UK Parliamentary Committee says ‘loot boxes’ should be considered gambling and regulated accordingly

An inquiry led by the Digital, Culture, Media & Sport Committee has concluded that the sale and purchase of loot boxes should be considered gambling and therefore regulated under the UK Gambling Act. The Immersive and Addictive Technologies Report (the “Report”) was published last week and makes a number of recommendations, particularly in relation to the protection of vulnerable players from potential harms and adherence to certain regulatory standards.

What is a ‘loot box’?

A loot box is a blind box of assorted virtual items that can either be earned by naturally playing through a videogame, purchased using in-game currency or purchased with real-world currency. The items contained in these boxes are random and range in rarity, with the odds of receiving extremely rare items being correspondingly low. Some items are purely cosmetic, for example affecting the way the videogame character looks (sometimes referred to as a ‘skin’) whilst others can give players an advantage when playing the game (for example, an item that helps a player progress faster or increases their character’s capabilities).

Loot boxes are a form of microtransaction – a low cost, in-game transaction that players can make repeatedly to gain new virtual items. Games that include microtransactions are often structured in a way to psychologically encourage players to use in-game or real-world currency to purchase loot boxes as opposed to naturally earning them through gameplay. This can be done in several ways for example, by making certain rare items time sensitive (encouraging players to open more loot boxes in shorter timeframes), artificially lowering the rate at which loot boxes are earned naturally through gameplay, or by providing high value bundle deals that can only be purchased with real-world money.

Key findings and recommendations

The Report highlights several key issues and makes various recommendations to the UK government. These can be summarised as follows:

• Loot boxes should be regulated by UK gambling laws because they fit the description of “playing a game of chance for a prize” as per s.6(1) of the Gambling Act 2005 where ‘prize’ means “money or money’s worth”.
• Loot boxes should be removed from games aimed at children and UK ratings board PEGI should take the inclusion of loot boxes into account when rating a videogame – particularly in the absence of research demonstrating that that no harm is being done by exposing children to gambling - and should clearly identify videogames that contain loot boxes or other microtransactions so that vulnerable people are made aware. This should apply to videogames sold physically in retail stores and videogames sold digitally via online storefronts.
• Videogame publishers should take more responsibility in preventing in-game items being traded on third-party websites for real-world money and should do more to address concerns regarding the psychological impact that videogames can have where they have been designed to encourage players to purchase loot boxes.
• Publishers should be required to share player data they collect with relevant researchers to assist with studies into ‘gaming disorder’ and the impact that psychologically manipulative design structures of certain videogames can have on players, in particular on vulnerable players such as children.

What happens next?

The onus is now on the UK government in conjunction with the UK games industry to address the concerns raised. Dr Jo Twist, CEO of UKIE – the trade body responsible for representing the UK interactive entertainment industry’s interests – said the following in response to the Report:

"The video games industry has always, and will continue to, put the welfare of players at the heart of what we do. We will review these recommendations with utmost seriousness and consult with the industry on how we demonstrate further our commitment to player safety - especially concerning minors and vulnerable people.

It is important that we keep engaging constructively with a range of stakeholders, including MPs, regulators and law enforcement agencies because we support an evidence-based approach to modern policy making. We have consistently been in dialogue with government and other key partners about establishing an appropriate research framework and will continue to do so.”

In March 2017 the Gambling Commission said, in their report on virtual currencies, esports and social casino gambling (which you can read in full here), “the ability to convert in-game items to cash, or to trade them (for other items of value) means they attain a real-world value and become articles of money or money’s worth. Where gambling facilities are offered to British consumers, including with the use of in-game items that can be converted into cash or traded (for items of value), a gambling licence is required.”

Conversely, where the game provider does not itself offer any way to monetise the in-game items and does not authorise any third party websites that enable such monetisation, the prize (the in-game items) is not “money or money’s worth” and therefore falls outside the ambit of the Gaming Act.

In February 2017, the Commission brought a successful prosecution against the directors of game Gold Trading Limited, the company that operated futgalaxy.com. The website allowed customers to buy virtual currency called FUT coins. Customers could then use those FUT coins to gamble via sports betting, a jackpot lottery style game, and a higher or lower style game. They could then convert these FUT coins into FIFA coins, which could in turn be sold for real money on an unauthorised secondary market. The evidence showed that the directors were aware that children as young as 12 years old were using the website but did nothing about it. The directors were fined a total of £265,000 and the website was shut down. You can read the Commission’s statement on the case here.

For an interesting discussion between the Committee and the Gambling Commission, see here the transcript of the hearing with the Commission. As the Commission makes clear, it is not as simple as amending the legislation to make it clear that in-game items are money’s worth as this would potentially have the unintended consequence of bringing a whole range of other activities within the gambling net.

Comment

It’s clear that the Committee would like loot boxes to be regulated as gambling, but in the Gambling Commission’s view loot boxes do not currently fall within the legal definition of gambling and therefore cannot be classified as such. The only way to achieve such regulation is a change in legislation – a change that is unlikely to happen in the short term. Alternatively, as suggested by the Report, it may be that these issues fall into the jurisdiction of a future UK ‘online harms regulator’ which, once established, would regulate areas such as social media, cyberbullying and other technologies that create ‘designed addiction’.

In the meantime, there a number of intermediate steps that the games industry could take to mitigate some of the issues raised by the inquiry, for example the clear rating and labelling of both physical and digital games that contain loot boxes and/or microtransactions as well as increased effort from publishers to stop unauthorised third-party websites from facilitating the unofficial trading of in-game items for real money. There is already movement within the games industry towards the implementation of such mitigating steps. In 2018, 15 European regulators collectively agreed to address the risks associated with “blurring the line between gaming and gambling,” thus marking a collaborative effort that may lead to regulatory reform (full details can be found here). Furthermore, earlier this year the three leading console manufacturers (Sony, Microsoft and Nintendo) told publishers that any game containing chance/gambling mechanics must disclose information about the odds of receiving ‘rare’ items before the game can be approved for release on their consoles – a policy that publishers have agreed to implement by no later than the end of 2020. In theory the policy will raise consumer awareness of the product(s) and help them make informed decisions, but its effectiveness is being questioned – particularly because the disclosures would be self-certified, and it would be difficult to track whether the information provided is accurate.

It is worth noting that in countries where loot boxes have been classified as unlicensed gambling (such as Belgium and China), companies have removed loot boxes from their games – although in China, some publishers have got around this by giving out free loot boxes to players when they purchase non-randomised items for real money (you can read more about this here).

You can read the full report from the DCMS here.

Article co-authored by Rahul Gandhi.