SOUTH KOREA

Diversification, non-gaming help offset political hiccups

South Korea’s foreigner-only casinos are entering 2019 in a more stable political environment than the past few years, though it remains to be seen whether this translates into a better performance from the operators after a mixed year in 2018.

Tensions between North and South Korea have eased and President Moon Jae-in is in a relatively strong position after the corruption convictions of two of his predecessors crippled the opposition.

However, the regime of Kim Jong-un is unreliable and the trade war between the U.S. and China complicate the outlook, according to the 2019 Asia Risk Assessment from Steve Vickers & Associates.

“Tensions with North Korea have fallen, but optimism could dissipate when talks reveal the vast distance between Pyongyang and Washington,” the report said.

President Moon has sought closer ties with China after a frosty few years brought about by Seoul’s deployment of a U.S. missile system, though the trade war may make rapprochement with Beijing more difficult.

The delicately balanced relations between the North Asian nations have proven to have a major impact on the bottom line of South Korea’s foreigner-only casinos. China banned tour groups to the country after the deployment of the missile system in March 2017, resulting in a strong hit to revenue.

Such knocks, which followed shortly after the tourism plunge due to an outbreak of Middle Eastern Respiratory Syndrome in 2015, highlighted the risks of foreigner-only casino models and the need for the IRs to be able to attract a broader client base and woo locals with non-gaming attractions.

The success in such initiatives appear to have been reflected in 2018 results, with Paradise Co. putting in a strong performance and its rival Grand Korea Leisure reporting weak revenue.

Paradise Co. runs four casinos, including the country’s first true IR, Paradise City in Incheon, near Seoul’s international airport. The latter opened in April 2017 and is a venture with Japan’s Sega Sammy, which has helped draw in Japanese VIPs.

The company reported an almost 16 percent gain in casino revenue for 2018, with both table games and machine revenue showing strong growth.

Total revenue for the year was KRW638.3 billion ($570.6 million), with table revenue up 15.7 percent to KRW595.7 billion and machine revenue up 16.9 percent to KRW42.5 billion.

For December alone, the operator reported an 8.4 percent increase in revenue to KRW55.5 billion, with table revenue up 8.4 percent and machine revenue gaining 32.2 percent.

As of publication, the company has not provided a more detailed analysis of its annual performance, though its Q3 earnings presentation suggests that performance is being driven by its Paradise City IR.

The resort in Q3 reported a gain of 21.8 percent in casino drop, fuelled mainly by Japanese and other VIPs, while its hotel revenue surged 47.6 percent, driven by locals on mini-vacations, referred to as “hocances” in South Korea.

Paradise rolled out further non-gaming amenities in September and added a duty free shopping store in December, marking the completion of the first phase of development.

Paradise City is the first of several IRs planned for Incheon, including a project by Mohegan Gaming and Entertainment and Caesars Entertainment. Executives have stressed the success of these multi-billion dollar initiatives will be in large part down to the ability to draw in the crowds from the vast Seoul area with non-gaming initiatives.

Grand Korea Leisure, which is owned by the Korea Tourism Organisation and does not have the advantage of a full-scale IR, reported total casino revenue fell last year, brought about by a decline in machine sales. The company reported a total of $431.14 million in casino sales with a 14.4 percent year-over-year decline in machine revenue to $51.38 million. Table revenue was flat at $379.73 million. The company runs three casinos under the Seven Luck brand.

Former Kangwon Land head sentenced to three years

The former head of state-run casino operator Kangwon Land was sentenced to three years prison for conducting illicit hiring practices between 2011-2014, local media reports.

Choi Hung-jib, former CEO of Kangwon Land Co. was indicted for instructing his officials to favor candidates with ties to high-profile politicians during the hiring process. Last year, two lawmakers from the main opposition party in South Korea were also indicted in connection to the job placement scandal.

Representatives Kweon Seong-dong and Yeom Dong-yeol were charged with abuse of power and business interference but were not detained.

N. Korea reportedly halts casino project

North Korean leader Kim Jong-un has reportedly ordered the halt of casino-related projects in the country under pressure from Beijing.

Radio Free Asia in December cited sources with connections to the secretive regime as saying that the order affects the construction of a hotel in Sinuiju, which was to have included a casino. Sinuiju is located across the Yalu River from China’s Dandung.

“The main reason for halting the casino project is that it has been deemed that the project is a major hindrance to obtaining investment from other countries, particularly China,” RFA quoted the source as saying. “Kim appears to have made the decision upon hearing that the Chinese government is negative about North Korea’s casino project.”