World Views | Asia’s gambling binge looks fun, may end in tears

Amid much protest, Japan’s lawmakers are considering a bill this week that would open their doors to opulent gambling houses. Analysts have dubbed it “manna from heaven” and the “holy grail.” Yet as any gambler will tell you, appeals to the divine are a sure sign of a weak hand. Japan’s casino project, like Asia’s gambling binge in general, is unlikely to end well.

The current vogue in the casino business is for “integrated resorts,” or multibillion-dollar goliaths designed to lure out-of-towners and offer them a variety of ways to spend – shows, shopping, baroque dining – beyond gambling. This model generally makes casinos more profitable, less dependent on high rollers, and better able to withstand economic ebbs and flows.

For governments, too, it’s an appealing prospect. In theory, foreigners will drop their cash, boost the local economy and take their problems home with them. Developers can be prodded to improve local infrastructure and to include space for conferences and exhibitions. This is what Japan has in mind. It’s a hard dynamic to sustain.

For one thing, the Asia-Pacific region is already brimming with such resorts, from Singapore to Saipan, Vietnam to Vladivostok. New ones are on the way in the Philippines and South Korea. Macau has some three dozen and counting. Studies show that increased regional competition can drive down revenue for established casinos, as you might expect, and drawing out-of-towners becomes much harder when they have options closer to home. As the U.S. has lately learned, this leads to some very unhappy endings for areas that can’t compete.

Another problem is that many of these new resorts are pursuing the same customer: the Chinese tourist. With China’s economic growth sluggish and the yuan weakening, that’s not the sure bet it once was. The Chinese government is cracking down on foreign casino companies trying to recruit local gamblers. And it is keen to discourage capital flight, which means it may further tighten rules on spending overseas.

Even under the best conditions, moreover, casinos rarely live up to the hype. Although they can produce a short-term economic boost, on average the effect dies out quickly. Taxing gambling might seem like a painless way to bolster budgets, but casinos can actually be a net drag on public revenue when social costs are factored in. What public income they do collect tends to be regressive. Without precautions, they can lead to a host of other ills, including lower property values, increased problem gambling, higher bankruptcy rates and more crime.

Japan faces some distinctive risks of its own. Nearly 5 percent of its adult population is addicted to gambling, according to government figures, a much higher rate than in other rich countries. A strong yen may discourage foreign tourists, and slots and craps are unlikely to alleviate the country’s chronic lack of demand, especially if they simply draw revenue from ubiquitous pachinko parlors. Not incidentally, most of the Japanese public opposes the measure.

The best argument in favor of any casino is that gambling is fun. In many parts of Asia, it’s a way of life. If the public approves, and is fully informed about the social costs, it should be legal. But don’t be a sucker: The benefits of casinos are always oversold, just as the odds are always on the house. The Editors, Bloomberg