Director of Global Business Development for EVO sums up how the Japanese leg of the Evolution Championship Series came to be and what's next for the event. (6:51)

TOKYO -- It wasn't that long ago that esports athletes in Japan were walking home empty-handed.

Umebura 27, a Super Smash Bros. for Wii U tournament in 2017, had 224 entrants, with the winner, Yuta "Abadango" Kawamura, taking home the gold but no actual prize money to show for it. Since then, esports in Japan has been progressing rapidly. Case in point: Evo Japan. The fighting game tournament series is in its sophomore strut, and through the use of clever legal loopholes and proper sponsorship support, has been able to get tens of thousands of dollars to its winners during this weekend's tournament.

But why is it that the Japanese have had to jump through hoops to get prize money in competitions? Well, that's because winning certain types of prize money is illegal.

When fans think of the esports industry, they picture sellouts of massive arenas like Madison Square Garden and the Bird's Nest in Beijing. But in Japan, the birthplace of Mario, Zelda, and Donkey Kong, esports has been surprisingly nascent, and an industry that's continually inking television deals and doling out prize pots in the millions has largely left Japan behind.

The reason why lies in centuries of government regulation of gambling, from the shogunate to the present day, and a country that has only recently begun to rethink those laws.

On a blistering summer afternoon in Tokyo, Ichiro Tanioka, the foremost expert on gambling laws in Japan, sat at the Hotel New Otani. The president of Osaka University of Commerce weaved his way through the complicated Japanese relationship with betting.

According to some of the country's other history buffs, anti-gambling laws in Japan date to the 1500s when nobility played card games, with hanafuda (flower cards) being the most popular. When Portuguese missionary Francis Xavier arrived in 1549, his sailors brought with them the 48-card hombre decks. The European cards quickly gained popularity, and gambling rose alongside it. The shogunate eventually banned gambling and foreign playing cards in 1663, but that didn't stop people from playing. And this began a cat-and-mouse game between the ruling class, which would ban new games, and the working class, which would introduce new ones.

In 1886, the Meiji government legalized hanafuda playing cards after the country opened up to the West. A man named Fusajiro Yamauchi saw this as an opportunity to open his own hanafuda card-making company.

And so, Nintendo Koppai was born.

Yamauchi would hand make his hanafuda cards, painted on mulberry tree bark. Parts of the Yakuza were drawn to Yamauchi's designs and began tattooing themselves with his art. As the imagery of hanafuda became more closely aligned with the Yakuza, law-conscious citizens backed away, not wanting to be associated with the mob.

The Japanese government introduced Act 45 of its penal code on April 24, 1907. It forbade gambling unless it was used for "momentary entertainment." A person who ran a gambling ring for profit could face up to five years of imprisonment.

After World War II, mahjong started picking up in popularity. Tournaments started to spring up, and much like modern Super Smash Bros. or Street Fighter events, entrance fees were divvied out to the winner. However, Act 185 of the Japanese penal code, introduced in 1882 and reconfirmed by the Supreme Court in 1950, is vaguely worded, which gave law enforcement authorities discretion on how the act should be interpreted.

"The police department forbade them," Tanioka said. "They were afraid of it extending to more heavy gambling."

Because of the police department's liberal interpretation, entrance fees were not allowed, ultimately making it impossible for skilled players to profit. The natural course of action was for mahjong players to take the case to court, but "all of them have been in favor of the police," Tanioka said.

Fans look on during the Street Fighter V tournament at Evo Japan on Saturday in Tokyo. Although the country's ties to gaming are known throughout the world, Japan's footprint in esports is small, in part due to legislation that hampers prizing for events. Photo by Thomas Tischio

While most forms of gambling are illegal, certain exclusions are extended to horse racing and motorsports, including powerboat and motorcycle speedway racing. As technology developed, the Yakuza began installing video poker machines, which competed directly with the dubious, but legal, pachinko machines.

The Japanese government caught wind of this new method of gambling. The legislature interpreted the powers of Act 185 of the penal code to go after video-based gambling and extended to video poker. In 1979, 1,814 people were arrested for video-based gambling, and that number shot up in 10,353 in 1982, according to Japanese records.

Along the way, video game prizing got lumped in with laws initially created to go after the Yakuza.

During the mid- to late-1900s, Nintendo Koppai was trying to diversify beyond playing cards. It was during a trip to the world's largest playing card manufacturer in the United States in 1963 that Hiroshi Yamauchi, grandson of Fusajiro Yamauchi, decided the company needed a change.

He shortened the company's name to Nintendo and focused on video games. But in an ironic twist, Nintendo, the company that was founded on gambling, viewed competitive play with scorn, seeing it as an affront to its family-friendly image. The company has outright refused to offer prize pools for local Smash tournaments, one of the few legal ways prizes can be offered in Japan: The government classifies those contributions as marketing expenses but caps the amount at around $1,000.

All these factors, in small but significant ways, led to esports tournaments in Japan that lacked prize money. Entrance fees were taken only to help pay for costs with any additional profits held for the following year's event.

Without any monetary reward from playing, even top Japanese players were forced to keep gaming as a side hobby, one that needed to be supplemented by a working income.

Five organizations have a hand in esports in Japan, with JeSPA, or the Japanese Esports Association, representing the players.

It was formed after the Japan Olympic Committee got a call from Dentsu, an advertising and public relations company. Dentsu explained to the JOC what esports was, and both organizations decided to make a joint group that could oversee the burgeoning field. That's when Dentsu, Sony Music Communication and Enterbrain decided to make a preparatory committee around esports, which lasted from 2006 to 2009.

The group was put on ice, but with the continued growth of esports worldwide, Dentsu created JeSPA in 2015, in partnership with Nissan, Ticket Pier and Eon Entertainment.

In June 2015, Dentsu also trademarked the world "esports" in Japan. According to JeSPA secretary general Seiichiro Kakehi, it wasn't to put a stranglehold on the term or the industry.

"Dentsu made the trademark to allow others to use it," Kakehi said. "To prevent others from monopolizing on the word."

Dentsu is known in the country for some of its shady business dealings, according to reports from the Japan Times, and high rate of employee suicide, according to a BBC report, which cast doubt on the organization's intentions in esports. Although JeSPA faces its share of skeptics in the Japanese esports community as a result, its executives said they want to create a vibrant esports network around Japan in which players can compete as a part of one circuit.

There was a problem, though. Along with JeSPA, there are four other organizations with hands in esports. This includes the eSports Promotion Organization, Japan eSports Federation, video game ratings board CESA and the Japan Online Game Association. Having so many hands in esports was making it difficult to coordinate any plan of attack on reforming the space. So in 2018, JeSPA, JeSF and the eSports Promotion Organization came together to form the Japanese Esports Union, or JeSU.

With streamlined representation, JeSU began moving quickly and installing esports hubs around the country. By 2022, JeSU plans to have a nationwide esports league. Right now, games like Guilty Gear, BlazBlue, Street Fighter and Puyo Puyo Tetris are among the titles that will have a Japanese circuit.

The matter of pay is under negotiation as well. JeSU's first course of action was to introduce player licenses as a method to get around Japan's anti-gambling laws.

"In order to raise the cognition and status of [pro gamers], we thought that we needed an item that can make the pro gamer accepted by everyone," said Akihito Furusawa, the auditor of Japan eSports Federation.

Competitive licenses are used in all sports, including golf and boxing, in the country. This is how the Japan Shogi Association, an organization that professionalized play of the traditional Japanese board game, has gotten around the 100,000 yen prize limit set by the government. The 11th Asahi Cup champion, Souta Fujii, walked away with 7.5 million yen, or roughly $69,900, in 2017.

Evo Japan offered big money for its prize pools, but few events in the country come close to that event's numbers -- and most can't even offer any cash. Photo by Thomas Tischio

Licenses put top players in a completely separate category from everyone else. It's a workaround that licensees argue will prevent any chance of corporations exploiting the general population from buying into events with little chance of winning.

Video game publishers that are a part of JeSU, like Capcom or Sega, control who gets licenses. For Capcom, any competitor to place in the top eight of a tournament will be granted a license. For Sega, it's more stringent, as only players who break into the top four at Puyo Puyo Tetris events earn a license. And because of how competitive Puyo Puyo Tetris is, often the same four players make it to the end of the tournament, limiting potential prize payouts to fifth- to eighth-place entrants.

Only 130 players in the country have been granted licenses to date. Although they act as a stop-gap, the papers don't solve the overarching problem of Japan's broad gambling laws. But that could change due to Japan's exploding tourism industry.

Since 2010, tourism in Japan has more than tripled, bringing nearly $40 billion in revenue to the country, according to Forbes. The tourism industry has been a huge growth sector, with many local businesses catering to foreigners and making their wares more English-friendly or adhering to certain religious or dietary restrictions. Politicians and businesses want to continue riding this wave.

The Japanese diet approved a new law in 2016 that allows for the building of casinos to compete with large casino resorts in other parts of Asia, like in Singapore or South Korea. But doing so would mean that certain Class II games, such as poker and blackjack, would need to be legalized.

Games like mahjong are generally interpreted as Class II as well. So if mahjong can be pulled out of the gambling definition in Japan, then so could Street Fighter.

Even among those successes, though, doubts creep in. Evo Japan, despite its larger-than-usual prize pools, took place in Fukuoka, a town on the southern island of Kyushu. Compared to the 2018 event, which was held in Tokyo, entrant numbers were much smaller, with games such as Street Fighter down 1,388 players and Guilty Gear down 971.

Some blamed the venue change. Others pointed to poor marketing. And there was the unfortunate omission of Dragon Ball FighterZ and the newly released Super Smash Bros. Ultimate, popular games that were blocked by the titles' rights holders, Toei Animation and Nintendo, respectively.

Video games have largely been seen as toys for children by Japan's older population. That persists even today, with esports athletes having to fight that stigma to prove that a career can be created around gaming.

Japan is a country rooted in customs, and that's why traditional games such as mahjong and go aren't treated with the same scorn. And opinions of the older population will be critical to the survival of esports because older people tend to vote and have control of the government in the country. By 2020, half of all Japanese women will be over the age of 50, according to the country's census numbers, far past birthing age. The elderly are quickly outpacing younger age groups as well; birth rates in Japan had dropped for 37 years in a row as of 2018, according to the Japan Times.

But things are changing. The word "esports" has entered the Japanese lexicon and was considered one of the most important words of 2018. With more talk of the International Olympic Committee and Japan Olympic Committee recognizing some form of video game competition, competitive gaming is beginning to be normalized.

"In order to raise the cognition and status of [pro gamers], we thought that we needed an item that can make the pro gamer accepted by everyone." Akihito Furusawa, auditor of Japan eSports Federation

In 2019, the city of Tokyo announced it would be hosting a two-day, $460,000 esports event. It is being coordinated by JeSU and is expected to take place this summer. In light of the upcoming 2020 Olympics, Tokyo is looking toward the benefits of the city becoming a hub of global competition.

Even with all the bureaucratic snafus and cultural hurdles, esports in Japan is heading in a positive direction, albeit somewhat slowly. If Japan can tap into the creativity that sparked a gaming revolution that transformed the world -- and have publishers lighten up on the use of its games for competition -- then cities like Tokyo can become a major hub for esports in Asia.

Politicians and game developers just need to be willing to roll the dice.