Osaka, Japan and MGM Resorts International are celebrating the approval of their integrated resort (IR) plans, but perhaps it's better not to get too excited.The changing perception of the global casino industry has put potential funders in a cold eye.
Osaka and Nagasaki were the final two prefectures after a long struggle as about half of the regions in Japan initially wanted to host an IR.The government is still deciding whether the Nagasaki plan is appropriate, but last month it approved the Osaka plan.
As a result, the prefectural government and MGM have decided to focus on development, aiming to start construction within this year.But the $41 billion project still has some gaps to fill, especially on the funding side.
Media outlet Nikkei Asia revealed this week that it may be difficult to find enough funding to cover the costs of an IR.Osaka and MGM previously obtained verbal confirmations from dozens of financial institutions, but now several have withdrawn from participating.
The removal took place as the casino market continued to change due to factors such as COVID-19.Some gambling establishments have already closed due to the pandemic, while heavy regulatory scrutiny is changing the game for others.
cold feet
Even in Japan, there is a backlash against the Osaka project.There are repeated movements to stop IRs for reasons such as gambling addiction and safety.
Meanwhile, some financial institutions seem to be responding to this negative movement. MUFG Bank and Sumitomo Mitsui Banking have said they are taking a long-term view, but Mizuho Bank is said to be hesitant.Sumitomo Mitsui Banking Corporation had initially agreed to support the project, up to a limit of 1,000 billion yen (US$7 million).
Mizuho, as well as other companies, may pull out of the project.In that case, half of the IR costs could go unpaid.
Meanwhile, MGM and Osaka are looking for alternative companies.Several financial institutions, including Resona Bank and Sumishin SBI Net Bank, are said to be willing to participate.We are also consulting with Sumitomo Mitsui Trust Bank and the Development Bank of Japan, a government-affiliated financial institution, to increase the possibilities.
online factor
Normally, finding alternatives to fill that gap wouldn't be a problem.But there are other factors that potential lenders consider.According to Grand View Research, the online gambling sector will be worth around US$2022 billion in 635. It is expected to grow at a compound annual growth rate of 2030% until 11.7, when MGM believes an IR may open.
With this growth, the online gambling sector will be worth $7 billion within seven years.If about 1,535% of the gambling population uses online gambling today, 17% will do so by 2030.If this happens, the profit forecast for the Osaka IR will be out of order.
Previously, it had an optimistic outlook of earning $40 billion in its first year, but the final amount could be significantly lower.
Such a big-picture view is also said to make some insurers uneasy.As with Mizuho, it's hard to justify lending nearly $7 million without guaranteed success.However, the Osaka project cannot do that. Despite MGM's experience and commercial history, Japan is venturing into a new industry.
sinking site
When insurers consider the viability of IR, they are very conscious of another dimension.Osaka and MGM chose Yumeshima, an artificial island whose future is questionable.
Yumeshima used to be a landfill site, and there are concerns about serious soil contamination. MGM casino partner Oryx has been hesitant about the location, with Oryx executive Toyonori Takahashi once saying the island is “already sunken.”
An unidentified company that was supposed to insure the project has pulled out. If MGM and Osaka continue to lose their partnership, it will become an even bigger problem.It cannot be said that there are no alternatives.But all these twists and turns make launching more difficult.
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