MGM Resorts International, the eminent Las Vegas-based casino operator, faces unexpected challenges with its Osaka casino resort project, in partnership with Japanese financial conglomerate Orix. The hurdles have manifested in the form of increased costs and project delays, largely provoked by the bioeconomic implications of global inflation.
The project was conceived to develop an integrated resort in Osaka, the third-largest city in Japan, a plan that secured project investment rights for MGM and Orix in April 2022. At the time of inception, ambitions were peaking, with an anticipated launch forecast for autumn or winter 2029. This timeline, however, has been consequently deferred to the latter seasons of 2030.
The deferment is attributed to delayed central government approval, only obtained in April 2022. With the revised plan now approved, the Osaka government’s intention is to seal the deal over the casino resort with the operator, possibly within the month.
Proportionate ownership stakes in the project were initially distributed between MGM and Orix, each holding 40%, whilst the residual 20% was entrusted to a selection of local investors.
Since the year’s early months, concerns surrounding the detrimental effects of inflation on the US casino industry have caused ripples of unease amongst investors. While these fears have not fully materialized, there are indications of cost-sensitive consumers in regional markets curtailing their spending on gaming experiences.
Feelings of unease have without doubt been compounded by the impact of surging international inflation presenting a formidable obstacle to the Japanese casino project. The original estimated investment for the Osaka gaming venue was predicted to increase by a whopping $1.29 billion, or 17.6%, primarily due to escalating construction material costs. Initial forecasts placed the project cost around the $8.1 billion mark, but in light of these recent challenges, the budget has soared to an anticipated $9.3 billion.
The responsibility for these supplementary costs falls to MGM and Orix, resulting in an increased stake in the project, rising to 42.5% each. This adjustment has reduced the consortium’s stake to 15%.
Notwithstanding the amplified cost and risk, MGM executives perceive a silver lining to their minority partnership status in the Osaka project. MGM argues the fact that it diminishes the scale of initial capital commitments and ultimately endows the operator with substantial profit potential.
Indeed, the route to integrated resorts in Japan has been fraught with bureaucratic delays and policy missteps that prompted other well-known operators to abandon their attempts to secure licenses in the country. Yet MGM remained resolute, persevering with its Osaka project. Despite obvious adversity in the form of delays and cost overflows, MGM’s staunch attitude could potentially pay off.
Preliminary estimates suggest that the integrated Osaka resort could generate sales of $4 billion within its inaugural year of operation, offering a return on invested capital in the teens once it is fully operational.
Industry speculation posits that when the Osaka integrated resort is fully functional, it could outcompete Marina Bay Sands and Resorts World Sentosa – Singapore’s two gaming properties – contending for the title of the most profitable casino hotel in the Asia-Pacific region.