Macau and Singapore’s casino industries naturally attract the most attention because of the scale of the investments made in them and the potential returns to be had on those investments. There is, however, another market that could be a sleeping giant. It’s South Korea.<

Vegas Casino at T.H.E. Hotel - Government thinking seems to be that the Korean resort island Jeju’s relative remoteness makes it a politically acceptable place for Koreans to gamble.

South Korean flags

Macau and Singapore’s casino industries naturally attract the most attention from analysts and journalists because of the scale of the investments made in them and the potential returns to be had on those investments. There is, however, another market that doesn’t get as much coverage but that could be a sleeping giant. It’s South Korea.

Unlike much-hyped Japan, South Korea actually has casinos. Indeed, the country was a trailblazer in the regional history of casino liberalization. The first one opened in Incheon - South Korea’s third-largest city in the northwest of the country - in 1965. That was only three years after Stanley Ho’s monopoly began in Macau. After Incheon came the Sheraton Walkerhill in Seoul in 1968. Then there was a 13-year hiatus until Paradise Casino - located at Haeundae Beach in the port city of Busan in the south of the country - opened in 1981.

Since then, the market has expanded to 17 casinos, 16 of them for foreigners only - mainly junket players from Japan and China, complemented by a sprinkling of Koreans who have access to a foreign passport. According to a study by Singapore-based DBS Vickers Research, revenues for the foreigners-only casinos grew fivefold between 2000 and 2010, hitting 1 trillion won (US$895 million). That’s impressive, but imagine how much more the Korean industry could be realizing if the market were opened up fully to Korean citizens. In 2009, the locals casino, Kangwon Land out in the wilds of Gangwon-do province in the northeast of the country, with 960 slot machines and 132 table games, generated gross revenue of KRW1.2 trillion (US$1 billion) all by itself - proof of the latent demand for casino gaming from the natives. In fact, sources inside the country say the casino is so popular among South Koreans that hard-up pensioners with time on their hands arrive early to occupy seats at the crowded tables and then charge eager gamblers arriving later up to US$700 for those seats on the weekend.



In the absence of an opening up of the domestic market, one way to drive further growth of the foreigners casinos might be via travel packages linked to the Meetings, Incentives, Conventions and Exhibitions market. The problem is that while South Korea has many virtues being a natural holiday destination for foreigners isn’t one of them. It’s expensive, plus it’s freezing in the winter and oppressively humid in the summer. Unless the market is further opened up to locals it could lose a significant part of its income in a matter of a few years if Japan ever gets around to legalizing casinos.

But the history of casino liberalization in other markets suggests that in general the process is a one-way street. Once it begins it’s very difficult to roll back. The one-way street theory seems to be confirmed in South Korea’s case by rumors that a second casino will be opened up to local players - possibly by 2012.

Having seen the roaring success of Macau and now Singapore, and with an ageing population, South Korea has recently been looking around for ways to create fresh economic growth and bring in fresh forms of taxation income. Taking advantage of the country’s existing casino infrastructure by opening it up incrementally to local players, and doing so ahead of any liberalization plans by neighboring countries, could have many benefits. As well as providing revenue from taxes raised on gambling, the opening up of the market to locals could generate the sort of cash that will allow the operating companies to invest further in new infrastructure. Already, several of them have teamed up with clinics and private hospitals to promote medical tourism from more expensive countries such as Japan, or ones with more patchy medical infrastructure, such as China.

The first sign of a thawing in the government’s attitude has been its willingness to allow the state-owned operators to become more commercially focused and more independent in the way they are run. In November 2009, Grand Korea Leisure, a state enterprise that operates three casinos (two in Seoul and one in Busan) under the Seven Luck brand, was allowed to float 30 percent of its stock on the Seoul bourse. As a sign of its growing confidence in the future of the industry, GKL spent KRW8.3 billion (US$7.1 million) on refurbishing VIP facilities at its flagship Seven Luck property at Gangnam in Seoul. GKL also revamped its casino at the Millennium Hotel Seoul Hilton. The new-look property, with extra seating, new games and new décor, opened last September.

Changes are also afoot in the South Korean gaming equipment market. In June BMM Compliance, a global gaming machine testing company based in Australia, set up South Korea’s first gaming device test center in partnership with Dongseo University and iReal Inc., a technology development company. This was significant because previously suppliers wishing to sell into the local market had to undergo a testing procedure overseen by the government that was unique to Korea, regardless of whether that equipment had already been approved for major markets such as Las Vegas or Australia by one of the internationally recognized compliance companies. Last July, Gaming Laboratories International, the world’s largest gaming compliance and gaming equipment testing company, hired a new development representative to work with suppliers and regulators in the Korean marketplace.

According to sources spoken to by Inside Asian Gaming, the front-runner to house a second “locals” casino is Jeju-do, an island off the southern tip of the country. Jeju is thought to be favored because it’s even harder to reach than Kangwon Land. Jeju already has eight casinos. It’s frankly too many in a market catering only to foreign tourists. In 2007, for example, 5 million South Koreans visited Jeju, but casino owners had the frustration of sitting and watching them come and go without once setting foot on their gaming floors.

Since 2006, Jeju has had the autonomy to grant visa-free access to citizens of mainland China, but those people also need a visa to leave China, and that may not always be forthcoming. Opening the Jeju market to Koreans, therefore, could be the answer to many prayers. But the devil will be in the detail of how it is done. Were only one open-access casino to be allowed it would create a cat fight among the current operators, who will naturally all feel they have the right to a share of the action. An alternative might be for the existing operators to join in a consortium, to convert or if necessary upgrade or expand an existing property for domestic players. Another possibility is that Jeju’s autonomous government invites an outside company to develop and manage a new facility. A fourth and more radical option would be to open up the whole of the existing Jeju market to Koreans, creating the country’s own “mini Macau”. That could be a doable and equitable solution for the industry, given that all the Jeju properties are boutique in scale. When the inventory of Jeju’s eight casinos is combined, it amounts to around 300 slot machines and 150 tables.

The Korean government’s thinking seems to be that Jeju’s relative remoteness will make it a politically acceptable choice of location for further liberalization. Allowing Koreans to gamble in Jeju would have the twin benefits of supporting the local economy while putting off the most impulsive Korean gamblers from regularly splashing their cash there.

It’s not an insignificant issue. Social and political sensitivities abound in Korea when it comes to casinos.

In October 2009, the Korea Times reported that from the time Kangwon Land opened in 2000, it had faced 23 lawsuits from Korean nationals claiming rebates on combined losses of KRW53.8 billion (US$50 million). In particular, some of the litigants claimed the casino management had broken its own rules on responsible gambling. While such claims by losing players are familiar to casino executives around the world, in South Korea they apparently still have the power to sway opinion among the public and, by extension, politicians Kangwon Land has plans to expand by 2012 but is laboring under a 6-year-old freeze on table games.

The casino was originally conceived as a government initiative to rejuvenate Kangwon Province - a former coal production center that became impoverished after the mines shut. It opened in March 2003 with 30 tables. Following 18 months of steady capacity expansion, the National Gaming Control Commission imposed a cap of 132 tables in November 2004 in line with government orders to limit the casino industry’s income. There has been much speculation over the past few years that the table cap would be lifted, but that has yet to happen.

Reprinted with permission from Inside Asian Gaming

INDIA: A new casino - and possibly more on the way

There’s a widely held belief that Indians are not nearly as interested in casino gambling as the Chinese. The opening last fall of Amsterdam-listed Thunderbird Resorts’ new resort in the former Portuguese colony of Daman may be a sign that things are changing.

Thunderbird says it is specifically targeting locals as customers rather than foreign tourists. The Daman property on India’s west coast was scheduled last month to complete the opening of its 81,000-square-foot casino with up to 400 slot machines and 25 table games in what is essentially a brand new market. The property also has a 176-room hotel.

Thunderbird said in a filing last year it had raised an initial US$58.5 million for the project through a mixture of debt and equity. The 1976 Gambling Act of Goa, Daman & Diu prevents Thunderbird (as a non-Indian national entity) from owning or operating a casino in India. The casino operations in India are instead held by a group of Indian nationals who lease space from a joint-venture company set up for the purpose called Daman Hospitality Private Limited.

The only other places in India with casino gaming are Goa and the former kingdom of Sikkim. Goa has a very limited operation consisting of a small number of slot machines for use by foreigners-only in some luxury hotels and a handful of casino boats. Political squabbling over the future of Goa’s gaming industry has resulted recently in what the operators say amounts to near harassment by the authorities, forcing them to moor farther and farther down river. Sikkim opened a land-based casino in March 2009, but only foreigners are allowed in.

Thunderbird could shortly be joined by another casino in Daman. Mumbai-based Delta Corp., which started life as a textile business and expanded into real estate and gaming, says it has an agreement in principle with the Daman & Diu government for a land-based gaming license. Delta already owns and operates two riverboat casinos in Goa and said recently it was in talks with Advani Hotels & Resorts to acquire a controlling stake in the company operating a third casino boat out of Goa, the M.V. Caravela.

VIETNAM: Ho Tram - or some of it - looks like a go

Vietnam already has casinos. But none of the five existing properties are open to its 86 million citizens. And the country’s most famous casino is one that hasn’t yet been built.

The centerpiece of what is being called the Ho Tram Strip on the coast of the South China Sea was conceived in the heady days before the global financial crash as a US$4.2 billion, 400-acre integrated beachfront resort with luxury hotels, gambling and an array of non-gambling attractions. At that time it seemed any casino license granted anywhere in Asia was a license to print money.

Even during that bull run, however, a number of analysts questioned the viability of such a large capital investment in a market without participation from local players. The consortium behind the project - Asian Coast Development Ltd. - remained resolutely upbeat. Its success in bringing in MGM Mirage (now MGM Resorts International) as a partner was taken by some as a sign of the impending opening of the Vietnam market to local players, which in turn would drive further investment confidence. It hasn’t happened so far.

But a lot has reportedly been going on behind the scenes to organize funding for Ho Tram. ACDL brought in Lloyd Nathan, president of what was then MGM Mirage Global Gaming Development, as CEO. This was followed by an announcement that the project would be divided into six phases, consisting of five distinct resorts - two with casinos. The financial engine room for the scheme would be the first of these two casinos. The 50-year license granted by the Vietnamese government allows for a resort-wide total of up to 180 gaming tables and 2,000 electronic games.

It was said that Vietnamese banks were willing to underwrite up to US$250 million of the first phase, provided a similar contribution was made by ACDL. Nathan had mentioned that New York-based hedge fund Harbinger Capital Partners was among a group of investors backing the project. By autumn there were reports that ACDL had come up with $150 million, taking the first phase total funding to $400 million. This appeared to be confirmed in October when the English-language media in Vietnam ran a story saying local government officials had visited the site and that construction work had restarted on a 540-room hotel - the five-star MGM Grand Ho Tram - and a golf course, restaurants and supporting facilities, with completion scheduled for 2013.

In November, MGM Resorts Chairman and CEO Jim Murren toured the site with members of the design and construction teams.

“Vietnam is an integral part of our strategic plans for ambitious developments in Asia,” he said in a prepared statement. “We believe the Ho Tram development is perfectly suited to complement Vietnam’s rapid growth in international visitation, expanding domestic tourism, and increasing demand for luxury leisure opportunities.”

JAPAN - Land of rising expectations

There appears to be a disconnect between Westerners’ expectations for gaming liberalization in Japan and what’s actually happening on the political front.

People can hardly be blamed for trying to wish casinos into existence in Japan. If and when they arrive there could be a very big pay day for operators, suppliers and investors. Japan is the world’s biggest gambling market on a per capita basis. Pachinko enthusiasts annually spend north of 21 trillion yen a year (US$6.6 billion) on the pinball-like machines. But legalization of casinos has been reported as imminent in Japan since at least 2002, and nothing has happened so far.

In 2003, Shintaro Ishihara, governor of Tokyo Prefecture, proposed a radical plan that avoided the need for new legislation and would have allowed casinos run in administrative terms in the same legal gray area as pachinko. Prizes won in Governor Ishihara’s planned casinos would have been exchanged for cash. But he couldn’t get the idea past the National Police Agency and the Justice Ministry. Since then, it has been generally accepted that any attempt to build a casino in Japan must be preceded by legislative reform.

Part of the reason for the gap between the expectation of legalization and the reality could be that the Japanese people who tend to talk to foreign investors and journalists about the issue are pro-casino. Nor does it do any harm for Western casino operators to talk up the prospects of casinos in Japan, especially if it helps to support their share prices.

Toru Mihara, a visiting professor at Osaka University of Commerce, gets plenty of space in Western publications regarding Japanese casino legislation. He has also worked as an advisor to the country’s Liberal Democratic Party on the issue. In June 2008, he told a packed auditorium at G2E Asia in Macau: “I still believe we will see some initiative within two weeks, before the end of the current Diet [parliament] session.” And he added, “We are not now discussing whether or not to build casinos, but we have moved on to discussing the structure of the regulatory authorities.” In September 2008, Mihara, now a member of an advisory board called the Bipartisan Legal Movement for the Promotion of International Tourism, told the Financial Times it would take six months of discussions for a formal casino bill to be introduced in the Diet. “If [the Diet] approves the bill, things will start moving very quickly,” he said. At the time, two “integrated tourism zones” were under discussion for licensing by the government, he said, with Tokyo, Yokohama, Hokkaido and Okinawa among the locations being considered.

Even if national politicians do have the will to generate economic growth via casinos, the revolving door of Japanese politics hardly makes life easy for them.

Aruze boss and Wynn Resorts Vice Chairman Kazuo Okada, who made his fortune supplying equipment to the pachinko industry, gave Bloomberg a stark assessment of the political situation back in December 2009. “In Japan, politicians are very weak in showing the will to do something,” he said. “Casinos should be opened against the backdrop of employment and tax revenue problems.”

Okada’s point about taxes is a pressing one. Government revenues have been falling, in part because of the economic slowdown, but there are other factors at work. According to the Ministry of Internal Affairs and Communications, at the time of the population census of 2005, 20.1 percent of Japanese were aged 65 and older. And by the time this year’s census is collated it’s expected that the graying of Japan (and thus the reduction in the tax base) will have accelerated, in likelihood exacerbated by the country’s political opposition to mass immigration to cover the demographic gap.

Since Okada made his observation in late 2009, the country has had two different prime ministers. From the time the pro-economic reform and pro-casino Prime Minister Junichiro Koizumi stepped down from his third term in September 2006, Japan has seen four prime ministers come and go. How can governments lasting on average only one year possibly find the time and political will to put a casino law at the top of their legislative agenda, when they barely have a grip on the reins of power? It’s a question the casino industry will no doubt be asking next time someone heralds the imminent arrival of Japanese casinos.

TAIWAN: Next challenge: the voters of Kinmen

Has Taiwan missed the boat regarding its ambitions to create its own casino industry?

The answer is probably “not quite”. But the resort or resorts eventually constructed in Taiwan could be a lot smaller and less of a draw for international visitors than the large integrated operations created in Macau and Singapore. But even if a Taiwan casino has a modest capex compared to the billions spent in Macau, it could still prove a success for investors if it can pull in enough customers.

That’s where some political uncertainties come into play both domestically and in terms of Taiwan’s relations with the mainland. Currently the front-runner to play home to Taiwan’s first casino resort is the offshore archipelago of Kinmen. It is nearer to mainland China than to Taiwan, and as a consequence is bristling with concrete bunkers and other old military installations hinting at the historical tensions between the two neighbors.

If Kinmen approves the casino plan (and that is not yet guaranteed), then the Taiwan government would be very happy for most of the customers to come from neighboring Xiamen in the People’s Republic. But that will depend on the political goodwill of China, and that is not guaranteed either. Even if built, a casino or two in Kinmen could become hostage to politics if the delicate relationship between Beijing and Taipei were to suffer a setback. If the players are not to come from mainland China, then the bulk of them will be coming from Taiwan itself. That raises potential political difficulties. Governments (and it seems public opinion) in Asia are willing to support casino gaming, but seem to prefer foreigners to be the ones losing the money. That’s been proven recently in the public disquiet voiced in Singapore after a number of local players sustained heavy losses.

The Taiwan law that allows casino lobbyists even to dream of a local industry was voted through with a good deal of controversy by the country’s parliament in January 2009. It lifted a decades-old ban on casinos. The Penghu islands in the Taiwan Strait to the west of the main island were initially viewed as the front-runner in the race to host the country’s first casino. In September of that year, around 30,000 Penghu residents cast votes in a referendum on a proposal to develop two casino resorts there, and 56 percent of them voted no. Casino advocates claim a major reason for the loss was the central government’s failure to come up with detailed measures to counteract local concerns about the potential social ills created by the casinos.

Kinmen submitted a rival bid with an application in August 2009 for a referendum on casinos. Approval of the referendum appears to have been held back, and in the meantime, pro-casino lobbyists, learning from the lessons of the Penghu failure, have been working on an improved pitch to get locals on their side.

Even in the absence of legal casinos, Taiwanese are avid gamblers. They get their fix at electronic gaming arcades to which the authorities turn a blind eye, or at least a pretty myopic one.

Taiwan currently has around 3,000 electronic game arcades offering quasi-gambling, in a similar fashion to Japan’s pachinko industry. Taiwan’s Electronic Game Arcade Business Regulation Act provides for two categories of arcade: one providing entertainment-focused games to the public, including minors; and restricted venues that are off-limits to people under 18, where quasi-gambling is understood to take place.

Despite their less-than-ideal operating environment, the restricted arcades are estimated to generate more than US$5 billion annually. That suggests plenty of pent-up local demand for legal gaming to support an ambitious casino venture, even if, as many fear, mainland China blocks its citizens from playing at them.