Global Economics

New Image for Japan's Pachinko Parlors


The traditional game—part pinball, part slot machine—is making a comeback with cleaner digs and an attempted IPO

"Aim for the pegs in the middle," says a smartly dressed young man, who has come to check on my progress. I'm playing pachinko, one of the most popular gambling games in Japan, at P-ARK Ginza in Tokyo's swanky Ginza district. I could use the advice. This is only the third time I've ever set foot in a pachinko parlor, which has long had the reputation of being a seedy joint reeking of cigarette smoke and sweat and blasting Japanese military marches over the clatter of metal balls and the microphone-enhanced shouting of attendants.

But Japan's pachinko industry is now trying to reinvent itself as pachinko parlors work to shed their sleazy reputation and become more attractive to female customers. To be sure, most of the players around me are men in business suits, but there are more women than I had expected. All seem to hunch forward in their seats, dropping balls into a slot. Every few minutes a staff member stops by to give me some pointers. They want me to win a little so I'll come back. "If you have any problems, just call us any time," says the eager-to-please employee.

Pachinko is a uniquely Japanese phenomenon. Its roots trace back to the 1930s, but the game didn't take off until after the end of World War II. As Japan's economy grew and people had more money to spend, pachinko parlors were just about everywhere. Even in major cities, you had a better chance of finding a pachinko parlor than a convenience store.

A $257 Billion Business

Pachinko machines are strange-looking: part upright pinball machine, part video game, part slot machine. But pachinko's currency isn't coins; it's little steel balls. The aim of the game is to win as many of the balls as possible, which can later be exchanged for gifts or cash.

During the postwar boom, pachinko machine makers did their part, designing new models that would cough up winnings faster. And the faithful kept coming back. By 1995, more than 44 million Japanese—about a third of the population—were playing regularly, according to Japan's Entertainment Business Institute. And pachinko shop operators' annual revenues were almost $300 billion, according to the Japan Productivity Center for Socio-Economic Development.

But by 2006, the figure had fallen to $257 billion as interest in playing the game waned. What went wrong? Despite strong profits, pachinko's image was suffering. Operators were accused of everything from tax evasion to shady North Korean money transfers to ties to the yakuza, Japan's Mafia. And the game came to be seen as a pastime for deadbeat borrowers and gamblers. It didn't help that pachinko parlors skirted the strict rules in Japan for gambling establishments. Then, as today, customers weren't allowed to trade balls for cash at parlors. Instead, they stepped around the corner to an independently run kiosk to convert winnings into yen.

A Chance to Clean Up Their Image

Worse was to come. After years of looking the other way, in 2004 regulators ordered that pachinko machines offering big payouts be replaced with new machines with smaller payouts. Many shops went bust, unable to afford the big investments in new equipment (BusinessWeek.com, 6/5/07). Today, there are 13,585 parlors in Japan, down from a peak of 17,631 in 1995.

Yet many others saw a chance to clean up their image and reach out to a different crowd. Shops are now less intimidating for first-time players such as women like me, and twentysomethings or thirtysomethings whose attention is being increasingly monopolized by DVD players, big-screen TVs, and video games. P-ARK Ginza, which opened in 1995 across the street from Tokyo's Kabuki Theater, sits just a couple of blocks from the ritzy Ginza shopping district. You'd never guess it was a pachinko parlor; from the outside, it looks like an ordinary Internet café. Inside, it was quieter and cleaner than I had expected.

Big Wins in the Penny Arcade

After explaining to an employee that I hadn't been to a parlor in years, I was led to a bank of machines for beginners. My machine was easy enough to control. There was a knob, which is used to control the angle at which each ball is shot into the machine. That starts up the digital slot machine on a large LCD screen at the center. The goal is to rack up points by getting the balls to land in certain cups around the machine.

I chose the equivalent of the penny arcade. I paid for 1,000 balls with a 1,000-yen note ($10). My machine, which was programmed to pay back more frequently and in smaller jackpots, played scenes from a Korean TV show that was a hit in Japan a few years ago. Before long, I'd hit the jackpot, and balls poured out of the machine and into my tray. And then again. And again. To my surprise, I was enjoying myself.

Winning over skeptics like me has been a big focus of the industry for many years. Operators have opened new shops in fashionable districts such as Shibuya, the hip neighborhood on the western part of the Yamanote train line that circles central Tokyo. They're hiring college grads to staff operations—which now look more like high-end boutiques with smoke-free areas—and pachinko makers are spending millions on prime-time TV commercials. In 2005, the biggest operators formed a self-policing organization called the Pachinko-Trusty Board (PTB). Today, the biggest seven operators, whose total revenues account for more than 10% of the market, must undergo a stringent annual audit, and results are made public.

Not Wanted on the Exchange?

That has paid off: Outside experts estimate women make up 35% of their clientele vs. less than 20% a decade ago. "People who were dreaming of hitting the big jackpot and spending large amounts of money have gone away, but they have been replaced by new customers," says Norimichi Okuno, a consultant at Funai Soken, a Tokyo-based consulting firm.

Even so, obstacles remain. In December 2005, midsize pachinko parlor operator P-ARK, which runs P-ARK Ginza, applied for a listing on Jasdaq, Japan's second board. This wasn't the first time the company had tried for an IPO, having applied unsuccessfully several times in the 1990s. After P-ARK got past the first stage in 2005, a group of lawyers objected, appealing to the National Police Agency, the Financial Services Agency, and the Tokyo Stock Exchange. A listing application is usually granted in a few months, but P-ARK has not received an answer from the Jasdaq Securities Exchange (Jasdaq refuses to comment on individual cases). The two biggest parlor operators, Maruhan and Dynam, are now taking a wait-and-see approach. (The story is different for pachinko machine makers, which have been listed since the late 1980s.)

The industry may still have a way to go to shed its old image, but I'm now a fan. After a half-hour playing at P-ARK Ginza, I get up to leave, taking my winnings in a tray to the front counter. I want to swap them for sweets, but the staff members strongly suggest I cash out. They count the balls and hand me a box containing a tiny piece of gold to take to a stand-alone booth a few meters down the street. When I get there, I push the box toward the woman behind a Perspex screen. She passes me a 1,000-yen bill—I've broken even.


Later, Baby
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