South Korea - Will Covid-19 trigger local gaming rethink?
Thursday 17th of September 2020
The Covid-19 pandemic may be a trigger for South Korea to rethink its foreigner-only casino policy, as the country’s casinos struggle with a lack of tourism revenue.
That was the view shared by two experts on a recent Asia Gaming Brief webinar session, which studied investment opportunities in the Korean gaming industry.
“This Covid is giving us a hard time and because of the situation I think maybe it’s time to rethink about South Korea’s foreign-only casino model,” said Nicholas Kim, investment director at the Incheon Free Economic Zone, which is home to Korea’s first IR.
However, Kim conceded that the issue is highly complicated and the government will first need to put in place detailed regulation to govern the industry, so any potential investors will need patience.
“I think it will definitely come. It’s a matter of time,” he said. “Every industry in our country is growing up very rapidly. It’s a natural course of development, but I don’t see it in the near future.”
Kim stressed that he was offering his personal opinions on the issue and not speaking on behalf of the government during the session, which focused on a wide range of topics in Korea.
Jeff Heo, director of strategic planning of Gaming Korea, also pointed to the difficulties being experienced by the casinos on Jeju island, suggesting that the government should think about allowing Korean tourists to enter, with the introduction of restrictions such as an entry fee, or limited monthly entrance.
There is currently only one property that allows locals to gamble — Kangwon Land — in a remote corner of the country. It was permitted under a special act to help to create jobs and rejuvenate the economy in a former mining community and now makes almost as much annual revenue as all the other casinos in Korea combined.
A few years ago, the Korean market was seen as one of the most promising in Asia, attracting interest from some of the biggest names in the industry. Tourism inflows were strong, especially from China, with its brand rising internationally due to the K-pop phenomenon.
Seoul’s international airport in Incheon is one of the biggest transport hubs in Asia and is just a few hours’ flight from Japan and China. However, a spat with China over the deployment of a U.S. missile system in 2017 highlighted the risks inherent with relying on tourism, with visitor numbers from China plunging 60 percent that year after Beijing banned tour groups to the country.
Last year, numbers had recovered, with South Korea attracting 17.5 million visitors, with 34.4 percent from China and 18.7 percent from Japan before the Covid-19 crisis struck.
Heo pointed out that the three larger IRs in the country — Paradise City, Jeju Shinhwa World and Kangwon Land — have to an extent been cushioned as they have built up non-gaming activities for locals and foreign expats, although most other properties in the country are small and don’t offer the same facilities.
Despite the current crisis, Kim says that two other major projects in the Incheon area are moving ahead. Caesars Entertainment is building a $700 million IR which was scheduled to open next year. It’s about 28 percent complete and there is likely to be some slippage in construction due to the pandemic. Mohegan Sun is building a $2.5 billion resort, known as Project Inspire, which is due to be finished in 2022.
After its recent merger with Eldorado Resorts, analysts have said they expect Caesars to focus on the U.S. domestic market. However, Kim says that due to the structure of the licensing system in Korea, Caesars will need to finish the resort.
Korea issues a prequalification license to approved projects. Once the project is completed 100 percent according to the plans that were submitted, a full license will be granted. The pre-qualification license can’t be sold or transferred.
“My guess is that both companies will definitely finish up their construction,” he said.
Lotte Tour gets go-ahead to move casino license
Lotte Tour Development’s plan to move and to greatly expand its Jeju casino has cleared a major hurdle as the Jeju Casino Industry Impact Assessment Committee easily passed the proposal. The initiative involves moving the current LT Casino within the Lotte Hotel Jeju (the smallest casino on the island in terms of revenue) into the soon-to-be-opened 38-storey Jeju Dream Tower, expanding the size of the casino by almost five times, and thus creating, when it opens, South Korea’s third-largest casino. Lotte Tour Development says that it plans to move its company headquarters from Seoul to Jeju with the completion of the project, which it hopes will come in October.
Losses mount as Covid crisis lingers
All three of the major South Korean casino operators booked substantial financial losses in the April-June period as a result of Covid-19. Kangwon Land, which operates the only casino in the nation at which locals may gamble, but which had a very long business suspension period, recorded sales of only 34.6 billion won (US$29.1 million), which was less than a tenth of its normal level, resulting in operating losses of KRW103.8 billion. Privately-held Paradise Co. saw its sales decrease by more than 68 percent to KRW74.6 billion, with its operating loss on a consolidated basis reaching KRW44.5 billion. Grand Korea Leisure saw its sales in quarter fall more than 80 percent to KRW23.3 billion, resulting in a net loss of KRW23.6 billion.