The COVID-19 pandemic, along with the international border closures it forced, is one of a number of recent headwinds to have thrust the issue of foreigner-only casinos into the spotlight.
And while it is perhaps too much of a stretch to make the blanket claim that the foreigner-only casino model is doomed, the health crisis certainly lends weight to the argument that such a path is shrouded in risk for both operators and the governments that invite them in.
The issue is particularly relevant right now given Thailand’s moves to investigate legalizing casinos, with some industry observers suggesting foreigner-only may well be the direction in which Thailand eventually heads.
In a recent interview with Inside Asian Gaming, Bernstein analyst Vitaly Umansky stated bluntly, “Foreigner-only doesn’t work.
“I mean sure, you can do a US$200 million property in Phuket and that will make a lot of money, but that’s not what the government is going to allow,” he said. “They’re going to want you to build a US$5 billion property catering only to foreigners and with an absurd tax rate – and none of it will ever pan out.”
Done right, foreigner-only casinos can be profitable. In South Korea, home to 16 foreigner-only casinos, industry-wide quarterly gaming revenue reached as much as US$348 million back in 2014, aided by the country’s proximity to China.
But Korea has also shown itself to be particularly vulnerable to regional headwinds, as evidenced by the impact of the 2015 MERS (Middle East Respiratory Syndrome) outbreak and an economic downturn in China that saw quarterly gaming revenues at Korea’s foreigner-only casinos fall to around US$250 million. The industry took a further hit that same year when Chinese tourist arrivals halved due to political tensions between the two nations.
COVID-19 has only exacerbated the problem, with the country’s leading foreigner-only operator, Paradise Co, reporting a US$20 million loss in 2021 coming off a US$39 million loss in 2020. Its main rival in the space, Grand Korea Leisure, recently reported a US$94 million loss for 2021.
It’s no doubt with this in mind that US tribal casino operator Mohegan Gaming & Entertainment is pivoting its US$1.5 billion Inspire Korea development in Incheon – due to open in 2023 – away from a gaming focus, describing it instead as an “entertainment destination.” It has even rebranded the IR “Inspire Entertainment Resort”.
“Fundamentally, the core of this project is non-gaming, so we are going to be able to leverage the significant population locally with these non-gaming amenities which are driving the business model,” Mohegan’s International President Bobby Soper explained recently.
Similar challenges are facing the industry in Vietnam, where a pilot program allowing gaming by locals in selected casinos has thus far not been extended to the large integrated resorts most in need of local patrons, such as Ho Tram and Hoiana. This is despite the Vietnamese government having long required foreign investors to commit a minimum of US$2 billion if they hope to be rewarded with a casino license – an amount far exceeding anything they could expect to earn back without the benefit of locals.
As we are already witnessing across Asia, casinos supported by strong domestic markets – the likes of the Philippines, Australia and to some extent Singapore – are already showing encouraging signs of recovery. The road back looks considerably longer, however, for those relying solely on foreigners.
Amid reports that Thailand may be considering a multi-billion-dollar integrated resort development in Bangkok, that’s a lesson the government would be well advised to heed.
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