Inside Asian Gaming

INSIDE ASIAN GAMING | October 2011 22 claims of corruption. That’s not necessarily what investors are looking for when seeking gaming opportunities. Volatile politics can producevolatilebusinessoutcomes. InSouth America in mid-September, the populist left-wing president of Ecuador gave casinos there just six months to close following what many in the industry regarded as a deliberately loaded referendum. South Korea is a puzzle to outsiders. In some respects it’s Western-facing and free market-focused, but in other ways it’s very inward-looking and even protectionist. Individually South Koreans have not forgotten the efforts of Western forces under the flag of the United Nations in preventing the peninsula being overrun by the communist North during the Korean War. But collectively South Koreans are not sentimentalists when it comes to foreign direct investment. Generally-speaking, they like to keep things ‘in the family’. As Inside Asian Gaming reported in July, South Korea is planning to open up its casino market—with the addition of at least one more property aimed at domestic players and possibly also a handful of IRs. But whether foreign investors will be able to benefit from this opening up is a moot point. The encouraging thing fromthe viewpoint of foreign operatorswith experience of running IRs is that the Singapore government— probably the most pragmatic policy maker among the Pacific Rim countries—decided that it needed outside help, choosing IR consortia from outside its own borders. Building an outstanding, internationally- competitive casino industry is a one-off opportunity. There needs to be a ‘Wow’ factor of the sort found in Las Vegas, Macau and Singapore. South Korea’s casino infrastructure could certainly benefit from some fresh energy and new ideas. The country already has 17 casinos but only one—Kangwon Land, the only property currently able to accept domestic customers—is anywhere near IR standard in terms of its facilities. It has a golf course and ski resort as well as a hotel and casino. An upgrade in infrastructure could be one way to head off any competitive threat from Japan and Taiwan. Gamblers from those jurisdictions currently travel to South Korea, Macau and Singapore for their entertainment. They may do more of their gambling at home if domestic casinos take off. Nonetheless South Korea’s gaming tax rates are competitive with existing regional casino jurisdictions. The country’s Ministry of Strategy and Finance levies a 20% tax on gross casino revenues. IAG ’s sources say the South Korean government is mulling whether to locate the second locals casinoat Incheon—a city to the southwest of the capital Seoul—as well as several IRs dotted across the country aimed at the foreign tourist trade. It’s not clear at this stage what the precise timescale of the liberalisation would be. A date of 2015 has been mentioned as an important milestone. “The year 2015 is the time at which the exclusive right of Kangwon Land [casino] to accept Korean domestic customers expires,” says a source familiar with the issue. If the South Korean government’s focus is on domestic investment in IRs rather than foreign operations, then the frontrunners for licences are likely to be Grand Korea Leisure (GKL) and Paradise Group. GKL is a semi privatised owner and operator of three foreign players-only casinos. In the overseas player segment it is the biggest operator by GGR with around 54% of a market worth annually around US$1 billion—and rising. Its nearest competitor, Paradise Group, has five properties, but only 41% of the foreigners- only market by GGR. The domestic market served by Kangwon Land—is worth another US$1 billion annually. Depending on your point of view, Taiwan is either a democratic sovereign state or a troublesome breakaway province of China. Therein lies one of the key challenges in any attempt to create an IR sector in Taiwan. In terms of shared language and culture it is the jurisdiction best placed after Macau to capture the imagination and tourism dollars of mainland Chinese customers as well as Taiwanese players. But it is also the Asia Pacific jurisdiction (aside from Macau) most vulnerable to external political pressure from the People’s Republic. Visas for cross-border excursions by mainlanders—whether for family trips or jaunts to Taiwanese casinos— could be used as a bargaining chip by Beijing in any disputes or tensions between the two jurisdictions. Conservative estimates suggest a Taiwan casino market could be worth at least US$2 billion per year. That seems reasonable, given that the island’s existing legal gaming products—the national lottery, sports lottery and electronic arcades offering ‘amusement with prizes’ games— are generating around US$4 billion in gross revenue per year. The current proposal is for only two casino resorts, so in theory Taiwan could be a lucrative market with a good annual return on investment for capital providers and operators—depending how high the government sets the bar in terms A Korean IR scheme that didn’t float—the US$1.12 billion Poseidon Resort Kinmen—favourite in the race to build the one of two IR’s in Taiwan? Mainland China Taiwan Taiwan Straits Lieyu Kinmen South Korea Taiwan Cover Story