On a weekday afternoon at the Sands, a gleaming casino on Macao’s waterfront, long lines have formed at the blackjack tables. Bettors shove each other to find vacant seats; as soon as one man grabs a stool, he noisily plops down a pile of chips. The view from the second floor of the 200,000-square-foot gambling temple reveals similar overflow crowds in a long, wide room packed with tables for blackjack, craps, and Asian dice games. Once they finish gambling, visitors take in a Las Vegas-style show or visit a nearby mall, where they gaze at shops overflowing with Cartier watches and Louis Vuitton handbags. More shops will be opening soon, as Macao—and many other parts of the world—create tourism industries centered on legalized gambling.

Although Macao first legalized gambling back in the 19th century, until recently the former Portuguese colony’s casinos remained small, seedy affairs—dimly lit rooms where lone men gambled away their hours. But over the past five years, Macao, now a special administrative region of China, has transformed itself into a gambling mecca. In 2004, the Sands, owned by Las Vegas tycoon Sheldon Adelson, became the first Western-operated casino to open there. Steve Wynn, developer of the Bellagio in Vegas, opened his $1.2 billion Wynn Macau in September. Today, the enclave has 23 foreign- and domestic-owned casinos, with many more on the drawing board. Last year, Macao even outstripped Las Vegas with $6.8 billion in casino revenues, compared to Sin City’s $6.5 billion. “It’s a no-brainer,” Adelson told reporters last September, explaining his plans to expand in Macao, which is nestled next to Hong Kong and is within five hours’ reach of more than 2 billion potential tourists. “It’s like bringing a blanket to someone on an ice floe, or bringing water to someone in the...