Inside Asian Gaming

A Bit Fishy by Edwin Karmiol in Tokyo Environmentalists cheer the disappearance of whale meat from supermarket shelves across Japan, but international casino operators are not so pleased about the disappearance of Japanese ‘whales’ (the highest of high-rollers) from their VIP gaming rooms. However, the Japanese remain the biggest gamblers in the world - though technically, they’re not gambling. t takes balls of steel to gamble in Japan - and not just because of the pervasive influence of organised crime and crooked cops. The balls are the basic element of pachinko, the biggest industry in the world’s second biggest economy. Pachinko revenue is estimated at around US$300 billion annually, equal to five times the gambling industry in the entire United States and 10 times Las Vegas’s gambling revenue. It’s a fishy industry, to say the least. Steel or wooden balls are bought for cash in the pachinko parlours and shot up nail-studded boards, in a vertical version of pinball. The balls bounce around on the way down with about one in ten landing in winning slots. Balls which fall into the winning holes set off computerised slot machines and three of a kind means a jackpot delivering a bounty of more balls. Pachinko parlours get around the ban on gambling by offering “gifts” instead of money in return for winning balls, with prizes including cheap tie pins, cigarette lighter flints and chocolate. Since cash payoffs exceeding 10,000 yen (US$89) are illegal, players can trade their prizes or specially marked flints for money at covert kankin (prize exchange) booths located outside the pachinko halls.The kankin booths are predominately run by organised crime groups who resell the goods to the pachinko operators. The police have also “cut themselves a piece of the pachinko pie,” claims JapanVisitor.com in its pachinko guide. “By instituting regulations to ensure that the most popular machines can only be played with pre-paid cards rather than cash, they have entered into a cosy relationship with card producers. As a matter of course, retired police officers get highly paid jobs with the companies which profit from selling cards to pachinko parlours.” Organised crime groups have maintained their adversarial relationship with the police by producing fake cards, which are exchanged for balls, which are in turn exchanged for cash. Meanwhile, the disreputable nature of pachinko has left the running of the parlours largely to ethnic Koreans, and there are allegations that pachinko funds are funnelled into North Korea. Japan does have legal gambling on horse, bicycle, boat and motorcycle racing. Wagering on racing was legalized in the late 1940s and early 1950s, a national lottery was approved in 1948 and sports betting was permitted in 1998. Still, all of Japan’s legal gambling combined is worth only a third of the pachinko industry. There are about 5 million pachinko-type machines operating throughout Japan, compared to 2.4 million slot machines in the rest of the world. Pachinko employs a third of a million people So also claims that in installing more tables,the US operators have learnt fromSJM,since inVegas,their gambling halls are dominated by slot machines, not tables, with the tables doing most business with“Oriental people during festive seasons.” Of course, one of the main strengths of the new operators is that their facilities will be brand new. “In terms of gambling halls, we are lacking in better hardware. Lisboa was built in the 1960s, the ceilings are low,and it’s very cramped.Now people are looking for a more comfortable environment, and so on, which we will provide in the Grand Lisboa. The HK$3 billion (US$385 million) Grand Lisboa will consist of a four-storey casino and a 44-storey, 600-room hotel in the shape of a giant golden lotus, and at 225 metres high will be the tallest building in Macau. The first phase of the Grand Lisboa is scheduled to open in late 2006. An even more colossal STDM addition to Macau’s landscape will be the HK$6.2 billion (US$795 million), 3.2 million square foot Oceanus. Slated for completion in 2009, Oceanus will replace the existing jetfoil pier as the city’s eastern gateway, and will include a 600-room, six-star hotel, retail outlets and a casino. SJM-operated casinos will also open in the HK$1.5 billion Crown Macau, the HK$2.4 billion Ponte 16 and HK$1.9 billion Fisherman’s Wharf projects in 2006. Muted IPO SJM is conducting feasibility studies on launching an initial public offering (IPO) on the Hong Kong stock exchange. But it’s all very tentative at the moment. “We haven’t reached any concrete conclusions yet. We haven’t even decided the value of the listing,”says So. With its impressive cash flow,SJM is in the enviable position of being able to finance all of its current investment projects out of it cash flow. “It’s not absolutely necessary,so that’s whywe are studying the feasibility,” comments So. The downside of an IPO is that it would involve company restructuring and make SJM’s operations subject to greater regulation and scrutiny. In the wake of the Banco Delta Asia fiasco (the Macau bank was accused by the US Department of the Treasury of laundering money for North Korea), however, SJM may find it worth its while to submit itself to scrutiny and proclaim its transparency via an IPO. 21 20