 Log Out 

H O ME TOPICS  MORE  EVENTS  JOBS  E X PE RT ADV I S O R S  C O U R SE S  AB O U T U S  MY AC C O U N T 

E X PE RT SE RV I C E S

The growth of esports in Japan - are domestic

regulations holding back the industry?
Published 27 June 2019 By: Masakatsu Nagashima Courses

Sports Law Advisors

Japan is the well-known home of many popular gaming companies, such as Sony and
Nintendo. Revenue from the Japanese gaming industry exceeded $19.2 billion in 2018,
and the number of players exceeds 67.6 million, ranking it third in the world1. However,
revenue from the Japanese esports market in 2018 was only $44.2 million,2 which is less
than 0.3% of the revenue of the Japanese gaming industry as a whole. Considering this
grew from a mere $3 million3 in 2017, it is still true to say that esports is experiencing a Upcoming Events
boom in Japan; yet compared to the $905.6 million global revenue of the esports market
MAY Football Law Digital
in 2018,4 it is relatively small. 21
Conference 2020
This article looks at why this may be the case and suggests that one important factor
deterring growth is Japan’s domestic regulatory regime. JUN Becoming a sports
18
Details of legal restrictions on Japanese esports
lawyer: starting out

The major legal regulations related to Japanese esports are: SEP Understand The Rules
17
i. The Penal Code – relating to gambling; Of The Game 2020 -
LawInSport Annual
ii. The Act against Unjustifiable Premiums and Misleading Representations
(Premiums Act) – relating to prize money; and Conference

iii. The “Fueiho” law – a law that focuses on the control and improvement of
amusement business 5 that impacts upon esports cafes.

There are also other relevant regulations relating to matters such as immigration and
employment, but the these three are the most relevant when it comes to the
development of esports in Japan. We shall examine each in turn.
Penal Code LawInSport Podcast
Japan has a strict policy on gambling. Under Article 185 and 186 (2) of the Penal Code, a
person who gambles or runs a gambling establishment will be criminally liable.6 The
exact definition of gambling is not mentioned in the Code, but it is widely known as
“betting a property on the contest whose outcome of the contest depends on chance.”
This clause relates to esports in two ways.

Banning betting on esports

First, the clause generally bans sports betting. Sports betting falls under the definition of
gambling since the result of sports is considered to be affected by chance regardless of
the difference in ability of players. Betting on sports is allowed only when legalized by
specific laws. As of today, only Soccer Toto (lottery), horse racing, powerboat racing,
motorcycle speedway and Keirin are legalized in Japan. Therefore, betting on esports is Cookie policy

banned by the Penal Code.

On 20 July 2018, the Japanese legislature passed a law to legalize casinos, and
therefore Japan will have several casinos in the near future. However, this is irrelevant to
esports betting because the government clearly mentioned that sports betting was not
included within the remit of the legalization7. Therefore, esports betting won’t be allowed
even when the Japanese casinos open.

Esports competitions

Secondly, the clause also affects esports competitions. If participants of an esports

competition pay registration fees to an organizer of the competition and its prize money
includes the registration fees, paying registration fees could be interpreted as betting
their property on a contest whose outcome depends on chance. Therefore, paying
registration fees to the esports competition constitutes gambling. In addition, if
participants are considered to be gambling, it follows that the organizer of the esports
competition runs a gambling place. Therefore, both participants who pay registration fees
and organizers who collect it are possibly subject to a penalty under the Penal Code.

Technically speaking, organizers may be allowed to collect registration fees provided

they use it for for the operating cost of the competition and not for prize money. However,
in order to avoid an investigation or a prosecution under the Penal Code, Japanese
esports competitions commonly have not collected registration fees. For example, the
Evolution Championship Series (EVO), a competition for the fighting game Evolution,
does not collect any registration fee when organized in Japan, whereas the Evo held in
Las Vegas does. In sum, the prohibition on gambling might affect the volume of prize
money but holding esports competition is not a problem as long as the issues mentioned
above are taken care of.

The Premiums Act

The Premiums Act relates to the amount of prize money to be paid, which used to be a
big hurdle for esports competitions to overcome.

This Act generally prevents business operators (Entrepreneur8) from providing

unreasonable premiums in connection with their transactions for the purpose of
protecting consumers. If the prize money of an esports competition is subject to the
Premiums Act, the amount of prize money cannot exceed the lower value of either (i) 20
times of the value of the transaction; or (ii) 100,000 Japanese Yen (this is around $900)9.
Accordingly, the Premiums Act has been controversial for Japanese esports
competitions.

Under the Premiums Act, the three following elements are required to constitute
“Premiums:10”
 i. “any article, money or other source of economic gain paid by the Entrepreneur”
(Economic Gain),

ii. “as a means of inducing customers” (Inducement) and,

iii. “in connection with a transaction involving goods or services which said
Entrepreneur supplies” (Connected Transaction). Accordingly, the main concern
was whether the prize money paid by the publisher of the game for competition
constituted Premiums for the publisher.

When considering whether the prize money of esports competition falls under the
Premiums for publishers, it seems to be undeniable that requirement (i) and (ii) are met
because: (i) prize money gives the Economic Gain to a winner, and (ii) it is enough to
induce players to play the publisher’s game because buying and playing the game is
essential to win the competition. On the other hand, it is unclear whether requirement (iii)
is met due to the vagueness of the language, especially when a provider of the
Premiums is a different entity from the Entrepreneur.

To make it clear, it is useful to refer to the Guidelines to the Premiums Act (Guidelines11)
publicized by the Consumer Affairs Agency (CAA), an administrative agency of the
Cabinet Office supervising the Premiums Act. Applying the interpretation of the
Guidelines12 to the esports competitions, even when a provider of the prize money (the
organizer of esports competition) is the different entity from the Entrepreneur (the
publisher of the game), the prize money is likely to be connected with a transaction of the
publishers as long as the publishers host, co-host or support the esports competitions for
the publishers of the game. Therefore, requirement (iii) can be satisfied, thus the prize
money can be considered “Premiums.”

This interpretation is arguable and depending on the kind of game or scheme of esports
competition the conclusions may differ. However, since an applicable loophole discussed
below became clear even if prize money falls under the “Premiums,” further discussion is
no longer necessary.

The loophole

The Guidelines mention that the Premiums can be paid when it is considered
“compensation for work13.”

As it was unclear from the Guidelines whether the prize money was compensation for
work for esports players, JeSU, a newly established national governing body of esports,
created a professional license system to make it easier to prove that the prize money is
“compensation of work.” After that, unofficial comment of the Chief of the Representation
Division of CAA appeared on a popular gaming magazine14 and mentioned the prize
money of esports competitions can be considered as compensation for the work and
high-level performances of esports players and it does not depend on whether the
players are professional or not.

Because it was an unofficial comment, the risk of the Premiums Act technically still
remains. However, many esports competitions have been operating on the assumption
that most of the prize money of esports competitions would be considered compensation
for the work of the esports players.

The comments of the Chief of the CAA resulted in real progress, and although there is
still some lack of clarity, the Premiums Act is not seen as big of a hurdle as it was before.
This improvement encouraged games publishers to put up increasingly large sums as
prize money for esports competitions. Indeed, the Japanese publisher Cygames
provided $1 million as a first-place prize in the Shadowverse World Grand Prix in 2018
and the League of Legend Japan League (LJL) in 2019 prepares 27 million Japanese
Yen ($245,000) as a total prize. These facts likely contributed to the big growth in 2018.
“Fueiho”
The “Fueiho” relates to mainly esports cafes (known as PC Bangs). It is an Act that was
passed to protect public morality and pure moral surroundings and prevent acts which
potentially inhibit the sound development of juveniles.

Under the Fueiho, “Game Centers” (i.e. amusement arcades - defined as a business
where the business owners equip the arcade with slot machines, TV games machines or
other entertainment facilities in a certain divided space and allow guests to play the
games15) are subject certain regulations. The Fueiho has regulated Game Centers since
1985 as amusement arcades have historically been used for gambling.

If a business is subject to the Fueiho, it must obtain permission to operate from the
Prefectural Public Safety Commission (PPSC) (Article 3.1) and comply with various
restrictions such as limitation of business hours or entrance limitations for minors. Among
these restrictions, one of the most influential regulations may be banning from giving
prize money to players when a competition is held in a Game Center (Article 23.2).

Esports Competitions

Esports competition venues may be subject to the Fueiho. However, there are ways that
they can circumvent its regulations. For example, venues like the Hyper X arena in Las
Vegas, which always equips PC games for guests and allows them to play, it is likely to
be categorized as a Game Center. However, as of now in Japan, competition venues
does not prepare the TV game machines for guests, thus the guests don’t play the game
provided by the organizer in the venue. Accordingly, the venue is unlikely categorized as
the Game Center. Indeed, many esports competitions have been held in Japan including
the LJL without being subject to the Fueiho. Therefore, with regard to the esports
competition, the Fueiho is not likely a big hurdle.

Esports Cafes

However, the Fueiho can be a big hurdle to the developmnt of esports cafes. Based a
literal interpretation, esports cafes are likely subject to the Fueiho under the definition of
Game Centers because the business owners provide TV game machines or other
entertainment facilities to guests and allow the guests to play the games. Like video
gaming cafés (known as PC bangs) in South Korea, esports cafes would contribute to
making esports more popular and help to improve players’ levels. Restrictions on esports
cafes may have a negative impact on the development of esports throughout Japan.

Despite the threat of the Fueiho, esports cafes have recently grown in number in Japan.
Although PPSC has not actually enforced the Fueiho rules on the esports cafés as of
today, the risk would cause a chilling effect on their expansion. This is an undesirable
situation for the market as a whole in Japan.

Since the purpose of the regulation of the Game Centers is to prevent gambling and
delinquent acts, in most cases the application of the Fueiho to esports competitions and
cafes does not really fit the intended purpose of the law. Therefore, it is expected that
Japan will legalize or at least soften the regulations of the Fueiho as it relates to esports.

3. Conclusion
2018 was a landmark year for Japanese esports. While several legal issues still remain,
the Japanese esports market increased more than 13 times and the word “esports” was
nominated as a national buzzwords,16 reflecting the growing prevalence of esports in
Japanese society. One of the reasons for the growth may be that the legal hurdles,
especially surrounding the Premiums Act, became less concerning. It is important to
consider these regulations when operating an esports business in Japan because they
are complicated and impactful. However, as the 2018 growth shows, the esports market
in Japan can and will continue to develop, even under the current regulatory environment
- although improvements to the current regime will only help further expansion. Given
Japans large and engaged gaming population, the author believe that the Japanese
market can continue to grow and become even more popular.

References
1 Newzoo, Japan Games Market 2018, August 1 2018,
https://newzoo.com/insights/infographics/japan-games-market-2018/, last visited May 13
2019.

2 Gzbrain, Gzbrain disclosed a market trend of esports in Japan: Estimate of esports

market is assumed to be 4.83 billion yen ($44.2 million), rapid growth of thirteen times as
the last year [title translated],December 11 2018,
https://www.famitsu.com/news/201812/11169046.html, last visited May 13 2019.

3 Id.

4 Jure Pannekeet, Global Esports Economy Will Reach $905.6 Million in 2018 as Brand
Investment Grows by 48%, Newzoo, February 21 2018,
https://newzoo.com/insights/articles/newzoo-global-esports-economy-will-reach-905-6-
million-2018-brand-investment-grows-48/, last visited May 13 2019.

5 Since the official translation is not published, I will use the Japanese abbreviation to
represent this law in this article. The direct translation of the law is “the Act on Control
and Improvement of Amusement Business.”

6 A person who gambles shall be punished by a fine of not more than 500,000
yen or a petty fine (Article 185 of the penal code) and a person who, for the purpose of
profit, runs a place for gambling … shall be punished by imprisonment with work for not
less than 3 months but not more than 5 years. (Article 186(2) of the penal code)

7C bb The Headquarters for Promoting Development of Specified Complex Tourist

Facilities Areas, Re: responds against the result of public opinions and expressions of
opinions at public hearings regarding “Report of The Council for Promoting Development
of Specified Complex Tourist Facilities Areas- for realization of an advanced touristic
country” [title translated], December 15 2017,
https://www.kantei.go.jp/jp/singi/ir_promotion/kokumintekigiron/bessi1.pdf, last visited
May 13 2019.

8The term "Entrepreneur" as used in this Act means any person who operates a
commercial, industrial, financial or any other business. (Article 2(1) of the Premiums
Act)

9 The Fair Trade Commission, “Guidelines for the Interpretation of the Notification on
Premium Offers by Lotteries or PrizeCompetition” [title translated], February16, 1996,
https://www.caa.go.jp/policies/policy/representation/fair_labeling/public_notice/pdf/100121premiums_8.pdf
last visited May 13.

10 The term "Premiums" as used in this Act means any article, money, or other kinds of
source of economic gain given as a means of inducing customers, irrespective of
whether a direct or indirect system is employed, or whether or not a lottery system is
used, by an Entrepreneur to another party, in connection with a transaction involving
goods or services which said Entrepreneur supplies (including transactions relating to
real estate; the same shall apply hereinafter), and which are designated by the Prime
Minister as such. (Article 2(3) of the Premiums Act)

 
11 The Fair Trade Commission, “Guidelines for the Interpretation of the Notification
Concerning Designation of Premiums, Etc.” [title translated], December 1 2014,
https://www.caa.go.jp/policies/policy/representation/fair_labeling/guideline/pdf/100121premiums_20.pdf
last visited May 13 2019.

12 Id. at 2.

13 Id. at 3.

14Kenichi Omae (interviewed and edited by an editorial department of Shuukan

Famitsu), “Interviewing to specialist regarding the legal regulation of esports [title
translated],” Shuukan Famitsu, at 126-7, Gzbrain, March 22 2018.

15 Article 2(1)5 of the Fueiho.

16 Magdalena Osumi, Japanese buzzwords of the year nominees reflect myriad

influences and issues, The Japantimes, November 7 2018,
https://www.japantimes.co.jp/news/2018/11/07/national/japan-buzzwords-2018/, last
visited May 13 2019.

 

Copyright notice
This work was written for and first published on LawInSport.com (unless otherwise
stated) and the copyright is owned by LawInSport Ltd. Permission is granted to make
digital or hard copies of this work (or part, or abstracts, of it) for personal use provided
copies are not made or distributed for profit or commercial advantage, and provided that
all copies bear this notice and full citation on the first page (which should include the
URL, company name (LawInSport), article title, author name, date of the publication and
date of use) of any copies made. Copyright for components of this work owned by parties
other than LawInSport must be honoured.

Views 9604

Tags: Esports | Governance | Japan | Regulation

Related Articles
Sports governance - the year in review 2018/19
Esports in South Korea – a short overview of the legal ecosystem
The growth of esports in India – a short review of the main legal and regulatory
challenges
Will the NCAA move to sponsor U.S. collegiate esports? The story so far and key issues
to watch

Author

Masakatsu Nagashima
Senior Associate, TMI Associates
Masakatsu is a Japanese attorney who joined TMI Associates in 2012. Since then, he
has represented various entertainment and sports clients in Japan (including esports
related clients). He graduated from UCLA School of Law LL.M. in 2018. He was a
speaker at the EBA (Esports Bar Association) Conference held in June 2019 in Los
Angeles.

mnagashima@tmi.gr.jp
Full Profile

Terms and Conditions Cookie Policy Sitemap

Subscribe Announcements

Copyright © LawInSport Limited 2010 - 2020. These pages contain general information only. Nothing in these
pages constitutes legal advice. You should consult a suitably qualified lawyer on any specific legal problem or
matter. The information provided here was accurate as of the day it was posted; however, the law may have
changed since that date. This information is not intended to be, and should not be used as, a substitute for
taking legal advice in any specific situation. LawInSport is not responsible for any actions taken or not taken
on the basis of this information. Please refer to the full terms and conditions on our website.