It’s the world’s biggest gaming industry. It generates more annual revenue than it’s massive United States counterpart and has a significant North Korean influence on its operations.

But if recent deals are anything to go by, the purveyors of Pachinko – the vertical pinball-like game which pre-occupies Japanese society – are looking to grab a slice of the action in mega-competitive Macau.

Hard on the heels of a deal done between Steve Wynn and the Aruze Corportaion to cash in on an expected liberalisation of Japan’s gaming laws next year (2008), Hong Kong stock market-listed Macau Success – a major partner with SJM Investimentos Limitada in the Ponte 16 project – have signed a letter of intent with the Maruhan Corporation one of the country’s biggest pachinko parlour owners.

Once the deal is sealed -  on completion of an agreed due diligence exercise – Maruhan would effectively hold a  between 10 and 20 percent interest in Pier 16-Property Development Limited.

It’s a two-way street meeting of minds, according to Macau Success executives who see the coming together as both a chance to re-test pachinko in the city and work on synergies which could allow the partnership to make early inroads into the widely expected soon-to-be liberalised Japanese gaming market.

Hybrid “pachislots”
Speaking to Macau Business, Hoffman Ma Ho-man, Macau Success’s Executive Director, was upbeat about the Maruhan deal, touting it as a big opportunity, driven by optimism based on increased visitor arrivals from Japan over the past year.

“We see Macau as a huge prospect for pachinko. Although the base of Japanese visitors is small – a single digit percentage figure when compared to Chinese visitors -  there was a 35-percent growth year on year from January to July 2006 to the same period this year (2007)”,he said.

As pachinko is technically not a gambling game in the strict sense of the definition – gamers play for prizes not cash ( although in the industry’s under-regulated environment ways are found round these quaint restrictions) -  Mr Ma said there would no doubt be a need to modify existing machines for the Macau market.

He also refused to rule out the introduction of the hybrid “pachislot” machines, a combination of pachinko and slot machines, but promised all regulatory requirements would be met and stressed it was still early days as far as the deal was concerned.

Mr Ma said another attraction of getting into bed with Maruhan was the possibility of running “junket tours” from Japan. Macau Success is already involved in the junket business but, as Mr Ma points out, there would be hurdles to cross in the case of Japanese -  and Korean as hoped -  junkets tours.

Cautious coopers
Language is “critical” he says: “There is a need to set in place a system of service ambassadors and menus for instance to cater for and influx of Japanese and Korean visitors’”.

“But Macau offers a varied array of facilities and options for visitors and we believe we can capitalise on that. We also believe it is a good opportunity to evaluate and explore the possibility of the operation of pachinko in a casino environment, not just in Macau and Japan but also in wider Asian markets”, Mr Ma added.

Macau Success Chariman Sonny Yeung agrees: “We are pleased and honoured that such a strong potential strategic partner as Maruhan has joined forces with us….this will enable Macau Success to grow faster by contributing its expertise and connection to Pier 16 and other related projects.

“It also opens the door for the company (Macau Success)  to participate in the gaming industry in Japan…which has strong potential”, said Mr Yueng.
Others, however, are more circumspect, arguing that there is little logic in a business plan which could rely heavily on a client base which is already more than adequately catered for on their homeland and who, in many cases, are from low income backgrounds.

David Green of PricewaterhouseCoopers believes it is a big stretch to suggest that large chunks of Japan’s pachinko playing community will opt to come to Macau: “Why would significant enough numbers of Japanese pachinko players come to play in Macau? it just doesn’t add up to me”, he said.

Some industry observers also say the Macau moves are inextricably linked to Tokyo’s move to liberalise the gaming industry and may even spark “turf wars” with other Japanese pachinko operators, minus joint-venture links with established international casino operators who could feel threatened by the opening up of the country’s gaming sector.

“Japanese Prime Minister Shinzo Abe’s position has become somewhat weakened in recent months and while it still looks like liberalisation will go ahead, the political reality in Japan means that the passage of a bill to open things up could be slowed down,” said an industry source.

“It could also be that other internal pachinko operators might not look to favourably on these joint venture deals and what they could do to their business”, the source added.

A Macau Success spokesperson said the company had “heard nothing about any of this” describing the Wynn-Azure deal as simply a separate business arrangement.

Old times
Pachinko is not new to Macau. It was popular in the 1980s with large numbers of Japanese visitors. However, business dropped dramatically as a result of the 1990s trade war to the extent that the market as good as disappeared.

The game has never really caught on with Chinese gamblers and also has suffered in it’s homeland from allegations of links to gangland, an accusation that it is used as a conduit for funds to North Korea.

It is widely believed that North Korean business interests are involved in as many as one-third of all pachinko facilities in Japan. A portion of the revenue ends up in North Korea, funneled to Pyongyang by ethnic Koreans living in Japan. Estimations vary on the annual revenues of pachinko in Japan, but with the numbers ranging from between US$ 100 billion to US$ 200 billion a year it is easily Japan’s biggest industry, if, as some allege, it’s largest tax evader).

There are between 16,000 and 17,000 pachinko parlours across the country with Maruhan controlling 209 of them, hosting 118,451 pachinko and slot machines. The company was founded in 1957 and is one of the major players, employing more than 9,000 staff. It also runs bowling alleys, golf driving ranges, amusement centres, movie theatres, food and beverage outlets and other leisure related interests.

Possible parlours
However, some experts say the impact joint deals between Macau players and pachinko operators can have on the business in Japan could be minimal.
Chris Lewis, a senior research fellow from the Institute of Criminal Justice Studies and a visiting professor at the University of Portsmouth in Britain -said, “I see the casino issue as rather peripheral to the Pachinko issue in Japan. I gather the Japanese are thinking about a big casino, perhaps as an experiment, which will be mainly for tourists and the elite Japanese, not for the vast numbers who still use the down the road Pachinko parlour”.
Lewis, who has carried out research into the pachinko industry, added, “I would think that until there is a casino in every town, and maybe not even then, the pachinko parlour will dominate and the market will not change simply because of the casino issue. I expect the web-based pachinko issue would have a much bigger effect”.

Courtesy: MacauBusiness.com

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