Inside Asian Gaming

INSIDE ASIAN GAMING | September 2013 38 The Asian Gaming 50 – 2013 in the fourth quarter of last year, though it appears Paradise is ahead again in 2013. There is also one casino opened to Korean nationals, state-owned Kangwon Land in the remote northeast of the country, which debuted in 2000. Going forward, a big factor in Paradise’s favor is that it is relatively more reliant on Chinese visitors, whose numbers are showing the strongest growth of all inbound markets. (South Korea is the third most popular destination, behind Hong Kong and Macau, for outbound Chinese travelers.) GKL is dependent more on Japanese patrons. Paradise also enjoys an additional revenue stream from its ownership of the largest casino in Kenya, Paradise Safari Park & Casino, with 40 tables and around 100 slots. And Paradise has been going strong so far this year. In the second quarter, revenue across its six casinos (including the Kenya property) rose 19.7%year on year to KRW127.7 billion (US$115 million). One thing weighing against all the foreigners-only casinos is the imposition of a 4% casino consumption tax beginning in 2014. The government is also proposing an additional 10% leisure tax on Kangwon Land to raise funds for infrastructure development in its host Gangwon province ahead of the 2018 Winter Olympics. If that measure proceeds, a leisure tax may also be imposed on the foreigners-only sector, though probably at a lower rate. Paradise, meanwhile, is investing heavily to compete within a regional gaming industry increasingly replete with comprehensive and luxuriously appointed resorts. In September last year, Paradise signed an agreement with Japan’s Sega Sammy Holdings, a leading manufacturer of pachinko machines, to develop a KRW800 billion (US$730 million) IR in Incheon featuring two five-star hotels, a convention center, concert hall, indoor theme park, shopping mall and casino, with a phased opening beginning in 2016. Some 450 table games are envisioned at full build-out— twice as many as Paradise operates now in all five of its casinos. The joint venture company, Paradise SegaSammy, announced in July that rather thanobtaininga separate license for the casino within the planned IR, it was going to develop the complex as an expansion of Paradise Casino Incheon’s current operations. This may have been a defensive move in the wake of the government’s rejection in June of casino license bids by Caesars Entertainment and Kazuo Okada’s Universal Entertainment, both of which were bidding to develop similarly scaled IRs in Incheon. Mr Chun is also jockeying to position his company ahead of the expiration of Kangwon Land’s exclusive license to serve the domestic market. When that happens, it’s probable one or more licenses will be issued in what is already a massive and lucrative sector, and Paradise Group looks to be the odds-on favorite to secure one of them. Hopes are high that Japan is on the verge of legalizing casinos. In April, a cross-party alliance consisting of 140 pro-casino lawmakers in Japan’s parliament, the Diet, selected Prime Minister Shinzo Abe as their chairman and agreed on a plan to submit a draft casino bill during the Diet’s extraordinary session this autumn. Mr Abe has indicated he is open to the idea of casino resorts as part of his strategy for driving economic growth. If the wisdom of stock markets is anything to go by, were casino licenses to be offered, Sega Sammy Holdings—which is developing a gaming resort in South Korea in partnership with that country’s Paradise Group—would be among the front- runners to secure one. The company has seen a strong rally in its share price this year despite reporting a drop in profit in the fiscal year ended 31st March. Sega Sammy stated a desire as far back as 2007 to invest in casinos in Japan should the opportunity arise, and last February, purchased a resort in Miyazaki Prefecture. Two months after that acquisition was announced, Chairman Hajime Satomi reasserted the company’s intentions, saying,“Of course, [a casino] is what we have inmind.” Then, last September, the company signed the agreement with Paradise to develop an integrated resort in Incheon just minutes away from the international airport serving Seoul. The joint venture company, Paradise SegaSammy, has estimated the development cost at KRW800 billion (US$730million), which includes two five-star hotels, a convention center, concert hall, indoor theme park, a shopping mall and a casino, with a phased opening beginning in 2016. 25 Hajime Satomi Chairman, President and CEO Sega Sammy Holdings Sega Sammy was created in 2004 when Sammy Corporation bought a controlling interest in ailing video game giant Sega. The 71-year-old Mr Satomi, who heads the combined group, founded Sammy Corp. in 1975 and built it into one of the biggest suppliers of pachinko and pachislot machines in Japan—its major rival in the market is Sankyo Corporation. In the current fiscal year, Sammy says it will sell 260,000 pachinko machines and 365,000 pachislots. Sega Sammy expects to generate 485 billion yen (US$4.9 billion) in total revenue in the current fiscal year, a significant improvement over last year’s 321.4 billion yen. Although it already ranks as one of Japan’s biggest companies based on recurring income, a casino license would propel it much higher. Investment brokers CLSA Asia- Pacific Markets estimates two casinos, one each in Tokyo and Osaka, would generate US$10 billion in annual revenue.