Edward Tracy is taking a gamble on Japan. The new chief executive officer of Hard Rock Japan LLC is heading up Hard Rock International‘s endeavor to be a part of the new face of gambling in the country as Tokyo passes legislation to allow construction of resorts with casinos as part of the package.
Tracy has more than 30 years experience running gaming and entertainment facilities and was named in the Harvard Business Review’s top global 100 “Best Performing CEOs” in 2014.
He headed up the Trump Organization’s operation in the US and more recently was CEO of the massive Las Vegas Sands gaming facilities in Macau with 30,000 employees and 13,000 hotel rooms, according to a PR Newswire release.
That background seems to dovetail nicely with Hard Rock, which has been running its namesake operations in Japan for over 30 years, as well as 24 hotels and 11 casinos globally.
With much at stake – investment bank CLSA estimates gaming revenue in Japan could breach US$25 billion a year – Asia Times caught up with Tracy in Tokyo for a Q&A on what Japan means for the gaming world, what’s ahead, the challenges, and the potential winnings.
Q Japan’s government has approved the first bill to allow casinos to open in the country inside resorts, more legislation is to come. Where would Japan fit in the global gaming world?
Japan has long been a coveted prize in the gaming industry because of its economic development. It could be as big or nearly as big as Singapore or Macau in gaming terms, which are the two best markets financially today. So this opportunity in Japan is perhaps the most significant in the gaming industry.
All the major players are interested and have said they will commit billions and billions of dollars to developments here. So now the first piece of legislation has been passed, which is the enabling legislation, this potential market in Japan has really come into focus.
What we don’t know is the who, what, where, when, why or how of that, so the second piece of legislation will put definition around the integrated resort. So we are a little in limbo right now, but there are certain things that we can do to understand what the needs are going to be from a government’s perspective.
Also, there is a desire to find partners, whether for content or joint venturing. Along with that is a learning curve for each one of the companies to familiarize themselves with the individual locations. As yet, we don’t know which prefectures will qualify. That will all be described in this second piece of legislation, which I suspect will take some time in order to do it right.
In the meantime, we are trying to use our time wisely; trying to understand culturally where we have weaknesses and strengths and where we need to shore those up. Obviously, we want to file a very strong application in the event that this second piece of legislation comes up and passes in the next 12 months, which I suspect it will.
Q What’s the timeline that you see ahead, and can you comment on any partners?
We don’t know if taking a local partner will be articulated in the legislation or just assumed. However, Hard Rock in particular has a very demonstrated ability to form partnerships, which we have in 72 countries and partners in virtually every one of our projects, including the hotels and casinos.
So it’s something we are looking for, but also there is so much content that needs to go into an integrated resort.
For example, there might be someone who is better at developing the retail side or the entertainment piece. Pick any one of the components of an integrated resort. Sometimes you bring other hotel companies to the table so there is a selection of brands within the integrated resort, like we did in Macau.
To develop Sands Cotai Central in Macau we had Holiday Inn, a Conrad, two Sheratons and a St Regis all in one 11 million square foot area. So there are lots of ways to approach the business, the key is to find people who can guide you and understand all the components of what we are going to be presented with in this legislation. That takes time.
After the second piece of legislation comes, really the hard work starts. That’s when you need deal with a request for proposal or RFP or before that an RFQ or request for qualification.
The RFQ might include information on the financial wherewithal of each of the applicants and their willingness to have local partners and so on. The RFQ and RFP process could take another year, possibly longer.
While that’s going on, my guess is the prefectures will have to raise their hand and say we want to have one of these. We don’t know how many sites will be allowed initially. Maybe there is a pilot program, maybe not. There are a lot of unanswered questions.
Our view is we are going to get familiar with a number of locations, make our case to the local governments on why we would be a good partner for their tourism purposes.
So if you add these two things together, that’s a year for the next part of the legislation and another year for the RFQ, RFP process. Then the process starts for the applicant being accepted by the location, which could take another six months, possibly longer.
So if the question is when will an integrated resort open, then I think realistically it would be 2022, maybe 2023. These are gigantic resorts to build, they can move quickly but the size and scope of the work is pretty amazing so you are looking at a year and a half, possibly two years to complete one.
Of course, that also depends on how they are built. They can be developed and opened in phases. All in all, I think optimistically you are looking at a three-year process, realistically a four-year process, maybe longer.
Q What areas of Japan are you interested in?
We are like every other company that’s been looking here and obviously we feel Osaka is a great market. Hokkaido is a very good market and Okinawa could be a good market. I think there is a lot of misinformation in the market about who is interested and who isn’t. I think it’s really going to come down to the government’s choice. Who are they going to allow to develop this as a vehicle for tourism.
The great thing about Hard Rock is it’s a very elastic theme. There is the ability to build a very large integrated resort, so if Tokyo were to be selected or a prefecture close to Tokyo, we would certainly be interested in that and it would be a very big development
But there are smaller markets in Japan that are very good and Hard Rock could go smaller or medium sized with a resort. It will come down to what areas are allowed to go forward and from there we make our choice about where we think we fit in the best.
There has been talk that some of the bigger cities might have multiple gaming companies in one integrated resort mega-site with the little things in the middle called a casino as the economic engine.
Q Has that last model you described been done elsewhere?
Not exactly like that, but the Cotai Strip in Macau is where the government opened concessions matched to a site in a development almost like the Las Vegas strip.
You have Las Vegas Sands and Sands Cotai Central and Wynn and Studio City and soon MGM and Lawrence Ho’s company Melco all in the same region. In a way that was master-planned to do exactly what I’m talking about, but it was just executed differently.
Q Opinion polls indicate upwards of 40% of Japan’s public is concerned legalizing casinos will lead to problems with gambling addictions and organized crime. How do you answer those concerns?
I think the great thing about this kind of legislation in Japan is that it surfaces gaming. It’s not underground and it’s highly regulated so the ability to get a license really precludes the organized crime piece of the puzzle.
Which doesn’t mean you don’t see organized crime in sub-economies in and around gaming. You do see that and there is no point in trying to ignore it – loan sharking and that kind of thing can happen.
But it’s really up to the operators and the regulators to see that doesn’t happen as part of the component and that it’s not tolerated in any way.
And there are consequences in these jurisdictions if you as a gaming operator don’t comply.
Problem gaming is something that American companies in particular have taken really seriously. There have been a lot of measures taken by the industry in education programs, such as how to spot it if you are an employee and having solutions for the individuals.
For example, in virtually every jurisdiction that I’m aware of every piece of advertising has to have a problem gaming message and a phone number to call. And there is the self-exclusion and exclusionary process operators go through. Every company that I have worked for has taken it very seriously. And Hard Rock in particular has been honored by a couple of these associations for the work that they have done.
Most of the research that’s been done on problem gaming shows that it’s not just problem gaming with the individual, there are other problems. And there are more people addicted to their credit cards than there are addicted to gaming. Still, it’s a concern and it’s something we have to face every day in our industry.
As far as the organized crime goes, these are all major corporations that are not just regulated by the gaming authorities but the Securities and Exchange Commission. There is more mythology around this issue than actual fact. Yet there are places you can go and there is loan sharking or prostitution going on, but the more the gaming business is surfaced and taxed and regulated, the better it is for us because it does keep the bad guys out.