South Korea’s Ministry of Culture, Sports and Tourism has ordered Kangwon Land – the only casino in the country where locals are allowed to gamble – to reduce both the number of mass market tables in operation and its daily operating hours.
The directive, which came into effect on 1 January, is part of the government’s new Gaming Industry Reform Plan and sees the maximum number of mass tables Kangwon Land is allowed to operate reduced from 180 to 160. Opening hours have also been reduced from 20 hours per day to 18 hours per day.
In a note sent to Inside Asian Gaming, JP Morgan analysts DS Kim and Sean Zhuang state that the Gaming Industry Reform Plan announced by the Prime Minister’s Office on 14 December “clearly points to further regulatory tightening and increasing oversight on local gambling” and includes four major initiatives, “one of which effectively targets Kangwon Land by redesigning the Revenue Cap Policy with heavier penalties and stricter legal enforcement.”
Korea’s Revenue Cap is designed to regulate legalized gambling industries in Korea by setting an acceptable maximum level of gaming demand with the revenue cap for the entire gambling industry combined calculated as a proportion of GDP (currently 0.54%) and allocated across the seven different industries. Kangwon Land is the only one of the seven industries – which also includes horse racing, bicycle racing, boat racing, lottery, bull fighting and sports toto – to have violated the cap in recent years.
According to JP Morgan, the government’s latest directive on opening hours could see Kangwon Land’s revenue fall by around 10% in 2018.
“Recall, Kangwon Land had already reduced its active capacity on the main floor to ~130 tables during 2017 given the company’s efforts to ‘curb revenues’ amidst regulatory pressure; hence the cut on table capacity shouldn’t have any impact for now, in our view,” the note said. However, “the changes in opening hours should have some direct impact (up to 10%, if we simply assume Kangwon Land’s revenue is evenly split during operating hours), though it’s difficult to assess accurately at this point without knowing how the ‘break-time’ would change (current break-time is 6am to 10am) and from when.”
Kim and Zhuang noted previously that even if the Gaming Industry Reform Plan failed to pass the National Assembly, Kangwon Land would likely continue to lay low.
“Our read on the government’s Gambling Industry Reform Plan points to further regulatory tightening and increasing oversight of local gambling, possibly throughout this administration, and we believe Kangwon has no choice but to keep curbing its revenues to avoid further scrutiny for a (good) while,” they said.
“Even in the medium term, we believe management is unlikely to allow its business to grow faster than GDP (which can be seen as a maximum politically acceptable level of growth for gambling), hence we feel it is reasonable to assume its growth potential is effectively ‘capped’ at ~3% per annum at best, possibly throughout this administration until 2022.”
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