The high-stakes gamble of Kazuo Okada in the Philippines

By Kana Inagaki | April 1, 2016

In a rare interview, the Japanese billionaire says why he’s gambling $2.4bn on a casino resort in Manila

Under a network of giant cranes and walls of glittering golden glass panels, a brigade of 10,000 construction workers is toiling away on an Olympic-scale transformation at the edge of Manila Bay. The huge waterfront site, soon to be one of the world’s largest casino complexes, is owned by Japanese billionaire Kazuo Okada. It occupies a third of Entertainment City, a 120ha stretch of reclaimed land that has become the new gambling mecca for the fast-growing Philippines.

The multibillion-dollar development, which includes four integrated casino resorts with shopping centres, luxury hotels, Michelin-class restaurants and a DreamWorks theme park, has attracted some of the world’s most powerful financiers and celebrities to invest in what was one of the least visited places in Southeast Asia. They include the Australian billionaire James Packer and his Macau casino partner Lawrence Ho, and the actor Robert De Niro, co-owner of the new Nobu Hotel in Manila. With such investors and an economic resurgence that comes in the wake of decades of corruption and poverty, the country is hoping to reinvent itself into a tourism hub rivalling Las Vegas and Macau in China. Entertainment City aims to provide the kind of luxury experience that will win over high-spending visitors from neighbouring China whose gambling haunts have been suffering as a result of a corruption crackdown by Chinese authorities and an economic slowdown.

Okada, worth $1.3bn according to Forbes, was one of the early believers in the Philippines. The 73-year-old chairman of Japanese gaming group Universal Entertainment built his fortune during the 1980s and 1990s, manufacturing slot machines and Japanese pachinko machines (a vertical version of pinball), at one point controlling up to 75 per cent of the slot-machine market in Nevada. Having fallen in love with Las Vegas as a young man, his latest obsession is to build his first casino in Asia. When his $2.4bn Manila Bay Resorts opens in December, it is expected to be the largest complex in the Philippines, with 1,000 hotel rooms, 3,000 slot machines and 500 gaming tables.

At the headquarters of Tiger Resort Leisure & Entertainment, the Philippines arm of Universal, a smiling Okada welcomes me into a plain-looking office where we are joined by his Japanese aide, who is also an executive at Universal. Okada, dressed in a dark navy suit, looks fit for a man in his seventies. Despite his reputation for being media-shy, we sit very close at a white table and his expression is relaxed. Since he has already enjoyed a successful, if not controversy-free, career in Japan’s pachinko industry, I ask what made him decide to risk his wealth and reputation in a high-stakes gamble of building his first casino in the Philippines. “This was a completely empty field,” said Okada, as he looked out on to the construction site beyond his office window. “The people in the Philippines may be used to it but, in my eyes, there is a mystical, undeveloped beauty to this place.”

When he first purchased a 30ha plot here for $300m in 2008, the year the national gambling regulator Pagcor granted him a provisional gaming licence for Entertainment City, the Philippines was widely considered the “sick man of Asia” and very few people predicted it would turn into one of the world’s best performing economies. Okada, however, after studying the local labour and tax conditions, was confident there would be “a tremendous rise in property prices”.

“We’ve seen this happen before as we grew up,” he says, referring to the surge in land prices that took place from the 1950s to 1960s in Japan. “When a supermarket was built in the middle of a farm, property prices at $180 jumped to $900,” he says.

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Okada was born in 1942, three years before Japan’s defeat in the second world war. “During the war, it was normal not to have things and we lived on the edge of starvation,” he says. “Every home was like that, so I never felt life was hard or sad.” When I ask about his roots as an entrepreneur, he reveals, sparingly, some details of his personal life. “My father died when I was young, so I learnt naturally to do things on my own.” To support his mother, he dropped out of high school and entered engineering vocational school, taking advantage of his knack for mechanics. “Vacuum tubes are so much fun,” he says, explaining how the tube, one of the basic components of radio and television, works. Though he loses me with his elaborate technical explanation, it’s easy to see the enthusiastic engineer he remains at heart.

As a young man, he made a living by repairing jukeboxes and cathode ray tube televisions brought into Japan from the US. “People thought I was playing magic because I could instantly fix a broken TV,” he boasts before his expression becomes more thoughtful. “But, now that I think about it, learning such a skill during my twenties was not good for me because it made me overconfident.”

Whether this is true, his skills allowed him to save enough money to start his own company, Universal Lease, in 1969, at the age of 27. He soon, however, “became dissatisfied with just repairing things and wanted to enter the world of manufacturing”. His first attempt was making coin-operated arcade games for children, which were popular in Japan at the time. It led to his first brush with near-bankruptcy: though he could repair gadgets using his instincts, making products required greater precision. Some customers returned the unevenly designed gaming machines and he struggled to repay his debts. “To be honest, I felt like running away. When I was repairing jukeboxes, I made so much money. But I had nowhere to run to.”

The turning point in Okada’s career came later the same year, when he made his first visit to Las Vegas, where, he later told colleagues, he “saw an American dream”. “When I went to Las Vegas, all the lights were turned on throughout the night. In Japanese homes, it was normal to turn off all the lights as you left the rooms,” he says. “After I experienced that American wealth, I decided I wanted to build slot machines. I brought back the oldest slot machine, took it apart to study its structure, and copied it.”

Instead of just copying the mechanism, Okada came up with a computer programme for slot machines that “allowed players to win their fair share, but also to have misses that were close to winning”. Known as “the near-miss” feature, it caused players to think they were about to hit the jackpot, so they would eagerly put in more coins. This invention is credited for expanding the Japanese world of “pachislot” — a hybrid of Japan’s pachinko and the slot machines of Las Vegas — and also, for a few years, the US gaming industry too.

Universal’s slot machines found their way into Las Vegas in 1983 and by the late 1980s Okada’s company controlled about 75 per cent of the slot-machine market in Nevada. But in 1989 his American dream came to an abrupt end. The gaming authorities in Nevada ordered Universal to remove the “near-miss” feature, alleging that the programme altered the random generation of game results and misled players. The company was forced to reprogramme about 15,000 of its slot machines and its operations became largely dormant in the US while it ventured into other markets such as South Africa and Australia.

Despite its retreat from the US, Okada’s Universal group expanded rapidly at home, supplying machines to Japan’s pachinko industry, which at its peak generated annual sales of more than $300bn. By 1999, Okada had become the largest individual taxpayer in Japan.

During that same period, Okada was introduced to the Las Vegas casino king Steve Wynn, one of the key figures behind the revival and expansion of the Las Vegas Strip during the 1990s. The two became friends and, in 2000, when Wynn lost his Mirage Resorts in a hostile takeover by Kirk Kerkorian’s MGM Grand, Okada invested $380m over two years in Wynn’s new company, Wynn Resorts, for which he was given a 20 per cent stake.

Wynn Resorts opened its first casino in Las Vegas in 2005 and a second in Macau in 2006. But, in 2008, when Okada made his investment in Entertainment City, with plans to build a casino in Manila, Wynn declined the offer to join him, leaving Okada to go ahead with his development alone. However, in February 2012, Wynn Resorts filed a lawsuit accusing Okada of making “secret plans” in the Philippines to compete against it, claiming Manila Bay Resorts was planning to lure Chinese gamblers from Wynn’s casino in Macau.

Wynn Resorts also accused Okada of bribing gaming officials in the Philippines to advance his business interests there. Okada, who has denied ever paying bribes, was expelled from the company, and his 20 per cent stake was redeemed for $1.9bn, a 30 per cent discount on its market value.

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To add to his troubles, in 2012, Tiger Resort Leisure & Entertainment clashed with Philippine regulators over the ownership of its now 44ha property. It also missed construction deadlines set by Pagcor. These obstacles were cleared by taking on local partners and winning an extension to complete the project, granted until the end of this year. “In the beginning, there was a need for some form of a bridging of minds,” says Francis Hernando, Pagcor’s vice-president for gaming licensing and development. “Now it seems Mr Okada is getting advice from his local partners, so there is more peace.”

Okada is still fighting in the district court of Clark County, Nevada, to redeem his stake in Wynn Resorts. A trial is scheduled for February next year. In press statements, both men have expressed their determination to pursue their claims. Wynn Resorts has asked the court to validate the seizure of Okada’s stake at a discount. In addition to seeking to recover his shares, Okada has also accused Wynn of trying to get rid of him for raising questions over a $135m donation Wynn Resorts made to the University of Macau in 2011. Wynn Resorts said it would “continue to vigorously defend against the counterclaims asserted against them”.

The feud with Wynn has pushed a reluctant Okada into the international media spotlight. In his home country, where people are more familiar with the success stories of entrepreneurs such as Sony co-founder Akio Morita, accomplishment in the pachinko industry is viewed with scepticism, if not disdain. “Mr Okada is respected as a charismatic manager of the pachinko and pachislot industry but he’s also a maverick,” says Takashi Kiso, chief executive of Tokyo-based consulting firm International Casino Institute. “He’s quite isolated even inside the industry.”

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Okada, whose main home base is in Hong Kong, has three children from two marriages, including a six-year-old daughter and a 48-year-old son, Tomohiro, who stepped down from Universal’s board two years ago. Okada’s 42-year-old wife Takako remains on the company board. He spends two-thirds of each month travelling between Tokyo, Manila, Las Vegas and Hong Kong and says he gets sufficient sleep at night, but his colleagues say he won’t hesitate to call or text at 3am. He is feared at the workplace for the stringent demands he makes of his staff. One person who works closely with him says his shouts can be heard three floors down. At breakfast meetings, no one dares touch their food while Okada speaks.

The challenge for Okada is whether the same level of perfection can be achieved with his $2.4bn gamble in Manila. The resort is being designed by the same Japanese team behind his art museum and Okada is involved in every aspect, including the car parking, the LED lights, and even the plumbing. As we head outside with the photographer to view the construction site, Okada confidently points out the skeletal frame of the glass-domed nightclub and the platform for a gigantic man-made lake that will house a dancing water fountain to rival the Fountains of Bellagio in Las Vegas.

The main question being asked by his critics is whether Okada has the expertise to run a casino on his own. “It’s true that he has a certain know-how from observing the management of Wynn Resorts but it’s unclear how he will do in actual operation,” says Kiso at International Casino Institute. “He also has to develop a customer base from scratch.”

Okada and executives say they are building not only a casino but a broader integrated resort for entertainment — an industry Okada knows well. Tiger has brought in outside experts including Steve Wolstenholme, who was hired as chief operating officer from Grand Sierra Resort in Reno, Nevada. Last year Hans Van Der Sande moved from Deutsche Bank to become Tiger’s chief financial officer. He had been impressed by the precise predictions Okada made at Las Vegas in 2010. “Most of what he said has played out,” says Van Der Sande. Okada correctly predicted that the gambling industry in Macau would experience challenges. The market was likely to attract the attention of Chinese authorities because it was growing too rapidly. “Based on that, he said the Philippines would become a truly international tourist destination,” Van Der Sande recalls. In 2013, after a 10-year boom, casino revenues in Macau peaked at $45bn and have subsequently fallen on the back of a corruption crackdown and economic slowdown in China.

Last year, the gaming market in the Philippines raked in gross revenues of $2.9bn. Growth was driven by the openings of the $1.2bn Solaire, a resort and casino complex owned by Bloomberry Resorts, and the $1bn City of Dreams complex, owned by Melco Crown Entertainment and the local SM Group, which incorporates DreamPlay, a theme park where visitors can join Kung Fu Panda, Shrek and other DreamWorks characters. This year, that figure is expected to reach $3.1bn, compared with a forecast for $28.9bn in Macau and $6.4bn for Las Vegas, according to investment group CLSA. Analysts say about half the casino market in the Philippines is currently composed of domestic players but the biggest opportunity lies in luring visitors from other parts of Asia.

The dream market for Manila is China, the largest source of outbound tourism in the world. But, partly due to geopolitical tensions and poor infrastructure, the Philippines has yet to persuade visitors that the country is a safe destination. For decades, its image has been hurt by Muslim separatist insurgencies in the southern Philippines and the kidnapping of foreigners. “The biggest problem is that the Philippines is still perceived to be a dangerous place,” said Aaron Fischer, CLSA’s regional head of consumer and gaming research.

Does Okada see his new venture in the Philippines as the culmination of his 50-year career? “I’ve seen many casinos in my life,” he says, “but my underlying belief is that it’s important to create something attractive.” Supplementing his indirect answer to my question, his aide explains that Okada is just at the starting line of trying to shake up the casino industry. Okada says he has developed a new system for his casino that will collect data on customer behaviour and habits, which he can use to prevent customers from turning into gambling addicts by encouraging them to quit at the right time. “It’s hard to convince people who are trying to get back their money not to breach their limits,” he says, “but that’s why we need to be creative.”

Photographs: Sonny Thakur; Tischbeinahe/Wiki Commons; AP; Okada Museum of Art; Universal Entertainment

Source: http://www.ft.com/intl/cms/s/0/9a2de332-f6c1-11e5-803c-d27c7117d132.html