Date: 08.12.2023

by Antoni Majewski

When Creativity Knows No Bounds – On the Japanese Gambling Industry

For many, Japan may appear as an orderly, harmonious country where unwritten social rules keep citizens in line. However, beneath this perfect facade lies a society that secretly adores gambling, even though it is rarely discussed. There’s no need for such discussion: on the foundation of taboo and state monopoly, a thriving gray market emerges, generating profits equivalent to 30 Las Vegases, continually driving the national economy.

Electronic Gambling

As a country, Japan is almost entirely inaccessible to the iGaming industry. Electronic casinos are legally banned, with the only exception being bookmaker bets on a limited number of sports. However, we will focus on this aspect later.

Under Japanese law, all internet casinos operated from within Japan remain illegal. However, the law leaves some room for interpretation regarding electronic casinos operated from outside the country. According to the code, they exist in a vacuum, on the threshold of legality and the gray market.

Unfortunately, there have been cases of arrests of Japanese citizens who used internet casinos operating on Japanese servers but controlled from outside the country, while they remained within Japan’s territory.

Bookmaker Bets

The state also has a lot to say in the field of the legality of betting on sports events. While betting on sports events is possible in many countries worldwide, in the Land of the Rising Sun, it remains illegal, with only a few exceptions.

Legislators apparently have a penchant for racing, as, of all the sporting events, only these can be legally bet on. Excluded from the strict legal regulations are:

  • Horse racing
  • Bicycle racing
  • Motorcycle racing
  • Motorboat racing

It should be added that bets can only be placed with entities controlled by the state, which has a monopoly on bookmaking.

Illegality or State Hypocrisy?

When it comes to the entertainment industry, the Japanese love gambling and sports. This creates ideal conditions for bookmaker operators. These are, of course, banned by the Japanese government. One can imagine how much money the Japanese state loses every year due to this.

The government, obviously, shields itself with concern for the well-being of citizens – which, as everywhere in the world, mainly leads to the development of gray areas. Japan, however, is a specific case in that… The state circumvents the rules established by its own codes. Although sports betting, apart from the above-mentioned exceptions, which is already alarming, remains illegal, government bodies came up with a brilliant idea.

In 2001, the Sports Promotion Lottery was introduced into the range of lotteries organized by local governments. The game essentially does not differ from stationary sports betting, as it involves predicting the results of the upcoming Japanese league round. The lottery itself consists of various types, some of which allow players to choose the outcomes themselves, while some tickets are randomly generated by a computer.

The Potential of the Sports Betting Market in Japan

As reported by the media, in 2021-2022, debates were held on expanding the offer of state lotteries and stationary bookmaker bets to include the two most popular disciplines in Japan: soccer and baseball.

Research conducted by the Financial Times in 2019 showed that in that year, the betting market in Japan generated revenues of 55 billion dollars. Legalizing two additional disciplines could bring in even 10 billion dollars more in revenue in the first year.

True Promotion of Sports

The Japanese state, however, cannot be accused of an improper approach to the subject. The Sports Promotion Lottery, as the name suggests, raises funds to support local and national sports communities. The revenues from the lottery contribute to the funds of projects promoting or directly involved in sports.

The distribution of profits (excluding operational costs and the budget for prizes, which is about 50% of the sum) looks as follows:

Since 2003, the Japan Sports Council, also with funds raised through the lottery, has been supporting the development of competitiveness in professional sports competitions in Japan.

Japanese Online Lotteries: A Pioneering Effort

Despite many prohibitions, Japanese people love gambling, a testament to which are the lotteries. This is the only form of gambling legally available online. Of course, the issuance of lottery tickets, whether electronically or at physical locations, is exclusively done by operators designated by the state, specifically the Ministry of Education, Culture, Sports, Science and Technology (MEXT), which is involved in many aspects of life for Japanese citizens and immigrants residing in Japan.

The Japanese government, through local governments, conducts several types of lotteries throughout the year, ranging from standard number lotteries to those comparable to sports betting – which in themselves are illegal.

We can distinguish the following forms of “Takarakuji”, or Japanese lotteries:

  • Lotteries with unique (pre-assigned) numbers
  • Lotteries with chosen numbers
  • Scratch cards

Tickets can be purchased online, at over 7,000 points throughout the country, and even at ATMs.

According to available data, in 2021 the annual sales of lottery tickets reached 813 billion yen (about 5.53 billion dollars), and in 2022 – 832 billion yen (about 5.63 billion dollars). Interest and revenues associated with the lottery have remained at a similar level for several years.

The Aspect of Social Responsibility in Japanese Lotteries

Lotteries in Japan are not just a means of providing a bit of entertainment and adrenaline, and perhaps even big money. The Japanese government organizes lotteries, but it does so under a stack of legal regulations, restrictions, and obligations, also towards society and local communities.

Firstly, according to the law, the prize pool of each lottery cannot exceed 50% of the total amount from ticket sales, while the remaining funds go to state-chosen local government organizations and charitable organizations.

Social Responsibility – Not Just About Lotteries

As reported by the Nippon portal, according to 2017 studies, about 3.6% of the adult population in Japan has struggled with gambling addiction at some point in their lives – that’s even twice as much as the rates for Western European countries.

A series of laws introduced by the Japanese government in 2018 aimed to mitigate the problem of addiction. They define what gambling addiction is and obligate local governments to establish special plans to combat addiction. The plan includes, among other things, educating Japanese people about addictions in school classes and workplaces.

Local governments were also tasked with establishing specialized medical institutions where Japanese citizens struggling with or suspecting addiction tendencies can seek professional help and consult psychologists.

In 2020, there was also a national “Gambling Addiction Awareness Week.”

Unfortunately, since then, no new studies have suggested a change among the population. Psychological help in Japanese society is still a taboo topic, and individuals who reveal their shameful weaknesses are stigmatized by their community, as are their families.

Stationary Gambling in Japan – Drifting on the Edge of the Law

The Japanese love gambling – that’s a fact. It’s no wonder that the state is so eager to control this sector of Japanese life, considering the long-standing cultural conditioning of Japanese society. However, as is often the case, the most creative entrepreneurs have found ways to circumvent the regulations. The state, meanwhile, seems to turn a blind eye to these proceedings, which is not uncommon in Japanese politics.

Discussing stationary gambling in Japan, let’s first focus on the fully legal part of the market. Land-based casinos in Japan practically do not exist. Until 2018, casinos were completely illegal in Japan. The government took steps to legalize land-based gambling to attract tourists.

Currently, there are no legal land-based casinos in Japan. Apart from plans to build a resort in Osaka, restrictions have also been approved that will affect Japanese citizens. It will be possible to enter a casino no more than 3 times a week and 10 times in the preceding 28 days. Additionally, an entrance fee of 6000 yen (about 40 dollars) will be charged for each entry. These restrictions apply only to citizens of the country.

Pachinko – A Dark Cloud Over the State of Japanese Gambling

The legal gambling zone is highly controlled by the state – so where does the addiction of so many Japanese come from? The answer to the above question lies in the plague of pachinko gambling parlors, which drift on the edge of legality and the grey area. There are over 10,000 of them across Japan.

In practice, these are gambling halls, but the law does not consider them as such. All thanks to a creative circumvention of the regulations. Players exchange cash for special, metal balls, which are then used in gaming machines. Thus, according to the law, they do not use live cash for the game. Various machines set up in pachinko parlors work on similar principles to the once-popular pinball game. The goal of the game is to acquire as many new balls as possible – each machine has the capacity to dispense them.

After finishing the game, the remaining “tokens” can be exchanged for physical prizes in the parlor. There is no possibility of receiving cash, as legally such an exchange cannot be made in the parlor. However, if someone wishes to recover their stake or a portion of the money wagered, there are special “exchange points” near the parlors for converting balls into money. Officially, these are not associated with the parlors, so the “sale” of balls is not illegal.

Officially, the pachinko industry is not considered part of the gambling industry, and the Japanese government seems to avoid the difficult subject, which is a social taboo. It’s hard to call pachinko a full-fledged grey area – because the owners do pay taxes on their business – so in the context of the legality of gambling, this is how we should consider this branch.

Hidden Potential of the Industry

Pachinko is not only proof that the Japanese can creatively circumvent the law like few others. It’s also an example of how the Japanese state, extremely inconsistent in its actions, turns a blind eye to procedures that lie on the edge of the law.

The entire industry, however, is an excellent reflection of the gambling industry in Japan and a true representation of the value and potential of the Japanese market. According to the Japan Times, the value of the pachinko market is about 200 billion dollars, accounting for about 4% of the country’s annual GDP. This is thirty times more than the annual revenues of Las Vegas from gambling alone.

Another, more visual example of the popularity of pachinko, and at the same time the problem of gambling addiction among a significant part of the Japanese, are photographs showing salarymen in suits, spending lonely evenings in front of the machines. There have also been many books and films focusing on this branch of the gambling industry in Japan.

Need for Grassroots Work

Although the grey area or pachinko machines are the pinnacle when it comes to the gambling path of an average adult Japanese, the first contact with gambling that can turn into addiction hits them in their youth.

A hugely popular way of spending pocket money is gatcha, which are plastic balls containing random items, often related to currently popular movies, games, or TV series. The whole fun lies in the fact that you never know if you will draw a ball with a rare item or maybe something you already have.

Thus, certain habits are already germinating in the consciousness of the Japanese from the earliest years. However, adults are faced with a stalemate situation – legal gambling is limited to a minimum on the one hand. On the other, there are numerous illegal points that the Japanese government seems to have been turning a blind eye to for years.

The grey area is growing, which poses a threat to the players themselves, but potentially huge money is escaping from the state budget. The Japanese government’s willingness to address the issue of gambling may mean that in the second half of the current decade, we will see legislative changes that will push Japan towards Europe or the United States.