Osaka May Be Ripe for an IR Rethink

At many points in the IR development process it seemed that Osaka’s leaders were running the most masterful campaign to gain one of the three available licenses, but it may now be time for Mayor Ichiro Matsui and Governor Hirofumi Yoshimura to step back, take a breath, and look at the situation with fresh eyes.

On February 14, the Osaka Prefectural Government published the first results of its Request-for-Proposal (RFP) screening, and it came as a shock—only the MGM-Orix consortium remained in race for Yumeshima. There was only one bid.

How the situation has changed in such a short time!

In November 2018, when Osaka’s campaign to host the 2025 World Expo at Yumeshima ended in success, everything seemed to be falling into place and the buzz was rising within the gaming world. That energy continued for many months.

In January 2019, MGM announced its “Osaka First” policy, becoming the first operator to clearly focus on this market. By March they had announced their powerful partnership with the Orix Corporation.

The 1st Kansai Integrated Resort Industrial Exhibition in May 2019 was perhaps the high-water mark, when no fewer than seven major IR operators were elbowing each other for position in Osaka—Caesars, Galaxy, Genting, Melco, MGM, Sands, and Wynn.

The same month, Melco Resorts & Entertainment Chairman and CEO Lawrence Ho arrived at the Japan Gaming Congress armed with a beautiful set of concept drawings for Yumeshima that was clearly the highlight of the conference.

By this time, Las Vegas Sands was coming close to declaring an “Osaka First” policy as well, with President and Chief Operating Officer Robert Goldstein making from comments like “We are fully committed to be in Osaka” to telling the Bernstein 2019 Strategic Decision Conference that “Osaka is the only city where they think they can build large-scale IR with lots of (‘millions sq ft’ of) convention space and ‘thousands’ of hotel rooms and ‘huge’ retail space.”

The unravelling for Osaka came in August 2019 and was prompted by Yokohama’s somewhat unexpected announcement that it would be joining the IR race after all.

It was always known, of course, that the revenue potential of the Kanto region was much greater than the Kansai region, but it looked for some time that none of the major municipalities in the Kanto region would raise their hands. When Yokohama did so, however, there was an almost perceptible “whoosh” as the air went out of Osaka’s candidacy.

Sands, then Melco, then Wynn all said their goodbyes to Osaka and began to eagerly line up at Yokohama’s door. Caesars dropped out at this time as well for unrelated reasons. The seven suitors for Yumeshima had become only three.

Three was still a reasonable number, but one bidder certainly is not. The recent departures of Galaxy and Genting really left the Osaka government in an uncomfortable situation. Now they have only a choice between whatever is offered to them by the MGM-Orix consortium, or to make the very difficult decision to walk away.

What happened? How did Osaka go in nine months from the municipality that everyone wanted to partner with to the one left standing nearly alone?

Clearly, the emergence of the Yokohama candidacy was a critical factor. Another major factor was the power of MGM-Orix combination. MGM’s position had become so strong, and the willingness of Jim Murren to say almost anything to win had become so pronounced, that potential rivals likely concluded that the prize just wasn’t worth getting in a bidding war with them.

Although no one is likely to admit it on record, there may also have been some creeping doubts about Matsui and Yoshimura as well. Their insistence that the Yumeshima IR open before the 2025 World Expo had a definite logic to it, but ultimately it may have been counterproductive as the international operators looked at the schedule and just didn’t see the practicalities. There may have been other local conditions as well that were less than optimal.

Daniel Cheng, the number two man in the early days of Hard Rock’s campaign in Japan and now an independent consultant, advises Osaka to “put on the brakes and let Yokohama go first.” He explains, “The Osaka selection process should only commence after Yokohama has chosen their operator. Then the remaining major operators will naturally return to compete for Osaka.”

It’s a sensible point. Why should the municipality representing Japan’s second-largest urban area choose its partner before the municipality representing Japan’s largest urban area? Once the biggest prize is off the table, then there would be a real competition for the clear runner-up prize.

Of course, this way of seeing the matter accords neither with the vanity of Osaka’s leaders, nor with their desire to be first, but in the longer term it probably makes the most sense.

Opening before the 2025 World Expo probably isn’t going to happen anyway, so really what’s the rush? Better to take it slower and get it right. A rethink is in order. (AGB Nippon)