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MGM’s Casino Resort in Osaka Japan Approved by Central Government

mgms_casino_resort_in_osaka_japan_approved_by_central_governmentThe Prime Minister of Japan announced Friday that a key committee had approved the development of an integrated resort casino (IR) in the Prefecture of Osaka.

Prime Minister Fumio Kishida heralded the decision by the Minister of Land, Infrastructure, Transport and Tourism’s review committee to greenlight after a meeting of the Headquarters for the Promotion of Integrated Resort.

MGM Resorts will participate in the operation and own a significant portion of the project along with Orix Corporation, a Japanese financial firm that is listed on the Tokyo and New York stock exchanges. The two firms will reportedly control equal 40% shares.

The resort will be operated by a newco. The consortium will include about 20 local companies.

Long Road to Arrive at Osaka Casino Resort

The central government’s approval comes after years of struggles and delays as there were initial hopes that the supporting legislation and approval could happen in enough time before the 2020 Tokyo Summer Games to capture revenue from the surge in tourism.

However, it wasn’t until 2018 when the Japanese Diet (parliament) finally authorized the construction of integrated resorts (after supporting legislation was passed in 2016) as part of a tourist resort. Several more years passed as the complicated framework was hammered out and the proper political coalitions could be found. The law, originally championed by former Prime Minister Abe finally came into effect in 2021.

The massive casino resort complex on the man-made island of Yumeshima in Osaka Bay will not be opened before the ward of Osak holds the World Expo in 2025. While the target date and final build cost estimates are certain to change over time, it is now expected to cost some US$10 billion to build with an opening anticipated in 2029 or 2030. Current cost estimates range between $8.5m and $13.5 billion (¥1.8 trillion).

Most multi-billion dollar casino developments around the world are allowed to open a temporary casino prior to full completion of the surrounding resort amenities, but Japan is a law unto itself when it comes to such matters. It’s currently unclear how the hotels and conference centers, shopping malls, museums, and ferry terminal will be phased in or if the casino will be allowed to open after certain benchmarks are achieved.

While several regions across the country were initially open for proposals, in recent years it has boiled down to Osaka and possibly Nagasaki. The 2018 legislation authorized the building of up to three IRs.

Already More than 7,000 Gambling Parlors in Japan

While this will be Japan’s first legal casino, gambling on Pachislo slots or pachinko machines that resemble vertical pinball games has always enjoyed a carve-out as a cultural exception. Players left as much as ¥14.6 trillion yen in those machines as of 2021.

More than 7,000 parlors featuring those games are scattered across the county, particularly in high foot-traffic areas such as near train stations. Other forms of gambling that were allowed before the casino bills passed include horse racing, motorboat, and motorcycle racing, bicycle race betting, and a restricted form of soccer betting as well as a lottery.

The MGM/Orix resort is expected to bring around 20 million visitors a year to the area who are expected to spend as much as $8.5b (¥1.14 trillion) each year once the full resort is open. Peak employment for the entire facility is expected to reach as high as 15,000.

Japanese citizens will have to pay a fee for every 24 hours they spend in a casino and there is a cap on the number of times one can visit. Family members will be able to request that any member be excluded from entering the premises.

Nagasaki is Still “in the running”

Asian media reports indicate that while Nagasaki is still “in the running” for a second IR for Japan, that issue didn’t come up at Friday’s meeting. However, GGRAsia reports that it has confirmed with local officials that the authorities in Nagasaki are still in discussions with central government officials about its plan for a casino resort.

The Nagasaki casino resort would be located in Sasebo City next to Huis Ten Bosch theme park, according to currently known plans.

In announcing the IR’s approval, Prime Minister Kishida said: “The Minister of Land, Infrastructure, Transport and Tourism has decided to certify Osaka’s area development plan. Osaka’s IR will contribute to the development of the Kansai region after the 2025 Osaka-Kansai Expo and to the growth of Japan. It is expected that it will become a tourist base that spreads the charm of Japan to the world.”

Earlier, Brian Sandoval President of Global Gaming Development at MGM Resorts said: “We want to provide guests with a new IR destination experience that is uniquely Japanese. Japan is advanced in technology innovation. It is also known as the best in class in terms of hospitality, rich in arts, culture, and food. We respect the spirit of “Omotenashi” and Japanese vibrant traditions. We have already learned so much from Japan that we have been able to export to other markets in which we operate.”

Source: Japan approves building of first casino, The Guardian, April 14, 2023

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MGM Resorts Osaka Bid Maintains Political Legs, Public Support

mgm_resorts_osaka_bid_maintains_political_legs_public_supportPublic opinion in Osaka, Japan is on the rise in support of an integrated casino resort in the prefecture according to an exit poll conducted over the weekend by the local news outlet, Mainichi Shimbun. The survey was taken by Japan’s oldest newspaper over the weekend as the Osaka Mayoral Election was held as part of the 20th Unified Local Elections in the country.

Plans call for Japan’s first casino to be built as part of a large integrated resort (IR) on Yumeshima island – a man-made land mass that is part of Konohana-ku, one of the 24 wards of Osaka, Japan.

According to the trusted outlet, the survey queried 6,190 voters as they left 145 polling places. A majority, 53% said they supported the IR development while 45% said they were opposed to it.

Osakans Want the Integrated Resort Casino

Governor Hirofumi Yoshimura was not shy about his support for the development and the issue was seen by many as a key element of his potential re-election which he handily won with more support for a second term than he garnered when he won the governorship the first time. He assumed office in April 2019.

According to a report on Inside Asia Gaming’s website, only a third of those who voted to re-elect the governor were opposed to the development.

Hirofumi Yoshimura was endorsed by Osaka Ishin no Kai (Japan Reformation Association). He is the Deputy Leader of Nippon Ishin no Kai. Osaka (city) is the capital and most populated city in the Osaka Prefecture, and the third most populous city in Japan with a population of 2.7 million.

Also endorsed by Osaka Ishin no Kai was political upstart Hideyuki Yosokawa who was elected mayor of the city. His victory was more robust than that of the governor however with a record 2.44 million votes – the most ever cast for a mayoral candidate in Osaka. His margin of victory was about two-million votes over his closest competitor.

The party also won 55 seats on the city council and retained its majority.

Governor Yoshimura was supported by Japanese Prime Minister Fumio Kishida’s ruling Liberal Democratic Party as well. He had stated earlier that he may resign as a representative if a majority was not maintained.

Hard Work Ahead for Next Four Years

Speaking to constituents after the election Yoshimura said, “I believe that we have received a certain amount of public support to promote the IR attraction. I want to work hard for the next four years with the strong desire to make Osaka grow.”

The prefecture and city tendered an application to the central government in early 2022. Partnering in the endeavor are MGM Resorts and the Japanese multinational ORIX Corporation, a publicly owned Tokyo-based international financial services company established in 1964. ORIX is listed on the Tokyo and New York Stock Exchanges.

When Japanese lawmakers finally passed legislation that was signed by the late Prime Minister, Shinzo Abe, it was hoped by many that at least one IR would be approved and operating before the Tokyo 2020 Summer Olympics opened. However, deep-seated religious and secular political opposition to gambling remained and the fight was taken to a local level where anti-casino voices, mixed with complicated cultural and political machinations won out and drove most casino operators away from the fight.

Current projections, reportedly affirmed by the Governor, project an IR opening in 2029. Investment costs have been estimated to be as high as $10 billion to complete the project.

Out of a large field of deep pockets and top-tier global casino operators that initially vied for approval, MGM’s Osaka bid is seen by many as the last hope to build not only a world-class casino resort in Japan but the country’s only casino.

Various numbers have been tossed about since long before the Diet and Cabinet codified gambling liberalization in Japan. The latest projections indicate that the MGM/Orix consortium’s development could attract as many as 20 million visits each year and generate revenue approaching US$4 billion (JPY 520 billion).

Source: Exit poll shows majority support for Osaka IR as governor wins re-election, Inside Asian Gaming, April 11

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Osaka Seen as Long-Term Growth Catalyst for MGM

After several years of waiting, the Japanese government finally made it official on Friday: Osaka will be home to the country’s first casino-resort.

mgm osaka
An artist’s rendition of an integrated casino complex in Osaka. An analyst is bullish on MGM’s future in the city. (Image: MGM/Orix)

The venue, which is slated to open in 2029 and carries an estimated price tag of $8.1 billion, will be 40% owned by MGM Resorts International (NYSE: MGM), 40% by Japanese financial services firm Orix and 20% by a local investment consortium.

Shares of the gaming company closed modestly higher this week, indicating there was some benefit to reports that surfaced prior to official approval of the Osaka gaming property. From here, it could be awhile before Japan is material to MGM shares, but analysts believe that will happen in the future.

We estimate that the property will generate around $4 billion in total sales in 2029 (its first year of operation) with earnings before interest, taxes, depreciation and amortization (EBITDA) margins in the 20s around the end of the decade, generating a return on invested capital in the teens,” wrote Morningstar analyst Dan Wasiolek.

The risk to the Bellagio operator is that it could take several years after the initial financial contribution for the Osaka integrated resort to deliver cash flow, meaning MGM likely won’t reap immediate profits. On the other hand, Osaka could pay long-term dividends for MGM while improving the operator’s geographic footprint.

Over Long-Term, Osaka Could Be Important to MGM Shares

Barring unforeseen developments with shorter timelines or acquisitions, Osaka will be MGM’s third venue outside, joining a pair of casino-hotels in Macau. It could take a while, but the Japan venue could be an important contributor to MGM’s bottom line.

“In total, we see the property generating a high-single-digit percentage of company EBITDA by the end of our 10-year forecast,” added Wasiolek.

MGM executives have highlighted the advantages of being a minority partner in the Osaka project. They note that status minimizes upfront capital commitments and risk, while still providing the operator with ample upside potential.

Osaka is already prime destination for tourists visiting Japan and with the addition of the integrated resort, it could result in 20 million or more annual visits to the country’s third-largest city. Additionally, it could be well into 2030s —  perhaps later – before another gaming destination opens in Japan, indicating the Osaka could enjoy monopoly-like protection for at least several years.

MGM Osaka Won’t Cannibalize Macau Ops

Rebounding Macau is the dominant casino destination in the Asia-Pacific region and MGM China is gaining market share there, but Wasiolek doesn’t see the Osaka venture presenting a problem to the operator’s Macau properties.

“We don’t expect the opening of the Japanese property to have a meaningful impact on demand in the Macao gaming region, which benefits from the captive opportunity of 1.4 billion Chinese citizens and an enclave of resorts,” concluded the Morningstar analyst.

Prior to the coronavirus pandemic, Macau accounted for 22% of MGM’s earnings before interest, taxes, depreciation, amortization, restructuring or rent costs (EBITDAR). The company owns about 56% of MGM China.

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