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Japanese Government Rejects Nagasaki’s Casino Resort Proposal
By Jeff Osienya Jan 03, 2024 IndustryAfter successive delays and prolonged deliberation, the Japanese government has moved to halt the plans to construct an integrated resort (IR) casino in Nagasaki. With that, Osaka is the only prefecture in Japan whose IR project received the green light.It’s back to the drawing board for Nagasaki’s IR (Integrated Resort) after the Japanese government dramatically shut down plans to establish a casino resort in the Nagasaki prefecture. This leaves behind Osaka as the sole prefecture in Japan and marks a fundamental moment for the Japanese gambling industry. The Japanese Ministry of Land, Infrastructure, Transport, and Tourism specifically turned down the proposal to establish the Nagasaki IR.
The primary reason for the decision is the ensuing doubts over the project’s financial feasibility. While this decision may have shocked many in the industry, those in the know could tell it was coming, considering the significant delays that had marred the process since the beginning. In stark contrast, Osaka’s IR didn’t experience as many hiccups as the Nagasaki project.
Concerns Cited by the Japanese Government
The Nagasaki IR blueprint was fronted by Casinos Austria, which formed section of a larger consortium dubbed Kyushu Resorts Japan. The IR envisioned its development to be at Huis Ten Bosch, a casino resort located in Sasebo, with the resort initially hoping to commence operations in 2027.
Initially, the plan was to raise $3.10 billion (483.3 billion Yen) in investment to establish a Vegas-styled resort. The project’s fundamental proposition outlined that the developers were looking to include the following components:
- 100,000 square meters of hotel space
- International conference hall with a capacity of at least 6,000 people
- 20,000 square meters of exhibition space
Moreover, the Huis Ten Bosch had announced that it had agreed to sell part of its land to facilitate the construction of the Nagasaki casino resort.
Per initial calculations, the IR project at Huis Ten Bosch would bring forth 8.4 million guests annually, which would generate about ¥330 billion ($2.3 billion) for the southwestern region of Japan. That said, concerning funding, the Nagasaki Prefecture was to cover 60% of the IR development costs, which translated roughly to about ¥440 billion ($3.1 billion), by going for credits through financial institutions.
This plan, however, experienced a massive hitch when Credit Suisse, one of the funders of the project’s financiers, experienced a management crisis and was sold to UBS Group AG. As such, the advisory committee, comprised of tourism and economic experts, expressed reservations about the prefecture’s financial standing, particularly considering the constantly shifting investor dynamics and the insufficiently documented financial assurances.
The panel also expressed reservations about Casino Austria International’s (CAI) ability to run and operate such a large-scale IR. There were also questions on CAI’s investment ratio, which appeared to be relatively small for the organization leading the Kyushu Resorts Japan consortium. As a result, there were additional points of contention about CAI’s level of investment in the Nagasaki IR undertaking. The statement from the panel on this matter read in part:
Quote“Although CAI has a track record and know-how in developing and operating casino facilities, we cannot fully confirm (the rest of the consortium’s) track record in installing and operating IRs…Furthermore, as CAI’s investment ratio is extremely small, the level of commitment in the letter is not sufficient, it is difficult to say that CAI’s capital involvement in the IR business is sufficient.”
Moreover, while the Nagasaki committee acknowledged that the CAI would ultimately appoint qualified individuals to run the show, they pointed out that it wasn’t sufficient for the hired experts alone to be at the helm of operations. The panel opined that given the demanding nature of casino operations, including ensuring harm doesn’t befall consumers, there was no evidence to guarantee the IR business would be run efficiently. On this, the Nagasaki committee said:
Quote“Most of the investment will come from investment companies… and profits from the casino business will be utilized. Concerns cannot be dispelled as to whether priority should be given to returning profits to investors or taking measures to return profits to the IR business and eliminate the harmful influence of casinos.”
Osaka Prefecture IR is Progressing Fast
While Nagasaki’s prospects of setting up a casino resort have waned, Osaka remains the beacon of shining hope in the Japanese gambling sector. In April 2023, the Asian superpower’s gambling trajectory took a massive leap after the Japanese government approved the Osaka integrated casino resort. The ¥1.08 trillion ($8.1 billion) resort is scheduled to open its doors for operations in 2030 and will hopefully bolster the country’s international and domestic tourism.
The giant casino resort will be located on Yumeshima Island, the reclaimed island in Osaka Bay that is set to host the World Expo in 2025. The resort is set to host hotels, a conference center, a shopping mall, a museum, a ferry terminal, and a helicopter pad for clients who would prefer landing with their hired or owned helicopters. Giant U.S casino operator MGM Resorts International, with its local partner Orix Corp, are the managers of the complex casino project, each holding a 40% stake in the IR management company. Another 20 companies own the remaining 20% stake, with the MUFG Bank and the Sumitomo Mitsui Banking Corp providing ¥550 billion of project financing to the IR.
The casino resort hopes to tap into Japan’s 126 million population, home to a wealthy class of Asian gamblers. Further, the IR is expected to attract 6 million international tourists and 14 million domestic tourists. As such, the resort is targeting an annual return of ¥520 billion, a figure expected to primarily come from the gaming business.
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