MGM Resorts approved to build resort in Japan

MGM Resorts International is on track to build an estimated $10 billion casino-resort — one of the most expensive casino-resorts ever built — in Japan.

After a decadeslong effort, the company received the approval from Japan’s Ministry of Land, Infrastructure, Transport and Tourism to build an integrated resort with a casino, according to a Friday release.

MGM Resorts pledged to spend up to $10 billion on the project. Analysts who have reviewed the company’s proposal say the resort, which is expected to open in late 2029, will cost $8.2 billion, making it one of the most expensive casino resorts ever built — and probably one of the most profitable.

“It is an honor to be selected by the government of Japan to develop a tourism project of this scale,” MGM Resorts CEO and President Bill Hornbuckle said in a news release. “We couldn’t be more excited to get started on the development of one of Japan’s first integrated resorts in the great city of Osaka, and we look forward to working with our partner Orix (Corp.) and Osaka Prefecture-City to realize this long-held goal.”

Hornbuckle also notified MGM employees of the approval in a letter Friday.

“I cannot overstate how important this decision is for us as a company,” Hornbuckle’s letter said. “This is a moment years in the making. It is the result of much hard work, determination and patience and furthers our vision of being the world’s premier gaming entertainment company.”

MGM officials declined an interview request, but the company is scheduled to report its first quarter earnings May 1, at which executives are likely to talk more about its plans in Japan.

Orix to be MGM partner

The Japanese government required that companies interested in developing a casino resort pair with a Japanese partner. MGM partnered with Orix Corp., a Japanese diversified financial services group headquartered in Minato, Tokyo and Osaka. Together with Osaka prefecture, they submitted its area development plan to the Japanese government during the October 2021 to April 2022 application period.

Two analysts, who have studied the potential of the Japanese gaming market for years, say MGM’s Osaka approval is important because it gives the company a head start on what could become a market with three integrated resorts.

“Japan still has two available licenses out there from the original IR legislation in the Promotion and Implementation Act,” Brendan Bussmann, gaming industry analyst with Las Vegas-based B Global, said.

“While Nagasaki still sits with a decision to be made almost a year since its submission, one license remains,” Bussmann said. “Japan should not wait to continue to move this process forward. Whether it be Toyko or another prefecture, Japan’s economy can benefit from the billions of dollars in investment and further catalyst to drive tourism in the country.”

Gaming industry analyst John DeCree of Las Vegas-based CBRE Equity Research said this week’s approval of the Osaka project could be extremely beneficial to MGM as it “could be the only game in town for a period of time.”

“While MGM and Osaka got the green light this week, the national government did not issue a decision on the Nagasaki IR proposal, which could take at least several more months,” DeCree said in a Friday report to investors. “Moreover, there appears to be very little progress on an IR in Tokyo.”

122-acre resort

DeCree said the current plan calls for an integrated resort and entertainment district on 122 acres that would include a casino, hotel, convention and conference space, retail shopping and several other amenities.

“Based on our review of the proposal documents, the initial investment appears to be 1.08 trillion yen ($8.2 billion U.S.),” he said. “This is similar to prior commentary from MGM for about a $10 billion project, which was based on previous exchange rates. The proposal calls for approximately 51 percent project financing and 49 percent equity, of which MGM would be responsible for roughly 40 percent, or $1.6 billion. The project is expected to open in late 2029, but documents filed with the government suggest that could be delayed depending on factors such as COVID-19 and challenges with building on reclaimed land.”

MGM will take a page out of the Las Vegas Sands playbook by developing on reclaimed land, on the artificial island of Yumeshima at the mouth of the Yodo River. Sands’ Cotai Strip is a successful string of casino-hotels built on reclaimed land between the islands of Coloane and Taipa in Macao.

Bussmann said Japan’s planning has been slow and detailed, which has resulted in several other resort companies abandoning efforts to operate there.

“In the nearly two decades that I’ve been going to Japan, the one thing I have learned is how methodical this process has been throughout the years,” Bussmann said. “This is significant progress though to finally have a date for later this decade for an IR to finally open up in this emerging market.”

Remaining bidder

Only Casino Austria remains as a potential bidder for a casino in Nagasaki. Sands, Caesars Entertainment Corp. and Hard Rock International are among the companies that once considered development there.

Because Tokyo never bid to host a resort, plans for a resort there are unclear. Bussmann said if Tokyo were to open up, it could create a new race for the second integrated resort in Japan.

DeCree said the Osaka development could be more lucrative than Singapore, where Sands and Genting operate the only two properties there.

“Osaka is one of the largest metropolitan statistical areas in the world with a population of over 19 million and sees over 12 million foreign tourists per year,” DeCree’s report said.

“The local population in Osaka is three times larger than in Singapore, and while Singapore draws more foreign tourists, Osaka more than makes up for that in domestic tourism. Osaka is a quick 90-minute flight or two-hour bullet train from Tokyo, giving MGM access to an even greater population base with no other domestic casino options potentially for several years.”

Revenue projections

DeCree estimated that MGM’s Osaka development could generate $3.2 billion in gross gaming revenue a year and $3.9 billion in net revenue.

“In our December 2021 report, we estimated Osaka’s total addressable market at $5.75 billion of gross gaming revenue, although it is possible that Osaka is such a big market MGM may not be able to build enough hotel rooms and gaming supply to fully capture our estimated market,” he said.

“Moreover, MGM-Osaka’s proposed revenue forecast likely assumes competition in Tokyo, which could be several years behind MGM. That said, we think the cash flow potential for the MGM Osaka IR could be upwards of $2 billion, making it one of the most profitable casinos in the world.”

Bussmann said foreign destinations see integrated resorts as an important driver of tourism.

“Japan’s nod became the second market, United Arab Emirates being the first, within the last year to use integrated resorts as a driver for tourism,” he said. “With a proven model in Singapore, there continues to be a desire to use best-in-class facilities with gaming as being the economic engine to drive investment, jobs and economic development with these large-scale projects.”

The Review-Journal is owned by the Adelson family, including Dr. Miriam Adelson, majority shareholder of Las Vegas Sands Corp., and Las Vegas Sands President and COO Patrick Dumont.

Contact Richard N. Velotta at rvelotta@reviewjournal.com or 702-477-3893. Follow @RickVelotta on Twitter.