An Economic Strategy for Casinos in the Land of Pachinko
As we begin the third week of the special autumn parliamentary session in Japan, the focus remains on whether or not substantial progress will be made on casino legalization. Prime Minister Shinzo Abe sees passing the casino bill as a crucial component in his “Abenomics” package of aggressive economic and fiscal policies and reforms. He views Japanese casinos as an opportunity to increase tax revenue and stimulate the flagging economy, and he hopes that foreign investment from major gaming operators and integrated resort (IR) developers will help to pull Japan out of two decades of deflation and weak growth. The timing of the current parliamentary session becomes all the more critical, given that the Japanese GDP took a 7.1% plunge during the first quarter of the 2014 fiscal year. When factoring in recent tax increases and rising energy costs, Japanese workers are now effectively earning less than they were when Abe took office in 2012.
Gambling Which Isn’t Gambling: Pachinko
Although gambling is technically illegal in Japan (except for some government-administered racing sports and lotteries) there is already a thriving gambling pastime which has been an integral part of the Japanese lifestyle since the first part of the 20th century, operating in the gray area of the pachinko industry. This pinball-like slot game (which originally utilized ball bearings from dismantled munitions factories after World War II) is regarded as an exception to the criminal code’s gambling prohibition. When players accumulate enough little silver balls, they can redeem them for token prizes such as pen sets, cigarettes, or perfume, then take certain special prizes to off-site shops where they are exchanged for cash.
Although the pachinko business has been on the decline since its peak in the 1990s due to a younger generation eschewing what they see as the dingy, smoky pastime of their parents’ generation, estimates of gross gaming revenue (GGR) for pachinko in 2013 are still thought to be a staggering $30 billion or higher. In order to win over Japanese youth and the untapped female market, and in preparation for competition from casinos, the pachinko business is now trying to rebrand and reinvent itself with stylish, smoke-free lounges, cafes, shopping malls, and even daycare centers for the children of parents with a little extra cash on their hands.
A telling anecdote which illustrates the fuzziness of pachinko’s classification by Japanese society recounts a group of pro-casino legislators who requested data on annual pachinko winnings from the National Police Agency, which administers the off-site exchange shops. The mind-boggling response provided was that pachinko generates no winnings, as pachinko is not gambling. The industry’s 12,000 parlors are operated entirely by the private sector, and it is not taxed, although that would likely change if taxable casinos were legalized.
How Will Social Implications Affect Casino Legislation?
According to the Ministry of Health, Labor and Welfare, 4.8% of Japan’s adult population, and 8.7% of men over the age of 20 are pathological gamblers who are addicted to gambling. This stands in stark contrast to other developed nations where the average statistic for compulsive gamblers is closer to 1%. As a result, the Ministry supports a total ban on casino use by Japanese citizens, which is the model used at gambling facilities in Monaco. Other groups are exploring requiring special entrance fees for Japanese casino customers, which is the approach used for locals at casinos in Singapore. Either way, restricting casino access for the Japanese would cut into what the government sees as a solution to the nation’s economic woes, especially when some have projected that 80% of casino patrons will be Japanese nationals.
Gambling by Japanese Nationals to be Allowed
Recent media reports on the casino bill being drafted by a multiparty group of Japanese parliament members had stated that a clause was being introduced only allowing foreign nationals to gamble in Japan. Since many believe that the Japanese customer base is crucial to the profitability of Japanese IRs, this would have been seen as a setback discouraging investment by foreign developers. Conflicting reports have now emerged, citing an unidentified “parliamentary source”, stating that the draft law will not ban Japanese locals from casino gambling.
We are closely following all the casino-related developments as they occur in Tokyo, where parliament is in session through November 30th. Check back with TMG Insights to stay current on the latest news from Japan.
Anthony Mumphrey III
Principal, TMG Consulting
(504) 569-9239, Ex.22
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