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Two Systems

South Korea wants casino expansion but is its economic model viable? By David McKee

With Japanese casinos still somewhere in the hazy yon and the Chinese government turning the pressure on Macao up and down like the burners on a stove, South Korea and Singapore are where the action is. However there’s one significant difference between the two: if you’re a South Korean you can’t gamble in your native land. Almost.

In remote, coal-mining country there is a ski resort with 200 table games and 1,360 slots. This is Kangwon Land, the only casino a South Korean citizen can enter if he wants to have a bit of a flutter. All other casinos in South Korea are strictly for tourists. Given this dichotomy, it is not surprising that Kangwon Land accounts for roughly half of South Korea’s casino economy.

The government, which recently floated the idea of a second, locals-only casino, obviously doesn’t want its citizens gambling and makes it hard for them to do so. Nonetheless, it wants more casinos — and big ones — which raises something of a conundrum as to whether foreigners-only mega resorts could support themselves.

As though to prove the point, Paradise Co. released February numbers that showed gaming revenues at its five foreigners-only casinos up by 13.5 percent — but amounting to a gross of less than $37 million. And when its Paradise City opened on April 20, it was between a rock and a hard place: a Chinese ban on travel to South Korea and tensions brought on by U.S. President Donald Trump’s saber-rattling toward North Korea. A shipload of Chinese tourists even refused to disembark at Jeju Island, a popular gambling spot for tourists in South Korea.

Two of the biggest players in the industry, Las Vegas Sands and MGM Resorts International, have made it clear that they don’t think a tourist-only casino is a viable investment for them … at least not at the scale they are accustomed to building. “A casino that allows local residents would be a necessary element for our business model, in the scale of the investment that we are proposing to make and the magnitude of the property that we would look to develop in the market,” said Sands Managing Director of Global Development George Tanasijevich. That’s a nice way of saying ‘Let the locals in or we won’t come.’

Sands promises “a truly iconic building” in Jamsil, near the site of the 1988 Olympics, although this would require dismantling a baseball stadium that sits on the land at present. Somewhat absurdly, Sands contended that tourists would be afraid to play in a casino from which locals were barred — an argument that falls flat on its face in the context of South Korea’s $2.7 billion 2014 casino economy. “They will be suspicious and the positive environment will not be created if Korean citizens are not permitted to enter the facilities,” Tansajievich said, absurdly. (To put this further in context, Sands runs a casino in Singapore where locals are charged admission but tourists are not.)

Tourists certainly aren’t avoiding Korea itself, especially ones from the coveted China market. From 2013 to 2014 their visits grew 53 percent, as they sought everything from retail to plastic surgery. “South Korea already has got the gaming industry infrastructure. At least they are familiar and don’t have to go through the initial stages like Japan,” IGamiX Management & Consulting Ltd managing partner Ben Lee told Reuters.

Unlike Sands and MGM, other firms have decided to gamble on the Korean status quo. Paradise Co. partnered with Japanese company Sega Sammy to develop $1.2 billion Paradise City. A Caesars Entertainment project near Incheon International Airport has been inching forward but has been slowed by Caesars’ bankruptcy and the pullout of joint venture partner Lippo Holdings. Caesars CEO Mark Frissora vowed to soldier on with the $700 million project and begin construction this spring, turning to Guangzhou R&F Properties for help.

But the acid test of the Korean market is being conducted by Mohegan Tribal Gaming Authority, which has invested the first $1.6 billion of an eventual $5 billion into a metaresort called Inspire, adjacent to Incheon Airport. Forbes magazine enumerated the bells and whistles: “1,350 five- and six-star hotel rooms in three towers, a shopping mall, a Korean cosmetic and beauty hub … an indoor/outdoor Paramount Studios theme park, an indoor rainforest and adventure park, along with a 20,000 square meter casino with 250 tables and 1,500 gaming machines, all adjacent to South Korea’s first private air terminal and connected to the main airport.”

That’s an enormous gamble on what is a casino economy half the size of Las Vegas’. Making Inspire pencil out is going to require not only bleeding off a substantial number of players from existing casinos but having an impact on tourism comparable to Singapore’s Marina Bay Sands. Can it be done? Given the degree to which Inspire is upping the ante for Korean investment others will probably wait and see — and continue to pressure the government to let the locals play