Gaming: chorus of concerns over ‘loot boxes’ and gambling

Kirstyn Malcolm, IBA Junior Content EditorTuesday 29 September 2020

The United Kingdom’s House of Lords has called for the government to act immediately to bring ‘loot boxes’ within the remit of gambling legislation and regulation, in a report published in July. Loot boxes – virtual packages in video games that provide randomised in-game upgrades such as new characters when opened – have caused concerns, including that they tempt vulnerable people into gambling.

Players pay to open loot boxes without knowing what’s inside. The BBC’s Money Box programme reported in July that, in some games, loot boxes have a win rate of as little as 0.01 per cent. The concern is that randomised loot box systems compel gamers to overspend to get the specific item they want, rather than being able to buy the item directly.

The House of Lords’ report, entitled Gambling Harm — Time for Action, states that ‘If a product looks like gambling and feels like gambling, it should be regulated as gambling,’ and advises that loot boxes be classified as games of chance and brought under the UK’s Gambling Act 2005.

The UK should ideally work to set up a bespoke regulatory framework that takes into account the unique nature of the games industry itself

Dr David Zendle
Computer Science Lecturer, University of York

The report draws on research that links loot box spending and problem gambling in both adults and adolescents, and which ‘suggests that either loot boxes cause problem gambling, or they exploit problem gambling among gamers to generate profits.’

The report calls for further evidence to guide future policy development.

Loot boxes have featured in video games since the early 2010s but consumer concern was highlighted in 2017 by the Star Wars Battlefront II controversy. Prior to its release, the game’s publisher, Electronic Arts (EA), announced that the game would feature loot boxes containing popular characters, who otherwise would only be available by playing the game for a significant period of time.

This approach led to player outrage, and resulted in EA removing all paid microtransactions a day before the game’s launch.

An EA spokesperson told Global Insight that the company does not ‘believe that anything in EA games can be construed as gambling.’ The spokesperson added that ‘EA actively polices and takes action against anyone found to be attempting to engage in secondary markets’. Further, the company actively encourages the use of parental controls on consoles, and the use of dedicated child and teen accounts on the PC, which restrict online spending.

The UK Department for Digital, Culture, Media & Sport (DCMS) subsequently began to investigate loot boxes. In June 2019, it held a series of interviews with several high-profile representatives from the games industry. This led to a September 2019 report, Immersive and addictive technologies, which stated that ‘loot box mechanics are integral to major game companies’ revenues and evidence that they facilitate profiting from problem gamblers should be of serious concern to the industry.’

The DCMS report’s recommendations included advising the Pan European Game Information (PEGI) Council to apply existing gambling content labelling and corresponding age limits to games featuring loot boxes. In April, PEGI announced it would inform consumers where games include ‘paid random items’.

Diane Helena Mullenex, Chair of the IBA Electronic Entertainment and Online Gaming Subcommittee and a partner at Pinsent Masons, believes ‘there are a limited number of options available: regulate [loot box] use either by the Gambling Commission or another regulator; ban them completely, which is probably impractical and would certainly lead to difficulties in enforcement; or expand the definition of “gambling” to include “loot boxes”.’

Christopher Rees-Gay, a senior associate also at Pinsent Masons, adds that ‘operators should be doing all that is possible to protect consumers and, in particular, children from potential harm.’

In 2018, Belgium concluded that loot boxes were a form of gambling and illegal under Belgian law. If the UK did the same, companies could be forced to pull their games from sale or redesign them so they can still be sold to players of all ages.

Mark Methenitis, Vice-Chair of the IBA Electronic and Online Gaming Subcommittee and an attorney and video game industry analyst, says ‘loot boxes can be structured in many different ways technologically, and so I’m not sure that classifying them as gambling in an all or nothing context makes sense.’

He believes ‘transferrable loot [is] more likely to pose a gambling issue than loot which would be fixed to one account.’

The Netherlands shares a similar view. In April 2018, the Netherlands Gaming Authority (Kansspelautoriteit or KSA) declared that some loot boxes are classed as legal and others as illegal, depending on whether the loot box’s content was transferable – and can be sold on.

However, Dr David Zendle, a computer science lecturer at the University of York whose research on loot boxes contributed to the House of Lords report, says doing this ‘may temporarily stop concern over loot boxes, but it does nothing for other emergent forms of game-related harm, and it does nothing for other potentially problematic convergences of gaming and gambling.’

Dr Zendle believes ‘the UK should ideally work to set up a bespoke regulatory framework that takes into account the unique nature of the games industry itself, rather than imposing regulation from another sector upon games’.

In the United States in May 2019, Republican Senator Josh Hawley put forward the Protecting Children from Abusive Games Bill, which would ban the sale of loot boxes to children. The bill has yet to advance further, however. Methenitis believes ‘the [gaming] industry is far more effective at self-regulation than the government can be. This bill from last May, while addressing the issue, shows how slow the government can be.’

He adds that ‘the simplest solution is one only the industry can implement,’ which is a move to systems with designated – that is, non-random – rewards or unpaid loot boxes.

However, Dr Zendle hopes for ‘a global regulatory standard [going forward, that] would solve problems with the games industry being forced to adhere to multiple competing standards across a fragmented global regulatory landscape.’ However, ‘given the difference in approaches to regulation across – say – the US, China, and the UK, such a universal standard seems unlikely to exist in the short term.’