MB Oct | Gaming Korean Style

The oldest casino operator in Korea is revamping its business to face stronger competition, at home and in the region. And launching the first Integrated Resort in the country, ahead of competitors already in the pipeline. In an exclusive interview with Macau Business, Chairman Philip Chun explains his new strategies, betting on Japan, and why Paradise is the best candidate to operate a licence for domestic players


By Paulo A. Azevedo in South Korea


Five casinos in three major locations in the country. What is the strategy for growth now that competition here in Seoul but also in Jeju is getting stronger?

Philip Chun – Up to this point, the casino business in Korea has always been a kind of boutique one, never a full-blown version of an Integrated Resort (IR). So, for the past almost 50 years that we’ve been operating these five licences were with boutique casinos. But with the current competition here and around Korea we’ve decided to increase the operation and the level of service to an IR.

In comparison to some IRs around Korea – for instance, Wynn Palace – we’re [Paradise City] only one third of its size and maybe just a quarter of the investment. However, the level of service that we’d like to provide is the area we will excel in and show our expertise. We do believe we have a very unique level of service which is very specific to our core target.

The geographical advantage of Paradise City is amazing. Incheon Airport is less then a km away. It has been awarded Best Airport in the World [status] for the past 12 consecutive years and servicing as a hub for Northeast Asia; and it is expanding its size, more than double, by the end of next year.

We’re in conjunction with this amazing hub and as a gateway to Seoul so everyone passing through Incheon Airport will have to pass through us as well.

Following the trend of other jurisdictions as bigger, wider, better. And with location?

Philip Chun – Of course, the geographical advantage and being much bigger like the Vegas and Macau models is one of the very fundamental directions of our business but not the core essence of our strategy, which revolves around the level of service and content we provide.

Recently, a famous global supermodel, after looking around our venue, exclaimed that Paradise City doesn’t feel like a casino resort. She’s been to Vegas and Macau but felt she was in a very luxurious premium hotel with a lot of art all around that happens to have a casino.

It’s more like a cultural experience than just a gaming one, which is precisely the direction that we would like to focus on. Balancing the gaming and non-gaming ratio behind our business and service emphasis is very critical.

What you see now – the hotel and the casino – is the first phase of our development. The second phase, to be completed in September of next year, will embrace much more entertainment and non-gaming services.


All in One

With the core target being . . . ?

Philip Chun –It’s quite a vast spectrum of targets. Conventional casinos, I believe –including Macau – tend to attract an older audience – 40, 50 [years old] and more VIPs. With us it’s a bit different. Of course, there’s a very exclusive and premium service specifically for those older generation VVIP’s but we’re actually targeting the ‘Millennials’, the ones [who are] starting to enjoy [themselves] at a very young age. The premium mass market is the biggest opportunity, we think.

Here at Paradise City we’re the only key player who provides the only IR, for now, so I wanted to create a city embracing, of course, a casino and a very good hotel but at the same time with all entertainment and cultural services. All in just one location.

If you consider Macau or Las Vegas, there’re so many contents everywhere but [they] are actually different venues and different companies providing one or two services. Here, here and there and all together make the full city. But we want to provide all in one location: a public spa with water park features, a club for 3,000 people, a festival area that can accommodate up to 25,000 partygoers, art gallery, shopping area, indoor theme parks, etc.

At this stage you still cater to Chinese gamblers, who make up the huge majority. They’re still not exactly as refined as the Monte Carlo type of gambler. Aren’t you afraid that such a luxurious offer might intimidate them?

Philip Chun – [Laughs] The architecture may seem quite luxurious. In fact, there’re amazing art pieces all around. Our concept for the first phase is Art Tainment, meaning, through art and different cultures you experience entertainment. But regarding gaming, luxury or not luxury is not important. Luxury in gaming is added value. Will they feel intimidated? I don’t think so.

As we advance to the second phase [of Paradise City] next year, and we’re targeting the ‘Millennials’ we will emphasise K-Style. Korean drama, Korean fashion, Korean food . . . K-Style and art are the two elements that will differentiate us from Vegas and Macau.

I understand gaming evolves, and the attractions around the industry. But it’s still a business and shareholders like to have annual dividends. So, you’re willing to invest in new concepts and have the return on new concepts later rather than trying to go the more traditional route and profit sooner?

Philip Chun – First, we will continue to emphasise and excel in the gaming business, and expand from our conventional market, the Chinese. The Japanese used to be very important for us as well in the past 40 years. There are areas that can still be developed more.

Because our partner, Sega Sammy, is strongly based in Japan we’ve been developing the Japanese market more and numbers already show that. So, focusing on our conventional market but also developing new markets, such as Singapore, Thailand, Indonesia and Vietnam. We’ve already acquired people with networks to make this happen.

But most importantly, how do we lure this new market of customers into Korea versus other venues? That, I think, is where the content difference comes into play.

Going back to K-Style, Indonesians, Vietnamese, Thais, Singaporeans, they all love to experience our culture. So, by integrating and providing what these new customers are looking for into a gaming facility will give us the differentiating factor.

If I’m not wrong, 80 per cent of revenues in Macau come from gaming while Vegas has already reached 60 per cent of revenues from non-gaming. So, automatically, our non-gaming venues will attract our customers to our casino.

How worried are you that if this regional geopolitical mess continues business will go down as well? After all, your numbers have been down in the first two quarters . . . Korea is down 41 per cent in the number of Chinese tourists . . .

Philip Chun –We’re being very conservative about how to embrace the current situation. The things we can do [such as] cutting down on certain costs and looking at different areas where we can save for a better day. It’s a pre-requisite thing. But, looking at the whole picture, this has been an ongoing situation for more then 50 years.

In 1994, during the Clinton Administration, a similar situation occurred with talk of nuclear assault and a nuclear war, which ended up not happening. Time magazine actually did a simulation on how Seoul would be completely demolished within 30 minutes and the whole world was talking about how North Korea would invade again . . . but nothing.

There have been some minor incidents since 1994 until now and the global media is expecting the worst while we Koreans, living in this land with our children, are the least worried.

However, the situation is more serious than before. The recent altercations between Donald Trump and Kim Jun-Un are stronger and the darkest times have arrived [thus] the world needs to come up with a peaceful resolution. I believe the darkest [hour] will fade away before the [arrival] of dawn.

Now, related to those numbers . . . in comparison to last July we’ve already increased 35.6 per cent. As Macau has been recovering continuously, as well, so have we. The biggest reason has been the fact that we’ve been emphasising our traditional market, especially the Japanese market. For the last three years we’ve been focusing a lot on the Chinese market, and now it’s Japan in conjunction with the developing of those new markets I mentioned.


Expanding links with junket operators

For Paradise City to become a gaming hub here, the estimation was 1.5 million visitors in the first year but as of July the numbers are not as predicted and I don’t think you’ll reach the target, with the current political situation and the fact that recently the Chinese boycotted travel to Korea as a consequence of the THAAD ground-based missile defence system. I understand Japanese numbers are growing but are unlikely to compensate for the loss of Chinese visitation. How can you to deal with this? Increase the attraction of VIP versus the mass market?

Philip Chun – Of course, we need to continue on VVIPs because they are a revenue generator. In terms of traditional market and elaborating a bit more on the Japanese, we did have very conventional marketing in Japan but we increased the impact through the additional partnership with Sega Sammy and are developing the Japanese market much more than in the previous 45 years. This has had a direct impact upon our revenue and the number of important VIPs.

In terms of China, direct marketing – not just for Paradise but for everybody in the world – has become much harder. So, we’re expanding our partnership with our junket agents. We’ve been working closely with one of the top ones, Suncity, but expanding with other junkets in different regions, from Australia to Vietnam.

And that answers my next question, which is the importance of working with junkets; namely, the ones able to bring Chinese ‘whales’. . .

Philip Chun – I realised four years ago that in China people who love to gamble are becoming younger and younger and they love to go to clubs and pop 20 bottles of champagne and show off.

I started to research China and realised that we need to find a cultural society platform where we can also do additional marketing, which is also very true with art as well. If you look into Hong Kong Art Basel, which has been around for only five years, it’s now almost as big as the original one.

The interest in art, clubbing and music festivals has been growing a lot – and more so for the VIPs with incredible buying power.

Here, we have a separate team that specialises in art and music festivals because [it is where we can find] big 20 to 30-year old gamblers. This is a very specific area that we’re specialising in and working with our junket providers to create a programme. Not just gambling but a party package, a cultural experience.

Regarding the five Paradise casinos, not just this latest IR – what is the percentage, by segment: VIP versus mass and premium mass?

Philip Chun – Just looking at the past year, we had a very steep increase in mass market versus VIP.

Following the example of Venetian in Macau, for instance, are you putting more effort into the mass market as opposed to VIPs?

Philip Chun – Not exactly. We never stop emphasising the VIP market, as you can see in the facility. But we want to make sure we’re competent enough to bring mass as well, balancing both. Our first phase is focusing more on our VVIPs but the mass service is being built as we speak and will go into business in September next year. So, we’re on track to focus on both targets.


Japan? Of course

Everyone is talking about Japan, at least in Macau. You already have a Japanese partner. Are you interested in a Japanese licence?

Philip Chun – We don’t have any specific plan that has been decided with our partner in terms of expanding into Japan; however, we share a common interest that we should work together in the most effective and efficient way to make it happen when it is the proper time.

But looking into the actual Japanese opportunity, because of the nature of their decision making process – which tends to be quite [conservative] – very, very optimistically [it will happen] by the year 2022 . . . but more realistically, at least seven or eight years.

Our partner, Sega Sammy, specialises in creating digital gaming content which is a huge part of Japanese culture and if they do it in an Integrated Resort in Japan I’m sure it will be a paradigm change. Sega Sammy is a local player that understands about integration so it has a very good chance and is the first real Japanese company to experience the IR business through our partnership, so we together will make a very good team.

If I may add, the Japanese market might exceed the US$20 billion mark, a huge number that ultimately will increase the Japanese domestic market that will not just be bounded within Japan. Since we’re so near and we have an appealing cultural identity it will create an even more positive perspective at our end as well.

In which way might the licensing in Japan affect gaming in Korea?

Philip Chun – It will not only pressure but will influence the government to think about giving more licences for an open casino [for domestic players]. Because we’re not only the pioneer developing the casino business in Korea we are for sure one of the most optimal partners for the government to consider. From my perspective, this [Japan] could have a positive influence.

So, if you can you’ll try to lobby for that licence?

Philip Chun – Yes.

Paradise City is located near the international airport here in Seoul. But two other IRs will open nearby. Will being the first make you optimistic that you’ll be better?

Philip Chun – There’s an [HSBC] advertisement that says ‘never underestimate local knowledge’. Here it is the same thing. By understanding local knowledge, government relations, the sentiment, the media, this is something we’ve been dealing with for almost 50 years and which others lack. It cannot be achieved overnight. So, I don’t think these two new players will impact the market from day one.

 

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