Inflation Leads to Higher Costs for MGM Resorts Osaka Casino in Japan

Posted on: September 5, 2023, 03:52h. 

Last updated on: September 5, 2023, 03:52h.

MGM Resorts International’s planned casino resort in Osaka is facing delays and higher costs due to global inflation.

The Las Vegas-based casino giant is partnering with Japanese financial services conglomerate Orix for the project. They were awarded rights to develop the integrated resort in Japan’s third-largest city in April 2022. Initially, the venue was expected to open in fall or winter 2029, but now the date has been pushed back to autumn or winter 2030.

The delay came about because the plan did not receive central government approval until April of this year,” reports The Japan Times. “Once the revised plan receives central government approval, the Osaka government aims to sign a contract with the operator for the casino resort, likely this month.

MGM and Orix each control 40% of the project, while the remaining 20% is allocated to a group of local investors.

However, the Japan casino project is feeling the effects of rising global inflation. The initial investment required to move the Osaka gaming venue forward is expected to increase by $1.29 billion, or 17.6%, due to rising prices for construction materials. The project was originally estimated to cost $8.1 billion, but with soaring commodity prices, the price tag is now around $9.3 billion.

The increased costs will be covered by MGM and Orix, resulting in their stakes in the project increasing to 42.5% each, while the local consortium’s interest will be reduced to 15%.

MGM executives have emphasized the advantages of being a minority partner in the Osaka project. They state that this status minimizes upfront capital commitments and risk, while providing the operator with significant upside potential.

The road to integrated resorts in Japan has been marked with bureaucratic delays and policy missteps, causing some well-known operators to abandon their efforts to apply for licenses in the country. However, MGM has remained committed to its Osaka plans. While delays and cost overruns are challenges, the operator could be rewarded for its steadfast approach. Some estimates suggest that the venue could generate sales of $4 billion in its first year of operation and a return on invested capital in the teens once fully established. In fact, some analysts believe that the Osaka integrated resort, when fully operational, could pose a threat to Marina Bay Sands and Resorts World Sentosa, Singapore’s two gaming properties, for the title of most profitable casino hotel in the Asia-Pacific region.