Japan´s Pachinko is beating Las Vegas amidst recession!

Recession is hitting hard in Las Vegas. However, it seems Pachinko Parlors are not feeling any pinch and on the contrary, they are growing!

In the smoky Maruhan gambling parlor near Tokyo’s Shinjuku station, Shunichiro Nagasawa feeds a 1,000-yen ($10) bill into a “pachinko” machine, helping Japan’s biggest gaming industry beat the recession and Las Vegas.

“It’s exciting — usually, after I lose many times, I win big the next time,” said Nagasawa, a 29-year-old systems engineer, pushing a button and watching hundreds of small steel balls pour down through the machine. “I do worry about the economy, but I still have a job.”

Curious Pachinko ad featuring Nicholas Cage!

As Japan’s economy shrank at an annual 12.1 percent pace in the last quarter and revenue slumped at Las Vegas casino companies like MGM Mirage and Las Vegas Sands Corp., the 23 trillion-yen pachinko industry is on a roll. Sales from the machines, which resemble upright pinball games, rebounded 0.5 percent in last quarter, reversing a six-year decline, and rose 0.9 percent in January, according to government statistics.

“There are many companies in the red — automobile makers, electronics and so on,” said Hirohito Niji, an analyst at Standard & Poor’s in Tokyo. “Against that, pachinko hasn’t really felt the effects.”

Evangelion Pachinko!

That’s good news for holders of “pachinko bonds” — debt backed by securitized gambling revenue — and for equipment makers including Mars Engineering Corp., the best performer in the 124-stock Topix Machinery Index in the past six months.

Maruhan, MGM

Kyoto-based Maruhan Corp., the biggest pachinko-hall operator by sales, forecast net income will rise 11 percent to 20 billion yen in the fiscal year ending today, according to a statement on its Web site. Operators aren’t publicly traded and typically don’t provide financial information.

Casino gambling revenue in Las Vegas fell the most on record last year and dropped 15 percent in January as the U.S. recession curbed spending on travel and betting. Shares of MGM Mirage and Las Vegas Sands fell more than 95 percent in the 12 months through March 27.

Introduced in the 1920s, pachinko is played by about 13 percent of Japan’s population, who fed 23 trillion yen into the machines in 2007, according to the Japan Productivity Center for Socio-Economic Development.

Numbers are down from 16 percent of the population and 29.6 trillion yen in 2003, a drop that was caused by a regulatory crackdown on types of machines that encouraged heavy gambling, according to a February 2007 report by CLSA Asia-Pacific Markets.

13,000 Parlors

Japan’s 13,000 pachinko halls — more than one for every 10,000 residents — are located throughout the country around train stations, along highways and in entertainment areas.

Pachinko players seek to amass piles of small steel balls that can be exchanged for prizes. Because casinos are illegal in Japan, cash can’t be paid out on the premises. Prizes can usually be exchanged for money at a nearby booth.

Operators are luring customers with new high-stakes machines that yield bigger profit margins, while lowering fees for others to 1 yen per ball from 4 yen.

“Parlors are thinking more carefully about which machines customers like, which machines are the most profitable,” S&P analyst Miyuki Onchi said. “Sales have come up bit by bit.”

Lower-fee machines have widened the customer base at Maruhan, the company said in an e-mail. Founded in 1957, Maruhan said it has 242 parlors, up from 225 a year ago, and about 12,000 workers.

Pachinko Index

A custom-built index of 16 pachinko-related companies including machine makers has gained 25 percent since Oct. 27, when Japanese stocks fell to the lowest in more than two decades, Bloomberg data show. That compares with a 5.8 percent rise in the benchmark Topix index in the same period.

Reno, Nevada-based International Game Technology, the biggest U.S. slot-machine maker, lost 3.3 percent in the same period and has dropped 77 percent in the past year. Slot-machine takings dropped 12 percent in the fourth quarter at MGM Mirage, the biggest U.S. casino company.

In Japan, the need for new pachinko machines has fueled demand for financing. Some operators have issued bonds backed by securitized revenue from their parlors.

Tokyo-based Gaia Co. sold 70 billion yen of the bonds in 2005, arranged by Deutsche Bank AG. Merrill Lynch & Co. and Mitsubishi UFJ Financial Group Inc. have also arranged structured-finance bonds for hall operators.

Economy Worsens ‘Significantly’

While S&P maintains an A rating on Gaia’s bonds, pachinko may not escape unscathed as the recession deepens, the ratings company said in a Feb. 27 report. The economy is worsening “significantly,” the Bank of Japan said March 19, forecasting the sharpest economic contraction in 60 years.

Spending by Japanese households dropped 5.9 percent in January from a year earlier, the most in more than two years, the government said last month.

Yuichi Kobayashi, an analyst at Shinko Securities Co. in Tokyo, is maintaining “neutral plus” ratings on Mars Engineering and pachinko-machine seller Fields Corp. He has “neutral” ratings on other pachinko-related companies including Sankyo Co. and Sega Sammy Holdings Inc.

“It’s an industry that in the past, when the economy has slumped, it has improved,” Kobayashi said. “But this time we don’t know how bad the recession will be.”

In Shinjuku, Nagasawa leaves the Maruhan parlor and heads home after losing about 9,000 yen.

“It goes in waves,” he said. “Right now, my luck is down.”

Source: Bloomberg / What the heck is Pachinko?

I remember the first time I ever heard or saw a Pachinko machine was in a Doraemon´s episode and since that time, I always wanted to know more about that.  I will like to play Pachinko at least once to see what´s all about, but I don´t want to play so many hours and spend so much money in there, especially in this hard times.

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