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Japan poised to be Asia's 2nd-largest casino market

Legalization may lead to annual revenue topping $7 billion

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A dealer picks up chips on a mock black jack casino table during a photo opportunity at an international tourism promotion symposium in Tokyo in 2013.   © Reuters

HONG KONG -- Japan has dropped its long-standing ban on casinos, paving the way for the country to become a major player in the multibillion-dollar gambling industry.

The Diet, Japan's parliament, passed a bill on Wednesday to legalize casinos and promote integrated resorts similar to those in Singapore.

Industry observers predict Japan will become the second-largest casino market in Asia, following Macau, and offer an attractive alternative for international gamblers and casino operators.

Casinos in Macau raked in $29 billion in revenue last year, according to the former Portuguese colony's Gaming Inspection and Coordination Bureau. The U.S. state of Nevada, home to Las Vegas, earned $11.1 billion in gaming revenue in the year through June 2016, according to statistics published by the Nevada Gaming Control Board.

Macau's casino industry peaked in 2013 with revenue of $45 billion and has since shrunk significantly, although it still takes in about three times as much as the Las Vegas Strip.

Singapore is now the second-largest casino market in Asia. Regulators don't disclose how much the city-state earns from its casino resorts, but industry media have estimated local casino revenue in 2015 at $5 billion. Marina Bay Sands, a glittering integrated resort in Singapore owned and operated by Las Vegas Sands, rang up $2.3 billion in casino-related sales in 2015.

Market research company Trefis estimates that Japan's casino market will overtake Singapore's, with revenue of $7 billion to $20 billion. Unlike casinos in Singapore, which mainly target big spenders known as high rollers, Japan's facilities will cater chiefly to mass gamblers, Trefis forecasts.

Addicted to pachinko

Japan already permits betting on horse, bicycle and boat races. Pachinko, a casual form of gambling involving a machine that is sometimes described as "vertical pinball," is also hugely popular. Noisy, garishly lit pachinko parlors with rows of gaudy machines are found everywhere in the country.

The nation's pachinko and slot businesses racked up 23.23 trillion yen ($198 billion) in revenue last year, according to an estimate by the Japan Productivity Center, a nonprofit think tank. More than 10 million people play pachinko, making the market far larger than any other gambling sector in the world.

Japan also has a population of gambling addicts that is by far the largest among major countries. Around 5% of Japanese adults are addicted to gambling, compared with around 1% in most other major countries, according to a 2014 survey by a study group at the Health Ministry.

When casino legislation first became a hot topic in the Japanese political community in 2013 and 2014, international casino operators sat up and took notice. Sheldon Adelson, the chief executive of Las Vegas Sands, declared at that time that his company would be ready to invest as much as $10 billion to develop a casino resort in Japan.

U.S. operator MGM Resorts International and the Macau-based operators Melco Crown Entertainment and Galaxy Entertainment also showed a strong interest in expanding into Japan.

Macau's vital casino industry has been hit hard by a Chinese anti-corruption campaign, which has made a big dent in the flow of cash-flush Chinese gamblers into the autonomous region. That could make the casino market in Japan, the world's third-largest economy, more alluring for international operators and stock investors.

In the U.S. stock market, MGM Resorts and some other casino-related stocks are already attracting investor interest. In Hong Kong's stock market, where a bevy of casino operators are listed, Japan's move to lift the ban on casino gambling will give a boost mainly to the stocks of Macau-based operators, which have displayed their appetite for investment in the new market -- such as Galaxy Entertainment, Melco Crown and SJM Holdings, said Nomura International.

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