IAG JUN 2019年6月 亞博匯 28 COVER STORY S ince 2008, Kangwon Land casino has operated under a most unusual ownership directive: restrict revenue. Management at the only casino in Korea you can enter without a foreign passport has habitually overshot the government’s revenue cap. Last year, though, Kangwon Land missed to the negative side: gaming revenue fell 8% and profits tumbled 32%. The government-controlled operator is finding better balance this year, but long term issues remain. “It’s a vicious cycle,” CGS-CIMB analyst in Seoul, Jun Lim, says. “They have tried to limit growth to meet the revenue cap, leading to a deteriorated operating environment in terms of customer experience.” After missing the government’s gaming revenue cap in 2016 for a fourth straight year by an all-time high of KRW187 billion (US$187 million), management faced increased pressure to curb revenue growth. That pressure increased in mid-2017 as President Moon Jae- in took office after President Park Geun-hye’s ouster amid scandal, with authorities reexamining alleged nepotism during former Kangwon Land CEO Choi Hung- jib’s 2011-14 term. SELF-CONTROL Kangwon Land began “actively controlling its revenues this year by reducing active gaming capacity and controlling VIP memberships,” JP Morgan analysts DS Kim and Sean Zhuang wrote in 2017. They reported that just 120 of the 180 main floor gaming tables were staffed at any given time. Kangwon Land overshot the cap again, but by 6% or KRW80 billion, as 2017 gaming revenue fell 6.5% and operating profit fell 33.1%. The downward trend accelerated as the year went on and that momentum carried into 2018. With a cut in operating hours from 20 to 18 and main floor gaming tables from 180 to 160 – with just “Vicious cycle” caps growth 「惡性循環」抑增長 110 staffed, according to JP Morgan – Kangwon Land’s KRW1.4 trillion in gaming revenue didn’t exceed the cap. Visitors fell 8.4% to 2.85 million, dropping below 3 million for the first time since 2011. Olympic exposure brought no meaningful bump in foreign visitors or non-gaming revenue. This year’s first quarter seems to have stopped the downward slide, with gaming revenue off 1%, overall revenue flat and operating profits down 1%. JP Morgan analysts Kim and Christopher Tang point out that removing a one-off Olympic promotion expense from 1Q18 shifts operating profits down 13%. But that’s still an improvement over the previous quarter and full year, so they’re relatively upbeat. From 13 May, Kangwon Land shifted its opening two hours later to operate 12 noon to 6am, which should encourage more people to visit from Seoul after work, but will pressure profits with more overtime pay for staff. CAR REFITTING Officials of the National Gaming Control Committee have been working on a revision of the cap formula, set to 0.54% of GDP since 2014, that analysts expect will alleviate some pressure to limit revenue growth. That could lead to opening more tables to alleviate overcrowding and give players a better experience, CGS-CIMB’s Lim believes, setting the stage for renewed growth. He dismisses any threat of domestic competition when Kangwon Land’s mandated monopoly on Korean play expires in 2025. “There’s no way there’s going to be local gambling elsewhere,” Lim says, citing public skepticism about expanding gambling and the government’s desire to keep the revenue coming. The real threat, he believes, would come from a Japanese casino that Koreans could fly to in the time it takes to reach Kangwon Land.