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Video Game Loot Boxes Spark Concern: Is It Gambling?

Image of a Loot Crate

Even as online poker rooms and casinos have begun to incorporate gamification elements derived from popular video game titles, so too have traditional computer game producers added randomized features to their offerings. One hot-button development in this arena is called the “loot box” – a package that players can purchase that contains a random assortment of in-game goodies. While they're purely optional and not required to advance through the storyline, the fact that they allow users to spend real-world cash for the chance-based opportunity to acquire virtual goods has raised alarm bells among government authorities and anti-gambling watchdogs.

How Do Loot Boxes Work?

Information Button

The current debate amped up considerably with the release of “Middle-earth: Shadow of War” and its loot chests by Warner Bros. Interactive Entertainment in October 2017 and “Star Wars: Battlefront II” by Electronic Arts (EA) about a month later. However, previous games also debuted similar functionality, like Blizzard's “Overwatch” and Valve's “Counter-Strike: Global Offensive” with its weapon cases. Although there are differences in the nomenclature and the way the mechanics of these various items work, there are a few commonalities among them:

  • The gamer can pay to obtain them although a few can sometimes be found in-game for free
  • No loot box fails to pay out entirely, but some are more valuable than others
  • The contents are at least somewhat randomized
  • The loot found within lets the player advance more quickly in the game
  • Purchase of loot boxes is not required to complete the game

Government Responses

Stylized Government Building

Paying real money for the chance to win something of value is the traditional definition of gambling, and some regulatory bodies feel that loot boxes are an example of this. All interested parties generally agree that loot boxes do indeed represent an investment of real funds, and they unquestionably contain an element of chance. What's in dispute is whether or not virtual merchandise fulfills the criteria for being considered goods of value.

United States

USA Flag Map

In October, the Entertainment Software Rating Board (ESRB) emailed video game website Kotaku.com expressing its view of the matter. “ESRB does not consider loot boxes to be gambling,” the email read. “While there’s an element of chance in these mechanics, the player is always guaranteed to receive in-game content (even if the player unfortunately receives something they don’t want).” The ESRB is a U.S.-based voluntary gaming ratings association. Although its dictates don't carry the same weight as governmental laws, this organization is the de facto watchdog over video gaming content in the United States.

On Nov. 21, a member of the Hawaii State House of Representatives, Chris Lee, released a video statement in which he said, “This game is a Star Wars-themed online casino designed to lure kids into spending money,” referring to EA's “Star Wars: Battlefront II.” Amusingly, he also quipped, “It's a trap,” an allusion to a line spoken by the character Admiral Ackbar in the film “Star Wars: Return of the Jedi.” State Representative Lee came out in favor of passing legislation within a year that would prohibit the sale of loot box games to minors. Hawaii has some of the toughest anti-gambling restrictions of any state, so it's no surprise that it's at the forefront of this kind of activity.

United Kingdom

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In the United Kingdom, the Gambling Commission posted its decision on loot boxes on Nov. 24. Its reasoning was diametrically opposed to that of Hawaii's leaders. It explained that:

A key factor in deciding if that line has been crossed is whether in-game items acquired ‘via a game of chance’ can be considered money or money’s worth. In practical terms this means that where in-game items obtained via loot boxes are confined for use within the game and cannot be cashed out it is unlikely to be caught as a licensable gambling activity.

This indicates that the United Kingdom doesn't view loot boxes as a form of gambling. Nevertheless, loot box winnings in some games can, in fact, be traded in online marketplaces for fiat cash, and it's unclear whether or not the possibility of such transactions would shift these boxes into the gambling category. Further muddying the waters is the key detail that such sales are conducted between individual players, and the video game company merely operates the forum for these exchanges.

Australia

Australia Flag Map

The situation in Australia is mixed. A university student emailed the Victorian Commission for Gambling and Liquor Regulation and posted the response on Reddit. Strategic Analyst for the Compliance Division Jarrod Wolfe explained that loot boxes are indeed seen as gambling by the authorities in Victoria. He gave a somewhat confusing rationale, which included the following:

However, the idea that (genuine) progression in a game could be reliant on the outcome of a random number generator is at odds with responsible gambling and the objectives of our acts.

There are whole categories of games wherein progress is definitely “reliant on the outcome of a random number generator” – for instance, role playing games, sports simulations, and turn-based strategy. We wonder whether Mr. Wolfe believes these styles of gameplay to also be forms of gambling.

Meanwhile, an official at the Queensland Office of Liquor and Gaming Regulation holds an opposing opinion. Principal Probity Officer Robert Grimmond expressed hesitation in giving a definitive answer, but he did opine that a loot box would have to permit the player to wager in-game with real money for it to be classified as gambling.

The federal lawmakers in Canberra haven't yet issued any solid guidance on this subject. The Australian Communications Media Authority noted that loot boxes haven't hitherto been thought of as gambling but that it would be monitoring them and other video gaming features that might bear certain similarities to gambling. The recent Interactive Gambling Amendment banned online poker throughout the country, so it seems as though the government is going through a prohibitory phase that doesn't augur well for loot boxes.

Other Jurisdictions

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There are plenty of other governments around the world that are investigating the phenomenon of loot boxes and whether or not they should count as gambling. For instance, Belgium's gambling authority has announced its intention to press for EU-wide rules that would bar this gaming mechanism. In the Netherlands, the Gaming Authority warned the public about loot boxes and is currently conducting more research on them.

Defenses by Game Manufacturers

Metal Shield

It's only to be expected that game creators take exception to the idea that their products contain gambling. While the average age of video gamers has been steadily rising, those under 18 still comprise a significant fraction of the customer base. It's clearly within the business interests of the firms that distribute these games that their products not be viewed as promoting real money gambling behavior.

EA sent a statement to Gamespot in which it said:

The crate mechanics of Star Wars Battlefront II are not gambling. A player’s ability to succeed in the game is not dependent on purchasing crates. Players can also earn crates through playing the game and not spending any money at all.

Blizzard President Mike Morhaime, in an interview with GameInformer, claimed that his enterprise's “Overwatch” game “doesn't belong in that [loot box] controversy.” He elaborated, “There’s an element of converting back into real-world value. I think that’s a critical element, and that element does not exist in Overwatch loot crates.”

Player Backlash

Crowd of Protesters

In any confrontation between game makers and public officials, one would normally expect ordinary gamers to take the side of those who develop the games they love, but in this case, the reverse is true. Loot boxes are derided by most consumers as a “pay-to-win” system. That is, those who can afford to buy them have a greater chance of victory than the average Joe. The entire arrangement is widely seen as a money grab by unscrupulous organizations that care more about their next quarterly financial results than the experiences of the players and the integrity of the industry.

Outrage against the loot boxes contained in “Star Wars: Battlefront II” in the wake of its release caused EA to disable the feature. The firm contended that this was only temporary and that loot boxes would return after being adjusted and rebalanced. This is likely an attempt at saving face rather than admitting ignominious defeat. It's hard to see how EA could reintroduce this aspect of the game without generating even more controversy unless it were nerfed to such an extent that it became basically irrelevant.

Professional Rakeback's Take on Loot Boxes

Pen Writing on Paper

The gambling oversight divisions of various administrations around the world were not put in place to monitor the doings of video game enthusiasts. This latest movement to police private gamers' monetary transactions is a worrisome example of governmental overreach. While the stated goals of officials, such as protecting children from gambling-related harm, seem plausible and even praiseworthy, this is what politicians always say as they restrict our freedoms one by one.

The ability to gain extra bonuses from purchases in a randomized fashion is a time-honored practice in the retail trade. It serves to heighten excitement for customers and sometimes delivers unforeseen surprises. After all, what else is the reasoning behind the popular McDonald's Monopoly promotion and the free prize that used to come with boxes of Cracker Jack? Closer to the sphere of video gaming are collectible card games, which are probably the nearest real-world equivalent to loot boxes. The customer pays a set amount for the chance to obtain a stated number of cards, some of which are rarer and more desirable than others. Nobody knows in advance which specific cards he or she will get; that's part of the fun. Will such beloved games as Magic: The Gathering and Yu-Gi-Oh! one day be restricted to those over the legal age for gambling?

This is not to say that it's only the authorities at fault for trying to clamp down on our entertainment options. Oh no; there's plenty of blame to go around. The video game companies are certainly greedy, and by blurring the line between gambling and old-school video gaming, they're courting trouble. They've been wandering aimlessly into a murky swamp of their own design, and they have set themselves up for possible future lawsuits, fines, and other unpredictable liabilities. At the very least, they'll have to do extensive (and expensive) legal analysis to determine what kinds of after-sale micro-transactions are legal and illegal in various localities around the globe. Some of them may eventually decide that the entire model is more trouble than it's worth and transition back to the former system where customers simply make a single purchase and then can access all the game content without paying premiums for extras. We're not saying that this is necessarily a bad thing, but it ought to come about through normal free market pressures rather than via commandments imposed by lawmakers from on high.

We can foresee a scenario in which gamers will be divided into three tiers: those who play without springing for loot boxes, those who eagerly buy them, and those who wish to purchase them but can't because their governments have deemed them illegal. This is a formula for arguments and flame wars as each category of customers attacks the other two. Sales will decrease as people get frustrated and start looking for other forms of recreation.

Finally, the players themselves are somewhat responsible for this situation too. If loot boxes are so hated by the player community, then why are game builders so eager to incorporate them in their titles? It's ultimately because they think they won't be punished for it in the marketplace. The recent protests against EA's inclusion of loot boxes in “Battlefields II” were heartening to see. Unfortunately, such instances of gamers expressing themselves so vocally and effectively are rare. As long as shoppers continue to vote with their wallets for games with loot boxes and other gimmicky monetization schemes, we're afraid that they're here to stay for good or ill – at least in those parts of the world where they're not positively proscribed by law.

Comments

What if something like this were to take place in the poker world? That is to say, what if government decided to meddle in the affairs of law abiding citizens who simply wanted to play a game? Oh wait, this has already happened and the results are quite poor. Regulation and market segregation has resulted in the fragmentation of online poker from a single, global player pool into two dozen different country specific markets and what is left of the ROW (Rest of World) player pool. Game liquidity is down, prices are up (even in de facto ways like the loss of VIP rewards at PokerStars), and it is the consumers and gamers who are suffering needlessly.

We should let the free market decide. DECENTRALIZE EVERYTHING.