S. Korea’s foreigner-only casinos suffer poor profit

Foreigner-only casino operators in South Korea reported weaker-than-expected operating profit in the second quarter as prolific gamblers traveling from China have swept game tables, more than offsetting the increases in the number of casino visitors and drop value.

Last week, Grand Korea Leisure Co. (GKL) reported 13.2 billion won ($9.8 million) in operating profit for the April-June period this year, falling short of the securities firms’ estimate of 15 billion won.

GKL operates three foreigner-only casinos under the name Seven Luck in Seoul and Busan.  

The weaker-than-expected result comes despite solid gains in casino visitors and drop value.

In the first half of this year, the number of visitors to GKL casinos jumped 38% year-on-year to about 440,000. The drop — the amount of money game players pay for casino chips to play games at the gaming tables — also grew 16% to 1.9 trillion won over the same period.

But the declining hold percentage is blamed for its disappointing profit, industry observers said.

The hold percentage is the amount a casino earns from a game, and is often used to determine the average earnings from a table.

DECLINING HOLD RATE IS BLAMED

A hold rate of 10% means that a player loses 10% of their bet per game to the casino. The higher the hold percentage, the larger the casino’s profit.

GKL’s hold percentage stood at 10.5% in the second quarter, down 1.5 percentage points from the same period last year, according to the Korean casino industry on Sunday. In July alone, the hold percentage slid to a record low of 6.3%.

GKL’s latest hold percentage is considered unusually low, as the average hold percentage for foreigner-only casinos hovers around 13% while that for casinos that admit domestic players is about 20%.

The country’s other foreigner-only casino operator, Paradise Co.'s Paradise Casino, reported a similar hold percentage of 12% over the same period, down 1 percentage point from a year earlier.   

The weak hold rate resulted in an operating profit of 32 billion won for Paradise Casino, falling below the market estimate of 44.5 billion won.

PROLIFIC CHINESE GAMBLERS DRAG DOWN HOLD %

The industry attributed the declining hold percentage to the rise in wealthy Chinese gamblers at Korean casinos.

Chinese are among the world’s most prolific gamblers, but are banned from making bets in their home country, where gambling is illegal as part of the government’s crackdown on corruption and conspicuous spending.

This has forced wealthy Chinese gamblers to travel outside their country to gamble. Korea is one of their favorite neighboring countries to visit to make bets.

“Chinese VIPs boast a higher winning rate than average players,” said an official from a local casino.  

While foreigner-only casinos suffered from falling hold rates and profits in Korea, the country’s casinos for local gamblers enjoyed strong earnings.

Kangwon Land Casino’s hold percentage hit 24.6% in the second quarter, 2 percentage points higher than the prior year. 

Thanks to the higher hold percentage, Kangwon Land Inc., the operator of Korea’s only casino open to locals, reported 73.4 billion won in operating profit for the second quarter, beating market expectations of 71.0 billion won despite falls in visitors and the  5% on-year drop, respectively. 

The big gap in the hold percentage between foreigner-only casinos and those for locals has led to calls for a revision to the county’s gambling regulations to level the playing field for all gamblers regardless of their nationality.

Under the current Korean law, gambling is generally prohibited for local citizens, except for minor bets made for entertainment and at select government-authorized facilities, such as Kangwon Land Casino in Gangwon Province.

The rule limits casino operation hours to 20 hours a day and individual gamblers' bets to 300,000 won per game, which lowers a gambler’s winning probability against the casino.

Despite a fall in the hold percentage, Korea’s foreigner-only casinos expect their earnings to grow throughout the year.

“We expect more Japanese tourists to visit in the second half, and revenue from high-net-worth VIPs making big bets is steadily rising,” said an official from Paradise Casino.

Write to Jae-Kwang Ahn at ahnjk@hankyung.com
Sookyung Seo edited this article.