S.Korea ‘a great opportunity’: Mohegan Sun president

Jul 09, 2015 Newsdesk Interviews, Latest News  

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U.S. regional tribal casino operator Mohegan Tribal Gaming Authority, known as Mohegan Sun, says it is confident with the bid it submitted for a casino licence in South Korea, its first project outside the United States. The casino operator has a partnership with South Korea’s Incheon International Airport Corp (IIAC). Last month Mohegan Sun finalised the concept plan for the casino resort it hopes to develop.

“I think we’ve got a great location. We’ve teamed up with the Incheon International Airport authority for an incredible parcel of land, adjacent to their new terminal, and we believe that our integrated resort vision fits well with what the airport is trying to achieve with its own master plan,” the president of Mohegan Sun, Bobby Soper (pictured), told GGRAsia in an interview.

“We believe that Asia, specifically Korea, is a great opportunity. It’s a market that is really under-penetrated,” Mr Soper said.

Mohegan Sun’s bid is reportedly among some 34 proposals from local and international companies vying for a new casino licence in South Korea. The national government said in January it was likely to approve more foreigners-only casino licences this year to boost tourism, but possibly only two more. Winning bidders would be expected to invest at least KRW1 trillion (US$891.2 million) per project, it was reported.

“Our project, and the benefits of having it by the airport, make it a compelling location,” said Mr Soper. “Every licensing process is competitive in nature and creates uncertainty. But we like our position in this process,” he added.

The project – dubbed ‘Inspire’ – is still subject to Mohegan Sun securing a gaming licence from South Korea’s Ministry of Culture, Sports and Tourism, according to the company.

Analysts at JP Morgan Securities (Asia Pacific) Ltd said in a recent note that they expect the South Korean government “to award at least one [casino] licence for Incheon”.

Incheon’s airport, serving the capital Seoul, is one of the largest air transport hubs in Asia, catering for more than 45.5 million passenger trips in 2014, according to official data. In the first six months of 2015, the airport handled 24.3 million passengers, up by 12.7 percent year-on-year.

Incheon competition

Several local operators are also in the running for any new casino licences that might be issued this year, with at least one also targeting land controlled by the Incheon Airport authority. South Korean majority state-owned gaming operator Grand Korea Leisure Co Ltd (GKL) confirmed in a filing last month that it has signed an agreement with the operator of Incheon airport for use of land to build a casino resort.

Commenting on that deal, Mr Soper told us: “We are pleased to hear – and it comes as no surprise – that GKL has reached an agreement with the IIAC to participate in the development of an integrated resort at the IBC-2 location adjacent to Incheon Airport.”

That is a reference to “International Business Center Phase 2″, a nearly 4.8-million square metre (51.7-million sq foot) site – including a 1.5-million square metre water basin – to the northwest of the airport that has been earmarked by the airport authority for entertainment, hotels, leisure, a theme park, shopping and business facilities.

Mr Soper added regarding GKL’s announcement: “This arrangement offers confirmation that the best location to develop an expansive, visionary tourist experience as envisioned by the [South] Korean government is the 800-acre [323.7-hectare] site at IBC-2.”

He added: “When combined with a similar arrangement penned by Mohegan Sun and the IIAC this past April which guarantees Mohegan Sun’s role if a licence is awarded at the site, the agreement offers the best option to bring together the experience of world class development and hands-on operations from both East and West in the pursuit of an integrated resort licence from the [South Korean] Ministry of Culture, Sports and Tourism.”

Mohegan Sun’s project includes a private air terminal, which would be part of the resort. The air terminal would be run as a private airport, under what is known as a fixed-base operator (FBO) arrangement. An FBO is a commercial business granted the right by an airport authority to operate on the airport authority’s land, providing a range of aeronautical services.

“Not only can you charter planes, but you can fly the plane to the doorstep of our integrated resort, which we believe will be a huge opportunity as it is a differentiator especially on the high-end segment,” said Mr Soper.

He added: “Of course we would have to comply with the all the [South] Korean government’s requirements, but we’re confident that can be done.”

Funding structure

Mohegan Sun’s project would also include a 20,000-square metre casino with 250 gaming tables – including 40 VIP tables – and 1,500 slot machines.

In addition to the private air terminal and casino, the resort would have a two-tower luxury hotel complex with 1,000 rooms,  a 20,000-seat arena, and more than 18,500 sq. metres of shops, restaurants, art exhibition and music entertainment areas, including “a Korean village celebrating Korean food and music, and a Native American cultural and arts experience”.

The total cost of Phase I is estimated at US$1.6 billion, “with a commitment to spend a total of US$5 billion over the next 20 years,” Mr Soper told GGRAsia.

The executive said the first phase of the project would be funded through a combination of bank loans and equity typically seen in Asian project financing transactions.

“The bank loan component has already been vetted by two of the largest and most successful investment banks in the world, Deutsche Bank and Credit Suisse, and is expected to be well oversubscribed. The equity is also already subscribed by us and our local Korean partners,” said the Mohegan Sun president.

The executive added that a local initial public offering (IPO) is not required for the building phase “but may be a course of action that is evaluated over time after the project is open”.

Asian market

While the South Korea project would be Mohegan Sun’s first venture outside the United States, Mr Soper said the company is confident it will be able to deliver the level of service demanded by Asian customers.

“I think we do have some appreciation for the taste and behaviour of the Asian customer. We have probably the largest Asian marketing department in the country [U.S.] at Mohegan Sun, serving a huge Asian clientele, some of them international,” said the executive.

“Serving the Asia customer its part of the objective of the consortium we are developing, by partnering up with local, Korean businesses and investors… We will have to do our due diligence and develop those relationships to ensure that we execute in a culturally appropriate way,” he added.

Mr Soper said most of the focus of the integrated resort would be on non-gaming elements, as the consortium is developing the project with the assumption there will not be gaming for locals. South Korea has 17 casinos but only one of them is authorised to let locals play.

“In large part, the designing of the project is non-gaming driven and it’s going to be attractive to visitors from China and for residents of Korea – the non-gaming elements,” said the Mohegan Sun president.

South Korea’s gambling and lottery industry in 2014 posted its ninth consecutive year of year-on-year sales growth, but at a slower pace than previously.

Many investment analysts however think the South Korean market could be much bigger if local players were allowed into casinos. They cite the strong performance of Kangwon Land, the gaming resort open to locals. During 2014 revenue generated by Kangwon Land jumped 10 percent on-year to KRW1.4 trillion. Revenue at the 16 foreigners-only casinos increased 0.3 percent to KRW1.36 trillion, according to the country’s Yonhap news agency.

Mohegan Sun’s casino is likely to get many of its gambling customers from northern China, said the firm’s president. “We believe that there is still a great opportunity – because of the proximity to these population dense cities in northern China – to have a strong gaming product, especially at the VIP segment level,” stated Mr Soper.

Mohegan Sun anticipates that it will “likely use junket operators” to run its gaming business in South Korea if it gets a casino licence. “They [junkets] are more familiar with the Asian market, especially in China,” said Mr Soper, adding that he thinks it would be a good idea to have junket operators “properly registered within the [South] Korean jurisdiction”.

In May, at the Global Gaming Expo (G2E) Asia in Macau, Won-Seok Seo, professor at the College of Hotel and Tourism Management at Kyung Hee University, suggested that the South Korean authorities should look into how to “regulate and manage” junket operators as they could become an important part of the country’s casino industry.

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