Pachinko: Japan’s Little GBP115 Million Secret

Back Alley gambling can profit even where it’s illegal 

If you find yourself walking through any moderate sized Japanese town, you may be alarmed as soon as you turned the first corner. The chaotic sounds of a pachinko parlor are very distinct. Maybe to the western ear, the only identifiable comparison is the slot machine. With pachinko, the sounds are less expected than with slot machines whose sounds are muffled by the walls of massive casinos.

• Pachinko is believed to be GBP115 million industry
• Pachinko parlours are made to intoxicate gamblers
• New bribery scandal could affect casino bill
• Niraku GC Holdings Inc plans to list on HK exchange

At first it may be hard for westerners to understand how a country where gambling is illegal can habour a 115GBP industry. Upon first glance you may even fail to understand the appeal of pachinko. Its incredible simplified, with very low stakes, repetitive and give instant gratification. But beware, pachinko’s simplicity is what makes the Japanese public so obsessed.

One must also consider the typical pachinko parlors with noise, smoke and flashing lights. Apart from private men’s clubs, pachinko parlors are the few places that permit smoking. Also there are several vending machines that provide coffee to players. Any overly caffeinated player can easily play until the wee morning hours. Pachinko parlors easily conform to Japanese gambling laws since pachinko balls can be traded for prizes which can be sold in a separate places for money.

The Push for Casinos in Japan

The Japanese government has strived for legalized casino gambling since 2012. Mega casinos operators such as Las Vegas Sands, Genting Singapore, MGM Resorts and Melco Crown Entertainment have been waiting to set up shop in Japan. The Japanese government sat their own deadline for 2020 in hopes to have some casino’s ready for the Tokyo Olympics.

Whether or not a legendary ruling will pass soon isn’t certain. Many in the Japanese diet feel that they can pass a gambling bill before the end of this year. Prime Minister Shinzo Abe is a strong advocate for legalized casino gambling. Casino operators as well as online gambling sites in Japan should be anticipating this move. Critics such as Komeito, the junior partner in Abe’s coalition party, have concern about the negative effects of gambling on Japanese society.

There has been some recent scandal involving the casino bill. Two female cabinet ministers resigned over allegations of soliciting voters with bribes. This can only further delay legislation. In part it will only raise suspensions and give credibility to the fear that legalized casino gambling will only lead to higher crime and money laundering.

Pachinko May Invade the Rest of Asia

A major hall operator in Japan is attempting to list itself in Hong Kong by the first half of this year. Niraku GC Holdings Inc., from the northeastern Japanese city of Koriyama, submitted a draft to the Hong Kong stock exchange last month. Following the footsteps of Dynam Japan Holdings who raised GBP131 million two years ago, Niraku hopes to raise GBP48.5 million.

Yoji Sato, Dynam Chairman, said last year that the Hong Kong listing has brought great help to the company by allowing it to “connect with different casino, junket and hotel operators all over the world.” Dynam is one of the largest pachinko operators in Japan. Niraku operates 54 pachinko parlours in Japan. The revenue earned from the IPO could make it possible for the operator to open five additional pachinko parlours in Japan in the next two years.

Niraku’s net profit for last year fell from GBP87 million to GBP5.1 million. This fall was due to a slowdown in the pachinko market as well as a retirement payment being made to a former director. Despite Niraku’s figures, the pachinko industry is a monster. The Japanese Productivity Center published a paper stating that the industry has lost half of its total revenue since 1995. With player numbers falling from 29 million to 9.7 million some may doubt its bullish strength. If the casino bill is passed, pachinko may easily experience a second wind.