Inside Asian Gaming

INSIDE ASIAN GAMING | July 2011 14 I AG understands that Kangwon Land— currently the only casino serving domestic customers—has already been told by the government that it will lose its exclusivity rights. That could happen even before the scheduled expiry of those rights in 2015. “The year 2015 is the time at which the right of Kangwon Land to accept Korean domestic customers expires,” says a source familiar with the negotiations. “Technically speaking, Kangwon Land doesn’t currently have exclusive rights in that regard. But the government has in effect said ‘You are the only one that can accept domestic customers’. There’s nothing, however, to stop the government issuing another domestic licence before then. Other provinces have been pushing to host domestic casino customers,” adds the source. Kangwon Land generated KRW 1.314 trillion (US$1.25 billion) in gross sales in 2010, according to the company’s annual report. CLSA Asia-Pacific Markets said in its Korean Tourism Sector Outlook report in February this year that it expected the total size of the South Korean casino market—including the 16 foreigners-only casinos—to be US$1.9 billion during 2011. Kangwon Land is likely to account for at least 65% of that, assuming growth in the domestic and foreigners-only markets in 2011 is proportionate to that seen in previous years. Given the popularity of Kangwon Land with domestic players, it’s likely that were other domestic licences to be issued, it would lead to a net expansion of gross revenues in the South Korean casino market. How much the market will expand is likely to depend on where the domestic licences are granted. A domestic licence in Incheon, only 16 miles from Seoul, for example, is likely to result in significant cannibalisation of Kangwon Land’s business. Kangwon Land is 125 miles and four hours’ drive from Seoul along a difficult road. Kangwon Land is also in an economically underdeveloped area, meaning it has no affluent hinterland of players on which it can rely. “I understand that Kangwon Land are currently compiling a list of other investment opportunities around Asia that they can go and look at,” explains the source. “Bear in mind Kangwon Land’s charter was always to make money to develop the province [Gangwon-do]. It was never about private business getting special treatment. The idea of having a casino was to put money back into the province. They know that if they lose their exclusive right to serve Korean domestic players, their business is going to suffer. People won’t want to drive for several hours from Seoul on a difficult road to get to a casino if they have an easier alternative nearby.” The South Korean government may have a pragmatic reason for opening up the domestic market. This is that the ban on domestic players is already being widely dodged. The country’s Chosun Ilbo newspaper reported in May that increasing numbers of South Koreans were gambling in foreigner-only casinos—often by obtaining foreign residency permits from corrupt officials of developing countries. The newspaper said Seoul Metropolitan Police Agency recently arrested 16 people on charges of illegal gambling on residency passports obtained by forging Ecuadorean residence permits and 29 others for issuing the fake documents. “Certain South American and Southeast Asian countries consider the issuance of residence permits a source of tax revenue, so simply spending five days to a month in those countries is all it takes to get a residence permit through a broker,” said a police spokesman quoted by the paper. According to South Korea’s Foreign Ministry, the number of Koreans with foreign residence permits and residency passports rose by around 6% from 95,824 in 2006 to 101,300 in 2010. The Home Front Kangwon Land to lose its domestic exclusivity Night fever—Kangwon Land is enormously popular with Korean domestic players Source: CLSA Asia-Pacific Markets Korea casino visitors trend Kangwon Land (‘000 people) Foreigners’ casinos 6,000 5,000 4,000 3,000 2,000 1,000 0 1991 1994 1997 2000 2003 2005 2009 Casino revenue trend in Korea Kangwon Land (bn won) Foreigners’ casinos 2,500 2,000 1,500 1,000 500 0 2000 2002 2004 2006 2008 10CL Cover Story