Japanese company bets on casinos
By Lindsay Whipp
Bloomberg News Service
TOKYO — Aruze Corp. President Kazuo Okada, the billionaire who built Japan's largest maker of pachinko and slot machines, has hit two snags in his plan to bring Vegas-style casinos to Japan.
Aruze may need to clear tax-evasion charges to complete a casino project with partner Steve Wynn in Las Vegas, where Okada wants to gain the experience he needs to build casinos in Japan. And Okada is getting a cold shoulder from politicians in his push for legalization of gambling in Japan.
An Aruze unit paid $260 million for a 50 percent stake in the Le Reve casino project with Wynn, developer of the Mirage and Bellagio in Las Vegas. Okada is betting Japan's government will legalize casinos to stoke tax revenue as the nation slips deeper into its third recession in a decade.
"In my experience, where there is low tax income, there are casinos," Okada said in an interview. "From this perspective, Japan cannot ignore the possibilities arising from casinos."
Politicians said they don't see the nation's gambling laws being liberalized.
Meanwhile, before Aruze can go forward with Le Reve, it may need to clear allegations that it hid income from overseas subsidiaries to evade Japanese taxes. The company expects a Tokyo District Court verdict next month; a guilty finding could block or delay its Nevada gaming license.
The Las Vegas project comes at a time when Aruze's pachinko sales are slipping. The company's profit fell by four-fifths from a year earlier in its fiscal first half, ended Sept. 30, and its shares have lost 43 percent of their value since May, when Aruze reported worse-than-expected earnings.
Okada, whom Forbes ranks as the world's 116th-richest person with a fortune estimated at $3.5 billion, owns almost half of Aruze's stock. Aruze and Wynn hope to begin construction of Le Reve on the Las Vegas strip this spring and open the $1.63 billion resort and casino in mid-2004, said Yasuharu Nakano, investor relations chief for the Tokyo company.
He said the company probably wouldn't be granted a gaming license with tax charges still pending. Nakano declined to say what would happen to the project if Aruze were to lose the tax case. Wynn declined to comment on Aruze's legal situation and how that might affect the development.
Casino operators in Nevada must have a nonrestricted gaming license, said Patrick Wynn, deputy chief of investigations for the State Gaming Control Board. Any involvement in a criminal act would be "thoroughly explored," he said.
"It all depends on the candor of the people involved," the regulator said. "If someone is less than fully candid, the issue being discussed loses relevance, and candor becomes the issue."
Being convicted of a crime wouldn't automatically block a company from getting a license, Patrick Wynn said. The state can choose to issue a restricted license with special requirements.
Gambling was made illegal in Japan in 1907. Certain types of gaming are allowed, such as betting on horse races. Japan's pachinko and slot-machine industry generates $212.8 billion in annual revenue, or close to 6 percent of gross domestic product.
Pachinko parlors bypass Japan's gambling law because players don't directly receive money. Winners exchange silver balls or tokens for prizes, such as stuffed animals, and the prizes can be sold at booths next-door for cash.
With unemployment at a record-high, legalizing casinos would help stimulate the economy by pulling in tourists, said Tetsuro Morobushi, director of the Casino Academy, a 5-year-old organization promoting legalization of casinos in Japan.
"International tourism is the biggest industry in the world," Morobushi said. "Japan is late in its shift from the manufacturing industry to the services industry, so it doesn't yet comprehend just how essential this industry is."
Still, the Japanese government isn't interested in legalizing gambling, said Shizuka Kamei, a former policy chief of the ruling Liberal Democratic Party.
"The legalization of gambling in Japan is impossible," said Kamei, who ran unsuccessfully for prime minister last year. "It runs against the grain of Japanese morals. The government and the LDP won't budge on this subject."
The former chairman of the National Public Safety Commission, Bunmei Ibuki, said legalizing casinos could cause crime to increase at a time when the National Police Force is reducing its ranks.
"The police agency doesn't want legalization of casinos," Ibuki said. "Allowances for bicycle races, pachinko and horse racing is enough."
