Online Gambling Serial Blog – “Loot Boxes” (Blog Post 1 of 7)

Since online gambling in the United States has caused many legal uncertainties, including how individual states have dealt with various online gambling issues and how the advancements in internet-based technologies have created uncertainty enforcing online gambling issues, it is necessary for there to be more clear rules and regulations regarding legal issues relating to online gambling in the United States. This blog will discuss various online gambling issues in a seven-part serial blog. The first blog post deals with “loot boxes.”

Issues related to online gambling continue to evolve. One of the clearest examples of this evolution is the new issue of “loot boxes.” Specifically, two issues that will be discussed in this blog post are the issues of underage gambling related to “loot boxes” and the posting of odds for obtaining specific items from randomized “loot boxes.”

We will first start with what exactly a “loot box” is. A “loot box” can be described as a mechanism that provides randomized virtual items for purchase in a game. [1] Many games rely on “loot boxes” as huge sources of income, given that many of the games are free-to-play titles where players can play the games for free but purchase mystery boxes that may or may not contain in-game items the players want. [4]

Video game publishers have begun to employ predatory mechanisms designed to exploit human psychology to compel players to keep spending money in the same way that casino games are designed and can present the same psychological, addictive, and financial risks as gambling. [2] These mechanisms allow players to purchase chances at winning rewards within games, which is comparable to a slot machine. [2]

If such purchases of “loot boxes” from gamers are considered gambling, the question becomes whether people under the age of 21 can legally engage in the in-game activities and purchase “loot boxes.” Leading the charge for legislation to limit underage gambling relating to “loot boxes” has been Hawaii.

According to Hawaii House Bill 2686 and its accompanying Senate version, proposed legislation would prohibit retailers (including those that operate online) from selling games that include “a system of further purchasing a randomized reward or rewards” to anyone under 21 years old. [3] The legislature cited a 2011 study showing that 91% of youth aged 2 through 17 played video games and that mental health experts have raised concerns about the exposure of people under the age of 21 to gambling-like mechanisms which can affect cognitive development and lead to addiction to which people under the age of 21 are particularly vulnerable. [2] There is currently no age restriction or disclosure required at time of purchase for video games that contain “loot boxes” and other exploitive gambling-like mechanisms. [2] Game publishers can insert “loot boxes” into games at any time with game updates without prior player or parental knowledge. [2]

Meanwhile, Hawaii’s House Bill 2727 would require game publishers to publicly disclose the odds of obtaining specific items from randomized “loot boxes” in their games. [3] The odds disclosure bill also allows the Hawaii Department of Commerce to audit the game code to confirm those odds, much as existing state gambling laws allow full audits of slot machine code. [3] Without the odds, there’s no way to really know how likely you are to get the item you want, something that even real cash lotteries are required to disclose. [4] Hawaii House Bill 2727 would also require “a prominent, easily legible, bright red label” to appear on games with “loot boxes” (or their online retail pages) warning of “in-game purchases and gambling-like mechanisms which may be harmful or addictive.” [3]

Before any of this legislation has passed, Apple has already taken steps to comply with possible legislation that could be passed in the near future. Apple updated its iOS App Store Rules to require any game or app that utilizes “loot boxes” to disclose the odds of receiving each type of item from the “loot box” to customers prior to purchase. [1] Apple has beaten Google to the punch in announcing this kind of “loot box” odds rule, as Android’s Google Play contains no such rules or requirements. [1]

Besides from Hawaii, other states such as Washington and Indiana have introduced legislation to deal with “loot boxes.” In Washington, three Democratic state senators introduced a bill that would require the state gambling commission to examine loot boxes and determine “whether games and apps containing these mechanisms are considered gambling under Washington law.” [6] In Indiana, new legislation requires the attorney general to study certain issues concerning the use of loot boxes in video games and to make a recommendation whether loot boxes should be regulated as gaming in Indiana. [7]

Other countries have already implemented regulations related to “loot boxes.” In China, the Ministry of Culture released an updated set of rules that went into effect on May 1, 2017. [5] Online game operators now need to disclose the name, property, content, quantity, and draw/forge probability of all virtual items and services that can be drawn/forge on the official game website or a dedicated draw probability webpage of the game. [5] Online game operators also now need to publicly announce the random draw results by customers on either the official website or in-game and keep those records for more than 90 days. [5] Two-step payment confirmation via email or text is also now needed to be sent to the user every time a transaction is made to stop accidental payments from young children or the user. [5]

The Entertainment Software Association, an industry trade group, has said in previous statements that it considers “loot boxes” to be “a voluntary feature” that lets “the gamer make the decision” to “enhance their in-game experience.” [3] The Entertainment Software Rating Board (ESRB) said in its own statement that “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).” [3] “Loot box” issues are sure to arise in the future as more games incorporate this feature.

Are in-game “loot boxes” purchases considered to be gambling? Should games be required to disclose such “loot boxes” prior to user purchases? Should states or the federal government take the lead regarding regulations dealing with “loot boxes?” Do the regulations in China go too far? Should the ESRB be required to limit games with “loot boxes” to adults? These are just some questions relating to “loot boxes” that need to be answered. It will be interesting to see how states, and perhaps the federal government, address these issues in the future.

[1] https://arstechnica.com/gaming/2017/12/apple-now-requires-app-store-games-with-loot-boxes-to-list-odds/

[2] https://www.capitol.hawaii.gov/session2018/bills/HB2686_.HTM

[3] https://arstechnica.com/gaming/2018/02/no-video-game-loot-boxes-for-buyers-under-21-says-proposed-hawaii-bills/

[4] https://www.theverge.com/2017/5/2/15517962/china-new-law-dota-league-of-legends-odds-loot-box-random

[5] https://zhugeex.com/2016/12/chinas-new-online-gaming-regulations/

[6] https://arstechnica.com/gaming/2018/01/the-legislative-fight-over-loot-boxes-expands-to-washington-state/

[7] https://iga.in.gov/legislative/2018/bills/senate/333#document-58bc9bc4

 

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~ by zachg0963 on February 17, 2018.

4 Responses to “Online Gambling Serial Blog – “Loot Boxes” (Blog Post 1 of 7)”

  1. I think the first step would be to require the ratings board to rate the games including loot boxes as including mature content. If the loot boxes are similar to playing the slots, even if not actually gambling because the user will get “something,” the idea of gambling is present and as such should not be included in a kids video game. Similar to movie ratings, putting a rating and age limit on the games will not stop kids from obtaining the product, but will at least make them more difficult to obtain. If a 15 year old cannot walk into a store and purchase the game themselves they are less likely to be playing a game that includes a loot box. Other than increasing ratings I think state law should address the issue of creating fines and other punishments for game providers who include loot boxes without mature ratings and clearly labeled warnings.

  2. Being a frequent user of free-to-play games, I would say that “loot boxes” are a form of gambling. They use these to make money from players who want to have advantages in game. There is a huge problem with allowing game developers to set their own rules and create loopholes to making money, inciting young children to gamble in underhanded ways is something that should not be allowed. Game companies should be required to disclose their odds to players because it helps regulate this new avenue of gambling. If they do not disclose odds individuals will never know whether the game is fair or not.
    The regulations in China seem like a good baseline for the rest of the world in helping shape the virtual world. Companies are finding new wys to make money and it is important to keep them honest. Games like DOTA and League of Legends generate billions of dollars and it important to make sure they are not abusing their customers by using shady dealing with “loot boxes” and similar materials. One of the issues I do agree with is that there is no overarching requirement to have the same rates in all servers and I see a distinct possibility that game developers may increase odds wherever they are required to disclose and do the opposite elsewhere.

  3. Though I have limited knowledge on the topic, I’m not totally convinced that “loot boxes” should be considered “online gambling” to the point where individuals under 21 should be banned from participating. While reading the article, I kept drawing comparisons between loot boxes and other type of “purchase-to-win” type of sweepstakes, such as the McDonald’s Monopoly game. In both of these situations, individuals are making purchases in order to have the chance to win prizes. If loot boxes are considered gambling, I’m not sure how purchase-to-win games would not be considered gambling and therefore restricted to individuals 21 and older.

    However, I do support the reasoning that if games are going to use loot boxes, they should be regulated on what type of odds the may have for prizes and have to post these odds in an accessible location to online players. Though I understand that some prizes would have very high odds, odds should be regulated so they’re not something completely absurd.

  4. The problem of loot boxes also known as “lock boxes” is a serious one in gaming. It is not quite the same as the McDonald’s Monopoly game, although that ended up being dodgy as well! In the McDonald’s context you are getting what you paid for, a burger or some other food item which you chose. The chance at the Monopoly game is an added bonus, but whether you win the game piece or not, you get the burger. In the loot box context, you buy a chance to get a burger. The FCC strictly regulates what children can be exposed to online and loot boxes probably violate the regulations for what children can be exposed to. Children are not to be exposed to gambling, sexual content or certain kinds of violence, or incentives to spend money. As for adults, if it is gambling, there should be a warning, simple as that. The ESRB has repeatedly side stepped this issue, which is a shame because the industry had a chance (still does if it can get itself together) to regulate themselves rather than have Congress or 50 different states and 10 odd countries regulating them.

    There’s also the issue of YouTubers selling chances to win skins for equipment in game. They were sued for this last year and many banned as a result. I just saw today that one banned player is now suing because he was banned!.

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