Osaka’s Casino Partners Have an Escape Clause If Things Don’t Go as Planned

Posted on: February 28, 2022, 09:57h. 

Last updated on: February 28, 2022, 11:50h.

Erik Gibbs Read More
Expertise: Asia Pacific Gaming, Gaming Business, Global Gaming.

If Osaka’s plans for an integrated resort don’t live up to expectations, its casino partners will be able to bow out. This is according to the language included in the agreement Osaka signed with MGM Resorts International and ORIX Corp.

Osaka, Japan
Osaka, Japan is still optimistic about its chances of hosting an IR. However, the property’s operators may be approaching the project with greater trepidation. (Image: Japan Travel)

Japan is still zeroing in on its integrated resort (IR) future, with several questions still needing answers.

Osaka is confident that it will be one of the locations chosen to host a property, even though there are some concerns about financing. If it makes it to the end and Japan’s National IR committee approves its proposal, Osaka will be ready.

The Escape Clause

MGM Resorts and ORIX Corp., which partnered together to operate the resort, have made sure they have an easy way out if things go wrong from there. An “escape clause” in the contract allows the companies to cancel the contract and walk away, according to Inside Asian Gaming. The stipulation is only valid, however, after 30 days from the time the government certifies the project.

For MGM and ORIX to avoid being able to use their free pass, three conditions must be met. Domestic and foreign tourism will need to “fully recover” from the COVID-19 pandemic and its related travel restrictions.

The rules the Japan Casino Regulatory Commission creates must also foster guaranteed competitiveness. Lastly, initiatives to counter known soil contamination at the site of the IR will need to be adequately addressed.

The last issue is a major concern, especially for environmentalists. Yumeshima Island is the site that was selected for the property, but it has several issues. In addition to the soil contamination, which will cost more than $1.2 billion to fix, there are concerns about the man-made island’s ability to support the massive project.

Costs Continue to Rise

The escape clause is likely the result of the continued increase in costs the resort is seeing. MGM and Orix believe their portion will be around $10 billion, and Osaka continues to add more to its figures, as number-crunchers dig in and figure out the true costs.

The physical issues of the project’s location are causing the most concern, and area inspections are underway. New roads, local infrastructure, and a rail system will become part of the new Yumeshima Island, and determining whether it can support all of the development is a daunting and tedious task.

The ability to use the escape clause resides solely with the consortium of partners that will operate the resort. MGM and ORIX, once Osaka officials complete their analysis and investigation, will have full and unobstructed autonomy to activate the clause. Osaka won’t be able to stand in their way.

Should they pull the trigger and get cold feet, MGM and ORIX will have to pay a cancellation fee. However, the $5.6 million fee in the contract isn’t a huge amount. If the project doesn’t live up to expectations, they would lose considerably more.