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Takeaway: LVS, WYNN, and Genting would be leading contenders to invest in a potentially high IRR market

A summary of our expert call on the prospects of expanded gaming in South Korea

Last week, we hosted a call with Steve Park, Senior consultant at Gaming Asia-Pacific, to discuss the prospects for gaming expansion in South Korea.  Mr. Park is heavily involved in the process of drafting the gaming expansion platform for the government.  His bio is below. 

According to Mr. Park, South Korea has a 50/50 probability of passing gaming expansion legislation.  At this point, the platform is likely to be modeled after Singapore only with more licenses.  Investment returns would be very high in our opinion.  We think LVS, WYNN, and GENTING would be leading candidates to capitalize on this gaming expansion.  In particular, LVS seems well-situated since it is a premier IR operator with a major focus on the MICE business in Korea.  MGM, MPEL, and GALAXY would also be interested parties but they are lower-tiered operators.  On the gaming equipment side, we think Aristocrat, IGT, and SHFL stand to benefit from expanded gaming in South Korea.

Here is a summary of Mr. Park's comments on South Korea:

Background

  • Korea Tourism Organization (KTO) is in charge of tourism policy and reports to the Ministry of Sports and Tourism.
  • Back in 2009-2010, KTO looked at ways to increase inbound tourism, particularly the MICE business.  They studied the Macau and Singapore models and reached out to international gaming operators regarding interest in new Korean casinos that would allow local play.  The feedback was positive from LVS, WYNN, and MGM.  
  • Currently, there are 16 casinos with only one casino (Kangwon) that allows locals to gamble.

Gaming bill/Timeline

  • Bill details
    • Minimum investment of $2 billion (similar to S’pore standards).
    • $500 million needed for a foreigner’s casino license.  Recently, the Ministry made an ordinance change to allow for more flexibility.  The investment requirement to apply for a license has been reduced from $500 million to $250 million—provided the candidate meet a B investment grade rating and submit a plan for something other than a casino or hotel (e.g. auditorium, retail).
    • VIP and mass gaming taxes will be similar.  Currently, GGR tax is 10% in South Korea.
    • Prevention/treatment standards would be similar to Nevada standards.
    • IR job creation:  10,000 gaming employees (30,000-35,000 indirect jobs) per IR project.
    • South Korea/Singapore model differences:  will not limit the number of licenses; will not need to have 50% of investment before granting of license.
    • South Korea/Singapore model similarities:  US$ 70-80 (daily entrance fee), US$ 800-900 (annual entrance fee).
    • An IR could be located in the midpoint between Incheon airport and Seoul Metropolitan area.  Another IR could be located near the Busan area.
    • 24 legislative members comprise of the IR committee.  There are about 300 legislative members in total.
  • Current timeline 
    • Hope to submit legislation in April/May and have Congress review it by the end of 2013.
    • Selection/licensing process will take six months.
    • Earliest bill passage date:  Oct/Nov 2013—IR construction could start in summer 2014.
    • Presidential election:  Dec 19; new President will be in power Feb 2013.
      • Presidential candidates: will not support gambling publicly but will say they want to expand MICE industry via IR.
      • However, Mr. Park believes all candidates would be in favor of expanded gaming.
  •   Keep an eye on the agenda that comes out in February from the transition committee for any mention of IRs.

Obstacles

  • Negative public opinion on gambling
    • This is the biggest hurdle.
    • 70-80% of public has not been inside the casino.
    • Public needs to be informed about gaming.
  • Kangwon, who has a monopoly on local gaming, will oppose 
    • Foreign casino opposition:  7-luck (owned by Grand Korea Leisure Co)— also a government company, owned by KTO

Other

  • Kangwon regulation
    • Political schedule dictates how Kangwon is regulated.  Every year, Korea has a regular congressional oversight period some time between end of September to end of October.  Any consideration on additional gaming supply or other changes to the facility would happen after the oversight period.  Hence, the additional tables may be approved in February or early Spring 2013.
  • 8 City proposal:  not optimistic on this project; too many logistical complications
  • Okada:  has hurt its image in South Korea with the WYNN debacle; furthermore, it is applying for two projects simultaneously - 1) Incheon City and 2) Incheon Free Economic Zone (IFEZ) Authority—two different jurisdictions.
  • CZR:  looking at Midan City - northeast part of Yeongjong Island which is 10 minutes away from the Incheon International Airport.  City infrastructure has been completed but Midan City is trying to find an operator for a foreigners-only casino license.  CZR is interested in the project in that they wouldn’t have to contribute to the construction costs.
  • Other Asia opportunities:  Taiwan expected to submit a bill in 2013.  It’s still uncertain in Japan.  Vietnam has said no to local gaming. 

Steve Park Bio

Steve Park is a partner and senior consultant at Gaming Asia-Pacific, a firm providing business and regulatory consulting for international clients wishing to enter the South Korean and Japanese markets. Serving as a consultant to the Korea Tourism Organization Advisory Board, Park advises the integrated resorts committee on political and media affairs. He also provides advice and assistance to the New Frontier Party to develop the government party’s legislative agenda and strategies. Previously as a policy advisor in the National Assembly, Park served in the Public Administration & Security Committee reviewing tourism development projects and spending by all 16 regional governments such as Incheon’s Yeongjeong Sky City and Jeju’s tourist-only domestic casino resort. He also served as a campaign consultant and reporter in the U.S for the Republican Party and the Washington Times. Park holds a bachelor's degree in international studies and a graduate degree in government from Johns Hopkins University.