Analysis: How will the debate over loot boxes end?

In the middle of June, almost 70,000 games publishers, software developers, video games enthusiasts and the press corps made their annual pilgrimage to the cavernous Los Angeles Convention Center for the 24th Electronic Entertainment Expo. Otherwise known simply as E3, this is the biggest event on the video games industry calendar, where hardware manufacturers and games studios showcase their wares and what’s in the development pipeline, as well as chew the fat over gaming’s burning issues. This year, the topic du jour was the on-going controversial issue of loot boxes – crates or chests containing random in-game virtual goods and rewards paid for with actual money.

For those unfamiliar with the concept, a gamer could pay to open a box or chest which may contain a gun, sword or some sort of cosmetic upgrade. However, the player could, for instance, spend €5 and receive a desirable object and, by the same token, shell out €50 and receive nothing particularly useful at all. This is why the opaque rewards and progression system has been compared to online slots and games publishers have been accused of encouraging minors to gamble, although most in-game items have no real-world value. It’s this backlash that prompted a slew of games studios to declare at E3 that they would buck the trend and do away with loot boxes in their upcoming titles. The announcements provoked cheers and nods of approval from audiences, although loot boxes aren’t likely to disappear altogether anytime soon.

Bleed ’em dry

This form of in-game monetisation has been the typical business model for free-to-play mobile games for years, yet video games publishers using this as another revenue stream on top of the purchase price of the actual game has irked players for a while now. The furore over loot boxes reached fever pitch last autumn when Star Wars Battlefront II allowed players to save time by opening their wallets for a chance to unlock major playable characters from the film franchise. The move sparked outcry among gamers who threatened to boycott the game, wiped $3bn off the value of publisher EA’s stock, and prompted Hawaiian state representative Chris Lee to brand it “a Star Wars-themed online casino designed to lure kids into spending money”.

“Whether loot boxes constitute gambling or not and whether they have potential to cause harm or not are two different questions that often get conflated in conversation,” says Ryan Morrison, a prominent US-based video games lawyer. “In the US, different jurisdictions have different definitions of what constitutes gambling. By the law of most jurisdictions in the US, I would say all common-sense points to loot boxes being gambling, but under certain jurisdictions that question becomes less clear.” He adds: “I believe loot boxes are gambling under most jurisdictional law, but that doesn’t mean they are inherently evil. Right now, they are unregulated, and some companies use that reality to take advantage of consumers. Regulation needs to happen as soon as possible.”

A closer inspection

While games publishers defend the use of loot boxes, these game mechanics have strayed into the crosshairs of gambling regulators. At the end of April, the Belgian regulator declared loot boxes in four games – Overwatch, StarWars Battlefront II, Counter-Strike: Global Offensive (CS:GO) and FIFA 18 – to be “in violation of gambling legislation”. As well as voicing concerns about the impact of loot boxes on young people, the regulator instructed publishers of the aforementioned games to remove these features.

This decision came hard on the heels of the Dutch Gaming Authority (Kansspelautoriteit) ruling that some loot boxes should be considered gambling and instructing publishers to make changes to comply with Dutch law. The regulator began enforcing the ban from 20 June, with fines of up to €830,000 and potential prosecutions for those flouting the law.

Meanwhile, the UK Gambling Commission (UKGC) clarified last November that loot boxes containing items confined for use within a game can’t be classed as gambling under British law. Yet the regulator did say it was “concerned with the growth in examples where the line between video gaming and gambling is becoming increasingly blurred”. Paul Gardner, a partner at media, technology and IP law firm Wiggin, says: “In the UK, the key issue is whether items obtained from a loot box can be exchanged for ‘money or money’s worth’ outside the game. Most game publishers do not provide this facility and indeed will expressly prohibit such exchanges. It is clear then that in the UK such loot boxes will not constitute gambling.”

Usually, games will offer players the ability to earn loot boxes for free through playing, although it will take longer than choosing to purchase them. It’s why critics accuse the mechanism of being pay to win rather than play to win. Chandler Wood, editor of PlayStation Lifestyle, argues that loot boxes don’t constitute online gambling and it’s very rare that rewards have any measurable value outside of the game, yet he recently admitted to EGR Intel that a “certain endorphin high is granted” the moment he opens a loot box. “It’s the same feeling as hitting the jackpot on a slot machine or calling a bluff in poker, but just because it hits the same psychological notes, doesn’t make it gambling,” he said.

Press gang

With stories in the mainstream media of players spending exorbitant sums – some running into four and five figures – on loot boxes other in-game microtransactions, the calls for loot boxes to be banned completely will probably grow louder. This is why the UKGC chose to shine the spotlight on loot boxes and subsequently clarify its position, especially with the practice being accused of introducing children to gambling. “The political hot button of gambling and children keeps the newspaper in column inches and regulators looking like they are doing their jobs,” suggests gambling consultant Steve Donoughue.

Moreover, Morrison says it’s important that lawyers and industry experts help inform lawmakers with their decision-making and explain exactly how the mechanics of loot boxes work. “I can’t tell you how many times a legislator has called and asked about loot boxes in the same sentence as esports betting or skins gambling [people gamble virtual goods from games like CS:GO or games of chance like roulette on third-party sites].

“To lawmakers, all of these issues bleed together and are seen as identical. It’s important that we educate lawmakers on the nuance of the issues, which is difficult when most lawmakers can’t even work their emails properly. However, if we don’t, we’ll wind up with hastily crafted and ill-fitting legislation that may not adequately address public concern.” Ultimately, though, the video games industry itself could put this debate to bed by removing loot boxes completely, which the announcements at E3 from some of the biggest studios seemed to suggest is moving a step closer.
While there is an argument to be made that the retail prices of video games haven’t kept pace with inflation over the years, which means these post-purchase monetisation techniques are needed to recoup production costs of blockbuster titles, continuing to include them is likely to draw scrutiny from more gambling regulators.

A new business model could be required, Morrison suggests. “Fortunately, the games industry is one of the most adaptive industries out there,” he says. “If rules around loot boxes change, publishers and developers alike will find ways to change existing loot mechanics to be above board, or [they] will innovate and discover the next big generator of game revenue.”