From last November, when Osaka won its bid to host the 2025 World Expo, until August of this year, when Yokohama announced that it was entering the race, Osaka Yumeshima was looking like it would become host to the grandest and most successful IR in Japan. In recent months, however, some of the sparkle has come off this initiative, and there is now a very real prospect that Osaka will have to settle for second-best.
The fact that Yokohama, or another municipality in the Kanto region, should enter the IR race wasn’t a complete surprise, though it was looking for quite some time to be rather unlikely. However, the reaction of major international IR operators had to be disheartening for Osaka’s leaders. No less than three major suitors—Las Vegas Sands, Melco Resorts and Entertainment, and Wynn Resorts—quickly folded up their tents and abandoned their Kansai bids.
When asked the basis for this decision, a representative for Sands pointed to the October 23 statements by Robert Goldstein, president and chief operating officer, on an earnings conference call: “We looked at Osaka and we think it’s a wonderful market, a wonderful city. We had a great experience there. But, in the end we felt our strengths and what we do for a living so well is better represented in the opportunity in the Tokyo Bay region in Yokohama. And as you know, it’s very competitive there. It’s a very interesting market, a lot of capital required, a lot of thought process to make sure the numbers work, and we just thought Yokohama was just a better fit for our skill set.”
It was not a very clear explanation, but apparently it had something to do with the competition, the capital investment, and making “the numbers work”—presumably a hint that Sands was concerned about the return on investment at the Osaka Yumeshima location.
Our inquiries to Wynn Resorts produced an even more vague answer to this question of why they pulled out. We specifically asked them whether or not the push to open before the 2025 World Expo was a factor for them. Chris Gordon, president of Wynn Resorts Development Japan, replied, “We continue to be impressed with how Osaka has managed the IR development process. While the timelines are aggressive, it is understandable and admirable that Osaka is working to advance the IR project at a fast pace.”
By far the most candid and specific answer was provided to AGB Nippon by Melco Resorts Chairman and CEO Lawrence Ho, who explained, “My goal has always been to build the world’s greatest and best Integrated Resort, and Yokohama’s location, being close to Tokyo and near Haneda [Airport], gives us the best opportunity for that… The truth of the matter is as well—relating to Osaka, why we ultimately dropped out—as an IR operator, unlike most of our competitors, we want to underpromise and overdeliver… Given the infrastructure challenges, given the shortage of construction labor, and the super-tight time frame, we think it would be [mistaken] to say that it would open in 2025.”
Between these three answers (especially that of Lawrence Ho), we can gain a fairly clear picture of why several major IR operators decided to give up on their Osaka bids.
These factors include the smaller size of the Kansai market as compared to the Kanto market, concerns about return on investment at the Yumeshima location, worries about the sufficiency of the transportation infrastructure serving Yumeshima, concern that the Osaka government’s ambitious construction timeline isn’t quite realistic, and, by implication, that trying to outbid MGM Resorts, which has partnered with the Orix Corporation and has already made very big promises, just isn’t worth it.
Quite recently, Osaka Mayor Ichiro Matsui has started acknowledging that a full opening of the Yumeshima IR before the 2025 World Expo may indeed be too steep a hill to climb, but he hasn’t yet abandoned his target, and the prefectural and municipal governments are taking every policy step that they can think of to expedite the construction timeline.
That approach is now showing signs that it could ultimately be counterproductive. If there is indeed to be a massive IR in Yokohama opening in the late 2020s, then Osaka’s best strategy might be to focus less on getting the Yumeshima IR built fast, and more on ensuring that it is built right—it will need to be a facility that offers something more or better or different than the IR in the Kanto if it is to meet Osaka’s development goals in the long run. (AGB Nippon)