After Macau and Japan, Could South Korea Be a Winning Bet?

With gaming growth in Macau and hopes for Japan later this year, gamblers and investors alike are wondering which countries will also follow suit and ramp up their gaming industries. Because the country wants to support cultural development and it already has a head start with its leisure and gaming industry, South Korea might become yet another high-profit growth region for gaming in South East Asia.

Since the South Korean government decided to allow large-scale casinos in the country two years ago, only one company has successfully won a bid to build there. Genting, the operator of Resorts World casinos, announced in February that it plans to build the $2.2 billion Resorts World Jeju. Because the country already has 17 small-scale casinos, it might seem that if it hasn't happened already the industry there is not going to boom. Yet consider that out of the 17 small casinos, the only one where nationals can play makes more profit than all of the other 16 casinos combined. A decision that opens new, large-scale casinos to nationals, in a wealthy country where the GDP per capita is similar to that of Japan, could create a huge untapped market.

A rendering of what the South Korean resort island could look like. Photo: HuffingtonPost

Can the government clear the red tape?
Financial requirements for companies that hope to win bids have been too tight. A South Korean government official said that "We are considering easing the bidding standards after receiving complaints that it is too difficult to meet the criteria of credit ratings, but we have yet to decide on detailed plans."

This hits home for Caesars Entertainment (NASDAQ: CZR  ) which was seen as a lead bidder for entry into the South Korean market throughout the first half of 2013. However, in June 2013, the government declined the bid, reportedly due to worry over Caesars' huge debt load. The company is currently undergoing a debt restructuring following this event, which included the sale of its Macau properties so it could pay down a portion of its debt. 

What other casinos might be interested in South Korea now?
MGM Resorts
(NYSE: MGM  )  has also expressed interest in the market. CEO Jim Murren said last year that the company plans to continue growing along with gaming expansion in Asia. Speaking on South Korea, he said that "The view is becoming more favorable, so we'll have to see. But that is potentially, again, a very large opportunity."

South Korea could be a market for more than just big-name casinos. PNC Financial Services (NYSE: PNC  ) , the real estate and lending company, has already provided a letter of intent in January 2014 to a state-run developer on a $6.3 billion project for two casino hotels which include 3,000 rooms, a business hotel, a shopping mall, and other entertainment facilities.

However, companies that try to enter the market after Genting will find that this Malaysian gaming powerhouse will make for a tough competitor, as shown by its competitiveness in Singapore. Las Vegas Sands (NYSE: LVS  ) has gained sizable revenue in Singapore from its Marina Bay Sands casino. The Singaporean government has only allowed two casino licenses, and the other one is held by Genting with its Resorts World Sentosa. The competition between these two casinos has been fierce for this market's $2.7 billion in total gaming revenue for the year ending June 2013. In the end, Genting raked in 68% of this revenue as it beat out Sands as the top player in the country twice-over.

So will any casino companies focus on South Korea? Maybe after Japan
Analysts estimate that Japan could become the second-largest gambling market in the world, even though casinos are still outlawed in the country. The government will vote on legislation in the coming months that will decide whether or not casinos will be allowed to begin building in Japan. Because the government has said that it would like casinos to fund a portion of the cost of the coming 2020 Olympics in Tokyo, the general consensus is that the government will give its approval and that four licenses total will be awarded in Tokyo and Osaka.

Sands CEO Adelson says that his company would invest $10 billion in Japan if need be. Photo: Bloomberg

For the last few months, Japan has seemed to be the focus of gaming companies and investors. Wynn Resorts (NASDAQ: WYNN  ) is an example of companies which are getting serious about their talks with Japanese officials, as Wynn says that if allowed, it will happily invest the estimated $4.8 billion needed to build a casino resort in the area.

Wynn reaped $1,119.9 million from its Macau operations in the fourth quarter of 2013, 74% of the company's total revenue for the quarter. The company will be happy to have an even larger Asian presence by entering Japan. Las Vegas Sands, MGM, Caesars and others have all also expressed willingness to make major investments in Japan if accepted.

Foolish takeaway
South Korea's decision to cut red tape could be an exciting step toward the country finally opening up to large-scale casinos. Like Singapore and other Asian gaming locations, this too could be a very lucrative market. However, as Genting already has a head start in the market and other casinos are focused on Japan, it may be too early to spend too much energy focusing on South Korean gaming.

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