The hopes for legalized casino gambling in Japan may have been dashed after Prime Minister Shinzo Abe announced he is resigning his post due to health concerns.

Already suffering from giants like Las Vegas Sands (NYSE:LVS), Wynn Resorts, and Genting Singapore bailing out on the opportunity, the loss of one of the industry's biggest proponents in the Japanese government could be the death knell for legalized casino gambling.

Osaka, Japan at night with Times Square-like billboards all lit up.

Osaka was MGM Resort's city of choice where it would build an integrated resort, but that may not come to fruition after Japan's prime minister resigned. Image source: Getty Images.

Diminishing returns

Although analysts once pegged the legalized casino market as a potential $40 billion industry, rivaling China's Macao at its peak, the outlook has progressively diminished over time as public opposition to the measure remains high, and the process for regulating the industry drags on.

MGM Resorts (NYSE:MGM), which is considered to be the frontrunner to win one of the first three concessions to be awarded, is even hedging its bets on moving forward. Although it says it's ready to submit its proposal as soon as the rules are in place, it now indicates it only wants a minority stake in the operation.

President and CEO Bill Hornbuckle also says it will "only make this investment if we think it's going to be prudent, if we think it's going to pay the kind of returns that it needs to pay and to meet our expectation."

That's the same sort of equivocation Las Vegas Sands espoused just before pulling out of the race six months later.

And now that the final rules -- which were supposed to be put in place by the end of July, but were delayed by the COVID-19 outbreak -- might not see the light of day till early next year or at all. Considering Abe's departure, the Japanese casino market may be dead before it ever had a chance to flourish.

Hedging its bets

It's a remarkable reversal considering resort operators initially were outbidding each other on how much they intended to spend on developing an integrated resort if they won a concession, with estimates running as high as $10 billion or more.

MGM was putting all of its chips on the city of Osaka winning the bid to host a resort, and it partnered with Japanese financial services firm Orix to develop an "Osaka First" policy to create a joint venture to own and operate the integrated resort.

Yet during MGM's earnings conference call last month, Hornbuckle said MGM only wanted a 40% to 45% stake in the business because it would limit both its investment and the risk associated with the casino.

Despite also saying "we love where we're sitting" in regards to winning a concession, he also said MGM was thankful it's not all-in on the investment alone, hardly a ringing endorsement for how this will play out.

With official delays in setting the ground rules, cities can't move forward in choosing integrated resort operators, and the casinos themselves can't develop the necessary plans to hit the ground running if they win.

A fleeting chance

Abe's resignation creates even greater uncertainty. Depending upon who his successor is, there may be no political will to fight for integrated resorts. Surveys show as much as 60% of Japan's public is opposed to them.

There was a brief opportunity for the country to have enabled the industry to help spark economic growth, but that moment increasingly looks like it has passed.