Legalized casino gambling looked to be on the fast track in Japan, but now it's stuck in the slow lane. Increasingly, it seems the earliest casinos will be able to begin construction on new resorts will be next year, but delays could drag out the process even longer -- or derail it altogether.

Before casinos can do anything, enabling legislation for integrated resorts needs to be passed, and before that happens, a bill to address gambling addiction needs to be approved. With just a few days left before the current legislative session ends and little apparent agreement on how best to help problem gamblers, the prospects for legal casino gambling is getting pushed back.

A lit-up city street in Tokyo.

Image source: Getty Images.

Biggest, most expensive gambling market

World-class casino operators are looking to place big bets on the Japanese market. Las Vegas Sands (NYSE:LVS), MGM Resorts (NYSE:MGM), and Wynn Resorts (NASDAQ:WYNN) have all indicated they would be willing to spend upwards of $10 billion each on building integrated resorts there, far more than they spent constructing their newest casinos in Macau.

But they do so with good reason. Analysts estimate that Japan would quickly become the world's largest gambling mecca, valued at around $40 billion. Macau brought in less than $28 billion last year, and though that was largely a result of a more than a two-year decline brought on by a government crackdown on corruption, at its peak in 2013 gambling revenue never exceeded $45 billion. In comparison, Las Vegas brings in around $10 billion annually; Atlantic City, $2.3 billion.

And it appeared the casinos would be able to begin throwing those dollars around fairly quickly. After the Japanese Diet, the country's legislative body, passed the first enabling legislation last year -- after numerous failed attempts in prior years -- it looked as though the skids were greased to see the next stages of regulatory oversight approved, including where the casinos would be allowed to build. Most expect first-tier cities such as Tokyo to make the cut, but others are pushing for Osaka and Yokohama, too.

Gambling addiction is a large, societal problem

Yet many analysts were apparently getting ahead of themselves, as the gambling-addiction legislation needs to be approved first. This could be a problem, because Japan is said to have far higher rates of gambling addicts than other countries -- some 5% of its population, compared with 1% elsewhere -- and that has created large swaths of public opposition to legalizing casino gambling. Polls show as many as 44% of the people are against it.

Gambling is already technically legal in Japan, as the 11,000 or so pachinko parlors attest. The gambling halls bring in some $200 billion annually, but Japan Times says the number of parlors has fallen steadily over the past two decades and turnover the has shrunk by a third since its peak in 2005. There is also betting permitted on events such as horse, bicycle, and powerboat racing.  

Hot streak turning cold

Casino gambling is viewed differently, though, and political opponents are reportedly unhappy with the broad terms laid out in the addiction bill that's been drafted. They are seeking stricter regulations, greater clarity on exactly what the casinos will be required to do, and the penalties they'll face for non-compliance. The next session of the Diet won't convene until August, and while the first drafts of the integrated resorts bill are expected to be circulated then, the pell-mell rush everyone had been expecting after last December's legislative success has quickly evaporated.

The delays could also mean opponents will have a greater opportunity to thwart the legalization bill's advance. Yet even if opponents merely delay implementation, we're still looking at very long lead times. Once the addiction bill is passed, and then the rules the integrated resorts must abide by, then there is a further request for proposals from casino operators to win a license. How many will be issued and who will get them remains a big question, too.

Although legalized casino gambling was seen as a positive development ahead of the 2020 Summer Olympics in Tokyo, particularly with the infrastructure spend host cities are required to undertake, that may no longer be a driver the casinos can bet on.

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