Here’s the story behind ‘Sea Story’

When Sea Story was born, the slot machines were supposed to have small payouts. And the people who played the machines, the idea went, would get gift certificates to spend at bookstores or in movie theatres.
Today, the story is far different. Prosecutors say the companies that have the lucrative job of issuing the gift certificates may have acted illegally to get government approval for the job, the machines themselves have been doctored to give bigger payouts, and the game-players have no trouble converting their certificates into cash, even though gambling is illegal for Korean citizens.
About 20,000 slot machine rooms exist nationwide, with estimated annual profits for the operators reaching 50 trillion won ($52 billion), according to a National Intelligence Service report. By comparison, the estimated annual profit is about one-third of this year’s government budget, which is about 144 trillion won.
After the government approved the Sea Story games, game room operators learned to get around the system by adding gambling functions.
The government approved the game rooms under the condition that the prizes would be gift certificates, not cash.
However, the people who play the games use their certificates like gambling chips, experts say.
They are routinely converted into cash at a discount price at cashing centers nearby, which are directly or indirectly connected to the game rooms. The conversion of a gift certificate itself is not illegal ― the only restriction is that gift certificates cannot be converted inside the slot machine rooms. So the slot machine room owners would instead operate a cashing center nearby, sometimes in the same building.
After cashing the certificates, the gamers often returned to their game machines to play them again. About 400 billion won worth of gift certificates in total are now circulating on the market, the Financial Supervisory Service said last week.
Separately, legislator Kim Yang-soo of the Grand National Party claimed the total amount of gift certificates issued since July last year had reached 27.7 trillion won.
Amid the furor, the government last week announced that gift certificates would no longer be provided as prizes, starting in April.
Currently, 19 firms are approved to issue the certificates, and 18 have issued them. The firms include well-known names such as Daum Commerce, Interpark and Happy Money Inc., whose gift certificates are also widely used for cultural items at bookstores, record shops, movie theaters and so on.
Then, why did the government approve the gift certificates at the slot machine rooms in the first place? In 2002, the Kim Dae-jung administration decided to offer gift certificates for cultural items as prizes at slot machine rooms. The intent then was to promote the culture industry by having people spend the gift certificates on cultural items.
Last March, the government strengthened the regulations around the gift certificates, and screened and approved 22 companies to issue the certificates. However, the companies were found to have either fabricated or manipulated data to meet the requirements, and the approval of all 22 companies was canceled three months later in June.
Then, in July, the Culture Ministry had its affiliated organ, the Korea Game Development and Promotion Institute, screen and designate new issuers, rather than easing off on the regulations.
There are now allegations that the companies lobbied illegally in the course of getting the designation from the institute. The prosecution raided the offices of the 19 firms last week, which it called the biggest raid in its history. Also, last Friday, the prosecution banned 34 people involved in the 19 firms from traveling overseas. Grand National Party legislators have alleged that political figures were involved in the lobbying.
Questions have arisen over what made the slot machine rooms such a lucrative business. The reasons can be found in the circulation system of the gift certificates. Take the example of a 5,000-won gift certificate. There is a distributing agency that takes the gift certificates from the 19 issuers, and passes them on to the slot machine rooms. The owners of the game rooms put the gift certificates into their machines, and the players insert a 10,000-won bill, receiving gift certificates as prizes. In order to tantalize the customers, the game room owners put extra gift certificates into the machinse, adding a couple of more percent to the payouts.
That does little to harm the profit-making of the game room owners, because the cashing centers connected to the game rooms will convert the gift certificates to the players at about a 10 percent discount.
So, if a player is lucky enough to win 1.02 million won worth of gift certificates, he could have it converted to 91.8 million won in cash at a 10 percent discount at a cashing center.
In the meantime, the gift certificates, once cashed, cannot be reused, and are returned to the distributing center. This is the part where the issuers get a huge profit, as the distributing center gives a commission of about 70 to 80 won per gift certificate. Then, the cashing center gives issuers about 50 to 55 won commission per copy to change the used ones to new. The remaining 20 to 25 won goes to the distributing agency’s profit.
The issuers then have a net profit of 20 to 30 won per copy, excluding the production cost. A large-scale issuer is known to be changing about 2 million to 3 million per day, meaning their net profit per day is 100 million won. Then, the issuers give a commission to the Korea Game Development and Promotion Institute. For the first 50 million 5,000-won certificates, the commission is 5 won. After that, it’s 2 won per remaining certficate. The institute said it collected 14.6 billion won from August last year to July, and so far has used the money for many purposes, including supporting the game industry.
Another problem that aggravated the issue was the game room owners’ manipulation of the machines from the version that earned approval from the Korea Media Rating Board as the adult-only.
The games, like Sea Story, are similar to slot machines. When you insert a 10,000 won bill into the machine, you see a line of four items per 100 won spent. If you get the same items on the same line, it is a jackpot. The original approved version put a limit on the maximum prize to be less than 20,000 won per 100 won spent.
However, some machines have been manipulated to give about 2.5 million won per 100 won. Plus, the game machines are manipulated to have functions that let the players know they will soon get a jackpot. In the case of the Sea Story game, the items are living things in the sea, and the jackpot would come with the whales and sharks.
Prime Minister Han Myeong-sook and political parties have described the furor as a “failure in policymaking.”
The Culture Ministry and the Korea Media Rating Board, a civil organ that gets a government subsidy, have been blaming each other. Meanwhile, the rating function is scheduled to transfer to a separate board exclusively for games, which is due to launch in October.
Some worry that slot machine rooms, which have piles of gift certificates, may ask the issuers for a refund, which could lead to their bankruptcy. Some bookstore chains and record shops stopped accepting the certificates, recently, further aggravating people nervous that their gift certificates won’t be usable.
Anyone who received their certificates from outside the slot machine rooms should have nothing to worry about, experts say.
Lee Sang-gyu, a director at a movie theater chain, CGV, said, “We placed a limit on the number of such gift certificates we will accept from game rooms, as a prevention measure against any possible confusion. There will be no trouble in general for consumers to use the certificates they have purchased.”
Lee Jong-gyu, of Interpark, said, “Nothing has changed in the case of our gift certificates.”
The government assures the public that an individual can get as much as 300,000 won back in cash from the the Seoul Guarantee Insurance in cash, in case the certificate-issuer goes bankrupt.

by Chun Su-jin, Choi Ick-jae