Inside Asian Gaming

INSIDE ASIAN GAMING | April 2011 24 These are members of a 600,000-strong community who speak and act like Japanese but are technically foreigners. They are descended from Koreans who came to Japan during the Japanese occupation of the Korean peninsula in the early 20th century. Curb pachinko and you also curb Zainichi influence in Japanese politics, goes one argument. A further point asserted as fact in the mainstream media and in chat rooms, is that the pachinko industry is closely linked to the yakuza (the name for members of organised crime groups in Japan). This may be a convenient way for Japanese to distance themselves ethically from a semi- legal activity many of them clearly enjoy. But STRATFOR, a US-based consultancy specialising in geopolitical analysis, said this about pachinko in its 2008 report ‘Organized Crime in Japan’:“Winners receive tokens, not money, that they in turn sell at Yakuza -run kiosks for cash. This allows the Yakuza to circumvent Japan’s gambling laws. Typically, pachinko parlors are located near Yakuza -run clubs and bars that offer a perfect place for gamblers to spend their recently won earnings.” Any campaign in support of casino gaming, therefore, can also be seen as an attack on the pachinko industry and de facto a campaign in support of political reform and reform of political funding. That’s a much bigger issue and far hotter topic within Japan than even the social utility of gambling as a legally sanctioned activity. If the casino issue were simply about the rightness or otherwise of gambling, then it seems unlikely the Japanese authorities would ever have allowed betting on cycling (regulated by the Ministry of International Trade and Industry) and even motorboat racing (overseenby theMinistryofTransport) as well as horse racing (controlled by the Ministry of Agriculture). 6. Superior business model According to ibizcube Japan Ltd, a consultancy, pachinko parlour operators often operate at a gross margin of around 9% to 10% of sales and can achieve an annual return on investment (ROI) of between 20% and 25%. ROI figures vary considerably among the operators as some run very small operations with very limited access to capital markets and very low levels of reinvestment, while others are large corporations with strong on-going demand for investment capital. In casino gaming, gross margins of 35% have been recorded in mass market table operations in Macau, and Sands Macao as a venue famously achieved project payback in less than a year after its launch in 2004, and has been a cash machine for Las Vegas Sands Corp (LVS) ever since. The stellar initial ROI for Sands Macao was, however, an exception to the Macau market rule, linked to a particular set of circumstances (lack of mass market competition at the time combined with China allowing its citizens to travel more easily to Macau). The 25% ROIC recently announced by Sheldon Adelson, chairman and chief executive of LVS for his company’s Marina Bay Sands project in Singapore, is probably more realistic for Japan were casinos to be allowed. Japan would also in likelihood adopt a US-style credit system for VIP play (i.e., only authorising the casinos to issue it). That should mean avoiding the junket system that so depresses margins on VIP table play in Macau. Play it again san—pachinko has been at the forefront of popular culture for more than seven decades I f academic and media claims that Japanese politicians, the National Police Agency and the yakuza get money from pachinko are true, that’s a pretty powerful triumvirate. That remains the case even if those interest groups don’t work en bloc in lobbying against casinos. A 2003 study called ‘Above the Law? Police Integrity in Japan’ came to some startling conclusions in relation to pachinko . Its findings were shared with some of Japan’s leading lawyers at a symposium of the Japan Federation of Bar Associations in Tokyo and later published by the Institute of Social Science at the University of Tokyo. The paper concluded that pachinko -related corruption was one of the three main pillars of police graft. The study, by David T. Johnson, an associate professor of sociology and adjunct professor of law at the University of Hawaii, concluded: “Three problems of police corruption [in Japan] are especially acute: the embezzlement of money from police slush funds; the corruption endemic in police control over Japan’s pachinko industry; and police tolerance of organized crime. The problem of police corruption in Japan is not a matter of a few ‘rotten apples’ but of a failed organisation. The challenge, therefore, is how to fix the organization. Significant reform requires conditions which now are absent and seem unlikely to emerge anytime soon. For the foreseeable future, Japanese police seem likely to remain above the law.” Japan’s current crisis has shown two faces of Japan. The stoicism, rationalism and discipline of individual Japanese, but also, arguably—in the government’s response to the nuclear accident—the relative lethargy and opacity of its public administration. Which of these two faces Japan shows to the world in the coming months and years could have a big impact on the prospects for casino gaming. Down, Down, Deeper and Down Forces working in favour of the pachinko status quo Strong arm tactics—yakuza—pachinko’s unofficial partners? Cover Story Enough said