written by Nathan Jerauld
In recent years, video game companies discovered a new way to generate profits: loot boxes. “Loot boxes” are randomized rewards that video game players receive in exchange for in-game points, which are earned by playing the game or by paying real-world cash. The rewards offered in loot boxes could be purely cosmetic, or could offer players powerful perks that improve their chances of winning games.
Globally, countries differ on whether loot boxes constitute gambling, and should be regulated accordingly. Earlier this year, the Netherlands outlawed loot boxes because of its association with gambling. Conversely, the United Kingdom concluded it was not gambling. Last month, however, Belgium became the second country to make loot boxes illegal, and required game publishers to remove loot boxes purchasable with cash. Despite the recent turn in Belgium, the CEO of Electronic Arts (EA), a major video game producer, stated early this month that they remain committed to including loot boxes with future game releases.
Ties to Gambling
Loot boxes bare some similarity to gambling, a practice illegal for minors in the United States. According to Black’s Law Dictionary, gambling is “[t]he act of risking something of value, especially money, for a chance to win a prize.” With regards to risking something of value, players must spend in-game currency, which requires them to invest time into gameplay, or use cash to purchase it.
Additionally, loot boxes do not guarantee good prizes. While players receive rewards for every loot box purchase, the most beneficial prizes are rare. In order to obtain the best prizes, players generally need to purchase numerous loot boxes. The hope of obtaining better loot drives players to spend more time or money to get more chances. Players report spending hundreds and thousands of dollars trying to get additional perks. In one notable case, a player spent over $13,000 USD as a minor in pursuit of in-game rewards.
Domestically, lawmakers have concerns about the relationship between loot boxes and gambling. To date, five states (California, Washington, Hawaii, Indiana, and Minnesota) have bills seeking to regulate the use of loot boxes in games marketed to minors. The Minnesota bill, for example, would prohibit the sale of video games with loot boxes to minors, and require publishers to include a clear warning to players that the game “contains a gambling-like mechanism that may promote the development of a gaming disorder . . . and may expose the user to significant financial risk.”
Despite growing concern about loot boxes and gambling, there are notable differences between the two. According to EA, loot boxes always provide the player some type of reward, and they also prohibit players from “cashing out” points for actual currency; the same cannot be said for gambling. Similarly, the Entertainment Software Association, a group representing video game publishers, compared loot boxes to popular, and legal, trading card games that require players to purchase card packs without knowing their contents.
The Way Forward
Video game publishers are unlikely to discontinue the use of loot boxes. Publishers earn about $30 billion dollars from loot box sales globally. In 2017, major video game publishers EA and Activision Blizzard earned over half of their revenues from digital sales, which include the purchase of loot boxes. In the next four years, global earnings from loot boxes are projected to increase to $50 billion dollars globally.
It is unclear if state efforts to regulate loot boxes will succeed. Traditionally, gambling is a state-level issue that falls within its police power. Yet, state bills addressing loot boxes are moving slowly, and hitting political snags. Hawaii’s bill originally attempted to impose regulations similar to Minnesota’s bill, but now would only require publication of the odds for winning loot. California’s bill has been effectively withdrawn. Indiana’s bill, introduced in January, calls for the State Attorney General to study the issue further; as of May, it is still in committee.
Adjusting U.S. policy on loot boxes could produce unintended consequences for other amusement industries. Currently, loot boxes are not regulated domestically. While the production, shipment, and use of video games with loot boxes would likely fall under interstate commerce, loot boxes seem more akin to unrestricted activities than restricted ones. Various activities marketed toward minors involve monetary risk, but do not fall under social conceptions of gambling. Consider popular trading card games like Magic: The Gathering, or other amusements like claw games, and carnival games that involve risking money for prizes. Although these activities have similarities to gambling, they are legal. If the government elects to regulate loot boxes, it is hard to see why it should not elect to regulate access to claw games, capsule vending machines, and Ring Toss.
Market factors will likely discourage predatory uses of loot boxes in the future. Boycotts have already been successful. Last year, EA made in-game payments and loot boxes an integral part of a major game, Star Wars Battlefront II. Players responded with highly negative criticism, and EA failed to meet its sales expectations for the game. Because of the response, EA altered the structure of the game. If players hold publishers accountable for loot box misuse, and refuse to pay, the industry will respond accordingly. Additionally, for younger players, increased awareness of the issue will help parents supervise their children’s use of loot boxes, and mitigate concerns of overspending.
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