Loot boxes will not be regulated (yet)

Following a 22-month Consultation, the government has decided that loot boxes in video games will not be banned in the UK under the Gambling Act or regulated through other legislative changes. Instead, the government will focus on “industry-led” protections within the sector.

Loot boxes: To ban or not to ban

The regulation of “loot boxes” has long been a contentious issue in the gambling sector in the UK. Whilst the Gambling Commission (“Commission”) made its position clear that loot boxes did not constitute gambling back in 2017, the Department for Digital, Culture, Media and Sport (“DCMS”) launched a call for evidence in September 2020 (“Consultation”) on the impact of loot boxes and whether they should be classified as gambling products. Ongoing rhetoric in the sector indicated that loot boxes would likely become regulated, in particular when in April this year Julia Lopez (then minister for media, data and digital infrastructure) met with stakeholders in the gambling industry and warned that if the issues posed by loot boxes were not tackled through self-regulation, making loot boxes unavailable to under-18s, then new regulation would be introduced through gambling legislation or the Online Safety Bill. However, last month the government made clear that it does not currently intend to amend or extend the scope of current gambling regulation to cover loot boxes.

Backdrop to the Consultation

The Consultation arose against concerns that loot boxes could act as a gateway to gambling, causing harm to children and young people who might give into peer pressure or act impulsively, alongside concerns for adult players considered problem gamblers. The Consultation was intended to better inform the government on loot boxes and in-game purchases and how current protections under UK law applied. For a refresher on the initial stages of the Consultation and what exactly a loot box is, see our Law Now article here.

Outcome to the Consultation

Rather than making legislative changes, the government has chosen an industry-led approach. The measures envisaged include:

1. Utilising parental controls such as spending limits and refund policies;
2. Game companies supplying information for players and parents about how loot boxes are deployed within games, alongside tools and controls to mitigate risks;
3. Creating complaints mechanisms to protect players that spend disproportionate amounts on loot boxes and refunding players that do not have access to sufficient spending controls or information;
4. Improving the evidence base on the impacts of video games to help inform future policy on loot boxes, working with stakeholders in the industry to launch a “Video Games Research Framework” to assist policymakers and game developers to reduce the risk of harm for players.

The decision comes in spite of evidence demonstrating a “consistent” association between loot boxes and problem gambling made in the Immersive and Addictive Technologies Report published back in 2019 (which you can read more about here). Commentators in favour of legislative over industry-led action have likened loot boxes to slot machines on the basis that both produce a random distribution of prizes which have variable value. Similarly, the visual and sound effects of loot boxes that are associated with reward have been compared to gambling products that trigger a drive for gambling in a way that is detrimental to children and young adults. These arguments reflect the position taken in Belgium, where loot boxes are classified as gambling products. While the DCMS has not introduced legislation, it is intended that appropriate parental and spending controls will mitigate the risks.

The Consultation outcome confirmed that loot boxes are not considered gambling products and will therefore not be regulated under the Gambling Act 2005 (“Act”) for the following reasons:

1. Loot boxes have no monetary value outside of a game and loot box rewards cannot be exchanged for real money, meaning players cannot technically “cash out” as they might for gambling;
2. Loot boxes do not have a “gross gambling yield” on which to base gambling duties;
3. Changes to the Act are complex and may lead to unintended consequences which can be avoided by carrying out appropriate industry-led measures before any legislative changes. This is a compelling argument within the context of the wider gambling reforms in the UK, which continue to be delayed to date;
4. If the legislation were to focus on chance, this could inadvertently limit the scope of protections and exclude other monetisation methods which should equally be addressed. On the other hand, an overly broad approach might catch other activities such as football stickers and subscriptions where the prize is not known at the time of purchase;
5. Imposed parental controls may indirectly cause limited parental oversight and an increase in younger players creating adult accounts to curb the rules;
6. The annual cost for the Commission would double if loot boxes were added to their regulatory responsibility; and
7. Whilst there is a clear “association” between loot boxes and problem gambling, it arguably cannot be concluded that there is a causative link.

Comment:

The regulation of loot boxes has long been a contentious issue and the subject of increased scrutiny in the context of problem gambling. It is therefore somewhat surprising that the government has adopted an industry-led approach over taking legislative action. However, when considering the backdrop of the further delayed gambling White Paper and the government’s review of the Act, it is perhaps to be expected that the government does not need another legislative overhaul on its desk. Nevertheless, ministers are expected to commence discussions with stakeholders in the industry via a working group, with the first update due in early 2023. With that in mind, stakeholders in the gambling sector should keep abreast of developments and consider introducing potential parental and spending controls for loot boxes on its games going forward. The message is clear that legislation will not be introduced yet, but it cannot be totally ruled out in the event the risks are not appropriately mitigated.