UPDATE: Osaka Prefecture has selected MGM and Orix for the Integrated Resort. Osaka will submit the proposal to the Japanese national government in April 2022.

MGM Resorts Int’l. and its Japanese partner, Orix Corp., has officially applied for the right to spend one trillion Japanese Yen to build an integrated resort (“IR”) on Yumeshima Island in Osaka. There are obviously many steps to go, but it looks like the US$9.07 billion casino complex will eventually be approved: The Governor immediately said the plans are in line with what the government had envisaged. Of course, it also helps that MGM-Orix is the only bidder left standing.

Most of the discussion in the gaming industry centered on the extended timeline: Instead of 2025, when there will be a World Expo, the IR won’t open until 2028, or even 2030. Local businesses are no longer enthusiastic; according to Asia Gaming Brief, “when the Osaka City Government made a tender offering for the development and maintenance of a 2,000 square meter plot of land around the under-construction Yumeshima subway station, not a single local company stepped forward to make a bid.” And the proposed IR was actually scaled-down, from an expected US$10 Billion.

No one is openly asking the big question: Can a US$9.07 billion casino make money?

The cost of the proposal cannot be ignored. The late Sheldon Adelson’s Las Vegas Sands built the now-iconic Marina Bay Sands in Singapore, with its three 55-story towers linked at the top by a SkyPark, for a reported US$5.5 billion. The scuttlebutt in the industry was that this most expensive-ever IR actually cost billions more before it opened in 2011. But, even adding in another couple billion, it was far short of the costs MGM-Orik will have to recover, after
operating expenses, before they can start making a profit.

In November 2019, I was invited to address the Japan Academy of Integrated Resorts and Gaming Studies to discuss the legal questions that should be answered before Japan, the last major industrialized nation in the world without casinos, opens its first IR. I met in Tokyo with MGM’s then lead operator, Brian Sandoval. MGM is smart; if that name sounds familiar, it’s because he had retired that year from being Governor of Nevada.

But MGM has also made enormous mistakes in the past. In 2008, it almost went bankrupt, having spent way too much developing Las Vegas’ City Center right before the last Great Recession.

A US$9.07 billion IR needs a lot of free-spending patrons. Where will they come from?

Almost every other country in Asia already has casinos, even North Korea. China recently made it a crime, punishable by 10 years in prison, to solicit its citizens into gambling overseas. And, unlike Macau, Japan is a true island and the most expensive place to visit in the region. Some
players will fly in from South Korea. But that country’s many struggling casinos show the
problems casinos face when they don’t allow locals to gamble.

Macau and Singapore don’t tax casino winnings of visiting foreigners. It looks like Japan has finally decided it had to do the same to be competitive, at least for smaller winnings. But the government will likely tax locals. Japan will put up no barriers to its resident’s dining, shopping, and attending conferences. But the tax would be in line with the government’s goal of discouraging Japanese residents from even entering its casinos.

Singapore thought it could prevent its residents from overdoing it by requiring permanent residents to pay S$100 (US$73) a day or S$2,000 (US$1,467) a year, just to enter either of its two casinos. The city-state was surprised to find it took in more than a hundred million dollars a
year in entry fees. So, in 2019, the government raised the fees 50%, to S$150/day (US$110) or S$3,000/year (US$2,200). But Singaporeans still rank as the second-largest losers per capita.
Australians, with pokies (slot machines) everywhere, are first. Japanese, at the moment, aren’t even on the list.

So, Japan could follow the examples of Vietnam and Cambodia and restrict casinos to foreigners. In which case, the MGM-Orix casino will be a US$9.07 billion white elephant.

My guess is the national government will make it even more expensive than Singapore for locals to gamble. In 2018, before Singapore raised its fees, the Japanese government agreed that residents would have to pay a ¥6,000 (US$55) entrance fee. That is now clearly way too small. If US$73 did not work in Singapore, US$55 will certainly not work in Japan. Singapore already charges its residents more than US$100 just to enter a casino. How high will the Japanese government go to protect its residents from themselves? $120? $150? $200? Just to
enter a casino.

And Americans complain about having to pay for parking.

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