South Korean casinos gear up for competition

Published in: Latest Intelligence  

Kangwon Land tackles pent-up local demand with expansion

The daily take at gaming tables in Macau may make Las Vegas stakes look like child’s play, but the Kangwon Land Casino in South Korea is where things get really serious.

“The casino is packed full with gamblers like a busy street market,” said one visitor. “One cannot spend money there even if he wants to." Revenue per table runs double that of Macau’s casinos, according to Praveen Choudhary, head of Asian gaming research at Morgan Stanley.

The tables are overcrowded even though the casino site is on a remote mountain far from any major highway, airport or city. Its one key selling point is that it’s the only one of South Korea’s 17 casinos legally allowed to admit domestic gamblers.

On June 1 it will finally be ready to handle more of them as the casino opens its first new tables in nine years after a long push to win official approval. The new tables will bring its total count to 200 from 132 and its slot machine ranks will rise to 1,360 from 960 as floor space grows 86 percent. The casino has also replaced its old seven-seat tables with new eight-seaters. Its new machines will include South Korea’s first electronic roulette and sic bo machines as well as the country’s first Texas Hold’Em poker tables.

The 180 billion won ($161 million) expansion is expected to end a two-year period of profit declines due to the impact of new taxes and losses on non-gaming facilities. 

Annual visitation to Kangwon Land has grown about 60 percent to reach 3 million a year since the casino’s last expansion in 2004. Some of those who might have been deterred from coming by the long waits for a seat at a table have gone abroad instead. 

Dozens of agents walk around the casino seeking to lure gamblers to the Philippines or Macau. Gamblers able to stake at least 10 million won are often offered free flight tickets, hotel stays and even gambling lessons. South Korea has become the biggest source of visitors for the Philippines, with 1 million arrivals there last year. South Korea is also now the leading non-Chinese market for Macau after passing Japan two year ago, reaching 444,773 visits in 2012. 

The competition with overseas casinos is most acute in the VIP market. "Excessive regulations and anxiety over identity disclosure are deterring Korean VIP gamblers from Kangwon Land,” said Seo Cheonbum, head of the Korea Leisure Industry Institute. “Moreover, Kangwon Land cannot compete with casinos in the Philippines, Macau or Singapore. They are much more excellent in every respect." 

South Korea’s foreigner-only casinos face the same competitors. New government data this week though showed Chinese visitors to South Korea’s casinos overtaking those from Japan for the first time in 2012, by a margin of 970,000 to 785,000 out of some 2.4 million total visitors. Chinese gambling visits have risen rapidly from 366,000 in 2009. 

The lure is strongest for those from northeastern provinces closer to Seoul than Macau. The growth is set to continue after Seoul eased visa requirements for Chinese further last year, following up on 2010 reforms. The eased access helped tourist arrivals from China to expand 37 percent in the first quarter to just under 600,000.

This growth has attracted the interest of international operators Caesars Entertainment Corp. and Universal Entertainment Corp. Both have been locked out of Macau and Singapore but are now waiting for government go-ahead for proposed casino resorts in Incheon, near Seoul’s international airport. Some local media suggested this week that only Caesars will be approved; Universal is under criminal investigation by US and Philippine authorities over bribery allegations involving its planned Manila casino resort.

Seoul is home to the country’s top three foreigner-only casinos and they aren’t ignoring the potential landings next door in Incheon. Paradise Group, which has been particularly successful attracting Chinese gamblers, is negotiating with SK Networks, owner of the Sheraton Walker Hill hotel, to expand its casino there, the busiest of South Korea’s foreigner-only casinos. Analysts expect the deal will allow Paradise to increase its table and slot counts by about 50 percent; capacity growth at foreigner-only casinos does not require government approval. 

Paradise already has a casino in Incheon at the Hyatt Regency there, but plans to transfer that license to a 660 billion won casino resort that it intends to build in a 55/45 joint venture with Sega Sammy Holdings Inc., the Japanese pachinko and gaming company, on Yeongjongdo, the same island that Caesars and Universal are targeting.  The new casino would be nine times larger than the old one - and double the size of Caesars’ - and be joined to a 750-room hotel, convention center, shopping mall and spa when it opens in 2016. Sera Oh, an analyst in Seoul with UBS, said Paradise will also have an edge on Caesars from its database of high rolling visitors.

Rival Grand Korea Leisure Co., which has a stronger position with the Japanese, is looking to expand its casino in the Millennium Seoul Hilton hotel, with analysts forecasting the addition of 10-15 tables to its existing 60 by next year. The company is also finalizing plans for a casino resort for the island of Jeju which it intends to unveil later this year and is seeking to operate cruise-ship casinos as the government moves to allow them on ships sailing internationally from the country. 

Jeju is home to the country’s newest casino operator, JB Amusement Co. JB purchased the Beluga Casino in the Shilla Jeju hotel and reopened it in April as the Majestar after expanding its table count to 43 from 29. JB is exiting its previous core business of producing set-top boxes, with plans instead to buy another of Jeju’s eight casinos. Chief executive Seo Jun-seong previously worked with junkets in the Philippines and Macau and hired Lee Seong-hui, a veteran of the Wynn Macau casino, to be the top deputy at Majestar.