Nagasaki Prefecture signed a basic agreement with Casinos Austria International Japan (CAIJ) on 30 August for the development of an integrated resort at Huis Ten Bosch at Sasebo City, Nagasaki. But the process has been controversial to say the least, with both of CAIJ’s rival bidders crying foul on the decision.
In this five-part special report running Monday to Friday this week, we take a closer look at Casinos Austria and speculate on what might happen from here on the road to creating Nagasaki’s first ever integrated resort.
Mon 13 Sep 2021 Part 1: Introduction and background
Tue 14 Sep 2021 Part 2: IR operational capabilities
Wed 15 Sep 2021 Part 3: Financial capacity
Thu 16 Sep 2021 Part 4: Meeting Japan’s expectations
Fri 17 Sep 2021 Part 5: Conclusions and challenges
PART 3: FINANCIAL CAPACITY
Today let’s look at some of the financial facts and figures around Casinos Austria International and compare those to what’s expected in Nagasaki.
Nagasaki prefecture has announced a total investment for its IR of JPY 350 billion (US$3.2 billion). Before considering where that enormous amount is coming from, let’s look at some key metrics for Casinos Austria International (CAI) and its parent Casinos Austria AG. To be fair, given the effect of the global pandemic, let’s look at the 2019 financial data, the last year unaffected by COVID-19. Here are some interesting key metrics:
| GROSS GAMING REVENUE (2019) | US$ million | JPY billion |
| Casinos Austria International | 215 | 23.7 |
| Casinos Austria AG (in Austria) | 382 | 42.0 |
| Austrian Lotteries | 985 | 108.4 |
| TOTAL | 1,582 | 174.1 |
| OPERATING PROFIT (2019) | US$ million | JPY billion |
| Casinos Austria International | 27 | 3.0 |
| Casinos Austria AG (in Austria) | 9 | 1.0 |
| Austrian Lotteries | 92 | 10.1 |
| TOTAL | 128 | 14.1 |
The first thing to note is that if you include the parent company and the whole group, Casinos Austria is more of a lottery company than a casino company, with some 62% of its GGR coming from their Austrian lotteries business.
The next notable insight is that Casinos Austria International (CAI), in and of itself, is a very small company when compared to global level IR players. A 2019 operating profit of a mere US$27 million makes it way smaller than any typical IR player in Asia, which normally see bottom lines in the many hundreds of millions of US dollars per (COVID unaffected) year.
So where is that US$3.2 billion coming from?
Well, like most IRs, there will no doubt be a mixture of debt and equity. But debt won’t be easy to secure in or for Japan, given the effective three-year and five-year renewal period of the IR licenses. In fact, most commentators have suggested that a mix of 50% debt and 50% equity is the most likely financing outcome.
It’s also long been assumed that IRs in Japan will be run, like many large-scale businesses in Japan, under consortia arrangements. As a result, CAIJ’s consortium partners will be a source of equity funding. However, it would be expected that CAIJ would seek at least a reasonably large percentage share of the consortium (otherwise why are they leading it with no major consortium partners yet announced), in which case they would have to stump up a concomitant share of the funds.
Even at say 50% of 50% of that US$3.2 billion, as a very wild guess, that still represents US$800 million, a very substantial amount for a company like CAI.
How does that compare with the current net assets of the entire Casinos Austria Group? Not just CAI, but the entire group, including the parent company. To be honest, not very well. The equity (that is assets less liabilities) attributable to shareholders of the parent company of the entire consolidated group (including Casinos Austria AG and including the lottery business) was just €409 million in the 31 December 2019 financial accounts. That’s US$486 million if you prefer. Or JPY 53 billion.
You would imagine it would be a tall order to find an amount of say ballpark in the many hundreds of millions of USD for a company with an annual bottom line of less than 5% of that amount. And much less so for a company which has accumulated around half of that amount, along with its parent company, over the last 50+ years.
Tomorrow in part 4 we examine what CAIJ will need to focus on to meet the Nagasaki and Japan national government expectations for a Japan IR.
