Sands seeks to sell Seoul on integrated resorts

Published in: Latest Intelligence  

With local reports suggesting South Korea is about to give Caesars Entertainment Corp. approval to become the first Western casino operator in the country, rival Las Vegas Sands Corp. is hunting bigger game. The owner of the Marina Bay Sands casino resort in Singapore and Sands China Ltd.’s five casinos in Macau has launched a campaign to convince the government of the merits of breaking Kangwon Land Casino's monopoly rights to serve South Korean gamblers.

In a remote mountain valley, Kangwon Land’s position is the envy of many of its peers, with waits of an hour or more for a seat at a table common and revenue per table running double that of Macau’s casinos, according to analysts. This month, Kangwon Land opened its first new tables in nine years after a long push to win official approval. 

The government granted Kangwon Land a 10-year extension of its monopoly position, until 2025, in exchange for higher taxes in 2011. The casino’s monopoly was intended to drive tourism to the surrounding area, an economically depressed former mining district, and indeed about 3 million Koreans make the trip each year despite poor airline or highway access. 

George Tanasijevich, managing director for global development at Las Vegas Sands, however said in Seoul last week that South Korea needs to think more broadly about its tourism infrastructure and consider Singapore’s “integrated resorts” strategy. 

“Singapore has been an early mover to develop integrated resorts and all other markets in Asia are just considering integrated resorts,” said Tanasijevich, who is also president and chief executive of Marina Bay Sands. “Korea has the opportunity to be an early mover and reap the benefits.” 

Singapore closely controlled the development of its two “integrated resorts” – Marina Bay Sands and Genting Group’s Resorts World Sentosa – to limit the role of casino gambling and push the companies to invest into other attractions such as theme parks. 

 “Aside from a source of entertainment, the other important function of a casino is that it generates significant revenue so we can invest in other elements that are not strong from a commercial standpoint, like the MICE [meetings, incentives, conferences, and exhibitions] facility and museums,” Tanasijevich said. 

He added, “A MICE facility is usually paid for by taxpayers, but in an integrated resort, we pay for those, and we generate tax revenue that can be used by governments, and it allows us to afford the costs of iconic architecture.” 

While the design of Marina Bay Sands, with its huge rooftop park that links three hotel towers, has received many accolades, Las Vegas Sands is off to a cheaper start on planning for South Korea. 

During his visit, Tanasijevich judged a resort design competition among Korean universities and design studios who were instructed to use local themes. The winning team came up with a concept based on Korean myths and legends for construction on an island in the Han River that bisects Seoul, and the members are to receive a cash prize and trip to Marina Bay Sands. 

Aside from Kangwon Land, South Korea’s other 16 casinos are only allowed to admit foreigners and the three in Seoul capture most of this traffic. Though the designer’s island site is probably off limits as a nature reserve on which other development plans have been blocked, Las Vegas Sands’ interest in Seoul contrasts with plans by other international operators to invest outside the capital; . 

Caesars, Japan’s Universal Entertainment Corp. and a joint venture of Japan’s Sega Sammy Holdings Inc. and the local Paradise Co. each are proposing to build casino resorts on Yeongjongdo, an island district of Incheon, home to South Korea’s main international airport. Malaysia’s Berjaya Group meanwhile is developing a casino resort complex on the island of Jeju, which is already home to eight foreigner-only casinos. Authorities developing Saemangeum, a large reclamation area in the southwestern part of the country, are also to trying to attract an international casino operator. 

Investors in these areas can take advantage of tax incentives which may help to make the projects feasible without local gamblers. Caesars is understood to be hoping to be able to tap the local market, but is pursuing its project despite the lack of official flexibility so far on the issue. 

Las Vegas Sands, though, is finding some local support for its integrated resorts call. “People here just think gambling is bad. It is an emotional issue, but we have many ‘underground’ gambling issues, so now is very good timing to consider this integrated resort model,” said Hwang Hae-jin, chairwoman of the MICE Integrated Resorts Industry Development Committee, an academic group. “Korea needs a new regulatory system to regulate casinos. Singapore did it very scientifically.” 

Hwang, a professor of public administration at Ewha Womans University, presented data and case studies on integrated resorts to a cross-party meeting at the National Assembly on Wednesday. “Next, I think it is a good idea to create a parliamentary committee to change laws and find an appropriate model,” she said. “But this is just the beginning stage.” 

Another source told Asia Gambling Brief that a struggle is underway within the country’s bureaucracy. One ministry wants to encourage more foreigner-only casinos in free economic zones around South Korea’s periphery but other agencies believe that these zones have largely failed to lure foreign investment and want to encourage bolder resort ideas. 

Like Singapore, South Korea is keen to attract more foreign tourists, with a goal of reaching annual arrivals of 16 million by 2017. Some 11.1 million overseas visitors came in 2012. Singapore’s tourism growth however has leveled off since its casino resorts opened three years ago. About 14.4 million tourists arrived last year, short of the Singapore Tourism Board’s forecast of 14.8-15.5 million. 

Las Vegas Sands’ push for access to local gamblers will face resistance given the support Kangwon Land’s monopoly has gotten and worries by the local operators of the existing foreigner-only casinos that they would find it hard to compete with the established marketing networks of international operators. A possible solution might lie in adapting another aspect of Singapore’s model, which Tanasijevich cited as a possible benchmark for South Korea. 

To hold down the social impact on the local community from its casinos and encourage them to pursue foreign tourists, Singaporeans must pay a fee of S$100 ($80) for each visit or buy an S$2,000 annual pass. Around 55,000 citizens and permanent residents have been barred from entry to the casinos for a variety of reasons, including receiving social welfare or being in bankruptcy. 

As long as some barriers remain to local access, Las Vegas Sands may find that its integrated resorts idea gets a hearing.