Gambling: A Tale of Two Markets

Introduction

Although once considered a cultural taboo, the global gambling industry is undergoing a dramatic renaissance—fueled by online betting platforms, legalised sports wagering, and aggressive advertising. The global gambling market surged to an impressive $540.27 billion in 2023 and is projected to reach over $580.36 billion in 2024, with forecasts of $754.78 billion by 2029. Western gambling giants like DraftKings and MGM Resorts are thriving in a tech-driven, deregulated environment, capitalising on shifting norms and regulatory tailwinds. Today, you can bet on everything from sports outcomes to the next pope. In stark contrast, Japan’s gambling sector remains shackled by outdated laws, negative public sentiment, and regulatory inertia. Pachinko parlors are closing, and the long-promised integrated resorts remain stuck in endless planning. This divergence is more than a tale of winners and losers—it reflects two fundamentally different approaches to modernization, risk tolerance, and cultural openness, with significant implications for investors.

Western Gambling Industry: A Blueprint for Growth

Western firms haven’t just legalized gambling—they’ve rebranded it. Betting is no longer a vice, but a product with scale, driven by technological innovation and strategic market penetration.

Western gambling companies have managed to successfully “Robin Hood-ify” the experience, bringing it directly to consumers in accessible, intuitive, and socially acceptable ways. Now, you don’t have to physically go to casinos or navigate old clunky websites; you can place bets easily and quickly, without any friction to think about it. This frictionless system, coupled with virtually limitless betting options, enticing sign-up bonuses, and strategic advertising, has woven gambling into the fabric of mainstream entertainment. The portrayal in films, pervasive mainstream advertising, and paid influencer content are eroding historical stigmas, rebranding gambling as a low-barrier form of leisure for a broad demographic, including younger and female gamblers. This shift is powered by mobile-first strategies, AI-powered personalization, live casino experiences, and the adoption of emerging technologies like Virtual Reality (VR), Augmented Reality (AR), and blockchain for secure transactions. For instance, over 120 casinos across Europe incorporated VR zones for poker and blackjack in 2024, attracting nearly 1.4 million users.

In the United States, the 2018 repeal of the Professional and Amateur Sports Protection Act (PASPA) was a pivotal moment, allowing states to regulate gambling independently. This has unleashed a wave of legalization across the country, driven not only by consumer demand but also by government interest in tapping into a new source of taxable revenue. As of 2023, sports betting was legally permitted in 36 states, expanding to 30 states legalizing online sports betting and 7 states with fully legalized online casinos and poker by 2025. This transformation has turned gambling from a fringe activity into a mainstream digital pastime. The US commercial gaming industry set new revenue records for the fourth straight year in 2024, reaching $71.92 billion, a 7.5% increase from 2023. This robust growth translates into significant economic contributions: the industry paid an estimated $15.66 billion in gaming taxes to state and local governments in 2024, and the online gambling services sector alone employed 28,193 people in 2024, projected to increase to 36,264 in 2025.

Europe is similar, albeit with a sharper emphasis on responsible gambling. Regulatory agencies impose strict compliance regimes, including affordability checks, deposit limits, and self-exclusion tools, to protect vulnerable users and combat money laundering. In 2024, 73% of active casino platforms across the EU implemented AI-powered tools to monitor problem gambling behavior. These measures have not hindered growth; instead, they have helped legitimize and normalize the industry within broader society. Europe's gross gaming revenue (GGR) reached €123.4 billion in 2024, a 5% increase from 2023, and is projected to grow to €149.2 billion by 2029.The European casino segment alone supported over 280,000 direct jobs in the EU in 2024, contributing an estimated €9.5 billion in taxes to member state budgets. Now, if you go to pubs in the UK, you’ll see people of all ages betting on football games from all over the world.

The scale of the growth is striking. The global online gambling market was valued at $78.66 billion in 2024 and is projected to reach $153.56 billion by 2030, growing at a compound annual growth rate (CAGR) of 11.9%. In the US, the online gambling market alone was valued at $12.68 billion in 2024 and is expected to grow at a CAGR of 9.8% from 2025 to 2030, reaching $22.19 billion by 2030. The European gambling market is forecasted to grow by 3.5% year-on-year to €127.7 billion in 2025, with online gambling projected to account for 40% of the total market for the first time.

Japanese Gambling Industry: A Market in Decline (and a Hidden Boom)

Yet, in a world where gambling is booming, the Japanese industry shrinks—at least in its traditional, visible forms.

Japan’s most widespread form of gambling, Pachinko, operates in a legal gray area. Through a regulatory loophole, Pachinko parlors classify the activity as a game rather than gambling: players win tokens, which can then be exchanged for cash at off-site vendors. At its peak in 2005, the Pachinko industry generated ¥35 trillion in annual spending. However, two decades of regulatory tightening, demographic shifts, and declining public enthusiasm have sharply reduced its footprint. By 2022, annual spending had shrunk to ¥14.6 trillion, and in 2023, the combined sales of Pachinko and Pachislot machines totaled ¥15.7 trillion, less than half their level from two decades prior. The number of parlors has fallen dramatically from 18,244 in 1997 to 7,665 in 2022, further decreasing to 6,839 in 2023. That number is projected to drop below 5,900 by 2028. Participation has also plummeted—from an estimated 30 million players in the late 1900s to around 7.2 million regular participants in 2021.

Beyond Pachinko, Japan permits several government-sanctioned gambling activities. Takarakuji—Japan’s lottery—is permitted under tight regulation, with revenues funneling towards public welfare programs. Revenue peaked in 2005 at 1.1 trillion JPY, but has since declined to 845.2 billion JPY in 2017. 

Despite the decline in traditional Pachinko, an expansive illegal online gambling market is flourishing in Japan, highlighting a significant underlying demand not met by legal domestic options. A recent report indicates approximately ¥6.45 trillion (US$45 billion) was wagered by Japanese bettors on unregulated and illegal gambling websites in 2024. This illegal market is primarily driven by online sports betting, which accounted for a staggering ¥4.9 trillion in wagers in 2024, with soccer alone making up ¥2.9 trillion. Offshore online casinos saw approximately ¥1.2 trillion ($8.3 billion) in wagers. An estimated 3.37 million Japanese gamblers accessed illegal offshore online casinos in 2024, with the average annual amount wagered per person on these illegal platforms being ¥630,000. A significant portion of these users (43.5%) are unaware that accessing such sites is illegal in Japan. This "hidden economy" represents substantial lost tax revenue for the Japanese government and leaves consumers without any regulatory protection or responsible gambling safeguards.

So why is Japan’s traditional gambling industry dying?

Japan’s reluctance to modernize its gambling sector stems less from a lack of political opportunity and more from a deep-seated societal aversion to perceived risk, coupled with regulatory inertia and demographic challenges. In contrast to the West—where risk-taking is often celebrated as entrepreneurial—Japanese social norms tend to equate gambling not with leisure, but with addiction and shame. This persistent stigma is fueled by historical associations with organized crime (Yakuza, 46.1% public perception) and ongoing concerns about gambling addiction (56.7%) and tax evasion (24.5%). This cultural barrier makes it difficult to address problem gambling openly and integrate support systems.

Furthermore, the Pachinko industry struggles to attract younger generations, with only 5% of Japanese gamblers in their 20s. This challenge is exacerbated by Japan's broader demographic trend of an aging population. Regulatory changes, such as the 2018 mandate for operators to replace older Pachinko machines, imposed significant financial burdens, contributing to parlor closures. The COVID-19 pandemic further accelerated this decline, with 640 parlors closing in 2021 alone.

There have been attempts at reform in the past. The Integrated Resorts (IR) legislation was passed in 2016 to allow large-scale casinos. Japan's first legal, land-based casino is scheduled to open in Osaka by 2030. The Osaka IR project is a massive undertaking, with an initial development cost of approximately ¥1.27 trillion (about $8.5–9 billion USD). MGM Resorts International, a key partner, has increased its projected investment to around $3 billion for its 42.5% ownership stake, demonstrating strong conviction in the project's returns. Upon stabilization, the Osaka IR is projected to generate an estimated ¥520 billion (approx. $3.5 billion USD) per year in total revenue, with 80% from gaming. MGM anticipates over $2 billion in annual EBITDA from day one. The project is expected to create 15,000 direct jobs on-site and support around 93,000 jobs annually in the Kansai region, generating an additional economic ripple effect of about ¥1.91 trillion during construction. It could contribute around 0.2%–0.3% to Japan's GDP once operational, but there continues to be delays, now expected to be available from 2030.

The Divergent Business Models: Why Western Growth Outpaces Japan

The stark contrast between the thriving Western gambling industry and Japan's struggling traditional sector, despite its massive illegal online market, can be attributed to fundamental differences in their business models and underlying philosophies:

• Regulatory Philosophy and Market Strategy: Western nations have adopted a pragmatic, revenue-focused approach to gambling legalization. Governments recognize the inherent demand for gambling and choose to regulate and tax it, rather than prohibit it. This strategy allows them to capture significant tax revenue—billions of dollars annually in the US and Europe —which is then reinvested into public services and infrastructure. In contrast, Japan's historical prohibitionist stance, rooted in social control, has pushed a substantial portion of gambling demand underground. The government's active crackdown on illegal online gambling, despite its ¥6.45 trillion market size, results in a "hemorrhaging revenue to offshore operators" and leaves consumers unprotected. This illustrates a key business lesson: an outright ban often fails to eliminate demand, merely shifting it to unregulated, untaxed channels.

• Innovation and Consumer Engagement: Western markets have aggressively embraced technological innovation to meet evolving consumer preferences. The widespread adoption of smartphones, coupled with advancements in AI, live casino experiences, and emerging VR/AR technologies, has created highly accessible, personalized, and immersive gambling products. This focus on digital convenience and diverse offerings has successfully engaged younger, tech-savvy demographics. Japan's legal market, particularly Pachinko, has struggled to innovate and adapt to these digital shifts, failing to attract younger players who perceive it as outdated. This "digital divide" means a tech-savvy Japanese population is largely served by an analog legal market, forcing demand for modern online gambling into illegal channels.

• Market Structure and Competition: Western gambling industries typically feature competitive landscapes with numerous private operators vying for market share within regulated frameworks. This competition drives continuous innovation in products, user experience, and marketing strategies, fostering a dynamic and responsive industry. Japan's legal gambling landscape, characterized by government monopolies for public races and Pachinko's "grey zone" status, provides less incentive for such innovation and adaptation. The lack of direct competition within the legal sphere has contributed to the stagnation of traditional forms.

• Cultural Acceptance and Brand Building: Western cultures have seen a significant increase in the normalization and entertainment-focused perception of gambling. It's increasingly viewed as a benign form of entertainment and a social activity, shedding previous stigmas. This normalization is fueled by widespread legalization, deep integration with sports culture through sponsorships, and pervasive mainstream advertising. This cultural shift creates a fertile ground for industry growth and innovation. In Japan, the persistent stigma associated with gambling, linked to historical organized crime and addiction concerns, creates a barrier to broader social acceptance and limits the industry's ability to modernize its image and attract new demographics.

Conclusion and Strategic Implications

The contrasting fortunes of the gambling industries in Japan and Western markets offer a compelling case study for investors. Western markets demonstrate the immense economic potential of a regulated, technologically advanced, and culturally accepted gambling sector, generating substantial revenues, jobs, and tax contributions. Japan, despite its high overall gambling revenue driven by a massive illegal online market, faces a critical juncture.

The Osaka Integrated Resort (IR) represents a significant strategic step towards a more open and regulated gambling market in Japan, aiming to capture revenue and tourism currently lost. Its success will be a crucial test case for broader gambling liberalization. Japan faces a choice: continue with ineffective crackdowns on its burgeoning illegal online gambling market, or embrace comprehensive regulation to capture substantial tax revenue and provide safer, regulated options for its citizens. Learning from Western models—particularly regarding comprehensive regulatory frameworks, leveraging technology for player engagement and protection, and fostering a competitive market—could enable Japan to revitalize its legal gambling industry and integrate its substantial gambling demand into the formal economy. For investors, understanding these divergent paths is key to identifying opportunities and risks in the evolving global gambling landscape.