Covid changing rules of IR licensing game

The message may not be what Japan’s policymakers want to hear, but there was clear confirmation again last week that the Covid pandemic has changed the rules of the game when it comes to the IR licensing process and not in their favour.

While many of the big names have already pulled out, citing the business impact from the crisis and/or issues with the regulation, still others are clear that plans are being scaled back. 

A very clear case came last week when MGM President and CEO Bill Hornbuckle spoke at the Bernstein Annual Strategic Decisions Conference.

He was asked only one question about Japan and didn’t speak at length about his company’s major project in Osaka, but he did provide a useful glimpse of what has changed in the wake of the Covid pandemic.

Among the updates he offered, Hornbuckle revealed that his firm would have a 40 percent stake in the Osaka development and that its overall price tag would come in under US$10 billion. MGM itself, he said, would be making a roughly US$2 billion bet on the Japanese market, should the license be granted.

He also estimated that GGR at the property could eventually near US$5 billion annually, and the IR would draw 19 million customers each year.

He then went on to say that the pandemic had allowed MGM an opportune period in which it has “taken the requirements down considerably” in terms of the MICE space and number of hotel rooms that the Osaka government had initially demanded.

He also suggested that they had redesigned their Osaka IR to “center us more on our core business of gaming.” As a result, “We think the returns have gotten better given the moment in time when we had the chance to go back and say to the city, ‘this is what is really productive; what is really meaningful.’”

Less MICE space, fewer hotel rooms, and more focus on the “core business of gaming” might gain appreciation from overseas investors, but it’s a message that would bring little joy to the hearts of the Japanese public or to the policymakers who have routinely insisted that IR development is all about family entertainment and the promotion of tourism.

It’s also a far cry from February 2018 when Hornbuckle’s predecessor, Jim Murren, emphasized to the Japanese media that his firm’s Osaka IR would be focused on music, sports, and entertainment, and that it was planning a casino that would be under 2 percent of the IR’s total area, not even the 3 percent allowed under law.

In fairness, the world looked a lot different when Murren outlined his vision in February 2018. No one could predict the coming of the global pandemic, and few would even have suspected that all of MGM’s rivals would pull out of the Osaka race, leaving the prefecture and city with far less leverage in negotiations.

In the context of the post-pandemic era, more reliance on gaming and less grandiose non-gaming facilities might be exactly what is called for from a business perspective.

After all, it is supposed to be the responsibility of the Japanese government, not MGM, to serve and protect the interests of the Japanese people, and if what is emerging from the national IR development policy is less than what was expected, it is the political leaders who have failed to deliver their end.

Indeed, as we have noted repeatedly, Japan’s leaders seem oddly indifferent about the IR development policies which they themselves have launched, and so many of the troubles that have emerged are mainly due to the mismanagement and incompetence of the political class. 

One hopes that the future news headlines tell us stories of political leadership in regard to the IR industry, and not simply the latest case of politicians like former Senior Vice-Minister of the Cabinet Office Tsukasa Akimoto who seem to have their hands out for bribes or for other forms of personal advantage. (AGB Nippon / AGB Nippon – JP)