Inside Asian Gaming

INSIDE ASIAN GAMING | September 2013 52 The Asian Gaming 50 – 2013 It’s the breadth of his vision as much as his business acumen that finds Japanese pachinko king Yoji Sato making his debut this year on “The Asian Gaming 50”. With an eye on Macau’s burgeoning machine gaming market, Mr Sato’s Hong Kong-listed Dynam Holdings bought into Macau Legend Development’s IPO earlier this year to the tune of HK$273 million, and if and when Japan legalizes casinos it’s expected he’ll be in the thick of things on the strengths of his mass-market savvy, his renown as a philanthropist and a Rolodex bulging with the names of friends in high places. Interestingly, the 67-year-old was running supermarkets, not gaming parlors, when the death of his father in 1987 made 45 Yoji Sato Chairman DynamHoldings him heir to two pachinko halls in Tokyo. Adapting what he’d learned in consumer retail he renamed the family firm, cut prices on his games and with his younger brother Kohei built the company into the second-largest player in the largest machine gaming market in the world, with 362 arcades and annual revenues surpassing US$1.5 billion. “Our target was to build Dynam Japan like Wal-Mart,” he said in a recent interview. Today, Kohei oversees operations (plans are to open 1,000 halls over the next decade) while Yoji maps an aggressive program of overseas expansion that kicked off in fitting style last August when Dynam went public as the first Japanese company to have its primary listing on the HKSE. He believes pachinko has global potential as an entertainment proposition, a conviction he first tested several years ago in South Korea, where the game became such a sensation—the number of arcades ballooned to 7,000 in just one year—the government shut it down. He plans to replicate that success inMacau with his team from South Korea and a new generation of games featuring varying skill levels and other innovations. Dynam’s investment in Macau Legend is the springboard. Mr Sato expects to have pachinko in front of China’s gamblers within a year. Nasdaq-listed Entertainment Gaming Asia (EGT) appears to be facing an uncertain future. EGT, formerlyElixirGamingTechnologies, is a wholly owned subsidiary of Hong Kong- listed Melco International Development, headed by Lawrence Ho, co-chairman of Macau casino juggernaut Melco Crown Entertainment. From its roots as a supplier and third- party operator of machine games, EGT has been transforming itself into a developer of casinos in emerging markets, starting with a focus on Indochina. The company has two properties in Cambodia, both along the border with Thailand. There’s Dreamworld Pailin, with 26 tables and 58 electronic gaming machines, opened in May 2012, and Dreamworld Poipet, a slot club with 300 machines, which had a grand opening this May. Revenue at Dreamworld Pailin in the second quarter of 2013 was US$907,000, down from $1.1million in Q1, owing to declining player traffic. The company concedes the property “has been slow to 46 Clarence Chung Chairman and CEO Entertainment Gaming Asia ramp up” and continues generating losses. EGT Chairman and CEO Clarence Chung hopes to turn things around by refocusing Dreamworld Pailin’s efforts on attracting VIP players rather than mass-market tour groups, reducing its table count in the process. While the recently opened Dreamworld Poipet is still finding its stride, its prospects are buoyed by a lowoperating cost structure, with a mere $25 average daily win per unit required to achieve break-even EBITDA. EGT also runs slot operations in third- party owned venues in Cambodia and the Philippines. Revenues in the Philippines have come under pressure from “increasing competition from the development of major integrated resorts in Manila,” according to the company. With several more Manila IRs set to open over the coming years, the outlook there looks bleak, despite EGT’s vague assertion that “This increase in competition will bring consolidation at the top-class level, and we believe this could provide an opportunity for us.” The company’s slot operations at NagaWorld in Phnom Penh generated $3.7 million in the second quarter, constituting 63.2% of its total revenue. Average daily net win hit $256, up from $217 in Q1. The strong contribution from operations at NagaWorld helped mitigate the company’s poor performance elsewhere in the quarter. But NagaWorld also presents the single biggest risk for EGT, which will see its agreement to run slots there expire in 2015. There is speculation that NagaWorld might not renew the agreement—it has already been adding significant numbers of machines not operated by EGT. Naga executives have also made no secret of their displeasure with EGT’s decision to open casinos of its own. EGT also supplies high-security gaming chips and plaques under the Dolphin brand. The company relocated its production facility from Australia to Hong Kong in the