This is why Sega expanded into the casino business
Northeast Asia’s first ever integrated resort complex Paradise City opened in Incheon, Korea on April 20. A total of 1.3 trillion won was invested in the project, a joint venture between Japan’s Sega Sammy Holdings, who holds a 45% stake, and Korean casino giant Paradise, who owns 55%.
Paradise City is a 330,000sqm resort complex encompassing among other facilities hotel accommodation, a convention centre, a casino for the exclusive use of foreign guests, retail space, restaurants, an art gallery, spa and club lounge facilities, with the hotel, resort, casino and convention centre first to open. The remainder of the complex is scheduled to open in the first half of 2018.
Sega Sammy wants to gain casino management expertise
Sega Sammy Holdings has invested in Paradise City for two reasons: to acquire expertise in casino management; and to gain a foothold for overseas expansion.
By participating in Paradise City, Sega Sammy wants to develop its casino-related business as a new source of earnings, and gain expertise in casino management following the legalisation of the casino business in Japan. On December 15 2016, the Japanese Diet passed a law promoting the establishment of integrated resorts that include casinos in designated areas (Casino Law). Sega Sammy has been developing specialised gaming machines for casinos, which it aims to sell not only in Japan but to casinos worldwide, and especially in Asia, capturing tourist demand for gambling.
As well as the opening Paradise City, Sega Sammy’s JV partner Paradise operates casinos in Seoul’s Walkerhill, and in Busan and Jeju. Paradise is Korea’s largest casino operator, and, including a contribution from Paradise City, is targeting consolidated sales of 880 billion won in FY17 and 1.1 trillion won in FY18.
In addition to the Incheon Paradise City project, on March 9 2015 Sega Sammy signed an agreement with the Busan metropolitan city government to build a MICE (meetings, incentives, conventions and exhibitions) facility in Busan’s Centum City shopping complex. The project was expected to cost 468.5 billion won, with Sega Sammy Holdings undertaking the construction and management of the hotel, convention centre and shopping centre facilities.
The agreement stipulated that the project must contribute to the creation of employment in the local area, by maximising the use of local companies and people in its construction and operation. However, the project was halted on December 22 2016. The company explained that a number of competitors had appeared on the scene while construction was ongoing, undermining its anticipated profitability, but speculation is rife that the real reason is that the heart of the project is the hotel accommodation and indoor and outdoor theme park, and that a licence for the casino had not been obtained.
Incheon city and airport pinning their hopes on Paradise City
The April 20 2017 opening ceremony for Paradise City was attended among others by Paradise SegaSammy Chairman Phillip Chun, Sega Sammy Holdings’ Chairman Hajime Satomi, Jeong-Bok Yoo, Mayor of Incheon City, and Il-Young Chung, President and CEO of Incheon International Airport Corp.
The number of Japanese tourist visitors to Korea has been declining every year from a peak of 3.5 million in 2012, falling below 2mn in 2015, the year after the construction of Paradise City started in November 2014. However, there was a surge in the number of Chinese tourist visitors to Korea from 2013, rising to 6 million in 2014, and the country’s casinos flourished thanks to this extraordinary demand.
With the number of Chinese tourists plummeting since March 2017 following the deployment of the THAAD missile shield to the US military bases in Korea, not only Sega Sammy but also Incheon City and Incheon International Airport are pinning their hopes on Paradise City.
Paradise SegaSammy Chairman Phillip Chun plans to reduce the resort’s dependence on Chinese demand, and to tap into the Japanese market by establishing the JV with Sega Sammy Holdings. The resort is expected to attract 1.5 million visitors in its first year of business, and to create 780,000 new jobs and contribute 8.2 trillion won in production effects and 3.25 trillion won in added value over the long term.