Korea casinos upbeat even as Japan IRs loom: insiders

Jul 17, 2019 Newsdesk Features, Japan, Latest News, Rest of Asia, Top of the deck  

---

The possibility that a first wave of Japan casino resorts could start opening from the mid-2020s should not damage the prospects of large-scale gaming resorts in neighbouring South Korea, several people involved with such investments told GGRAsia. Japan is a significant contributor of patrons to South Korea’s mostly foreigner-only casinos, according to data from operators there.

Japan is going to allow locals to use its casino resorts – venues to be known as integrated resorts or “IRs”; albeit the national government has pledged to impose an entry levy and monthly visit limits on locals.

South Korea by contrast, only allows locals to gamble at Kangwon Land, a remote upland resort several hours by road from the capital Seoul. A number of investment analysts has cited the inability of the new large-scale South Korea resorts to offer gambling to locals as possibly a limiting factor for their earnings.

But Christopher Jones, of Mohegan Gaming and Entertainment told GGRAsia that there was such a large pool of foreign potential players close to South Korea that the prospects for such resorts remained strong.

“There are over 700 million people and some of the largest cities in the world, all within three hours of both [South] Korea and Japan. So from a market perspective and overall proximity and convenience, we believe there is ample demand to support the development of integrated resorts in South Korea and Japan,” said Mr Jones, vice president of corporate finance at Mohegan Gaming.

United States-based tribal casino operator Mohegan Gaming and South Korean casino operator Paradise Co Ltd are respectively investing in and developing casino resort projects in Incheon, close to the country’s main international airport serving the capital, Seoul.

The US$1.6-billion first phase of Mohegan Sun’s casino resort project in Incheon, dubbed Inspire Entertainment Resort, is set to open in the final quarter of 2021. A total capital commitment of US$5 billion has been mentioned for multiple phases over two decades. The initial part of phase one of Paradise City launched in April 2017.

On the South Korean holiday island of Jeju, the promoter of another scheme, Jeju Dream Tower – a resort with foreigner-only casino – is aiming to complete the construction of the high-rise portion by the end of this year.

Regional competition to South Korea’s new resorts is coming from beyond Japan. A May report by brokerage Union Gaming Securities Asia Ltd, stated that current rates of economic growth in Asia did not justify the US$65-billion already earmarked for new casinos in the region – two-thirds of the money for existing gaming jurisdictions, and the balance for Japan’s nascent market.

But Mohegan Gaming’s Mr Jones told us: “Specific to Korea, our operations will have a couple years to develop before facing the opening of Japanese operations, which should allow for the development of a regionally-diverse mix of customers in Korea.”

He added: “We see our Korean operations holding a number of advantages over other regions in Asia. From our perspective, we don’t see the supply contemplated for the region as having an adverse impact on the overall return on investment [of Inspire Korea],” the Mohegan Gaming executive added.

Mohegan Gaming has also expressed interest in the Japan market, saying it would like to invest between US$3.5 billion to US$4.5 billion to develop a casino resort on Japan’s northernmost main island, Hokkaido.

Paradise Co Ltd,  which is a long-standing operator of mid-size casino hotel complexes in South Korea’s foreigner-only casino sector, has in recent years upped the stakes via partnership with a Japanese firm to build a larger-scale venue. Paradise City at Incheon is a venture with a unit of Japanese entertainment conglomerate Sega Sammy Holdings Inc.

Japan: cross-marketing chance

A spokesman for Paradise Co reiterated to GGRAsia the ‘build it and they will come’ mantra that has previously been applied by commentators on Macau.

“As the market grows, it is expected that there will be more demand for visiting Korea for gaming purposes,” said the person, who asked not be identified by name.

Its Japanese partner at Paradise City hopes that venture could provide the necessary clout in casino industry terms to win a Japan gaming licence.

Paradise Co sees the prospect of Sega Sammy having a Japan casino resort not as a competitive threat to the joint South Korean resort, but an opportunity to cross-market services to Asian consumers.

“If Japan’s Sega Sammy will be selected as a casino operator in Japan, we will be able to continue expanding the Japanese market through cooperation with Sega Sammy,” Paradise Co’s spokesman told us.

For Paradise Co, the current priority is to focus on the investments in its domestic resorts in South Korea. The firm has, for now, no plans to “invest overseas”, its spokesman told GGRAsia.

Paradise Co is preparing for a second phase of Paradise City, but has yet to confirm a timetable for it and the capital investment.

Nonetheless, Paradise Co told us it would “strengthen the competitiveness of Paradise City in preparation for the future competitive environment”, namely “two competitors entering into Incheon in 2022” and the opening of casino resorts in Japan possibly from the mid-2020s onward.

The Incheon competition was a reference to Mohegan Gaming’s Inspire scheme and Caesar’s Korea, from U.S.-based operator Caesars Entertainment Corp. The latter scheme has been the subject of analyst speculation, amid news that a regional U.S. casino firm was to stage a US$17 billion bid to take over the gaming giant.

Professor Lee Choong-Ki, of the College of Hotel and Tourism at Kyung Hee University, in South Korea, believes locals-serving operator Kangwon Land Inc will be more adversely affected by the opening of the Japan market than South Korea’s foreigner-only casinos.

“Japan integrated resorts will have an impact on Korean outbound tourists since they are a major [source market] for the Japanese tourism market,” Mr Lee remarked to us.

Currently South Korea has 17 casinos – 16 of them foreigner-only venues. The latter venues had brought employment, foreign tourists and their money, and the building of tourism infrastructure in the country, Mr Lee reckoned.

Problem gambling

But the scholar said the issue of problem gambling remained a “sensitive” subject amongst the locals, and would possibly prevent the national government from following Japan’s lead and allowing locals to play at all venues, albeit with safeguards.

“Korean people are so sensitive to problem gambling and thus the [South] Korean government may not be willing to liberalise additional domestic casinos or IRs,” Mr Lee remarked to us.

The Korean government “would not take any action unless a large number of Koreans visits Japan IRs, resulting in strong [market] impact when they are opened,” the scholar added.

Paradise Co told us it anticipated the South Korean government would take a wait-and-see approach to the Japan casino market to see if it was a competitive threat to South Korea’s sector, but it was “difficult to predict,” how South Korean public policy on its casino industry might develop.

“One thing is clear: if a casino is opened in Japan, it is likely that many Koreans will be gambling in Japan, which could be a burden on the Korean government,” the Paradise Group spokesman added.

Mohegan Gaming told GGRAsia it was developing Inspire and making its financial projections, on the basis that South Korea would remain essentially a foreigner-only casino market.

“We are developing the Inspire Entertainment Resort, a Northern Asian destination, providing a world class casino to non-Koreans and a truly unique non-gaming experience for Korean nationals.  Said another way, we are not focused on the Korean market, with an expectation that locals will eventually be allowed access to our casino,” Mr Jones remarked to us.

---

---