Business

Already in decline, Japan’s pachinko industry now braces for gambling-addiction regulations

by Taiga Uranaka and Ritsuko Ando

Reuters

Like many pachinko parlors throughout Japan, Naomi Suzuki’s establishment on the outskirts of the city of Fukushima was once full of energy, with the din of bouncing steel balls and garish lights flashing to indicate winnings.

But business is quieter for her these days as her parlor’s clientele ages and drifts away. And with new restrictions on the game this year, she and others in her industry are bracing for things to get much worse.

The rules, aimed at curbing gambling addiction, are part of a policy barter that helped legalize casinos in 2016 despite widespread opposition. Then the Diet passed new regulations on casino developments last month, including those on gambling addiction.

The anti-addiction rules call for pachinko machines to reduce payouts. That means players win and lose money more slowly — and will perhaps find the game less exciting and addictive.

Pachinko halls are required to comply during the next three years. Owners like Suzuki worry not only about the cost of replacing machines but that regulars will find the new games too dull.

“If you restrict the excitement so much, people will quit,” she said. “The point of allowing casinos was to bolster regional finances. But the pachinko industry will be taking the hit.”

The industry, which gained popularity after World War II, has already been in decline because of the shrinking population.

The overall industry has shrunk to about ¥20 trillion from around ¥30 trillion a decade ago, according to the Japan Productivity Center, which compiles statistics on the leisure industry.

The number of pachinko halls has fallen to about 9,600 from over 17,000 two decades ago, according to data based on statistics collected by the National Police Agency, which regulates the industry.

Operators are going bankrupt more often; 29 did so last year compared with 12 in 2016, according to credit data agency Tokyo Shoko Research.

Daiwa Securities analyst Takao Suzuki predicts that more pachinko parlors will shut down, and that operators nationwide will see sales fall by up to 20 percent.

Suzuki said pachinko parlor operators are already spending about ¥1 trillion annually on new machines. New machines usually cost ¥400,000 to ¥500,000 each.

“It’s a big problem for parlors that cannot afford it,” he said. “At the moment, there are estimated to be 4,000 to 5,000 parlors that are not buying new machines.”

But few Japanese, aside from pachinko enthusiasts, have sympathy for the industry.

Many of the businesses are owned by ethnic Korean minorities, who have traditionally faced discrimination in other, more mainstream industries.

A government survey last year found that 3.6 percent of Japanese have been addicted to gambling at some point, higher than the 1 to 2 percent average in other developed countries, and that pachinko parlors were the top destination for gamblers.

The industry has not lobbied hard against the new rules, partly because bigger and more influential companies are positioned to benefit from the changes.

Companies that make pachinko games such as Heiwa Corp. are likely to profit in the short term as parlors buy new machines.

And some big pachinko companies, including game makers and parlor operators like Sega Sammy Holdings and Dynam Japan Holdings Co., are planning to expand into casino entertainment in Japan.

Industry insiders say that in recent years, operators have focused on high rollers as their customer base contracted.

Hiroyoshi Fukaya of the pachinko industry publication GreenBelt said pachinko enthusiasts these days are often ready to spend ¥100,000 during just one visit, compared with around ¥10,000 to ¥20,000 years ago.

Some analysts say the regulations will help return pachinko to its origins as a form of popular entertainment.

“We see it as a chance to expand the player base, and to gain the participation of a younger generation,” said Kimiharu Sato, a director at Dynam Co.

Dynam has already shifted its emphasis toward low-stakes “one-yen” machines. But owners of smaller pachinko parlors say such games are only profitable for the biggest chains.

“At our scale, we cannot survive,” Suzuki said in her office at the back of her pachinko parlor. She reminisced about its heyday, when the parking lot was regularly full and so many customers lined up outside when new machines were installed that the shop provided portable toilets.

By contrast, on a recent weekday afternoon, the lot was mostly empty.

“We have a lot of elderly customers,” she said. “If these neighborhood pachinko shops are gone, some elderly people who have enjoyed it as a pastime will have nowhere else to go.”