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Opinion

Japanese casinos are a real gamble

Tokyo has a lot to tempt operators but it is late entering a crowded Asian market

Is Japan coming too late to the party?

For two decades, Las Vegas billionaires salivated over the idea of casinos in Japan. Arguably, only China holds greater potential than the affluent, gambling-crazy East Asian archipelago.

Tokyo may hate to admit it, but betting -- on pachinko, horses, cycling, speedboats -- has long been among Japan's biggest industries by revenue. Letting Vegas and Macau moguls open green-felt tables in the third-biggest economy is a natural extension of this obsession. Potentially profitable, too, now that Japan's lower house has legalized a market of nearly $16 billion a year.

Yet casino magnates are placing a risky wager of their own. Sure, the house always wins, but betting on Japan is really a wager on winning Chinese high-stakes gamblers -- the folks who bankroll Macau's success. It also is a rolling of the dice that some big spenders who help Vegas rake in $11 billion a year will journey eastward.

Here are three questions Prime Minister Shinzo Abe has yet to answer as Japan goes all-in on gambling.

One: Is Tokyo too late to the party? There is one more step in the push to greenlight casinos that Abe launched in 2013: upper house approval. That seems a mere formality. Even though more than 60% of citizens oppose casinos, out of long-standing concern about the social evil of excessive gambling, Abe argues that "tourism is a pillar of Japan's growth strategy." This push, he argues, "will create new employment and culture, bolstering Japan's international competitive power."

Call it Abe's "fourth arrow." Formally, Abenomics has three: monetary easing, fiscal loosening and deregulation. Legalized gambling could boost an already booming tourism sector, upping wages and filling government coffers. The trouble is that India, Singapore, Malaysia, the Philippines, South Korea, Australia and, of course, Macau are way ahead of Japan. Punters can also gamble, to varying degrees, in Cambodia, Laos, Myanmar and Nepal. Thailand and Taiwan want to join the crowded list of options.

Only time will tell if Japan is getting in at the top tick of a regional casino bubble or the market will continue getting bigger. One red flag: China's tropical Hainan Island is quietly working to become a gambling mecca. There, at least five resorts are letting punters bet on baccarat, a favorite among well-heeled mainlanders. President Xi Jinping's efforts to reduce capital outflows include limiting chances for millionaires to bet big in Macau. It would be bad news for Japan if China moved to legalize gambling.

Asia's demographics might augur well for the gaming boom. A growing middle-class and increasing ranks of the uber-rich could indeed create new armies of poker-chip enthusiasts. Japan's bevy of cultural attributes, meantime, may boost its competitive advantage. It has four distinct seasons, fortunate topographical diversity, offering beaches, skiing, mountain climbing, and hot springs, and some of the best food anywhere. Japan may hold all the cards to pull in the masses.

There is also a risk, though, that Japan's answer to Vegas opens around 2024 just when Chinese economic growth slows and consumers are forced to tighten purse strings. And, among potential Japanese gamblers, a persistent "deflationary mindset" will limit sustained local patronage.

Two: Will bureaucrats spoil the fun? Though Abe is blowing off public opinion, he still must contend with skeptical lawmakers and a labyrinthine regulatory system. In 2013, Sheldon Adelson of Las Vegas Sands called Japan the "holy grail" and offered to drop $10 billion on Abe's economy. Yet the "culture" he envisions is the Vegasization of Japan -- a what-happens-in-Japan-stays-in-Japan ethos.

Since then, Vegas titans looked on warily as bureaucrats worked to squeeze the vice from a business that thrives on it. Tokyo, for example, is going the Singapore route, opting for a more sensitized "integrated resort" model. That means limiting gambling floorspace and emphasizing entertainment and shopping (Japan already has loads of both). Legislators are focused on limiting casino floors to 3% or less of a resort's size. Abe still must weed his way through a consensus-driven political system. Given the gambling-addiction problem surrounding pachinko -- afflicting upwards of 5 million people -- and concerns about organized crime, it is an uphill climb.

To allay such concerns, operating licenses will initially be limited to three sites. Locals must pay a 6,000 yen, or about $54, entry fee, and can gamble a maximum of 10 times per month. The gaming tax is high -- a flat rate of 30% versus the sliding scale coveted by operators. They favor giving VIPs lower rates to keep them at the tables.

All this raises obvious questions about the number of customers who might step foot in casinos, never mind buy chips. Japan wants to, well, Disneyfy an industry known more for grit and sin. In August 2017, a government panel released a 130-page recommendation-list. Its emphasis on family-friendly attractions, banning ATMs and making foreign residents of Japan provide tax-identification numbers at the door drew complains from the American Chamber of Commerce.

Abe's desire to camouflage Japan's answer to Sin City is meant to placate critics. The key, of course, is striking a balance. The risk is that overdoing efforts to gussy things up turns off the big money and makes Macau great again.

Three: Where to put Abe's army of croupiers? The bidding process for local governments vying for integrated resorts starts in mid-2019. Yet Abe's government should encourage and even buttress bids by metropolises in less vibrant regions. Tokyo already enjoys vast concentrations of corporate power, wealth and tourist arrivals. It has the 2020 Olympics. Why not share the wealth?

Tokyo's tourism boom would do more to enliven the economy if visitors ventured further afield of Tokyo and Kyoto. Thanks to Kyoto's bevy of temples, shrines and gardens, Japan's former Imperial capital is already flirting with tourism overload. Polls show gaijin fatigue is already setting in as traffic jams impede local business.

Abe's team would be wise to give other regions a chance. In April, executives from six global casino giants convened in Osaka. There, regional government pitched to officials from Caesars Entertainment, Galaxy Entertainment Group, Genting Singapore, Las Vegas Sands, Melco Resorts and MGM Resorts. George Tanasijevich, CEO of Marina Bay Sands, which even drew a visit from Kim Jong Un last month, says an investment in Osaka "would certainly surpass" his Singapore operation.

Yet Osaka is already enjoying a Lonely Planet boom. Steering integrated resorts to Hokkaido, Kyushu or Okinawa would go further to pump fresh energy into less flush regions. Northern Tohoku, for example, could use a serious pick-me-up. Opening a casino in, say, Sendai would help neighboring Fukushima with the image problem it developed following a 2012 nuclear crisis.

The western city of Fukuoka also merits a look. It is the commercial hub of Kyushu, with an airport offering easy flights from Beijing, Seoul, Shanghai, Taipei and even a ferry from Korean city Busan. Fukuoka has beaches, a laid-back vibe and some of Japan's most celebrated culinary offerings.

Okinawa, too, makes sense. Tour packages combining its white sand beaches, unique culture and gaming floors could help narrow the island's chronic wealth gap with the Tokyo region. It also could allay resentment Okinawans feel about hosting the bulk of U.S. military bases and personnel.

Abe may think he is sitting on a no-lose jackpot that is Tokyo's for the taking. But his team needs to get right the balance between limiting sin and maximizing economic gain. That is no sure bet.

William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades." He was given the 2018 prize for excellence in opinion writing by the Society of Publishers in Asia, for his work for the Nikkei Asian Review.

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