Japanese gambling reforms represent business opportunity for international casino operators, says expert

Out-Law Analysis | 12 Dec 2016 | 2:52 pm | 3 min. read

FOCUS: Planned reforms to Japanese gambling laws look set to give major international casino chains an opportunity to grow their business.

The Bill Promoting Implementation of Specified Integrated Resort Areas would, if introduced, help Japan to compete as a new gambling tourism destination in Asia to rival Macau.

The Bill is in the final stages of completion, more than two years after it was first proposed. Last week, the Bill was passed in the Japanese parliament’s lower house, and it could well be enacted this week with a positive vote in the upper house.

The legislation is designed to be an enabler for new 'casino resorts' to be established in Japan, to boost tourism and attract investment into the country from overseas.

Current restrictions on gambling in Japan

Should Japanese law makers vote to allow casinos to be set up in the country, it would represent a significant expansion of the existing Japanese gambling market.

Casinos are currently banned in Japan, and it is generally a criminal offence to gamble or to operate or offer gambling services. However, some gambling activities are permitted under Japanese law.

The Japanese government permits some publicly administered gambling activities, such as race betting services and lottery games, which can be offered under specific enabling laws in Japan.

Legislative loopholes are also exploited to help support the operation of pachinko parlours. Pachinko is an arcade machine game with similarities to pinball. It is provided under the 'momentary entertainment' exemption to the country's criminal code and other loopholes that otherwise ban gambling activities. Pachinko betting is the most popular form of gambling in Japan, along with horse race betting.

Stiff restrictions apply in the context of remote gambling too. Online gambling in Japan is limited to lottery, soccer toto, and betting on four selected sports. Only pari-mutuel betting is allowed, which in essence involves the pooling of winnings and proportionate distribution of those funds. The Japanese government does not grant licenses to operate internet gambling websites in the country.

No single body of legislation serves as the regulatory framework for gambling activities. Instead, gambling activities are specifically regulated and controlled at different levels by various arms of the government, and Japan lacks any centralised gambling authority or related social safety measures.

Japanese casinos still years away

The Bill Promoting Implementation of Specified Integrated Resort Areas aims to legalise land-based casinos only for the purposes of increasing tourism and attracting foreign investment.

The Bill would only allow for casinos to be established within designated resorts that would feature other facilities, such as hotels and other centres of recreation or exhibition.

The passage of the Bill would not legalise casinos immediately. It was initially hoped that the resorts would be operational in time for the Tokyo Olympics in 2020, but that now appears unlikely.

The Bill would provide the overarching framework for further legislation to take forward the development of new resorts where casinos can be set up. If the Bill is passed this week, we could see Japan setting rules and regulations in 2017 in the form of new licensing laws, tax rules and controls on local gaming, for example, with decisions on the locations of resorts and resident operators likely to follow in 2018. We can then expect construction of the new resorts to be carried out over a number of years, with openings possible in 2023.

The proposed legislation has attracted attention from major international casino chains. Jim Murren, the chairman and chief executive of MGM Resorts International, and Las Vegas Sands are among those to have expressed an interest in setting up in an integrated resort in cities such as Tokyo, Yokohama or Osaka. The legislative measure has also been welcomed by the American Gaming Association.

Japan offers huge potential for growth

There is a large untapped potential for casino operators to exploit in Japan, the world's fourth largest economy.

This is shown by the thriving illegal gambling scene in Japan, studies which have recorded the appetite for pachinko among Japanese consumers, and the fact that turnover generated in the limited sectors of gambling permitted under Japanese law tends to rank favourably compared to that generated in other parts of the world in those sectors.

The loosening of restrictions on gambling in Japan through the enactment of the Bill would therefore provide a great opportunity for international operators to enter the Japanese market.

Diane Mullenex is an expert in gambling law at Pinsent Masons, the law firm behind Out-Law.com.