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Global gambling industry set to enter world’s third largest economy

  • Gambling scenario in Japan
  • Pachinko’s history
  • Legislation for casinos in Japan
  • Effect on Japan’s long-moribund economy

 

In Televisory’s previous blog ‘Global casino industry, performance over the years and recent trend analysis’, it was seen that the global casino industry landscape is dominated by Asia-Pacific (majorly Macau). Further, with legal approvals on casinos by several nations, the industry saw a rapid expansion over the past two decades. This led to the development of new markets (especially in Asia) like Singapore (third largest market) and Cotai (which has been developed as an integrated leisure hub), with Macau continuing to hold the top spot in gambling and other avenues in the region.

Gambling in Japan (world’s third largest economy in nominal GDP terms) was banned, under the criminal code 23. However, the gambling-crazy East Asian archipelago has found exceptions in form of horse racing, motorsports, pachinko betting, etc., which contributed to a ubiquitous gambling environment. Even in a contained scenario, government reports show over 5% of the entire population in Japan is addicted to one or other form of gambling ([mainly pachinko], [source: Ministry of Health, Labour and Welfare, 2018]).

The gambling addiction of the Japanese population along with the risk of an involvement in organised crimes have been the major reason that supported the laws prohibiting gambling in general. However, for economic growth and people’s entertainment, the Japanese government supported the regulation on betting and pachinko. 

Moreover, with its origins in Japan, pachinko (a cross between pinball and slot machines) has been one of the favourite pastimes in Japan. Furthermore, since pachinko parlours do not reward a winner in cash, technically it does not fall under gambling. However, it promotes the legal grey market for gambling, in a sense that the tokens or balls won in pachinko parlours can be exchanged for cash at nearby exchange centres, which are owned by different entities. Additionally, with over half of the global gaming machines, gambling is pervasive in Japan. Pachinko and slot machine parlours dot the landscape.

Pachinko history:

Pachinko has seen periods of ups and downs; however, it has instilled an addiction for gambling in various generations of the Japanese population. In many instances, people have lost all their money at pachinko establishments, leading to financial and social issues.

Ironically, notwithstanding the long-time concerns on the social evil of excessive gambling and after more than 15 years of debate for the legalisation of casinos, Japan finally lifted the ban on casinos in December 2016 and subsequently, the ‘Integrated Resort Implementation Bill’ was passed in July 2018. The proponents of the legalisation of casinos argued that in order to boost the economic growth and revive the flagging economy (after the Tokyo stock market crash in 1990-92; Japan lost ‘two decades’ to slow growth and in more recent years saw a decline in its population), an external push for the economy is required. The building of casinos was first proposed by Tokyo’s former governor Shintaro Ishihara in 1999 to create more jobs and in turn, bring foreign income from tourists visiting Japan.

Casino operating framework (Integrated Resort Implementation Bill):

The Japanese government, industry participants and other groups supporting legalisation of casinos have also been betting on positives that the industry can bring in terms of revenues for the government. Gambling has been generating high income in the areas where it is branded in a big way, like Macau, Singapore among others, in the form of taxes. In addition, legalisation of casinos also found support from the young generation in Japan, who found pachinko ‘not cool’ anymore and are looking for other avenues for gambling.

Casino legalisation journey in Japan:

Thus, despite the loss of two decades and a demographic time bomb (shrinking population due to low fertility and ageing amid high life expectancy) that has wiped out the population growth, Japan is the world’s most tempting virgin casino market with a gambling culture. Even without casinos, Japan’s estimated gross gaming revenue last year (2017) virtually matched that of Macau [(over USD 32 billion), (the largest casino hub catering principally to mainland Chinese visitors)]. Addedly, in line with the Japanese government’s plan to boost tourism (a pillar for Japanese economic growth) from 28.7 million overseas visitors in 2017 to 60 million in 2030, casinos could provide the necessary support by bringing in additional overseas visitors.

According to estimates, casinos in Japan could ramp up rapidly to the revenues of Macau (attracting mainland Chinese visitors, who have driven Japan’s tourism growth from 8.4 million foreign arrivals in 2012 to 28.7 million in 2017) and in turn, are expected to create many more jobs as well as promote tourism. Casinos are also expected to fuel foreign investment in the country as casino giants Wynn Macau, Melco Crown and MGM Resorts are seeking an entry in the world’s third largest economy and are ready to spend billions of dollars to build casinos in Japan.

While the casino industry has flourished in neighbouring Asian countries, it has a long way to go in Japan with the green signal being received only recently. Although, the government is betting on inbound tourists, Goldman Sachs estimates that 57% of visitors to casinos in Japan will be locals vis-à-vis 29% in other markets, this indirectly highlights the inherent gambling issues seeped within the country. It was due to this issue that there has always been a strong resistance among the Japanese residents, with around 2/3rd opposing the idea of legalisation of casinos in the past decades. Although, the government managed to pass the bill legalising casinos in July 2018, however, with the majority of the population still opposing the idea, it is not expected to be easy for the government to pave the way for casinos in Japan. It is important to note that the government has put in place many restrictions under the bill to deter locals from indulging in excessive gambling. But, in order to make an actual change, a revisit to the entire gambling culture is required, which would mean taking measures to curb the grey areas in gambling (via the means of pachinko) taking place in neighbourhoods. While, the likeliness of putting brakes on pachinko does not seem to be conducive at least, for now, it puts more onus on the government on how to tackle the societal and financial issues associated with gambling. Positively, as major players locally and internationally get prepared to bid for building and handling the so-called ‘Integrated Casino Resorts’, it is almost sure to add big chunks to the government coffers, while also enhance development and upliftment of the cities where it is planned initially. However, everyone would have to wait and check whether casinos are able to beat the pachinko fever in Japan in the long run.

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