Inside Asian Gaming

INSIDE ASIAN GAMING | September 2011 20 Asian Gaming 50 – 2011 In recent years, Kazuo Okada and Steve Wynn have become something of a double act on the Asian gaming circuit. They’re often to be seen side-by-side at Wynn Resorts’ board meetings held in Macau. The two have things in common aside from investment in Wynn Resorts and membership of the board. Both made their fortunes the hard way; in Mr Okada’s case via the tough, competitive—and in the past murky—world of Japan’s pachinko machine manufacturing industry, where steel balls are merely one of many components needed for success. America in general and Mr Wynn in particular have been good for Mr Okada. According to an SEC filing in March Mr Okada and his slot manufacturing company Aruze America are the biggest single shareholders of Wynn Resorts’ voting stock. That Wynn holding and the creation of Aruze America helped to give Mr Okada the international profile and respect he sought as one of Japan’s richest people. According to Forbes ’ ‘Japan’s 40 Richest’ list for 2010, Mr Okada is now back in the ranks of the world’s US dollar billionaires. In 2008, before the financial crisis, he was estimated to be worth twice that—US$2.2 billion to be precise. Not all Mr Okada’s ‘missing’ millions in the intervening two years are the result of crashing stockmarkets. He has also invested huge amounts of his own money in the casino gaming industry, and particularly the Asian end of it. He parked US$100 million in escrow alone in a casino project planned for Manila in the Philippines. In 2009, he took private his slot game development unit Aruze Gaming America. He then used his decades of insight into player behaviour and player preferences from the pachinko market to make bets on trends in the casino slot and multi-station electronic games segments. Some of the products had ‘legs’ and some didn’t. The important point is Mr Okada understood the high attrition rate inevitable in casino game product launches. He held his nerve and kept going, gathering around him—Steve Jobs-like—a highly-talented team. In just a few years, he helped to create what are now some of the 7 (7) Kazuo Okada Chairman Aruze Corp Vice-Chairman Wynn Resorts most sought-after games on casino floors across the world. An obvious example is Aruze Lucky Sic Bo , with its now-famous ‘bash button’, giving players the illusion that they—and not an electro-mechanical wobble plate—are in charge of the dice. To mark the 40th anniversary of his businessempirelastyear,MrOkadachanged the official name of his business (though not the brand name used on his machines) from Aruze to Universal Entertainment. But what could really shape Mr Okada’s future and that of his company for years to come is if he manages to get his hands on one of the proposed integrated casino resort licences in Japan. A broke and pretty desperate Japanese central government is looking to casinos to help dig the country out of the multiple fiscal holes created by decades of: economic stagnation; a shrinking tax base due to the greying of the country; the twin natural disasters of massive earthquake and tsunami; plus the nuclear accident experienced in March. Lawmakers are so desperate that they might just be able to shake themselves out of their usual administrative torpor and actually make casino resorts happen. At one time it looked as though Mr Okada was Mr Wynn’s meal ticket in Japan if that happy and much talked about day of casino liberalisation ever dawned. Mr Wynn—along with Sheldon Adelson at Las Vegas Sands Corp and one or two other US- based operators—is known to have coveted a Japanese casino licence. Japanese spend around Y20 trillion (US$260 billion)—(not a typographical error)—on pachinko each year. Around 800,000 Japanese already visit casinos in South Korea every year, so investment in casino infrastructure in Japan looks like a sure bet. But Japan is a much more opaque regulatory environment and business market than Singapore and even Macau. Mr Okada looked like he would be a big help in cracking the market. But it seems Mr Okada has now come to the conclusion that working with a Las Vegas casino brand in Japan could be a hindrance or at best not very much of a help when it comes to pitching for a Japanese IR. The first reason is that although the Japanese have thoroughly embraced some Western entertainment brands (such as Tokyo Disney Resort), there’s no real evidence so far that they have a strong attachment to Western casino brands. Like Chinese players, they appear rather more exercised by the excitement and especially the fairness and value of the games played on the premises. In addition, although at the level of public finances Japan may be floundering, in terms of corporate liquidity, many Japanese companies—and some banks—are swimming in cash. They’re hard pressed to put capital to work because of the near zero interest rates that have been a problem in Japan for years, as well as the generally low rates of return available on projects such as real estate development. The potential ROI on Japanese casino resorts—perhaps 20%-plus per year— could be the best thing Japanese investors have seen on their doorstep in decades. Under those circumstances, why would local investors want to share the action with foreigners? And Mr Wynn and Mr Adelson don’t look like the sort of people that would enjoy playing second fiddle to anybody on a project, so a casino branding/management deal might not work either. These points will not be lost on Mr Okada. At times even he has shown his exasperation with the glacial pace of Japanese political decision-making. But if he has the chance to go it alone or with Japanese-only partners on a Japanese IR, he will surely want to grasp it.