Why overseas casino markets are turning toward a digital transformation
By Flora Pu
Korea's 16 foreigner-only casinos experienced an unprecedentedly catastrophic year in 2020, due to the COVID-19 pandemic. As an industry that relies almost exclusively on overseas inbound tourists, casino visitors and their related revenue plummeted as international flights dried up. According to Korea Casino Association data, Korea's foreigner-only casinos saw a combined revenue dive of over 73 percent last year. Thousands of workers were either laid off or put on leave.
The crushing blow to casino businesses means massive repercussions for the country's tourism industry as a whole. Mainland casinos pay 10 percent of their revenues to the Tourism Promotion Development Fund (TPDF), which amounted to 1.1 trillion won ($910 million) in 2019. This amount is equivalent to over 80 percent of the tourism budget of the Ministry of Culture, Sports and Tourism (MCST). Jeju Island, where half of Korea's foreigners-only casinos are located, has its own Tourism Promotion Fund (TPF).
Casino payments comprise 80 percent of Jeju's TPF. These funds were essential in supporting tourism businesses last year as they fought to stay afloat. However, MCST reported a year-on-year drop of 300 billion won in TPDF payments last year since casinos made virtually no money while Jeju's TPF payments dropped from 47.1 billion won in 2019 to 4 billion won last year.
The sustainability of the casino industry is essential to the survival of Korea's tourism economy. Korea's foreigner-only casinos are turning their eyes to some of the world's largest casino markets in search of new pandemic-proof business models to rise above the storm. At the core lies a digital transformation.
Denmark, ranked first in Transparency International's Corruption Perceptions Index, together with Finland and Sweden, both coming in at a joint third, are rethinking their iGaming regulations. Sweden, Europe's leading iGaming market, introduced a new Gambling Act in 2019. This act finally did away with state-owned monopolies on gambling and opened the market to international operators as long as they obtain Swedish licenses and comply with Swedish regulations. Denmark dropped its state monopoly as early as 2010, allowing the iGaming market to grow fueled with forward-thinking regulations.
“No account casinos” that let players use existing bank accounts as IDs without having to register an account, have been heavily trending in Finland, making the market more accessible to customers. Not to miss out on the substantial tax revenue from the iGaming industry, the Finnish government is laying down fertile regulatory soil to help nurture the sector.
In the U.S., the launch of President Joe Biden's administration comes with a ray of hope for the iGaming industry. Experts say they expect to see a reinterpretation of the Wire Act, which the former Donald Trump administration interpreted as deeming all forms of online gambling illegal, which would encourage states to move forward with online gambling.
Most recently, Michigan became the 15th state to legalize online betting, and has since become the second-largest market in the country just two months after its launch. America's strides toward legalizing online gaming have also influenced investors to take a closer interest in related companies. The S&P 500 introduced Penn National Gaming and Caesar's Entertainment as incoming members last month, making them the fourth and fifth gaming companies to be included.
In addition, the Philippines opened up online gambling to brick-and-mortar casinos, after the industry called on the government for relief. Safety measures have been set up to allow only vetted VIP clients to participate in online gambling, while prohibiting Philippine nationals from playing. As one of the world's most advanced IT superpowers, Korea is more than well-equipped to adapt the Philippines' contactless casino system into its own tourism infrastructure.
Since last year, Korea's casinos have been proposing contactless casino services to the MCST, which would help replenish tourism-related funds and retain the near 10,000 employees working in the casino sector. Unfortunately, the outdated perception that casinos are a social vice seems to be hindering any government action to move towards this digital transformation.
It is an irony. Casinos are a legitimate part of the tourism industry according to the Tourism Promotion Act. COVID-19 provides a rare opportunity for the government to re-evaluate and elevate the current paradigm surrounding casinos and their contributions to Korea's tourism economy.
The drive toward a digital transformation in the service sector has greatly accelerated with the onslaught of the global pandemic, but Korea's attention remains lukewarm at best. By benchmarking established online gaming markets and reforming safeguard regulations, Korea has the potential to turn the tourism industry around profoundly. Online gaming is not just a quick fix to battle the pandemic. Contactless gaming is the future of casinos, and Korea's economy will be an absolute beneficiary.
Flora Pu is the chief operation officer of Landing Casino.