If not for yakuza laws, Japan could be cleaning up in e-sports ring

$5 billion competitive gaming industry off limits in country that made video games a global hit

by and

Bloomberg

Spectators packed a Seattle arena and 5 million more went online to watch a video game tournament this summer in which winners each earned $2.2 million, about as much as tennis pro Rafael Nadal won at this year’s French Open. Players came from all over the world but, as usual at these events, none was from Japan, the country that lit the industry on fire nearly 40 years ago.

Competitive video gaming is big business. In China and South Korea, stadiums are being built for it. In the United States, promising gamers win college scholarships and NBA teams pay athletes to sit in front of computer screens and compete at virtual basketball. By 2020, total revenue from e-sports will reach $5 billion annually, almost as much as the world’s biggest soccer league today, according to market researcher Activate. London bookmakers place the odds at 4-to-1 that video games will be in the Olympics by 2024.

Yet Japan, which in the 1980s held some of the world’s first televised video game battles, no longer has serious training grounds for its players. Laws meant to police organized crime and gambling have cast a net so wide they prevent paid gaming competitions, whether at internet cafes or at stadiums like the one in Seattle where 12,000 people in August spent as much as $200 to watch the tournament for “Dota 2,” an ultra-popular game by U.S.-based Valve Corp.

“In Japan, players can’t make a living from gaming. And without star players, there’s no one to spread the message,” said Hirokazu Hamamura, head of Gzbrain Inc., publisher of the popular game magazine Famitsu. “It’s a huge problem for the industry.”

The world’s best-selling video games are no longer a solo activity. They require an internet connection and lots of other people to play against. When games get big, the natural next step is to have the best players battle in front of an audience.

On internet streaming platform Twitch, people logged more than 2.8 billion hours in the first half of the year watching other people play video games, a fifth of which was e-sports, according to market researcher Newzoo. Twitch was purchased in 2014 for $970 million by Amazon.com after a bidding war with Google.

In China, the success of multiplayer games like League of Legends, an e-sport sensation, has made software developer Tencent Holdings Ltd. one of the world’s 10 most valuable companies — worth more than the biggest oil company, the largest bank, and Japan’s entire video game industry.

Japan’s big software makers, including Square Enix Holdings Inc., Capcom Co. and Bandai Namco Holdings Inc., were slow to embrace multiplayer gaming partly because they had so much success with Japanese users who preferred to play alone. Tastes are changing, but now that games have morphed into a spectator sport, Japan’s legal hurdles make it harder for the industry to catch up, though Japanese are free to compete for big money overseas.

Square Enix spokesman Yohei Mikado said the first step, before any legislative push, is to get today’s Japanese players to see video games as an event worth watching. To do that, the software developer last year opened a 76-seat “theater cafe” for gaming demonstrations.

A spokeswoman for Nintendo Co., the Super Mario inventor, said the company sees the potential of e-sports and is making an effort to sponsor more unpaid tournaments for games such as Splatoon 2, a virtual paint ball game that’s one of Nintendo’s few titles made especially for online play.

These are pretty tentative moves, given that millions of Japanese used to watch nationally televised video game tournaments in the 1980s. Players in those marketing exhibitions, held by companies like Konami Holdings Inc., were awarded no prize money but some did become household names.

“I toured the country and dominated in every prefecture. I was treated like a king,” said Toshiyuki Takahashi, a former software developer known back then as “Master Takahashi” and celebrated for his ability to mash a button 16 times in a second, so fast his fingers were a blur.

In a different time and place, those skills would probably have made Takahashi a multimillionaire, but, at 58, the former gaming champion is now a retired salaryman who heads an industry lobby, the Organization for Promoting eSports. He says untangling even some of the legal knots blocking Japanese e-sports could take three years or longer.

One unintended obstacle is a quirk of Japanese legal language that has lumped video games together with gambling ever since yakuza turned to video poker in the 1980s as a money-maker. Other roadblocks include restrictions on the size of cash payouts and laws that stop prize money from being pooled together using proceeds from ticket sales, which is one way that game developers such as Valve raise money for tournament prizes.

The status quo may find support from parents and teachers who worry that gaming is a waste of time, or worse, addictive, according to Kazuhiro Yoshino, superintendent of elementary and junior high schools at Osaka’s board of education.

“Staying up late to play games, breaking a healthy lifestyle, dropping out of school? This is all connected,” he said. “It’s an issue we are very aware of.”

Arguments for and against e-sports abound in South Korea, where government investment in high-speed internet links helped make gaming cafes a cultural fixture. A recent study by the Korean health ministry suggests about 5 percent of South Koreans between the ages of 18 and 29 are addicted to video games, but the economic benefits for champion players and the industry are huge.

A small South Korean company called Bluehole Inc. developed this year’s best-selling PC title, “Playerunknown’s Battlegrounds,” a strategy game that has amassed 8 million users since March. Meanwhile, the country’s best-known gamer, 21-year-old Lee “Faker” Sang-hyeok, is a high school dropout who’s made millions and gets mobbed by fans at airports.

Takahashi, the aging Japanese gaming champ, can only look on wistfully.

“Everything but the regulatory part is in place,” he said. “That’s what’s holding back Japan.”