More than a year after winning Japan’s one and only casino licence, MGM Resorts International has demonstrated it’s all-in on the project.
The US gaming giant has surrendered its right to withdraw from the ¥1.27tn (£6.72bn/€8bn/$8.89bn) integrated resort (IR) without penalty.
“We are in the ground as we speak,” said MGM president and CEO Bill Hornbuckle during a 31 July earnings call. “We hope to start piling by May or June of next year, with a target date still middle of 2030 for opening.”
MGM Osaka will be located on Yumeshima, Japan, a manmade island on Osaka Bay. It will include the nation’s first casino as well as 2,500 hotel rooms, a convention centre, a shopping mall, and other amenities.
The resort is projected to generate ¥520bn in annual gross revenues, with about 80% of that from gaming.
Series of Japan delays started with Covid
The project has hit several speedbumps. First and foremost was the Covid-19 pandemic.
When the IR development bill was approved in 2018, the Japanese government offered three licences in strategic locations around the country, with more to come after seven years. Industry analysts hailed Japan as the next “holy grail” of gaming, with potential gross revenues of up to $40bn per year. Global operators including Wynn Resorts, Las Vegas Sands and Caesars Entertainment lined up to place their bids.
Then came the pandemic, which caused global interest in Japan to flatline and stalled the selection process.
In the end, only two operators bid on licences—MGM in Osaka and Casinos Austria in Nagasaki. And only one got the go-ahead to proceed: MGM and its Japanese partner, financial services company Orix Corporation.
Exit option built into the contract
MGM’s original agreement allowed it to back out of the Japan project by September 2026 under certain conditions. They include:
- the failure of tourism to recover to pre-Covid levels
- unfavorable financing terms
- an initial investment exceeding ¥1.27tn
The project has already met the latter benchmark. With the rise in construction costs, MGM-Orix is now on the hook for ¥1.27tn in initial costs, up from the previously estimated ¥1.08tn.
By waiving its opportunity to withdraw, the operator, Osaka IR KK, is now full speed ahead in Osaka. Prep work for the IR, on 494 square metres on Yumeshima, will begin in September. MGM and Orix each own a 40% stake in Osaka IR KK.
Another potential delay?
The latest fly in the ointment is the concurrent development of facilities for the 2025 World Expo, also on Yumeshima. The expo will be held from 13 April to 13 October of next year.
Expo organizers are concerned that work on MGM Osaka will distract from the expo with noise and other environmental impacts. It has asked MGM to suspend construction for the duration of the six-month expo. But that would add more than ¥10bn to MGM’s already ballooning costs.
Local media reports that Osaka Governor Hirofumi Yoshimura is working to broker a peace deal between the two entities. According to sources, he has proposed that MGM agree to a two-month pause during the Japan expo.
Original article: https://igamingbusiness.com/casino/mgm-wont-exercise-osaka-escape-clause/
