Loot Boxes and Potential Regulation as a Form of Gambling

Author: Jennifer Guillen, J.D. Candidate, 2023

INTRODUCTION

Microtransactions have become a prevalent feature of many popular video games such as FIFA, Fortnite, League of Legends, and Overwatch through their use of loot boxes. In their most common form, players exchange real money (or earned in-game currency) for a virtual crate or box that provides randomized rewards with varying levels of rarity, such as cosmetic skins for characters, improvements, and equipment.  Loot boxes are an incredibly lucrative source of revenue that created an estimated $30 billion in sales in 2018 for the gaming industry and are projected to reach $50 billion in revenue by 2022.¹ EA alone made $800 million in 2018 from loot boxes in its FIFA franchise.²

This blog post will briefly examine loot boxes as a form of gambling that remains largely unregulated, despite a large portion of its consumers being minors, different responses to loot boxes around the world, and the potential regulation of loot boxes.  

CONCERNS ABOUT LOOT BOXES

Like recognized forms of gambling such as slot machines, loot boxes exchange money for something of value, outcomes are determined by luck instead of skill, rewards are randomized, and the odds of drawing rare rewards diminish rapidly, often leading players to engage in excessive spending. While it is unclear whether loot boxes actually create gambling problems or merely exacerbate existing ones, many countries have accordingly started taking a stricter stance on regulating loot boxes.³

In particular, advocates for regulating loot boxes in video games are worried about their effect on children, who are less likely to recognize the potentially addictive and exploitative nature of loot boxes. In games, the gambling aspects of loot boxes are less immediate, unlike a visit to a casino where the gambling-nature of machines and games is obvious, and normalizing participation in gambling-like behavior from a young age may create unhealthy habits that can contribute to serious gambling problems later in life.

For example, a 2019 Royal Society Open Science study, which surveyed over 1,000 16- to 18-year olds, found significant links between spending money on in-game loot boxes and “problem gambling” in older adolescents.⁴  The article hypothesized that for many adolescents, loot boxes may serve as a “gateway to problem gambling” and continued involvement in gambling activities which “may become disordered.” Of course, it is, again, important to keep in mind that this relationship is correlational and that it is also possible that the study participants who were more likely to spend large amounts of money on loot boxes may already have been problem gamblers or had an otherwise disordered relationship with gambling. This article is however just one of many recent publications that have drawn links between children, gambling problems, and video game loot boxes.

LOOT BOXES AROUND THE WORLD

EU: Since 2018, the Pan European Game Information (PEGI) rating system, the European equivalent of the United State’s ESRB, has assigned “In Game Purchase” designations to games, and as of this year has mandated the disclosure of additional information about in-game purchases, including loot boxes, on video game packaging and advertising.⁵

Belgium: In May 2018, the Belgian Gaming Commission declared that loot boxes constituted gambling and announced its intention to prosecute companies who continued to use them in their games.⁶ As a result, EA stopped the sale of its virtual currency, FIFA Points, in Belgium that is bought with real-world money(although players will still be able to spend in-game currency to buy loot box packs). EA has also started showing pack probabilities before gamers can purchase a pack across the world.⁷

United Kingdom: In September 2019, the UK’s Digital Culture, Media and Sport Committee advised the government to regulate loot boxes under gambling legislation.⁸ The recommendation followed a nine-month investigation into the addictive qualities of loot boxes in video games.

Canada: In September 2020, a class action lawsuit was filed in the Supreme Court of British Columbia to reimburse Canadians who purchased loot boxes from EA Canada from 2008 – 2020, stating that “loot boxes are a form of unlawful gambling under the Criminal Code of Canada, and the Defendants [EA Canada] have breached gambling laws in Canada by selling loot boxes.”⁹

Netherlands: In October 2020, the Dutch government found that EA’s FIFA Ultimate Team Packs (a form of loot boxes) violated the Gambling Act and announced plans to authorize the Netherlands Gaming Authority to fine EA between €250,000 and €5,000,000 a week for its continued use of loot boxes in its FIFA games.¹⁰

LOOT BOXES IN THE UNITED STATES

In 2018, US Senator Maggie Hassan (D-New Hampshire) wrote a letter to the Entertainment Software Ratings Board (ESRB).¹¹

The ESRB designates the intended audience and warning ratings for video games. In Senator Hassan’s letter, she expressed concern about in-game purchases, such as loot boxes, and their potentially-addictive gambling-like qualities. Separately, Senator Hassan asked FTC nominees during their confirmation hearings about the potential addiction problems posed by loot boxes in games made for children and the possibility of increasing government regulation.¹²

The ESRB has so far refrained from classifying loot boxes as gambling, but did add a new rating designation this year (2020) of “In-Game Purchases (Includes Random Items)” to indicate when games allow in-game purchases based on randomized elements like loot boxes.¹³

Also in 2018, two bills were introduced in Hawaii’s Legislature that would have banned the sale of games containing loot boxes to anyone under the age of 21. Neither of the bills, however, met the required legislative deadlines and, as a result, both bills failed to advance to a full vote.¹⁴

In May 2019, a bill was introduced in the US Senate that would regulate “certain pay-to-win microtransactions and sales of loot boxes in interactive digital entertainment products.”¹⁵ The bill has been read twice and referred to the Committee of Commerce, Science, and Transportation but has not yet been voted on.

In August 2019, the FTC hosted a workshop¹⁶ on video game loot boxes and related microtransactions that yielded some suggestions  for how to address the issue going forward: the introduction of the new ESRB rating designation, as noted above, encouragement to video game developers to self-regulate and make more items available via direct purchase, to remove some of the gambling elements loot boxes add to games, and the devotion of more resources to research the effect of microtransactions and loot boxes on children.

POTENTIAL REGULATION AND OTHER RESPONSES

An article in the Santa Clara Law Review in 2019, noted the difficulty of regulating loot boxes at a federal level, because of the lack of any applicable federal law.¹⁷ Instead it is more likely that any regulation of loot boxes would depend on state law and state gambling commissions and whether any states would move to classify loot boxes as “gambling”; no state has gone so far at the time this blog post was written. 

Disclosure requirements of loot box odds are a step in the right direction to draw attention to the low odds of valuable rewards, as video game developers such as EA have started to do in games like FIFA, but the article also points out that the well-established and popular nature of loot boxes means that this disclosure will likely not deter any significant number of gamers from continuing to purchase loot boxes. 

According to the article, potential legislation to regulate loot boxes, as opposed to an outright ban, is likely the best strategy going forward, by establishing a 21-year minimum age requirement for games that include loot boxes. This would likely disincentivize video game companies from including them in their mainstream games, out of fear of losing sales, and thus help to regulate the exposure of minors to the gambling elements of loot boxes. 

Since regulation of loot boxes and the classification of them as a form of gambling has been slow going, the article also points to informal self-regulation, such as the recent changes to ESRB ratings and the power of public pressure to force game companies to change their practices. For example, ESRB has an “AO” or “Adults Only” rating which is typically reserved for explicitly sexual content, and the article posits that AAA game developers would likely self-regulate if faced with the risk of having their games classified as “Adults Only”.

CONCLUSION

While microtransactions like loot boxes can help keep the up-front cost of video games low or even free-to-play, they also have the potential to be exploitative and share many similarities with gambling that should, arguably, be regulated. 

The gambling aspects of loot boxes are particularly concerning in games that target young gamers. Children represent a vulnerable, and often more easily exploited, group in society, and if we don’t allow children play in physical casinos or place bets online on sporting events, why should they be able to do so virtually from the couch or from their laptop through the video games they play? 

There is growing evidence that supports that loot boxes are a form of gambling and, as a result, the United States should take more of an active role in regulating them like they do other forms of gambling. As indicated by the increasing number of countries around the world who are beginning to take steps to regulate video game companies, it seems inevitable that regulating loot boxes as a form of gambling will become an increasingly important issue in the United States.