Jockeying for position

Everybody who wants a piece of the action will be attending the Japan Gaming Congress taking place in Tokyo from 10 to 12 May 2017. The three-day event – organised by Clarion Events in association with Hakuhodo, a major Japanese advertising agency – offers practical insight and information about the new Integrated Resort Promotion Bill approved by the upper House of Japan’s Parliament, the Diet, on 14 December 2016.

All major casino operators in Macau which spoke to Macau Business – Galaxy Entertainment Group (GEG), MGM International, Wynn Resorts, and Sands China – confirmed that their attendance at the Congress is a sure thing. SJM, which had not replied to Macau Business queries by the time this story went to press, stands out as the only company that has openly declared it is not interested in a chunk of the Japanese market. In early January, Angela Leong, Executive Director of SJM Holdings Ltd., announced that the group is not considering investing in the gaming business in Japan, as they are focused, and prefer to remain so, on the Macau market.

Though some of the big casino corporations are sending teams from Macau and Las Vegas, the majority of Macau casino operators already have teams stationed in Japan. “Lobbying activities by major American casino operators have been ongoing at least since 2013, when the casino bill was presented to the Japanese Diet for the first time,” explained Yasuhiro ‘Yas’ Idei, a senior journalist based in Tokyo.According to Mr. Idei, George Tanasijevich, President and CEO of Marina Bay Sands Pte. Ltd. in Singapore, visited Osaka last October to meet Governor Ichiro Matsui. Bill Hornbuckle, President of MGM Resorts International met Matsui last November. Mr. Idei also said Melco Crown is to donate US$10 million (MOP79.9 million) to a university in Tokyo, and that several American operators, including Las Vegas Sands, have pledged to invest some US$10 billion (79.9 billion) to develop a possible Integrated Resort (IR) in Japan.

Speaking to Macau Business, Jane Tsai, Vice President of Communications for GEG, said the group has an office in Tokyo, headed by Mike ‘Yukio’ Isa, a Japanese with a long career with the Hyatt Corporation behind him. The now decades-old involvement of the Lui family in various business arrangements with Japan is an aspect Ms. Tsai believes demonstrates that the company is “aligned with Japanese culture and sensibilities,” giving them a possible edge over other contenders.

“Our International Development Team has been speaking to many key stakeholders both within the Japanese Government as well as local commercial Japanese partners. At this moment, it is a bit like speed dating,” added Ms. Tsai.

MGM China also confirmed it will have people attending the conference, including representatives from its two Japan offices, located in Tokyo and Osaka, and most likely from MGM Resorts International Las Vegas, according to information provided by Vanessa Estorninho, Public Relations Supervisor at MGM China.

A spokesperson for Sands China regarding the group’s current dealings with Japan, Krist Boo, is based in Marina Bay Sands in Singapore. She explained that although Sands does not currently have investments in Japan, they “regularly participate in gaming conferences [there] to discuss and present the concept of Integrated Resorts and the economic benefits they bring.”

Katherine Liu, Vice President for Communications at Wynn Resorts Macau, told Macau Business that they will also be attending the conference and that they already have a team working in Japan, although she did not confirm in which city their office is located.

The foreign card

Until Japan’s Government reveals more details of the IR implementation bill the possibility of a Japanese-only consortium, although deemed unlikely, has not yet been ruled out. “We understand that various business models are under consideration; everything from local Japanese consortiums to blended Japanese and international commercial partner consortiums,” noted Jane Tsai.

Mr. Idei would rather bet on a foreign partnership, suggesting: “A couple of first Japanese casinos will be built in big cities such as Osaka and Yokohama and likely operated by the Americans.”

“People would like to see something different from daily life. Maybe not an Eiffel Tower, but perhaps a Pyramid, as in Egypt, would work for Japanese audiences,” Joji Kokuryo, Senior Compliance and Operations Manager for Aruze Macau Gaming Limited, a slot machine and gaming devices developer, told Macau Business.

“Currently, there are only two images in Japan when we say casino or IR: we have Las Vegas and we have Macau. To be honest, that’s what a normal person would think of in Japan. The interesting point is that due to the lack of gaming experience, I still think that a company like Las Vegas Sands would ring a bell more than a company like Genting,” reasoned Kokuryo.

Speaking to Macau Business, Toru Mihara, a professor at Osaka University of Commerce, explained the stakes in more detail: “Legally speaking, any company can raise its hand, but this is only for a few licences. The zone must be pre-chosen by the state based upon proposals by local governments. And only those local governments selected can choose investors. The hurdle is quite high. For amateur [companies] it is practically difficult.”

Special Economic Zone

The zone mentioned by Mihara – who has been advising Japan’s Government on liberalization for the last fifteen years – refers to a sort of “special economic zone” specifically created to host IRs.

“This is one of the purposes of the bill which was passed [in December] and Japan has yet to create a Special Economic Zone,” noted Akiyoshi Tsuruoka, General Manager of Gaming Capital Management Inc., a gaming consulting and investment and financial advisory company headquartered in Tokyo. Yas Idei concurs: “There must be a Special Economic Zone. Otherwise, IRs are not allowed.” But where? “Osaka is a frontrunner to build the first Japanese IR, and the second one is Yokohama, because the political leaders of these cities have been actively lobbying,” suggested Mr. Idei, mirroring Mr. Kokuryo’s opinion.

Early Japan connection

Business links between Macau and Japan have existed to some extent for some time now. Although Japanese visibility in local business remains discreet, Japanese companies are present in different sectors of economic activity, with the majority operating in the travel and tourism industries.

The roots of Macau’s Japanese community can be traced back to the 1970s, according to Yuko Matsumoto, a founding member of the Japan Society of Macau, who arrived in the city in 2003. She explains that more Japanese began to settle in Macau in 2005, at a time when gambling liberalisation, which occurred in 2002, was yielding promising economic prospects.

Though the Society was formed in 1973, it was only officially registered with the support of the Japanese Consulate in Hong Kong in 2008. Its affiliates include both individuals and corporate members, although it restricts membership of companies involved in the casino and gaming business as well as real estate investment, Mrs. Matsumoto explained to Macau Business.

Another important local Japanese representation is the Macau-Japan Chamber of Commerce. Officially established in October 2011 and chaired by Dominic Sio Chi Wai, a lawmaker in the Macau Legislative Assembly, it includes Japanese companies in Macau as well as local companies that have economic and trade relations with Japan.

In the past, it was common that Japanese companies set up their branches in Hong Kong to look after their business in Macau, according to Mr. Sio in a report published by the Macao Trade and Investment Promotion (IPIM). As Macau’s economy started to gain steam, however, more Japanese companies expressed an interest in establishing their business in the city.

IPIM reports that Japanese companies in Macau primarily invest in advanced manufacturing industries, tourism, hotel and infrastructure sectors. Mrs. Matsumoto listed several Japanese travel agencies that operate in Macau: HIS, Macau Tours, South China Travel, TKW, and World Holidays.

Speaking to Macau Business, Yujin Katsube, director of local Japanese newspaper Shimbun, said the paper joined the Macau-Japan Chamber of Commerce in 2012. He pointed out that the Japanese companies currently established in Macau are linked mainly to the tourism and gaming industries: JTB, Hotel Okura, Angel Playing Cards, Aruze Gaming, and Mitsubishi Heavy Industries – which is supplying the Macau Light Rail Train (LRT) project with passenger carriages.

The move from travel to casino business has become stronger in the last few years as Macau has developed into an important gaming hub in southern China. A sign of the times, Yuko Matsumoto confirmed that for the last birthday celebration of Japan’s Emperor Akihito, which has taken place every year in December in the Okura Hotel since it opened in 2011, it was the Secretary for Economy and Finance, Lionel Leung Vai Tac, who was sent to represent the MSAR Government along with Japan’s Consul for Hong Kong, Kuninori Matsuda. A clear change in strategy, since in the last few years, Mrs. Matsumoto noted, it was always Alexis Tam Chong Weng’s Secretariat for Social Affairs and Culture which represented the Macau Government.

Casino business links

Galaxy Entertainment Group owns the Okura Hotel on its premises in Cotai although the hotel is managed by the Okura group itself. “As for current business arrangements with Japanese companies, we have engaged some Japanese suppliers across the property for items such as playing cards or TV’s; however, these were selected based upon a bidding and quality due diligence process and not selected purely because of their Japanese origins,” commented Ms. Tsai.

Dynam Japan Holdings Co., Ltd., another pachinko operator in Japan, has already invested US$85 million (MOP679.29 million) in casino operator Macau Legend, owned by David Chow, and IGG, an online game software developer and manager, headquartered in Singapore, according to the company and previous reports by Business Daily.

Kazuo Okada, owner of Aruze, and developer of the US$2.4 billion (MOP19.18 billion) Manila Okada Integrated Resort in the Philippines, has also invested in Macau’s gaming industry in the past, having purchased shares in Wynn Resorts Macau. But since Steve Wynn accused Mr. Okada of bribery a few years back, the latter was forced to sell his stake at Wynn Resorts in 2012, according to Forbes.

Another business connection is that of SJM and Maruhan. Maruhan – a Japanese company controlled by Han Chang-Woo, a Korean immigrant to Japan – runs Japan’s biggest operator of pachinko parlours, and is said to have stakes in SJM’s Ponte 16 through Success Universe Group Limited, formerly known as Macau Success Limited, a subsidiary of World of Fortune Limited. Both companies are engaged in the gaming and hospitality business, offering travel and entertainment- related services such as cruise ships and travel, cinema, golf practice ranges, and bowling alleys. Success Universe was found in 1987 and is headquartered in Hong Kong. Some of its current investments include, in addition to Ponte 16, the One Oasis residential property in Macau, Haruna no Mori country club in Japan, Shabu Shabu Japanese restaurant in Hong Kong, and the Welfare Lottery in the People’s Republic of China, established in Shanghai and Tianjin, according to the company.

According to information published by the Nikkei Asian Review, Maruhan owns 19.4 per cent of the total shares of Success Universe. Sonny Yeung Hoi Sing, Success’s major shareholder at 52 per cent, is the brother of the chairman of the Emperor Group, Albert Yeung Sau Sing, who owns the Emperor Hotel in Macau.

According to the Japan Times, Maruhan holds an interest of approximately 5 per cent in Ponte 16 through World Fortune. Contacted by Macau Business, the company had not, however, confirmed the information prior to the publication of this story.

Spinning wheels

More recently, Japanese companies have increased their participation in the gaming and gaming-related business. In addition to direct investment in casino shares, one of the most profitable activities is in the development and sale of machine hardware and games software.

Currently, a dozen companies provide machines and related services to the 38 casinos and Integrated Resorts established in the Macau SAR. Together, their offer of slot machines amounted to 13,826 units by the fourth quarter of 2016, according to data from the Gaming Inspection and Co-ordination Bureau (DICJ).

Since 2012, only manufacturers of slot machines and related equipment approved (licensed) by DICJ can supply gaming operators in Macau. These include Sega Sammy, which has installed e-baccarat machines at Galaxy Macau, and a four-metre high jackpot in Studio City, both in 2016; Paltronics Macau, a local branch from Paltronics Australasia Pty Ltd., established in the city since 2005; Niraku GC Holdings Inc.; Palazzo Tokyo Plaza, Elixir Gaming Technology Inc., and Aristocrat to name but a few.

The Las Vegas-based Konami Gaming, Inc., a subsidiary of Konami Holdings Corporation, Japan, is also licensed in Macau to supply casino slot machines and gaming technology to licensed casino operators. Speaking to Macau Business, Steve Sutherland, President and CEO of Konami Gaming Inc., explained: “Specific to Macau, our investment provides for the distribution and support of the market with targeted products through an exclusive local third party distributor, Asia Pioneer Entertainment (APE) managed by (local distributor) Konami Australia Pty Ltd.” Although Konami does not maintain a dedicated office in Macau it invests in the local market by designing and developing targeted products that resonate with their casino customers, especially “Class III casino slot games,” also known as a “Vegas-style” slot machine. In Class III slots, the outcome of each spin is determined by the spinning of the reels, with each spin an independent event. Anything can happen on any given spin in respect to winning or losing within the parameters of the game.

World of pachinko

Pachinko is a type of gaming machine. It is not a slot and it is not pinball, although it may be a close cousin of the latter, and is idiosyncratically Japanese. There are two types of game machine in pachinko halls: pachinko machine, a vertical pinball machine which shoots small metal balls continuously toward the board surface of the machine, and pachislot or pachisuro, a quasi slot machine.

Official revenue figures for the pachinko business in Japan are not within easy reach. Joji Kukuryo, of Aruze, explains that the problem in getting accurate numbers lies in the fact that no regulator entity in Japan performs a role similar to Macau’s DICJ. “Pachinko machines in Japan can be located in many parts of a city, as in a mom and pop kind of store, for instance, and statistics are not regularly produced by the Japan Government,” he noted. But there are estimates. According to Toru Mihara, the ball leasing fee of pachinko stands at some JPY18.8 trillion (MOP1.30 trillion) with gross gaming revenues representing nearly one tenth of that amount or JPY1.8 trillion (MOP125.08 billion).

“During the last 20 years, pachinko sales (not revenues) have dropped by 40 per cent to some 18 trillion yen, and the number of players has also gone down from 30 million to less than 10 million. So, pachinko business desperately needs to find a new way to make money,” said Yas Idei. But will pachinko business be
permitted in Japanese casinos? According to Mr. Mihara and Mr. Idei, the short answer to that is no. “Purely from a legal point of view, pachinko is not gambling, subject to a different law on amusement. But because of similarity between the slot and pachisuro, the casino control commission will never allow casino facilities to install pachinko or pachisuro mainly to avoid any confusion by and among patrons,” noted Mihara. Yet, the long answer to that question could be perhaps. “Pro-casino politicians, who are financed by the pachinko industry, insist the number of Japanese casinos will be eventually increased to a total of ten. And the pachinko business are hoping to become casino operators some day,” commented Mr. Idei. Mihara has a similar perspective: “Potentially, [pachinko business] can enjoy [the market] as possible investors, with parlour and machine manufacturers being totally different. The latter may enjoy selling machines and systems, while participating in equity. They may also associate with some medium-sized operators.”