Pachinko remains, even after years of steady, demographic-led decline in revenues and participation, unambiguously big business © Reuters

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Hiding a garish, blaring $200bn gambling industry in plain sight for half a century is a brilliant strategy as long as it works. When it does not, as Japan is now discovering, you cannot help but see an addictive legal anomaly that elicits a sum larger than the GDP of Portugal from its devotees every year.

This, as some judge it, is the deepening plight of pachinko — the Japanese vertical pinball and slot-machine hybrid played in nearly 11,000 outlets across the country. 

It remains, even after years of steady, demographic-led decline in revenues and participation, unambiguously big business. 

Annual revenues have fallen from ¥27tn in 2006 but still exceeded ¥21tn last year. Some 1.56m new machines are sold annually. More than a dozen listed companies are involved in the industry, many in an equipment market worth just over ¥1tn in the 2016 financial year.

Keeping these fires stoked, however, has required a robust, well-practised sleight of hand and the oversight of a body that consists largely of retired police. Under Japan’s historically strict gaming laws, pachinko machines cannot legally be used for gambling. Their chief appeal, meanwhile, lies in the fact that they absolutely offer the opportunity to gamble. This is achieved through a choreography that ensures that none of those involved are technically in breach of the law, even if the net effect is unmistakable. 

The currency of the pachinko game is the ball bearing. Players exchange cash for these in the pachinko parlour itself, feed them into the machine and are paid out — if they are lucky — with more balls. When the player leaves, the spherical winnings cannot be redeemed for cash on site but are instead rewarded with a specific number of symbolic prizes (lighters or pens) that can be exchanged for cash at a small separate establishment usually just around the corner. So far, so loop-holey. Using this system as cover, Japan has willingly hypnotised itself into the assertion that pachinko is not really a form of gambling (like horseracing or lotteries) but simply an oddly popular “amusement”. The problem, admits the pachinko industry association amid fears of a crackdown, is that it may have worked too well. 

Last December, with the support of Prime Minister Shinzo Abe, Japan legalised casino gaming — a move that is expected to see the first casinos appearing (as part of larger “integrated” resorts) sometime around 2023, with their sights clearly set on the disposable income of both foreign visitors and ordinary Japanese. 

There have been a number of changes over the years that the pachinko industry would love the authorities to grant: high on the list would be raising a decades-old limit that prevents pachinko parlours charging customers more than ¥4 per ball. The passing of the casino legalising bill might, in theory, have been a good moment to invoke the threat of impending competition and demand concessions. But to do so would be to give the game away and admit that the arrival of casinos would be pitting one form of gambling against another. 

Unfortunately, even bigger problems are in store. In advance of any casinos being built, Japan will pass an anti-gambling addiction bill. In preparation, the government commissioned a report that extrapolated that about 3.2m Japanese have experienced gambling problems — a crisis, many decided, that could have been addressed ages ago if the nation’s primary form of gambling had not been thinly disguised as something else. 

In a show of concern, the government has revised the regulations on the “amusement” business to curb excessive playing. From February, all new pachinko games will have the maximum prize payouts slashed by a third. The industry association gives a bleak outlook in which machine makers are no longer able to produce exciting machines, parlour operators stop buying new ones, and players stop visiting. 

One theory is that there is a clear momentum building within the Abe administration to slowly squeeze the gambling out of pachinko and widen the regulatory gulf between that industry and the future casino business. It wants the latter to be a show-stopper; it has decreasing interest in preserving the stagecraft required of the former.

leo.lewis@ft.com

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