Oversupply feared for casino resort industry

With the South Korean government pushing to issue two new licenses for integrated complexes of foreigner-only casinos, voices of concern are rising over a potential surplus in the industry already hit by a global economic slowdown, China’s anticorruption drive and unstable demand.

“As there are already two integrated resorts being constructed in the metropolitan region, an additional establishment would have a great chance of resulting in excess supply,” said Pyo Hak K., an honorary professor of economics at Seoul National University, at a seminar hosted by New Politics Alliance for Democracy Rep. Joo Seung-yong and SNU’s Institute of Economic Research on Tuesday.

Currently, two integrated casino resorts are being constructed on Yeongjongdo Island, Incheon, to be opened between the end of 2017 and early 2018. They are being built by Korea’s largest foreigner-only casino operator Paradise and LOCZ Korea, a Chinese-U.S. consortium of Lippo and Caesars Entertainment.

Experts attending the seminar pointed out that while the number of visitors to casinos in Korea -- mainly from such countries as China, Taiwan and Japan -- consistently increased from 1.7 million in 2009 to 2.96 million last year, the number declined by 40,000 in the third quarter of this year compared to a year before due to a global economic slump and the Middle East respiratory syndrome virus outbreak.

“Additional construction of integrated resorts without a proper estimation of demand can lead to oversupply, as such is the case on Jejudo Island where (resorts there) are sustaining on deficit operation,” Pyo said. “In the case of oversupply, the entire industry would become vulnerable to such unforeseen factors as MERS.”

The seminar looked into outside factors, such as China’s anticorruption crackdown and its slowing economic growth that could discourage demand from Chinese gamblers, the main source of income for foreigner-only casinos.

Joo pointed out that the recent withdrawals from the Ministry of Culture, Sports and Tourism’s Request for Proposals by several investors showed the low business value of the project. Grand Korea Leisure Co., the state-run casino operator, for instance, aborted the plan to apply for a casino resort on Yeongjongdo Island in November.

“New integrated resorts should be centered around nongaming facilities, such as a theme park, instead of focusing on casinos in order to deviate from the business model dependent on them,” Joo said.

The tourism ministry received proposals from six businesses last month for a total of five regions including Incheon, Yeosu of Jeolla Province and Jinhae of South Gyeongsang Province. The ministry is set to evaluate the plans and announce the contract winners by Feb. 27.

By Yeo Jun-suk (jasonyeo@heraldcorp.com)