Japan’s massive pachinko industry is in “crisis” and looking to casinos to revive its fortunes.
Attendance at the game’s pinball-style arcades has fallen more than 60 percent since their mid-1990s heyday, according to a new report by Bloomberg News, and it suffers from a longstanding taint as a business that is not illegal but not entirely legitimate either.
“Pachinko companies are feeling a sense of crisis that they will go into decline unless they do something,” Daigo Fukunaga, a senior analyst at Advanced Research Japan, told Bloomberg.
Casinos would be “a big new market” to pachinko companies, he said.
Casinos are illegal in Japan, but Prime Minister Shinzo Abe’s Liberal Democratic Party is pushing for passage of a bill this fall to legitimatize them as a first step toward the creation of a market some analysts believe could be worth upwards of US$40 billion in gaming revenue a year by 2025.
While pachinko still attracts players—about 10 million a year—and generates more than $185 billion in annual volume, arcade operators and machine makers such as Dynam Japan Holdings and Sega Sammy Holdings know they must adjust to this new world that is likely to threaten their longstanding dominance of Japan’s gaming market.
The potential benefits are most obvious for manufacturers like Sega Sammy. Best-known outside Japan for its discontinued video game consoles, the company attributes almost half of its revenue to pachinko. In May, the company said it would begin making electronic table games for the Macau and Singapore markets as well.
Konami Corp., whose products include pachinko machines, video games and casino slot machines, say it’s looking to pursue a casino license in partnership with a major global operator. Satoshi Sakamoto, chief executive officer of Konami’s gaming unit, has said that Japanese casinos “could be a turning point” for the company.
Major operators such as Dynam, Maruhan and P Ark Holdings will also benefit from a casino boom. Dynam may sell additional shares to fund its entry into the casino market, Chairman Yoji Sato has said. Maruhan is also interested in running casinos, according to people familiar with the company’s plans.
There are 11,000 pachinko parlors across the country, but since gambling is illegal in Japan outside of pari-mutuel racing, players are paid with gift prizes which they take to third-party shops to exchange for cash, highlighting the legal gray area the industry operates in. The ambiguity is why Tokyo-based P Ark’s 2005 application to list on the Jasdaq was rejected and why Dynam went to Hong Kong in 2012 for the first-ever public offering by a pachinko operator.
The game’s reputation has also been hit by concerns that it feeds gambling addictions, a concern that was exacerbated by a past trend toward higher payouts. The industry voluntarily removed machines that gave high payouts in 1996, and regulators tightened rules to curb jackpots on some machines in 2004. But without big payouts, pachinko offers few thrills a smartphone can’t match. The changes ended seven decades of growth for pachinko, which saw revenues peak at 31 trillion yen in 1995, according to the Japan Productivity Center. Back then, 29 million people played pachinko, or about a quarter of all Japanese.
Today, the industry takes in about 19 trillion yen, equivalent to US$19 billion-$28 billion, based on an estimated win rate of 10-15 percent, and operators and suppliers both are betting that casinos could bring it legitimacy.
“We have to change our environment, which people think is dirty, smoky and noisy. With casinos we will be able to change,” said Motoyuki Nakajima, executive managing director of the Pachinko Chain Store Association.
“If casinos are legal,” Fukunaga said, “saying ‘no’ to pachinko doesn’t make sense.”
