Loot Boxes and Gambling

What is a loot box?

A loot box in video games has several different forms. They are items in-game that can either be randomly dropped through progression or purchased with real-world money. They can then be opened (usually accompanied by flashy animations and lights for spectacle) to give the player some random items or goods to be used in-game. These goods can be anything from cosmetics, such as skins in Overwatch or new weapons and characters like in Mass Effect 3. These items often have a rarity too, with some items being really difficult to get. This requires the player to either get lucky or otherwise obtain or purchase many of these loot boxes to get the item they want. In this sense, you could say it’s similar to opening a pack of baseball or Pokémon cards, and an extension of random loot drops in MMORPGs (Massively multiplayer online role-playing games). 

A Gachapon Machine
Attr: “Capsule Toys” by jpellgen (@1179_jp) is licensed under CC BY-NC-ND 2.0

An early example of a loot box system would be the “Gachapon ticket” item in the Japanese version of MapleStory. In June 2004, players could buy these tickets for 100 Japanese yen, and then use them in-game to get random items (much like a real-life gachapon or capsule toy machine). Another early example would be ZT Online, a Chinese free-to-play game. Players would often use internet cafes or copyright infringement in order to play games that they couldn’t afford. Therefore, to still make money, a loot box system was implemented; and once everyone saw how profitable this was, many other games and studios rushed to do the same.

This led to the systems being implemented in mobile games. One of these forms is “gacha games”, which came about in the early 2010s in Japan and replaced the aesthetic of opening a box or chest with a digital gachapon. The best-known early example would have to be Puzzles & Dragons, which became the first mobile game to reach $1 billion in revenue. On another level, there was “kompu gacha” or “complete gacha”, which gave players a grand prize if they managed to collect a complete set of items.

This practice soon hit the West, with Valve’s Team Fortress 2 being a good example. Upon normal game progression, players would earn crates, which would have prizes that they could earn by grinding through the game or purchasing keys to open these crates. However, criticisms and concern from players grew as more studios and games implemented these systems. 2017 could be seen as the tipping point with several triple AAA games from notable franchises such as Call of Duty, FIFA, League of Legends and Star Wars Battlefront using these systems in some form. Their abundance renewed discussion on their legality amongst consumers and governments across the world, as players grew frustrated at even more content being locked behind paywalls and people wary of the dangers these systems present. 

Loot boxes have been compared to gambling for a long time. And, considering how large the video game market is nowadays as well as the proportion of teenagers in this market, this should be cause for concern. As there is already a lot of literature exploring the nature of loot boxes and potential gambling-related risks, I want to take a brief look at the different types of legislation different countries have around this trend in video game design.

Loot Boxes and Gambling

Before we see how different countries tackle this issue, we need to understand the link between loot boxes and gambling. Gambling is the activity of playing a game of chance for either money or some other stakes. With this definition, loot boxes could be defined as gambling, as you pay real-world money for a chance to get something. The fact that these practices exist in video games shows how gambling can now exist in virtual environments.

Two major differences blur the differences between explicit forms of gambling, such as casinos, and loot boxes. For one, when you gamble at a casino, there is a good chance that you will leave empty-handed. In contrast, you always gain at least something from opening a loot box; however, the stuff you get (rarely) has real-world monetary value, and its in-game value varies. Games often class the rewards you would get from a loot box by rarity. Opening a loot box means you’ll always get something, but whether it’s something that’s of value to you is up to chance. For another analogy, loot boxes are similar to opening Pokémon or football or baseball cards (or even Kinder eggs). You pay money to get a random good, and the goods in those examples are either purely cosmetic or provide a competitive advantage in their respective card games. However, you always get a card in a pack of cards, and you always get a toy from a Kinder egg. In the late 1990s to early 2000s, there were several court cases in the US on whether these trading card packs could be considered gambling. The courts asserted that trading card packs couldn’t be considered illegal gambling for this very reason.

This leads to the second difference that the prizes or goods won from loot boxes don’t (usually) have real-world value. Hence, the UK’s Gambling Commission doesn’t define loot boxes in video games as gambling, as the goods from loot boxes only have a virtual value in their respective games. CS:GOs skin gambling scandal is a controversial example in the game’s history that highlights the opposite. The in-game cosmetic skins come through loot boxes, which are either randomly dropped or can be bought with real money; and can be opened with real money to win skins. These skins could then be gambled on third party sites for real money. These sites were unregulated, so minors or players in countries such as the US (where traditional online gambling is illegal) could use these sites. 

However, while developers can use this technicality to justify this kind of model, it would be foolish to say that there aren’t striking similarities between loot boxes and gambling by design and the potential harm it could bring. ‘Problem gambling’ is a form of such gambling-related harm that most people associate loot boxes with, and refers to disordered, extreme and excessive gambling activities that lead to problems in other aspects of life such as health, relationships or career. There have been several studies correlating loot boxes and problem gambling in both adults and adolescents. Thus, regardless of whether it perfectly fits the definition, by design, these loot boxes can and have caused gambling-related problems and, as such, regulations should be in place to protect those most vulnerable. 

Different Legislation

There are a few main attitudes that countries take towards legislation on loot boxes. One is to not legally recognise them as gambling for reasons explained by gambling regulation bodies such as the UK Gambling Commission, France’s ARJEL and New Zealand’s Gambling Compliance Office. Because of the aforementioned reasons, these regulatory bodies cannot recognise loot boxes as gambling based on their countries’ legislation. It doesn’t mean that their governments don’t think it’s a problem though; both the UK and France have reported that there are some parallels between loot boxes and gambling. The Gambling Commission’s 2019 Young People and Gambling Report found that 44% of its participants have paid money to open loot boxes and that 6% of its participants have bet with in-game items either privately or on external sites. Nonetheless, their approach thus far has been to wait for and allow self-regulation to occur by the relevant bodies, such as PEGI. Indeed such action has happened, with PEGI putting warning labels on games that have such in-game purchases.

Recently, the UK  has taken some steps that might suggest an update to legislation. The House of Lords’ Gambling Committee released a report that loot boxes should be regulated under gambling laws and that the UK’s 2003 Gambling Act isn’t up to date with the current market. 

“If a product looks like gambling and feels like gambling, it should be regulated as gambling,”

from the House of Lords Gambling Committee report

The UK government has also launched a call for evidence on this issue to further examine the concerns that it could lead to or encourage problem gambling. 

China itself has very strict gambling laws (excluding Hong Kong and Macau), with any form of gambling being considered illegal. China also has the largest video game market in the world, so despite the strict gambling stance, the legislation in China regulates loot boxes in such a way that doesn’t limit this market. By law, all online game developers have to publicly release the random draw results for all virtual items and services bought with money. Playing games with these elements or purchasing anything in-game requires a valid ID, and there is a per-transaction limit before a two-step payment confirmation is triggered. Posting all the probabilities publicly is meant to prevent the gambler’s fallacy, and the extra transparency and steps provide additional safeguards to prevent accidental payments and addiction from developing (particularly with young people).

Japan was one of the first regions to regulate microtransactions. Kompu gacha was banned in 2012, after parents’ complaints that it was akin to gambling. Indeed, the practice was seen as lucrative and exploitative; as you can imagine the chances of completing such a set was incredibly low. Regular gacha, however, hasn’t been banned, but after the ban on kompu gacha, several self-regulatory measures have been established, which have become best practice despite having the same status as legislation. These measures include disclosing the probability rates of items and warnings/reminders for in-game purchases amongst others.

The US formally doesn’t have any regulations regarding loot boxes or this type of microtransaction. In terms of self-regulation, the Entertainment Software Rating Board or ESRB has introduced labels to indicate when games have randomised elements as part of the in-game purchases to further inform players and parents. On a federal level, nothing seems to be happening besides the proposal of some motions and acts in the past. However, some states have taken action. Minnesota has passed a bill which would prohibit games with loot boxes that can be bought with real money to anyone under 18.

Unlike the UK and New Zealand, countries such as Belgium and the Netherlands have determined that the loot box system in some games do violate their laws on gambling, although they did draw slightly different conclusions from their research and thus have slightly different preventative measures. The Belgium Gambling Commission declared loot boxes as gambling in their Research Report on Loot Boxes in April 2018, concluding that it fit the description of a game of chance and that the industry’s self-regulation at the time was inadequate. This meant that those game developers had to either remove these elements from their game (which is what Blizzard did for Overwatch) or withdraw their games from Belgium (or else, face prosecution). In the games that complied, such as Overwatch and Heroes of the Storm, loot boxes can’t be bought with real-world money, although they can still be won and opened through in-game progression. Now, the Netherlands Gaming Authority acknowledges that loot boxes were addictive in design and mechanics similar to a slot machine, which could encourage vulnerable groups like minors to play these games of chance. Thus, they demanded that games with such systems remove their “addiction-sensitive” elements, such as the flashy animations when opening them or the ability to open many in quick succession. However, while Belgium banned the ability to purchase loot boxes so as to comply with its gambling laws, the Netherlands only prohibited games where the loot boxes had real-world value. You could sell players or teams on FIFA 18, which the authority concludes goes against its own gambling laws.

In conclusion, loot boxes aren’t a new thing in today’s video game market. They’ve been around for a long time in different forms. Loot boxes are one of the many examples where the law tends to be outdated; it is yet to catch up with the modern world. The difference between legislation and action different countries have taken only highlights this. As a result, this mode of monetising video games is (still) a grey area in many parts of the world. We’ll just have to wait and see when and how the law will catch up.

This Post Has One Comment

  1. Manjiri Dighe

    Commendable article that points out the complexities of regulation of online gaming and their wider impact on society.

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