Of the many bets you might have made when Covid-19 first hit Japan, a punt on the stellar growth of horse racing betting would have stood a great chance. (The country has a complex, largely anti-prohibition relationship with gambling.) However, it has held up well.
As the pandemic enters a third year, a similar bet that Japan will legalize betting on professional electronic sports, which pits players playing video games against one another, feels like just another outside bet. But interestingly not an impossibility.
Gambling in Japan is only legal for a select group of activities. It is limited to horse, bicycle, motorcycle or motor boat races, as well as lottery and football pool bets (but not bets on individual matches). Casino gambling was legalized in 2018 but no casinos have been licensed yet. Meanwhile, the esoteric pachinko (vertical pinball) industry sucks 14.6 trillion yen (£94.4 billion) annually into an activity that shares many characteristics with gambling, but somehow officially isn’t.
But the opening for debate about esports comes from the way technology and the pandemic have conspired to transform the way entertainment is consumed, lawyers say. Some of these changes could still prove temporary post Covid; others seem primed to persevere.
Horse racing bets are a good example of the latter. From the mid-1990s it was understood to have been in chronic decline for many years, a victim of Japan’s demographic decline and the changing tastes of its young people. But the fortunes of racing were unexpectedly revived when the main target group – men in their 40s to 60s – belatedly started buying decent smartphones and downloading apps that streamed races. Crucially, the country’s private venues mostly held races on weekdays, making a Y500 flutter at an afternoon race the perfect diversion from an employee’s workday.
This went into overdrive as the pandemic forced everyone to spend long unsupervised days at home. After a brief lull in activity, races resumed without a live audience and betting revenues, which had been growing about 10 percent annually, rose to 28 percent in 2020 and remained gravity-defying in 2021. Some of it, says Jefferies recreational analyst Shinnosuke Takeuchi, was a mass migration from pachinko parlors to smartphones. But another factor has been the entry of younger male players and women. If their bets on horses are still very small, that’s because they’ve focused on other sports: bets on bike and motorboat races have also increased.
Parallel to these shifts is the rapid growth of eSports as a viewership activity for younger Japanese, who have become passionate fans of professional gamers and eSports tournaments during lockdown. The competitive esports industry in Japan is worth about $78 million a year, despite being previously stymied by various copyright infringement and gambling laws and entertainment industry regulations.
Now, says Koji Ishikawa, a Japanese gambling expert at law firm Greenberg Traurig, the esports industry has been given an unwritten license to grow through “informal consultations” with the Justice Department and fair trade regulators. Esports, he says, grow through the constant, complicated navigation of rules that they could theoretically break at any time. To cite an example: in order not to violate the ban on betting in non-sanctioned sports, tournament organizers must ensure a meticulous sequestration of the entry fee paid by the participants, which would otherwise be legally considered gambling. The prize pool must be provided by sponsors.
Going from this situation to a situation where millions of Japanese people could potentially bet on esports may seem like a leap. But the fact that the debate is starting shows the important role technology has played in reshaping the gambling landscape. It also coincides with an interesting moment for Japan’s increasingly tax-hungry government.
Fears of a prolonged pandemic with revenues from live sports viewing permanently suppressed have fueled the argument that gaming revenues could make up the shortfall. With casino gambling now legalized in principle, an important Rubicon has been crossed. Presentations to the government late last year set out a timeline for the possible legalization of several forms of sports betting, going well beyond current offerings to include basketball, baseball and a more direct system for football betting. What are the odds that it won’t be long before esports demand to be included?
Leo Lewis is the FT’s Asia Business Editor
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