Monday, August 08, 2022

Japan clouds Korea’s IR-hub aspirations

South Korea wants to turn the area near Incheon International Airport into a version of Manila’s Entertainment City, but its vision is at risk from competition from Japan.

In December, the Incheon Metropolitan Government reaffirmed its optimism that the Yeongjong-do Integrated Resort Cluster Project will become a “hub of culture and tourism industry in North Asia,” with the potential to create some 20,000 jobs, generating economic benefits of about $1.68 billion annually. 

However, at the G2E @ the Philippines trade show in Manila in late 2019, Nicholas Kim, project director of the Incheon Free Economic Zone, observed that before Japan opened the door to IRs, global operators lined up by the dozens in response to requests for proposals in Incheon. Now, he said, the IFEZ has to wait days or weeks for one or two expressions of interest. 

Kim said South Korea has about 65 percent of an anticipated $10 billion in funding for the market. By contrast, several operators bidding on Japan have pledged that much for a single IR.

Currently, there is just one casino resort in Incheon: Paradise City, a venture between South Korea's Paradise Co. and Japan's Sega Sammy. But two more are in the works: the $700 million Caesars Korea, which is due to open in 2021, and Mohegan Gaming & Entertainment’s Inspire, with a price tag of at least $3.5 billion, which will open in phases starting in 2022. 

Two non-gaming resorts are also planned, but they will be run by gaming companies, Philippine-based Bloomberry Resorts and Japanese pachinko firm Maruhan Co Ltd., presumably leaving the door open to more gaming.

Incheon’s appeal lies in its proximity to cities in Northern China and in Japan and in the attraction of cultural phenomena, such as K-Pop.

However, locals are banned from gambling except in a remote mountainous resort owned by Kangwon Land. This puts it at a major disadvantage when compared with the Philippines’ Entertainment City, where the IRs enjoy strong local support. Japan is also expected to permit its nationals into casinos with an entry-fee system similar to Singapore. 

The 2017 crisis sparked by the U.S. deployment of the Terminal High Altitude Area Defense (THAAD) system on the Korean peninsula highlighted the issues faced by locals-only casinos. Beijing banned group travel, which triggered a 61 percent drop in Chinese arrivals from March to October in that year. 

Those tensions have now waned and tourism recovered strongly last year. Paradise Co. casinos in Incheon, Seoul, Busan and Jeju Island saw casino revenues increase 23.4 percent year-on-year in 2019, reaching KRW 784.8 billion (US$673.1 million). The increase was largely the result of a jump in casino revenue from its Incheon IR Paradise City, which was up 51.2 percent from 2018.

 “We’ve seen exciting year-on-year growth and definite recovery from the downtrend of the past few years,” said Michael Zhu, gaming analyst for The Innovation Group. 

Although locals can’t gamble, they are a significant source of non-gaming revenue and the IRs are offering an abundance of leisure attractions, such as Paradise City Incheon’s new Wonderbox fantasy theme park, which opened in March.

“While locals cannot walk into a casino, in terms of non-gaming revenue, the local or domestic segment is the largest,” he said.

The gaming side relies on several key demographics. “The more important, I believe, is the expats: the Chinese, Japanese and other international residents who reside in Seoul,” along with VIP customers brought in by junket operators, said Zhu. Then there are international visitors. “They can head to the airport, check in their luggage, then hop on a shuttle bus going between Paradise City and the terminals. It’s only a 10-minute ride,” said Zhu.

For that reason, Incheon International is a linchpin of the plan to draw more high-value casino customers. It consistently ranks high on the Skytrax list of the world’s best airports, and according to CNN, has the most opulent airport hotel in the world at Paradise City. The airport has set a lofty goal to be the world’s third busiest by 2023, welcoming 93 million passengers a year. That goal may be within reach: Incheon is just 90 minutes by air from Shanghai, Beijing and Tokyo.

However, Japan is still seen as the main regional prize.

In Asia, international gaming operators and developers “focus so much on Japan because the stakes there are simply much higher,” with GGR estimates in the $25 billion range, said Zhu. “It kind of shadows the future for Incheon itself.”

“Three years ago, I would have said definitely that Incheon would be the next Entertainment City. I am not changing that, especially in the long run. I think they will get there. However, the issue is the potential threat from Japan.”

Steve Norton, CEO of casino consultancy Norton Management, said: “If Japan gets its act together, allowing residents a way to play, doesn't restrict casino size and games too much or require an unrealistic investment, then many gamblers now visiting Macau, South Korea and the Philippines will consider Japan as a destination,” said Norton. “This will have a meaningful impact on South Korea, which could only be offset if locals were allowed to play, which would decimate Kangwon Land.”

Asia Gaming Brief is a news and intelligence service providing up to date market information for worldwide executives on relevant gaming issues in Asia.

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