Posted on: May 4, 2023, 07:10h.
Last updated on: May 4, 2023, 09:36h.
While Osaka, Japan, and MGM Resorts International are celebrating the approval of their integrated resort (IR) plans, they might not want to get too excited. Changes in the perception of the global casino industry are causing some potential financial backers to get cold feet.
Osaka and Nagasaki were the last two prefectures standing after a long struggle that initially saw approximately half a dozen locations in Japan interested in hosting an IR. The national government is still deciding whether Nagasaki’s project has merit, but approved Osaka’s plans last month.
That paved the way for the prefecture and MGM to get serious about the development, which they expect to break ground on this year. However, the $4.1 billion project still needs to fill in a few gaps, especially regarding money.
Media outlet Nikkei Asia revealed this week there might be trouble finding enough financial support to cover the expense of the IR. Where Osaka and MGM had previously secured verbal confirmation from dozens of lenders, several have now revoked their participation.
The removal comes as the casino market continues to shift because of COVID-19 and other factors. Some gambling properties have already closed due to the pandemic, while intense regulatory oversight is changing the game for others.
Backlash to the Osaka project at home isn’t helping either. There have been repeated attempts to stop the IR, with the opposition citing gambling addiction and safety as the primary concerns.
Some financial institutions are apparently responding to the negativity. MUFG Bank and Sumitomo Mitsui Banking Corp. say they’re in for the long haul, although Mizuho is reportedly on the fence. The latter initially agreed to back the project, committing to providing up to JPY100 billion (US$741.8 million).
Mizuho isn’t alone and there’s a possibility that it, along with others, could pull out of the deal. That could potentially leave as much as half of the IR’s cost uncovered.
In the meantime, MGM and Osaka are trying to find replacements. They are reportedly working with several financial institutions, including Resona Bank and SBI Shinsei Bank, which have indicated their willingness to participate. They’re also talking to Sumitomo Mitsui Trust Bank and the government-backed Development Bank of Japan to improve their odds.
Under normal circumstances, finding alternatives to fill in those gaps wouldn’t be an issue, but there are other factors that potential lenders will consider, as well. The online gambling segment was worth around US$63.5 billion in 2022, according to Grand View Research. It’s expected to grow at a compound annual growth rate of 11.7% annually through 2030, the year MGM believes the IR could open.
That growth would give the online gambling segment a value of $153.5 billion in less than seven years. If around 17% of the gambling community now gambles online, 35% will be by 2030. This would skew the revenue projections for the Osaka IR.
Where there was previously optimism of the project earning $4 billion in its first year, the final amount could be significantly lower.
Looking at the big picture has also reportedly spooked some insurance carriers. It’s difficult to justify lending almost $750 million, as in Mizuho’s case, without guaranteeing success, but the Osaka project can’t do that. Japan is breaking ground on a new industry, despite all of MGM’s experience and commercial history.
When insurance carriers consider the viability of the IR, they strongly consider another facet of the operation. Osaka and MGM chose the site for the property, Yumeshima, an artificial, man-made island with a questionable future.
Yumeshima was previously a landfill and there are concerns about severe soil contamination. MGM’s casino partner, Orix, has even hesitated about the site, with Orix executive Toyonori Takahashi once saying that the island is “already sinking.”
One unidentified company that was to offer insurance for the project has already backed out. If MGM and Osaka continue to lose their partnerships, they’ll run into more trouble. That isn’t to say there won’t be alternatives that step up, but the snags will make the launch more difficult.