location.
Yasutoshi Nishimura, Deputy Cabinet Secretary, he himself as IR positive diet member, said that he had visited the city, and alluded that "Tomakomai has a good possibility."

In Tomakomai, an area where Northern Horse Park, run by Northern Farm (President, Katsumi Yoshida), which raised superb race horse as Deep Impact, deemed to be likely location for the IR. Yet, Mori Trust, a Tokyo-based building developer, planned to develop "a gigantic resort like Yosemite National Park in California", near Mount Tarumae. Akira Mori, the chairman bought 1,000 hectares of land by himself, and supposedly acquired development approval on 4% of that landholding. That is a vast forest developable with hotels, MICE (meetings, incentive trips, conferences, and exhibitions) facilities, with sports amenities such as trekking and horseback riding. If Osaka and Yokohama are to have large-scale, urban-type casino it would be good to have a "Lohas-type" casino in Hokkaido that would make the best use of nature and food. Mori envisages such a "gap industry" perspective.

A rival city already started to wave white flag. In February, Daiya Ebina, the mayor of Kushiro City, who aimed to attract IR at Lake Akan in the east Hokkaido, said, "We will promote initiatives in cooperation with Tomakomai." Although it sounds like a roundabout expression, a local businessman explains; "that means Kushiro is poised to lose to Tomakomai, so we will cooperate with Tomakomai bid, and expect some "spill-over" by suggesting optional tour to Kushiro area.

Quid-pro-quo in Osaka and Hesitation in Yokohama
Nonetheless, Tomakomai is yet to be secured as the sole winner because there is Kitahiroshima City, which tries to attract the IR backed by a strong interest of a corporation. In December last year, Heiwa, a major pachinko / pachislot machine manufacturer, announced an IR development plan at the 280-hectare golf course which it owns.
In addition to developing and manufacturing pachinko / pachislot machines, in recent years, Heiwa acquired PGM Holdings, which operates many golf courses nationwide, and claims it is a general leisure company. Naturally, it tries to join in casino business in line with the pachinko gaming, not to mention the example of its arch-rival Sega Sammy.
Kitahiroshima is located just halfway between Sapporo (1.9 million population) and Shinchitose Airport, therefore the development potential is on par with Tomakomai. Heiwa boasts that it can inject 200 billion yen to the IR. Shozo Ueno, the mayor of Kitahiroshima is tight-lipped, but the city has a plan to invite a new indoor ballpark- a home for professional baseball team Hokkaido Nippon Ham Fighters, he is said to welcome the synergy effect.

If the proposed implementation bill passes the Diet, the stage shifts to where Hokkaido Prefecture will choose the location. Governor Harumi Takahashi showed a positive attitude in attracting the IR, she herself visited and studied Singapore's IR in 2014, and has been promoting in Diet member meetings such as the Federation of International Tourism Industry Promotion (IR Federation). On the other hand, towards citizens of Hokkaido, she kept talking like "I am concerned about the gamble-addition symptoms and I have not decided yet whether to invite the IR. " In other words, she maintains double-talk and officially not committed on the invitation.

The LDP politicians see the governor untrustworthy, as invitation race, or "chair-taking game" intensifies. An influential businessman in Hokkaido laments: "It is a style of Harumi Takahashi not to decide, terrified with backfiring public opinion. On the surface, it does not look like a failure, but there were multiple cases that she missed opportunities in the past with her indecisive attitude. Her indecisiveness is the biggest risk".

Political will also cast shadows on other IR candidate sites. Looking at the LDP/Komeito agreement in detail, it is capping casino entrance of a Japanese citizen to three times a week and ten times a month to compromise with addiction critics. The entrance management will be done by My Number Card, the unpopular equivalent of the U.S. social security number. Moreover, since the casino area is limited to less than 3% of the total IR floor area total, it is not profitable unless the municipality hosts some vast IR facilities. The total floor area would be made up of pachinko, horse racing, bicycle betting and other gambling and it is probably only Osaka, the city with the biggest population of gamble lovers in the whole country, can secure sizable sites for casino. Yumeshima, the site that Osaka City recommending, was selected by the LDP to have a quid-pro-quo with Osaka-based Japan Restoration Party, with whom the LDP expects to initiate a resolution to amend the Constitution. It is nothing but a tomodachi (friend) making politics.

Yokohama, which should have been running the top of IR invitation race along with Yumeshima, has turned hesitant, as polls show 60 to 80% of the citizens opposing to the IR, even though the local political bigshot, Chief Cabinet Secretary Yoshihide Suga controlling the policy decisions. Yokohama's mayor, Fumiko Hayashi who was elected her third term last July also showed a cautious stance. In the Yokohama City Council, the former Democratic Party-based Civil Rights Forum ("Civil Rights") has the second biggest seats, with seats of the LDP 29, and the Civil Rights 21, exceeding Komeito's 16. As Civil Rights is against the casino, Komeito city council members cannot neglect antipathy of their own Soka Gakkai Women's Department, its religious parent. It is now unlikely that the city council to vote in favor of the IR invitation.

Yukio Fujiki, President of Yokohama Port Shippers Association, who was promoting the IR invitation to Yamashita Wharf, also altered his position to "no casino, MICE-centered, port business-centered", and on March 14, the association hosted a public study session on gambling addiction. Kenji Eda, a M.P. and a vehement opponent on casino, attended the meeting. At Minato Mirai new development in Yokohama, Resort Trust, a resort hotel operator, will open a luxury hotel next to the Intercontinental Hotel, which will be named "The Kahala" of Oahu Island in 2020. Considering its vicinity to Haneda Airport, it could be a tough competitor for the Yamashita Wharf-located IR even without a casino.

Others who are planning to invite the IR facilities include Marina City of Wakayama, Huis Ten Bosch of Nagasaki, and Chubu International Airport Island of Aichi etc. All depend on Chinese inbound tourists, but questions remain whether rich Chinese come to gamble in Japan in a mood that Macau strangled by the Beijing government's anti-corruption policy. Dependence on Chinese ruined a Korean casino. Sega Sammy's chairman Osamu Satomi, using connections of his former advisor, Shotaro Yachi, Director of the National Security Advisor, opened one Paradise City last year as a joint venture with Korean Paradise group in Yeongjongdo, where Incheon International Airport is located. Featuring 711-room luxury hotel, 103-room designer hotel, South Korea's largest foreigner-only casino, commercial facilities, and large-scale convention halls. but it could not attract enough Chinese as planned, because China, opposing the US-led deployment of THAAD (High Altitude Intercept Missile) to Korea, did not encourage Chinese tourists to Korea. Paradise City turned out to be a deserted casino, and Satomi's expectation was betrayed.

Carrots to Toshihiro Nikai's China Interest
Gambling addiction is not the only problem. Chinese-dependent casinos may not be profitable. Therefore, Prime Minister Abe who is accused in Diet discussion by Moritomo school scandal every day is not so enthusiastic on the IR implementation bill, and he seems indifferent even if he was told that "the IR will not be materialized without passing the bill at the current Diet session.

Toshihiro Nikai, secretary general of the LDP, an old China-hand, is pushing IR in backstage. Wakayama is of course Nikai's electoral district, and it is said that he persuaded the mayor of Kushiro to join the invitation game. As we reported in the article "Akira Mori and a Smart Chinese Businesswoman" in August 2016 issue of this newspaper, Chinese are accumulating land in Tomakomai, following Miki Kanbara (real name Sun Chongpeng).
the mysterious businesswoman close to Mori Trust.
There is a speculation that Hard Rock entering Hokkaido by tie-up with Melco Resorts of Hong Kong and Macau owned by tycoon Ho family. Tracy was the top of Sands in Macau, then if it is realized, it will be a U.S./China joint venture realized in Tomakomai. Lawrence Ho, Melco's chairman and CEO did not hide his ambition by saying "1 trillion-yen investment is possible in large cities", but we cannot rule out an opportunistic possibility of Chinese money laundering. Yet, if he joins force with a Trump-brand Hard Rock, few Japanese politician can claim outright opposition with influence of the U.S. president perceived. That could work as a "carrot" to Nikai from Abe's Prime Minister Office which is in self-inflicted quagmire in Diet.

Yet, there is no guaranty that carrots are not poisonous. As the resort-boom caused by Nakasone privatization of 1980's ended in tears and griefs of rural Japan, Tomakomai and Wakayama may be awash in red ink, 10 years from now. Or else, Hokkaido one day may play the role of a gateway to One Belt, One Road, dominated by China.
Li Keqiang, the Chinese premier will be in Tokyo on May 9th to attend an East-Asia Summit with Korea and Japan. He is scheduled to visit Hokkaido on May 10th to 11th, and we cannot stop questioning that he is to scout in pursuing that strategy. Beware, our fellow Japanese.