Are loot boxes the new slot machine?

A loot box is essentially a virtual container that holds virtual items for the game they’ve been purchased through. You pay a few dollars and in return you are given a box with a random assortment of virtual items. Consumers are spending roughly $30 billion a year on loot boxes and these profits have made loot boxes an essential aspect of almost every new game.[1] This growing industry has caused concern among politicians and regulatory agencies because of their similarities to gambling, the psychology behind them, and the predatory practice of companies hoping to maximize profit.

Psychological Component

            Loot boxes certainly are not a new concept. Baseball card collectors have sought out the rare chase card from a pack and the enticement of the opportunity to get said chase card. Psychologist describe this enticement as “variable rate enforcement” which explains that “[t]he player is basically working for [a] reward by making a series of responses, but the rewards are delivered unpredictably.”[2] This excitement obtained by loot boxes can be tracked by observing the brain. As Dr. Luke Clark, director at the Center for Gambling at the University of British Columbia explains, “We know that the dopamine system, which is targeted by drugs of abuse, is also very interested in unpredictable rewards. Dopamine cells are most active when there is maximum uncertainty, and the dopamine system responds more to an uncertain reward than the same reward delivered on a predictable basis.” This leads to those that purchase loot boxes to try and obtain the rewards through the randomized process no matter whether it costs $10, $20, or even $500 to obtain the item they’re looking for.

           Gaming companies have even sought to incorporate the gambling aesthetics used by casinos. In many games when you open a loot box, a flurry of lights shoot across the screen and the rarity of the item is depicted for a brief second before you know the item you are about to receive, but it is all done in hopes to build the anticipation. Jeremy Craig, senior game designer for Overwatch, explains that this entire process is “all about building the anticipation.”[2] Other games, such as Counter-Strike: Global Offensive, even utilize a crate scroll perfectly mimicking a slot machine.[2] The concern about games adapting this style is the lasting influence it can lead on its younger audience. A recent study performed in the United Kingdom has attributed an increase in underage gambling to the exposure of loot boxes at early ages.[3]

Example of opening a loot box.

            Current Legal Issues in the United States

            Most relevant gambling laws are at the state level. “At a high-level, an oversimplified definition of gambling involves: staking something of value (consideration) for a chance to win something of value (a prize). If all three elements are present in an activity (prize, chance, and consideration), it may be gambling.” [4] A very simple analysis of loot boxes would show that they could fall into these definitions, but where it becomes complicated is the secondary market and the element of value. For example, many in the video game industry insist that loot boxes should not be considered gambling because the inability to cash out and sell the digital assets.[5] While this is true in some games, some of the most popular (CSGO, Playerunknown’s Battleground) allow for players to sell their items on a secondary market. These items can run for hundreds and thousands of dollars.

           The most obvious abuse of this happened a few years ago when two popular YouTube streamers created a gambling site where players could use the skins as chips essentially, a raffle would occur, and one player would win all the skins.[6] The Youtubers would advertise their gambling site to many underage participants and would not inform them of their ownership in the company. The Federal Trade Commission brought a complaint against them, however, this dealt exclusively with their deceptive practices to their audience and did not address whether it was gambling. [7] As of now, there does not seem to be a solid consensus whether a court would consider loot boxes gambling, but legislators have sought other avenues.

            In Hawaii, State representative Chris Lee has criticized the gaming industry for predatory practices and has proposed various legislation in hopes to curb the impact on young children. He introduced House Bill 2686 which would prohibit retailers from selling games that have a loot box system that has random rewards to anyone under 21 years of age.[8] Additionally, he proposed another bill (House Bill 2727), which would require “a prominent, easily legible, bright red label” to indicate that loot boxes in the game contain “gambling-like mechanisms which may be harmful or addictive.”[8] United States Senator Maggie Hassan has asked that the FTC to investigate loot boxes. [9] Senator Hassan explained her concern about the “close link” loot boxes have to gambling and the possible negative impact they can have on children. Hopefully the FTC investigation will determine whether children are being adequately protected and whether we need to adopt some sort of legislation, like many other countries have, to protect children.

            Legal Approaches in Other Countries

           Netherlands and Belgium have come down on the gaming industry the hardest. The Netherlands Gaming Authority (NGA) has held that “offering gamers ‘a chance’ with real money is prohibited without a license. They also believe that loot box is similar to a slot machine and roulette games which are considered gambling.”[10] Following the NGA’s investigation the Netherlands banned loot boxes and required that all games remove them. Belgium followed with the same decision a week after. China requires that game developers include the probability of obtaining a rare item in their loot box system.[4] All in all, it’s not clear what the best approach to loot boxes is. However, as the industry is seeing nothing but increases, what is certain is the necessity to further study loot boxes and their lasting impact on young children.

            Questions

  1. Do you believe that Loot Boxes generally fall into the definition of gambling or are they more comparable to buying a pack of baseball cards?
  2. Is the secondary market necessary for it to be considered gambling? If there is no value for the player to obtain outside of their own enjoyment, could loot boxes still be considered gambling?
  3. Does limiting a player’s ability to trade their items as they wish to infringe upon the property rights of those who wish to participate in gambling markets like CSGOlottery? Or Does a EULA all concern?
  4. Does the more strict approach that The Netherlands or Belgium seem to be a better step or is China’s approach to ensure developers include the odds for each loot box?
  5. Is this simply an issue that parents need to concern themselves with, should regulatory agencies like the Entertainment Software Rating Board be left to the decision, or do we need legislation like that suggest by State Representative Chris Lee?

[1] https://www.theverge.com/2019/2/19/18226852/loot-boxes-gaming-regulation-gambling-free-to-play

[2] https://www.pcgamer.com/behind-the-addictive-psychology-and-seductive-art-of-loot-boxes/[[

[3] https://www.newsweek.com/child-gamblers-loot-boxes-gambling-gaming-ban-illegal-underage-1226841

[4] https://www.lawofthelevel.com/2017/10/articles/gaming/loot-boxes-illegal-gambling-mechanic/

[5] https://newtech.law/en/are-loot-boxes-a-type-of-gambling/

[6] https://arstechnica.com/gaming/2017/09/youtubers-escape-fines-for-promoting-their-own-csgo-gambling-site/

[7] https://www.ftc.gov/system/files/documents/cases/1623184_c-_csgolotto_complaint.pdf

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

[9]https://www.polygon.com/2018/11/27/18115365/ftc-loot-crate-investigation-senator-hassan

[10] https://www.gameprime.org/2018/05/loot-boxes-illegal/[

~ by Elrossi on March 24, 2019.

6 Responses to “Are loot boxes the new slot machine?”

  1. With the definition of gambling used here (“staking something of value (consideration) for a chance to win something of value (a prize). If all three elements are present in an activity (prize, chance, and consideration), it may be gambling”), it seems both baseball cards and loot boxes would fall into the category of gambling. Both have consideration (purchasing) and a chance to win a prize. So I think under this definition both baseball cards and loot boxes would fall in that category. However, obviously baseball cards are not considered gambling and neither are other card based type gambling (Pokemon, Yu Gi Oh, etc.). After doing some quick research, it appears there have been cases against trading card companies but courts have generally found that there has not been enough damage to issue a remedy. Moreover, I suspect the reason card games and baseball cards haven’t been considered gambling is because with traditional gambling you do not receive something every time you play, but with card games and baseball cards you receive something every time you play so that seems to make it less like traditional gambling. Similarly, it could be argued that lootboxes are more like card games in this respect because you are always guaranteed something from a lootbox.

    I don’t think a secondary market is necessary for it to be considered gambling at all. If we stick to the definition above, it appears it could still be gambling as long as there is prize, chance, and consideration and the fact there is a second market seems irrelevant.

    Limiting a players ability to trade their items as they wish does at first seem to infringe on the property rights of those who want to participate in gambling markets, but it comes down to whether these items are owned outright in their entirety or if the developers still have a “stick” in the items. I think it would be easy enough to argue that the developers still have a stick in the items and that therefore the ability to trade items can be limited because the developers designed the graphics for the item and don’t give up their rights to those graphics simply by virtue of giving them to players in the game.

    Psychologically, it would obviously be best to take an approach like the Netherlands because it would eliminate the psychological impulses and prevent the firing of those nerves in the brain that turn gambling into an addiction. On a more legal basis, it seems the Chinese approach is sufficient to warn players (and their parents) about the risks of gambling and could at least protect games from being sued. Thus, I think it really depends on what the goal is.

    I think legislation is a good idea because this is an issue that will effect the larger community and the state definitely has a public interest in protecting its citizens. At the same time, it does sort of feel like legislative overreach if lootboxes are not categorized as gambling because where would lootboxes fall to give the legislature the power to regulate them?

  2. As I was reading through this post, I sat here thinking about how many games I’ve played in the past year incorporate loot boxes. It seems that every new game that takes the world by storm (Fortnite, Apex Legends, COD..) has some form of loot box incorporated into it. One issue I think of when I think of gambling is making a bet against someone. For me, I can’t see who I’m betting against. While the definition “staking something of value for the chance to receive something of value” seems to fit perfectly with what loot boxes are, I still can’t bring myself to think of loot boxes as gambling. Maybe it’s also because a lot of these games end up giving away loot boxes at certain points also. It is interesting to think about how all of these loot box opening systems are similar to slot machines at casinos. It certainly doesn’t help the games’ cause that they shouldn’t be regulated. Does it change anything if you don’t have to purchase a loot box to enjoy the game?

    I don’t think regulation of video games based on the existence of a loot box system is feasible/desirable. Many of these games are played in every state of the United States, and in many countries around the world. Additionally, you can now download these games directly from the internet from the console/PC itself. I don’t know how you could prevent access to these games in one state without censoring internet content, and I think that does more harm than good.

    Does it matter that some of these games guarantee certain rewards in a loot box based on the amount the box itself costs? For example, some games offer a box containing 10+ items, one of which is guaranteed to be much rarer than the others. If there is a guaranteed reward in the box, would that still be considered gambling?

    As someone who enjoys playing these games and indulges in the occasional loot box, I would be sad to see them go. Loot boxes help keep some extremely popular games free to play in the first place. I also find it hard to distinguish between loot boxes and baseball/trading cards. As a kid, I collected a few different kinds of cards on the same premise: pay for the pack, and hope to get something great. You didn’t always get the reward you wanted, but that was part of the experience. I think the loot box system (paying cash for a chance at a skin/item) is more analogous to this system of trading cards than gambling at a casino.

  3. With the definition of gambling being, “staking something of value (consideration) for a chance to win something of value (a prize)”. It would seem that loot boxes do fit within this definition. However, I see these loot boxes as being more comparable to baseball cards. When you are gambling there’s a chance that you could get nothing in return. With loot boxes there is a guarantee that you are getting something; a loot box, the only thing not guaranteed is what is inside of the loot box.

    I see some of the legislation that has been passed in the United States in regards to loot boxes as being a bit of a stretch. I think it would be helpful to parents who buy video games for their children to see that loot boxes will be offered in the game. However, many games that contain loot boxes are simply offered online, with no need to physically buy the game in a store. With these online based games, parents may not realize that their children are even buying loot boxes until they get their credit card bill in the mail.

    Further, I understand the federal government trying to get involved but I see these proposed regulations on loot boxes as quite a stretch. Children are exposed to much worse unfortunately and the government does nothing. A game that offers children and adults the opportunity to buy loot boxes and receive something in return seems of little harm. Naturally I would assume that video games that offer loot boxes would need to make the loot boxes enticing. Adding the flashing lights and many colors upon opening the loot box adds to the excitement and desire to buy them. Everyone selling something wants people to come back and buy more. Video games offering loot boxes are no different.

    The effect that these loot boxes could have on children and their possible future gambling habits could be an issue. However, parents have the right to raise their children as they wish, and if parents become upset with the extra money spent on loot boxes or the whole idea of loot boxes, they have the opportunity to stop their children from buying the loot boxes. For such an item that I see to carry more similarities with baseball cards rather than gambling, I see other countries regulations as a bit of a stretch and the United States proposed regulations as fishing for control.

  4. Though it seems as though loot boxes would fall under the definition as provided here(“staking something of value (consideration) for a chance to win something of value (a prize)”), it is still difficult for me to agree with loot boxes being considered gambling. The “prizes” that players receive from the loot boxes would not be considered of value because it cannot be exchanged for money outside of the game. I do think that the secondary market being a part of the process makes it easier to see how this activity can be considered gambling. The players are taking a chance and purchasing the loot boxes with the hopes that they will win a sought after prize that they would be able to exchange for money.

    Limiting a player’s ability to trade their items within the game would probably not infringe upon their property rights. The gaming company’s that create and sell the game would probably still have property rights as to the items. I believe that the Netherlands and Belguim’s approach seems to be a better step. If we are able to ban loot boxes completely it would get rid of the concerns and issues that were discussed. However, I do think that developers would come up with another way to get around the ban.

    I do think that there should be regulation regarding children partaking in the purchase of loot boxes. Seeing that it does technically fall under the definition of gambling, it should be regulated as such and those under the age of 21 shuold not be able to participate in this activity. The legislation suggested by Chris Lee seems to be a good place to start.

  5. Similarly to some of the points made earlier, loot boxes would fit the definition of gambling as mentioned in the post but I don’t think I would consider it gambling because you do receive something every time you use one. If that were the case, many card games such as Yu-Gi-Oh and Pokemon would also have to be considered gambling. This would take a lot of value of these games that do not quite add up to something like a slot machine.

    I don’t think a secondary market is necessary for it to be considered gambling, but I also don’t think the existence of a secondary market necessarily dictates that the activity is gambling. There is a high demand for items that come out in loot boxes and paying money to secure those items, even if received randomly, should not automatically define this as gambling.

    At the end of the day, I think this is something that should be left to parents to regulate. At the most, the ESRB should require game makers to include disclaimers about loot boxes somewhere apparent on/in the game, but loot boxes should not be subject to widespread regulation.

  6. The problem of loot boxes highlights what can happen when an industry is allowed to regulate itself, without any accountability whatsoever. The gaming industry has known for years that questions were being raised about the legality of loot boxes, particularly with regard to children being exposed to gambling. And yet, nothing was done. Companies just took the position that it would go away. But the Star Wars Battlefront controversy on the heels of the skin fiasco at CS:GO really helped pushed the issue to the fore front. There is some belief in the industry that Disney, which now owns the Star Wars IP, forced EA to take the loot boxes out and end the controversy or risk having their license to use the IP lifted. There was, and still is, space for the industry leaders to sit down and work this out before regulation occurs. In this regard, the gaming industry is much like Facebook in that it continued to ignore warning flags and now both developers and Facebook have to worry if they waited too late.

    At any rate, the fragmented nature of gambling laws adds another layer of complexity. How do you create policy that won’t violate the myriad of legal obligations established around the world? What is legal in the UK may not be legal in The Netherlands. I’ll just give a plug for international law…this is why US lawyers need to know more international law. How can you advise a client who might be considering releasing a game with loot boxes if the lawyer doesn’t know what liabilities the client may be exposed to, not just here, but anywhere on the internet where the game is accessible?

    My last comment, just because something is legal doesn’t mean it’s not gambling. Purchasing a lottery ticket is gambling, but it is legal because Florida says it is. In some states, there is no lottery because that state considers it illegal gambling. Looking forward to the class discussion.

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