The pachinko industry is huge (pachinko/pachislot is Japan’s most popular leisure activity with 17 million players), but its value should be clarified as it is often overstated in the press. The industry is said to account for more than 30% of revenue in the leisure sector at around 30 trillion yen. However, this represents the amount wagered, whereas gaming revenue in other markets, such as Las Vegas, is measured by the amount of money lost by players, otherwise know as net win (from the casinos’ perspective).

The net win for pachinko machines is at ten percent so this makes the net win three trillion yen, which is a tenth of the size that most of the popular press quote the size of the industry as. It means that the revenue from pachinko is actually less than sports, tourism and eating out. With that said you see pachinko parlors everywhere and they employ more than 300,000 people in 15,000 separate locations.

The Repositioning/Redevelopment Opportunity: Industry analysts expect the number of parlors to drop from 15,000 to around 10,000 over the next 1-2 years. This is a huge amount of prime retail location real estate, typically minutes from major stations, with no acquisition specialist currently operating in the market as a real estate partner to pachinko operators. Even acquiring and redeveloping only 5% of these 5,000 buildings would make for a dynamic business.

Even at the same time as the old pachinko parlors are closing down, new larger properties are going up. This is a process of consolidation and the ratings agency Standard and Poor’s writes, “the pachinko industry has voracious demand for capital to fund the opening of new parlors.” Thus there is an opportunity in the market for someone who wants to go in and fund the building of new parlors and then lease them. This build-to-suit opportunity could be targeted at the large players such as Dynam and Maruhan which have increased their stores fivefold over the last ten years.

The Sale-Leaseback Opportunity: Restricted from listing their companies to raise funds the large operators are turning to the securitization markets, using a combination of operating income and real estate assets to secure funds. In 2005, Deutsche Bank arranged the largest securitization for a pachinko parlor, GAIA, at JPY70bn, and S&P covered JPY42bn of pachinko parlor-backed transactions in 2006. There is no dedicated sale-leaseback partner to the pachinko industry offering it an alternative source of funding to the securitization markets. Clearly there is demand for the capital from pachinko operators, and there is an investment appetite for pachinko assets.

If you are have an interest in pachinko machines and all things pachinko then you should without fail visit the web site http://hubpages.com/hub/Pachinko-Machines which covers pachinko.

Tags: Casinos

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