Tuesday, May 12, 2015

The Early History of Sega - Service Games Part 2 - When was Sega/Service Games Founded

NOTE - since my first post, I have finished reading the two source documents (or at least the parts referencing Service Games and Sega) and have new information, so I thought I would reorganize the posts and create one that just concentrates on Sega’s founding date (I changed my previous post to just talk about the pre-history of Service Games).
So when was Sega founded? Sega's website says it was 1951.
Of course it depends on what you mean by Sega and what you mean by founded. Others say it was 1952, 1965, or some other date.

Since Sega was preceded by Service Games, you might trace Sega’s founding to the founding of Service Games. So when was Service Games founded, and when did it become Sega? It depends on which “Service Games” you mean. Various entities existed under that name in the 1950s and ‘60s.

Here is a list of some of them. Note that most of these were subsidiaries rather than separate corporations:

Service Games, Inc. - Service Games, Hawaii, Inc. - Service Games, Japan, Inc.
Service Games, Korea, Inc. (located in Okinawa, later became Garlan) - Service Games, Philippines, Inc. - Service Games, Panama, Inc. - Service Games, Nevada, Inc.

There were also several other entities with different names allege to have been affiliated with Service Games, many of which had the same partners/executives.

This is the only ad I could find mentioning Service Games - from the April 2, 1949 issue of Billboard


To help answer the question at hand, here is a brief timeline:

1945 - Standard Gaems of Hawaii is sold. Irving Bromberg, Martin Bromberg, and James Humpert form a new company called Service Games, Hawaii to distribute slot machines and other coin-operated devices to US military facilities on the islands. Service Games is formed as a partnership with each partner contributing $50,000 in capital.
Humpert served as the company’s PR man, finding locations for machines and “keeping location owners happy.”
Martin Bromberg changed his name to Martin Bromley.

February 15, 1952 - Service Games, Hawaii and salesman Richard Stewart enter into agreement by which Stewart will move to Japan and open a distribution office, while Service Games will supply him with machines and pay him a 10% commission on gross sales.

February 1952 - Marty Bromley sends Stewart and mechanic Raymond Lemaire to Japan to promote and expand sales of Service Games on US military bases in the Far East. In Tokyo, they form a partnership called Lemaire & Stewart, which also does business as Japan Service Games, and Service Games, Japan.
Stewart and Lemaire leave the employment of Service Games, in which they have no financial interest at the time.
The partnership later becomes successful enough to warrant the establishment of factories and a sales organization.

1953 - Service Games, Japan, Inc. is organized??
In the senate report, Delmar Fox, Assistant Chief of the Fraud Investigations Division, Office of Special Investigations, US Air Force testified “I was able to trace the evolution of the Bromley enterprises in Japan to Service Games, Japan, Inc., which was organized in 1953.”
I am unsure of this. I don't know if Service Games, Japan was ever an actual corporation or if it was just a dba name for Lemaire & Stewart. It was referred to numerous times in the testimony, but I didn’t find any place that said it was actually incorporated as a separate company

September 10, 1953 - Service Games, Inc., Panama files for incorporation and becomes the controlling corporation for all of the other Service Games entities. Irving Bromberg, Marty Bromley, Raymond Stewart, Raymond Lemaire, and James Humpert each have a 20% stake (200 shares of stock).

September 22, 1953 - Service Games, Panama's second board meeting provides for Lemaire & Stewart to represent Service Games in Japan

April 24, 1954 – first use in commerce, and first use anywhere of the Sega trademark for coin-op amusement machines, as per the 4/2/1962 trademark application

April 30, 1955 - Martin Bromley and Irving Bromberg buy Humpert's interest in Service Games, including Service Games, Panama, for $50,000 each.

January 2, 1956 - Raymond Lemaire buys 50 shares in Service Games, Panama from Irving Brombeg for $30,000. Richard Stewart buys 50 shares from Marvin Bromley for the same amount. All four now own 250 shares (25% of the company)

1957 - Service Games, Nevada is incorporated. Korwin Hailey is president, Martin Bromley is VP, Irving Bromberg is secretary-treasurer, R.N. Nickels is director. Hailey subsequently names Stewart and Lemaire as members of the firm as well. Service Games, Nevada and Service Games, Japan have same cablecram code.

May 31, 1960 - Service Games (Japan), Inc. is dissolved. Two new companies are organized: Nihon Goraku Busan Kabushiki Kaisha (Japanese Automatic Manufacturers Company, Inc - sometimes called Nippon Goraku Bussan) and Nippon Kikai Seizo KK (Japanese Machine Manufacturers Co. Inc.)
Nihon Goraku Bussan was a distributor of coin-op amusement devices while Nippon Kikai Seizo manufactured slot machines and also did business as Sega, Inc.

June 1960? – According to Moody’s international manual, Sega was “established” in June 1960 as “Nihon Goraku Bussan Co. Ltd.”
Not sure about this one either. Is NGB “Co Ltd” a different company than NGB “KK”? I’m guessing that they are referring to the May 31 event.

September 5, 1960 - Billboard reports that the assets of Service Games (Japan), Inc. have been purchased by Sega, Inc. and Ultimatic Inc. (managing director: Richard Stewart) - Service Games itself has been liquidated
I think Sega, Inc. is Nippon Kikai ‘Seizo and Ultimatic is Nihon Goraku Bussan

March 31, 1961 - Irving Bromberg and Marty Bromley sell Service Games, Hawaii, Inc. to a group headed by Harold Okomoto for $1.4 million - they reserve the use of the name "Service Games" for their foreign operations

April 2, 1962 – Nippon Kikai Seizo files two trademarks on name “Sega”, one fior use on jukeboxes the other for use on other coin-op amusement devices

April 12, 1962 - Service Games, Panama, Inc. changes its name to Club Overseas Inc., Panama

June 1964 – Nihon Goraku Bussan acquires Nippon Kikai Seizo

July 1, 1965 - Rosen Enterprises and Nihon Goraku Bussan merge to form Sega Enterprises, Ltd.
NOTE that according to David Rosen's testimony in 1971, what technically happened was that Rosen Enterprises was acquired by Nihon Goraku Bussan

Mid June 1969 - Gulf + Western buy out Marty Bromley, Richard Stewart, and  Scott Dotterer's interest in Sega Enterprises, Ltd. Bromley is paid , 1,673,429 and 114,065 shares of Gulf + Western stock, Richard Stewart gets $836,710 and 57,032 shares, Scott Dotterer gets $371, 901 and  23,350 shares.

January 5, 1970 - Gulf + Western completes its buyout of Sega. David Rosen gets $513,173 and 32,850 shares and his wife Masako gets $185,894 and 11,881 shares. Based on the price of the stock at the time, the total sales price for the 1969 and 1970 transactions is to $9,977,043.
Gulf + Western now owns 80% of Sega Enterprises. Ltd. The other 20% is owned by Raymond Lemaire.

A few observations. As others have pointed out, the “Service Games” that became Sega was not the same Service Games that was founded in 1945, nor was it the same as Service Games, Japan. OTOH, I don’t know if you can really say it was a “completely different company” either. On paper, that may be true, since Service Games Japan was dissolved when Nihon Goraku Bussan was created. In reality, however, was Nihon Goraku Bussan just Service Games Japan under a new name? They seem to have had the same executives, but I cannot really say if they were different or not, since I am not sure what led them to dissolve the former and create the latter.

I mentioned earlier Steven Kent’s claim that “Service Games began in May 1952,” which I said was “wrong.” In reviewing the information, perhaps “wrong” was a bit strong. He seems to be referring to the Stewart & Lemaire partnership, which did business as Service Games Japan (SGJ). If so, I can see why he would pick that date rather than the founding of Service Games, Hawaii (SGH). He may have been thinking that SGJ is the one that became Sega (though this is not entirely accurate) while SGH did not. I am not sure what the significance of May 1952 was but if SGJ was incorporated on that date then I can see why he makes his claim.

As I said, however, I am not entirely sure that SGJ ever was officially incorporated.
What about the 1951 date? I’m sure where they got that one.

Next time, I’ll talk more about the problems Service Games had with the US government – and boy, did they have them.

Bonus Content

Since someone else made reference to the Polly Bergen Company last time, I thought I'd include this little blurb from my book about the formation of Sega Enterprises, Inc. (the American arm)

"Meanwhile, in 1974, a new corporate entity called Sega Enterprises, Inc. appeared on the scene, though it happened in a roundabout manner that only an accountant could understand. At the time, Gulf + Western, in partnership with David Rosen, was trying to establish a conglomerate in the Far East similar to Gulf + Western, with Sega as a subsidiary. When that effort failed, they decided to spin off Sega into a separate US company headed by Rosen (Kent 2001). One of Gulf + Western’s many holdings was a cosmetics company called the Polly Bergen Company, which they owned a 53.5% interest in via another subsidiary (naturally) called Consolidated Brands. By 1973, Polly Bergen was losing money and in March 1973 Gulf + Western sold its cosmetics business to Faberge, leaving Polly Bergen with no product line whatsoever. In March 1974, Gulf + Western transferred its Sega Enterprises, Ltd. subsidiary to the Polly Bergen Company. Then, on March 25, it effected a one-for-ten reverse stock split and acquired Polly Bergen for 1.7 million shares of stock, increasing its ownership of the company to 95%. The same day, they changed its name from The Polly Bergen Company to Sega Enterprises, Inc. with Sega Enterprises, Ltd. (Sega’s Japanese operations) as a subsidiary (makes perfect sense to me)."

This came from Sega's annual reports. Despite my comment at the end, I actually suspect that it made perfect sense to somebody. My initial suspicion was that it was done specifically to take control of Polly Bergen by diluting its stock. Since I am not well versed in such matters, however, that was a guess. Wikipedia claims that reverse stock splits are often done to  satisfy the stock exchange's reduce the number of shareholders so that the company is placed in a different regulatory category.

7 comments:

  1. This is pure speculation on my part, but I wonder if the whole Nihon Goraku Bussan thing happened because Service Games was banned from U.S. bases in Japan in 1960. Perhaps with the old operation tainted, Bromley et al needed a new corporate entity to maintain it's Far East business.

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  2. That's kind of what I suspect (though as you say, it's pure speculation). I will get into this in a lot more detail next time, when I talk about Service Games battles with the military. The Navy banned Service Games and all of its officers, employees, and affiliates from its installations in Japan on December 9, 1959. Service Games then began to offer games to Japanese bases on behalf of Utamatic and Nihon Goraku Bussan. When the Navy learned of this, they banned these companies too.

    Again, I will go into that various laws Service Games was alleged to have broken next time (there were a lot of them) but it does not seem that the government had much luck pinning anything on them. This may not mean much ,however, since a clever company can always cover its tracks. For me, the sheer number of subsidiaries and other companies that the principals were involved with seems suspicious. As does the fact that they set up bank accounts in phony names and even the fact that they formed a controlling corporation in Panama, a well-known tax haven (did they even have any facilities or sell any machines there?) During the senate investigation, the principals seemed awfully evasive to me, but maybe that's natural when you're being investigated by the government.

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  3. Master of the obvious here, but the "KK" in "NGB KK" means Kabushiki Kaisha
    http://en.wikipedia.org/wiki/Kabushiki_gaisha. "Co. Ltd." is probably just an American translation. But because the way things are in the business world and Sega's particular mess of subsidiaries and shell companies... I am only saying "probably" ;-)

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    1. Rendering "Kabushiki Kaisha" as "Company Limited" has been rather common among many Japanese businesses over the past decades in writing out their namesakes in the Latin alphabet, usually for export but often also shows up domestically.

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  4. Given the circumstance, I guess Sega can't really pinpoint it's own birth date that easily, if it needed to celebrate one.

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  5. As others have pointed out, K.K. and Co, Ltd. are used fairly interchangeably, with the latter being an approximate English rendering of the former. As for the dates, my guess is that technically Service Games was wrapped up on May 31st, and NGB and NKS officially opened for business on June 1st.

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    1. That could be right, still I like the thought of Sega being over 60 years old at the moment.

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