Caesars Entertainment missed out on the Asia boom and has paid a heavy price. The company, whose flagship Caesars Palace became synonymous with Las Vegas decadent luxury, has been surpassed by Strip rivals that got Macau licenses and is even seeing its home turf invaded by Malaysia’s Genting Group, funded by its Singapore cash cow, Resorts World Sentosa.
Now, Caesars has gotten an Asian beachhead with preliminary approval to build South Korea’s first foreign owned casino, a $794 million integrated resort (IR) in Incheon, home to the country’s main international airport, 30 miles (50 kilometers) outside Seoul. South Korea is the most popular overseas destination for mainland China travelers beyond Hong Kong and Macau, with 4.3 million Chinese arrivals last year, projected to reach 10 million by 2020. For many mainlanders, Incheon is a shorter flight than Macau, and like Russia’s Pacific coast, South Korea hopes flashy casinos will bring in more Chinese tourists who’ll leave more of their money behind. Still, Caesars’ long sought piece of the Asian dream is unlikely to turnaround the struggling company.
For more than a decade, Caesars and its corporate predecessors have been trying to break into the Asian gaming market. When Macau offered licenses in 2001, Caesars (then using the corporate name Park Place) partnered with Strip rival Mandalay Bay on a bid. Macau’s government brushed aside the recommendation of its consultant, which ranked the Caesars bid among top three, to choose the partnership of Galaxy Entertainment Group and Las Vegas Sands, whose owners have become billionaires. Harrah’s, which took over Caesars in 2005 and took its name in 2010, didn’t even submit a proposal, then passed on the chance for a Macau subconcession in 2006. “A big mistake,” then Harrah’s and now Caesars CEO Gary Loveman has admitted repeatedly since. (Far less costly mistakes have cost careers.)
Harrah’s made a big push for the Singapore license at Marina Bay that went to LVS. Its bid included an eleventh hour alliance with James Cameron to create a high rise theme park with attractions based on iTitanic/i and other big screen inspirations. The company’s cutting edge customer relationship management technology executed through loyalty cards may have scared off Singapore authorities, who may have feared Harrah’s would be too good at tapping the local market in a project aimed at increasing tourism and taking money from foreigners.
Then Caesars got desperate. In 2007, it paid $577 million for a Macau golf course at the south end of Cotai. (A year earlier, Melco Crown paid $900 million to buy its Macau gaming license.) Although Caesars claimed it wanted to build its brand in Macau through golf, and land is the most valuable commodity in Macau – though they are making more of it – the real hope was that the government would allow it to replace the golf course with a casino resort. The government stood firm that the land could not be converted and backed that up with a moratorium on new casino proposals. Last year, Caesars sold the plot at a net loss of about $150 million, another potential career-ender that Loveman survived.
Between buying and selling the golf course, Caesars was taken private in a leveraged buyout and went public again in 2012. The company is saddled with some $20 billion in debt. South Korea’s government reportedly initially turned down Caesar’s development proposal due to concerns about that debt. Caesars’ troubles are hardly all behind it; company losses over the past two reported quarters have exceeded $2.1 billion.
In Incheon’s Free Economic Zone, Caesars plans to build a casino resort in a new residential, commercial and tourist complex, partnering with Indonesia’s Lippo Group, founded by the Riady family made famous in a Clinton administration illegal campaign contributions scandal, and OUE, a Lippo subsidiary listed in Singapore. GGR Asia reported this week that the partnership recently paid a $10 million deposit on the project, bringing its total capital injection to $160 million, aimed at assuaging government concerns about Caesars ability to finance the project.
The first phase of the project will include at least two hotels and a casino, aiming to open by the 2018 Winter Olympics in Pyeongchang, about 140 miles (230 kilometers) east of Incheon. The full project, estimated at $2.2 billion, will also include at least one more hotel, retail and convention facilities.
That same $2.2 billion price tag hangs on a Genting Singapore project for Jeju, a well established vacation and casino island destination with visa-free access for mainland Chinese. The property will join Genting Group’s global gaming empire spanning Resorts World properties from Singapore to Manila to New York with more under development in Las Vegas and the UK. In partnership with Landing International Development, a mainland property developer listed in Hong Kong, the Jeju plan includes three hotels with a total of 2,800 rooms, an 800 table casino, a theme park, shopping mall and upscale housing. But things may never get that far in Korea for Genting or Caesars.
With a population of 50 million and a per capita GDP in the world’s top 15, South Korea tempts the biggest names in gaming. Unfortunately, those 50 million Koreas and their trillion dollar economy are not permitted to enter 16 of the country’s 17 casinos. The exception is Kangwon Land, located in a derelict mining region a harrowing three and a half hour drive from Seoul. Even there, steps to control problem gambling include restrictions on the number and duration of visits. Kangwon Land recorded gross gaming revenue of $1.25 billion last year, more than the 16 foreigner only casinos combined. Koreans are the biggest foreign revenue source for Philippine casinos, currently the closest major gaming destination, with a flight time from Seoul about as long as the trip to Kangwon Land.
Until South Korea allows its citizens broader casino access, experts say developers can’t justify investing multi-billion dollar integrated resort (IR) properties that would drive new gaming oriented tourism with wow factors found in Singapore or Macau. A Union Gaming Research Macau analysis of Genting’s Jeju project says that a $2.2 billion resort can’t succeed without Korean players. The same logic applies to Caesars in Incheon and a gaming resort development closer to the airport spearheaded by Korean casino operator Paradise Group with Japanese gaming machine manufacturer Sega Sammy.
Union Gaming expects Genting won’t spend past its share of the minimum $500 million investment threshold the government has set for granting casino licenses. Last month, Genting abruptly canceled a groundbreaking ceremony for the project after sending out invitations, saying it wanted to brief the Jeju’s incoming governor on the project before proceeding. Genting says it will break ground during the third quarter of this year and open the project in phases starting in 2017.
Gaming consultant Kore Company managing director Steve Park doesn’t believe these new “mini-IR” projects will change the situation. “Korea has a supply of foreigner only casinos already. Would one, two or three more bring more gamers? Would mini-IRs supply the Singapore experience? I doubt it.” Park suggests it would take “real IRs” to attract significantly more Chinese gamblers. But real IRs can’t happen without local players.
President Park Guen-hye, who took office last year, has acknowledged that South Korea needs an integrated resort policy that allows it to attract more foreign tourists and investment to keep up with competing destinations. But that’s more likely to mean further loosening casino licensing rules rather than allowing Koreans to play in them, though Steve Park notes that Seoul’s government, like many others, sees Singapore as a regulatory model. Singapore charges its citizens and permanent residents an entry tax of 100 Singapore dollars ($80).
Impetus to allow Koreans to play at home could come from Japan, Park believes. “Japan casino legalization would have a big impact,” he says. Flights from Incheon to Osaka and Tokyo are around two hours and would give Korean players a closer alternative to Kangwon, and, if prospective Japan casino developers are to be believed, some of the world’s most spectacular IRs to play in. Whether or not Korean opens up to local players, Caesars and partners may have to spend even more than $2.2 billion to really get in the game.
Don"t Hail Caesars Yet For Its Asia Breakthrough In Korea