Universal Entertainment Corp. has given the green light for financing and support arrangements for UDN Gaming Inc., a Nevada-based firm that will spearhead the Japanese company's efforts to re-enter the international gaming equipment market. This move comes as Universal seeks its own gaming licenses in the U.S.
As part of the agreements set to commence on September 30, Aruze USA Inc., a subsidiary of Universal, will extend a credit line of up to $25 million to UDN, with an annual interest rate of 5.12%. The funding will be disbursed in phases based on UDN's financial requirements until December 31, 2035.
All shares of UDN held by Universal President Tomohiro Okada will act as collateral. Additionally, Aruze USA has the option to request Okada to transfer these shares to Universal or a specified third party at the original subscription price. Universal will also license gaming equipment intellectual property to UDN for $100 per unit and provide engineering, accounting, and administrative support at a direct cost plus 6%.
Founded in Nevada on March 13 with a mere $1 in capital, UDN is entirely owned by Okada, who serves as its director. He is also the representative director and president of Universal, as well as the controlling shareholder of Okada Holdings Ltd. UDN was established to facilitate the development, manufacturing, and sale of gaming equipment, including slot machines, in international markets.
While Universal currently holds no voting rights in UDN, it is expected that UDN will become a consolidated subsidiary under relevant accounting standards, given that Universal will provide all necessary financing and core gaming intellectual property. The timeline for this consolidation is yet to be determined.
Depending on the progress of Universal's U.S. gaming license applications, either Universal or a designated third party may later acquire all shares of UDN.
The group has opted to utilize UDN for its initial licensing efforts due to the rigorous nature of U.S. gaming licensing reviews, particularly in Nevada. A direct application from Universal would necessitate thorough suitability assessments of major shareholders, directors, and key personnel, which could be a lengthy process.
“During the business launch phase, Universal Entertainment has decided to first use UDN to apply for gaming licenses and to advance the business in stages, while also planning to apply for licenses in due course,” the filing stated.
Universal aims for its overseas gaming equipment business to serve as a “third pillar” alongside its domestic amusement equipment operations and the integrated resort business focused on Okada Manila. The company has noted a decline in Japan's amusement equipment market and increasing competition in the Philippine integrated resort sector.
“There is a need to promptly secure a new revenue base in the form of a new business,” the Japanese conglomerate emphasized.
Previously, Universal had connections to the overseas gaming equipment market through Aruze Gaming America Inc., established by Kazuo Okada. This company provided slot machines and electronic table games but was not a subsidiary of Universal. Their relationship soured, leading Universal to pursue legal action over claims of unauthorized use of gaming machine patents.
Aruze Gaming America filed for Chapter 11 bankruptcy protection in 2023, after which Play Synergy acquired its slot machine assets, and Interblock obtained certain electronic table game assets.
Given that UDN is fully owned by Tomohiro Okada, the agreements are classified as related-party transactions. Okada refrained from participating in the board discussions or voting. The remaining eight directors unanimously approved the transactions, which were also sanctioned by the Audit and Supervisory Committee.