Lee Jae-seok (pictured) a leading South Korean scholar in tourism management who attended the recent parliamentary forum on possible reform to regulation of the country’s casino industry, spoke to GGRAsia about the opportunities and challenges of such a path.
Government ideas seemingly include raising the maximum contribution to the Tourism Promotion and Development Fund from 10 percent to 15 percent of casinos’ annual gaming revenue; introducing periodic licence renewals for commercial casinos on the Korean mainland; and requiring government clearance for shareholder control changes.
Why has a 15-percent contribution rate been proposed?
Officially, the objective is simply to secure additional Tourism Promotion and Development Fund revenue. The Ministry of Culture, Sports and Tourism has not formally proposed that rate. At present, it appears to be a figure circulating in media reports rather than an official government proposal.
A five-year licence renewal period has been mentioned in the media. What is the origin of that idea?
As far as I am aware, no specific renewal period has been officially decided, and the Ministry has not announced a five-year term. The current discussion is about whether to introduce a licence renewal system, rather than the length of any renewal period.
The Ministry defended the proposed system as an international standard during the forum, but it does not appear to have conducted a comprehensive international comparison or presented specific overseas examples. I consider the reference to ‘international standards’ as rhetorical and insignificant.
Some casino operators said at the forum, that periodic licence renewals could discourage investment. What is your view?
There are advantages and disadvantages. Most overseas jurisdictions combine licence renewals with periodic performance evaluations. However, those systems generally apply to casinos allowed to serve local players, whereas most South Korean casinos are foreigner-only venues.
As South Korean operators therefore face greater investment risk, any renewal cycle introduced should probably be longer than those in comparable overseas jurisdictions, in order to provide greater investment certainty.
Is the proposed prior-approval system for changes in casino ownership linked to the recent ownership changes at Inspire Entertainment Resort or the former Jeju Sun Hotel & Casino?
In my view, the proposal is not primarily a response to those recent transactions. Similar ownership issues have arisen repeatedly over many years, both on the country’s holiday island Jeju and elsewhere in South Korea. The proposal is therefore better understood as an effort to close a long-standing gap in the country’s casino regulatory framework.
Besides the proposals discussed, what else is needed to strengthen the casino industry?
The key issue is how revenue from the Tourism Promotion and Development Fund is used. Casinos contribute a disproportionately large share, but little appears to be reinvested in the industry.
Using more of the fund to support casino tourism and integrated resorts could improve the sector’s long-term competitiveness. At present, however, there is no guarantee that any increase in casino contributions would be spent on the casino industry.
Do you expect the government to proceed with reforms despite apparent opposition from the casino industry?
That will depend on negotiations between the government and the industry, as well as on whether the proposals originate from the government or lawmakers. [President] Lee Jae Myung’s administration appears to advance legislation relatively quickly compared with previous administrations, so the reforms could be enacted during its term if prioritised. However, competing national issues could cause delays.
Would the proposed legislative amendments also apply to Kangwon Land Inc, operator of the country’s only casino that allows locals to bet?
Most of the proposals discussed appear to have little direct relevance to Kangwon Land Inc. However, any increase in contributions to the Tourism Promotion and Development Fund would apply to the company. It already contributes to that fund despite also being subject to payments to the Abandoned Mine Fund.
What impact would the Korea Financial Intelligence Unit’s (KoFIU’s) proposed stricter anti-money laundering [AML] requirements have on casinos?
I cannot assess Kangwon Land Inc’s own estimate that the proposed AML requirements would result in a 20-percent decline in revenue. The expanded reporting requirements would inconvenience customers and could discourage some from visiting. The AML proposal is separate from the casino-industry reforms we have discussed.
Does the government intend to end Kangwon Land Inc’s monopoly by allowing another locals-play casino in Honam, in the country’s southwest?
Representative Cho Gye-won, who hosted the forum, noted there was no casino in Honam. During an appearance on local television last Saturday, he also said he would propose a casino in Yeosu – his constituency in Honam. President Lee Jae Myung questioned at a ministry work report session late last year why ‘Honam lacked a casino,’ but there is no clear evidence that establishing one has become government policy.
Legally, another locals-play casino is possible, as licences are issued at the government’s discretion. Any approval would ultimately depend on future political and policy decisions. It is difficult to assess whether such a casino would be publicly- or privately-operated.
The coming opening of MGM Osaka in Japan was raised several times during the forum. Why is that creating a sense of urgency in South Korea?
MGM Osaka could pull South Korean and Japanese players away from Kangwon Land Inc and the country’s foreigner-only casinos. The challenge goes beyond casinos, to South Korea’s tourism economy. Even as the regional market grows, South Korea must improve its competitiveness, otherwise risk losing market share.
* Lee Jae-seok is an associate professor and head of the Department of Tourism Management at Kangwon National University. He holds a PhD in business administration, with a focus on tourism and sport, from Temple University in Philadelphia, Pennsylvania in the United States. He previously taught at the Faculty of Hospitality and Tourism Management at the Macau University of Science and Technology.
Mr Lee currently serves on the South Korean Ministry of Culture, Sports and Tourism’s K-Tourism Innovation Task Force. His research and advisory work focus on casino integrated resorts, tourism policy and gaming regulation.
