Lootboxes, gambling, and regulating video games

This column touches on the sensitive topic of gambling addiction and may be uncomfortable for some readers.

A few days ago, the British House of Lords (the upper chamber of the UK Parliament; roughly equivalent to the US Senate) asked the British government to urgently intervene and regulate lootboxes. The House of Lords Gambling Committee, which is responsible for advising on gambling legislation in the UK, has recommended that lootboxes – in-game mechanics which dish out random rewards in exchange for money – be regulated under the Gambling Act.

I touched on this topic while writing a column on video game addiction a few weeks ago. Not every case where an individual has developed gaming disorder is related to lootboxes and randomised rewards, but the two are more closely-tied together than many people realise. For example, I’ve heard anecdotally from some gamers who had been treated for gambling addiction in the past, for whom games had become an escape. The introduction of lootboxes made some games inaccessible to those people, as the lootboxes were triggering the same feelings that they used to get from gambling.

The UK House of Lords.

Some journalists and critics have long argued against lootboxes for this very reason. For several years, the issue didn’t receive much attention. But in the aftermath of the controversy surrounding Star Wars Battlefront II in 2018, lootboxes hit the mainstream media in a big way. Efforts to bring in regulation kicked off in jurisdictions from Hawaii to Belgium and beyond, and it’s around this time that the UK government began to investigate the practice, culminating in the House of Lords Gambling Committee making this recommendation.

I mentioned Belgium, and the small European nation is one of only a handful where lootboxes are strictly regulated. Several EA Sports titles – most prominently the FIFA series of football games – were impacted by this, and had to make changes in order to remain on sale in Belgium, cutting out their paid-for lootboxes. With no disrespect meant to Belgium, a small country with a small population doesn’t really effect a big company’s bottom line in a major way. While EA and others protested the decision, they were able to absorb and essentially ignore its impact, and continue to sell lootboxes in other juriscictions. What is needed is an international approach.

A bigger country like the UK will be far more noticeable, if indeed strict regulation of the practice is brought in. But even so, if it’s profitable to sell these in-game items elsewhere and games can be easily adapted to strip them out for the UK market, companies will almost certainly continue to sell lootboxes in other countries for as long as they can.

Belgium was one of the first countries in the world to take a hard line on lootboxes.
Photo Credit: fdecomite on Flickr via Wikimedia Commons

Much of the controversy and argument surrounding lootboxes is whether they should technically qualify as “gambling”. What is the definition of the word? Is the fact that we’re dealing with digital items relevant? If the items can’t be re-sold, do they have any “real-world value”? All of these questions and more are part of the discussion, and there are arguments on both sides. However, in a lot of cases, in-game items obtained via lootboxes can indeed be re-sold, either through a game’s own in-game marketplace or through third-party websites often termed the “grey market”. This does vary depending on the game, but it’s not right to say that the practice of re-selling in-game items doesn’t exist anywhere.

The basic way lootboxes operate is like this: players either purchase a lootbox directly, with their local currency via a credit or debit card, or they must first purchase some form of in-game currency which is pegged to their local currency at a set rate. The lootbox then randomly decides what item is contained within by a complicated algorithm. Some of the rarest and most valuable in-game items can have incredibly small chances to be obtained – in some cases far below 1%. Many items come in sets, with players who aim to complete a set having to purchase tens or even hundreds of lootboxes to unlock everything. Furthermore, many items are only available for a limited period of time, with the clear intention of driving lootbox sales before the time is up.

The legal loophole here, as mentioned above, is that because the items are deemed to have no “real-world value” – because they’re simply in-game items – the process of spending money to gain a random item isn’t “technically gambling”. What the House of Lords Gambling Committee is saying is that this loophole can be closed – today, in theory – without making any major changes to the law. They have essentially said that lootboxes can be regulated in the same manner as other “games of chance”, and because they look and feel like gambling, and trigger the same feelings in players, they should be treated as such.

Lootboxes should be categorised alongside other “games of chance”, according to the House of Lords Gambling Committee.

It’s worth pointing out that the work of the House of Lords Gambling Committee wasn’t focused solely on lootboxes and was in fact a broader report looking at the state of gambling in the UK as a whole. Another issue related to video games that was touched on was the issue of gambling in e-sports. This really does seem like a case where big games companies want to have their cake and eat it too. On the one hand they’ll argue to players and governments that nothing they do is even close to gambling. On the other hand they’ll get in bed with gambling websites and betting shops, bragging to them about how much money e-sports gambling can bring in. Surely they can’t have it both ways!

Because video gaming always has been a child-friendly hobby, with many games deliberately aimed at under-18s and/or being rated by the industry’s own ratings body as being suitable for children, this report focuses in part on children. Children having access to games with in-game lootboxes has been a problem in some way or other for years – every few weeks another case will hit the news where a child spent an insane sum of money on something like FIFA Ultimate Team or even Overwatch. Many of these games are designed to present lootboxes in a visually appealing way, often with any mention of money in small print or hidden behind the wall of in-game currencies, further detaching players from how much they’re spending. In a world where more and more transactions take place digitally, and where money is little more than numbers on a screen, it can be very easy to overspend, even for adults.

Some of the games industry’s defenders will say that it’s the responsibility of parents and caregivers to supervise children and ensure they don’t overspend or have issues with lootboxes. But this in itself is a tacit admission that such games and such in-game marketplaces are unsuitable for children. How can a game possibly be rated for ages 3+ or 7+ if a significant part of it is not suitable for children? Think about it like this – if a film received a U rating (suitable for all audiences) but contained a ten-minute graphic sex scene, I think most people would agree that even if the other hour-and-a-half of the film was 100% child-friendly, the fact that one significant part of it is not should mean the film as a whole is considered unsuitable and should receive an appropriate rating. In short, if your game requires constant parental supervision due to the potential for children to gamble with their parents’ credit cards, the game as a whole is not suitable for children.

Are games with lootboxes really suitable for ages 3+?

The games industry and their self-regulatory body PEGI disagrees. While they have recently relented and agreed to put warning labels on general microtransactions, the fundamental point that in-game gambling is not suitable for kids is something they haven’t been able to address. And this is part of a broader point – self-regulation in the games industry doesn’t work, as indeed it doesn’t work in any other industry. The reason laws exist regulating, for example, tobacco sales is because the tobacco industry proved unwilling and unable to self-regulate and work to keep cigarettes away from children. Video games are in a similar position, and when an industry is unregulated – as games essentially are – sooner or later governments have to step in.

After much debate, PEGI did eventually agree to warn gamers of microtransactions – not even lootboxes specifically – by affixing a warning label to titles that contain them. However, this was still too much for some games companies, who began to evade even this tiny step toward regulation. By releasing a game without lootboxes, then implementing them later via a patch or update, not only could games bypass the PEGI rules during their crucial first days and weeks on sale, but reviews – which typically mention in-game lootboxes and other microtransactions – would completely omit them. It was sneaky and duplicitous, and proof that some games companies are willing to go to comical lengths to avoid even the smallest amount of regulation and criticism.

PEGI’s “in-game purchases” warning label.

As more and more games are purchased digitally, warning labels on boxes are far less important anyway. Fewer people than ever even see the warnings, and while technically PEGI age ratings are legally enforceable – though they only have been in the UK since 2012 – in practice it’s very uncommon for anyone to be prosecuted for selling a game to someone under the PEGI-recommended age, at least here in the UK. And again, to reemphasise the point, as gaming as a whole moves ever-closer to an all-digital future, where games are bought from home via the internet, there’s no one to prosecute for selling a game to someone underage anyway.

Because of the failure of self-regulation, and the insistence of big games companies on pushing further and further toward in-game economies based on gambling, regulation has seemed an inevitability for some time. Star Wars Battlefront II may have been the proverbial straw that broke the camel’s back, but if that game hadn’t come along, sooner or later another title would’ve and we’d be in the same situation. Those of us who follow video gaming more closely have known for a long time that lootboxes are gambling. They behave like gambling, even the games they’re in treat them like gambling, and it was only a matter of time before governments did too.

While I for one welcome this tentative step to regulating lootboxes – if indeed the UK government goes ahead and implements the recommendation – what is really needed is comprehensive regulation of video games in general. An independent body – not PEGI, which is merely an arm of big games companies – needs to have the authority to regulate games properly. And if games companies attempt to get around restrictions – such as by cutting out lootboxes and implementing them post-release via an update – they need to be punished. This needs to be the first step toward proper regulation of games companies and the games industry, to ensure that when lootboxes are regulated out of existence they can’t simply start up an equally harmful practice.

2018’s Star Wars Battlefront II brought the issue of lootboxes to a head.

Lootboxes are more than a mere annoyance. People have seen their lives ruined, with debts incurred to the tune of thousands or even tens of thousands of pounds. Video game companies like to brag to investors about so-called “whales” – an industry term for the small percentage of players who spend a lot of money on in-game purchases. This derogatory, dehumanising term exposes what they really think of their players: not even human beings any more, we’re animals to be exploited. They won’t stop trying to wring every last penny out of their players until they are forced to – which is why I hope that this recommendation is implemented swiftly and in full, putting a stop to companies preying on vulnerable people.

To paraphrase something I said when discussing video game addiction, it isn’t enough to say “well I don’t have a problem with gambling, so it must be fine”. That is a blinkered and selfish way to look at the topic. For many people, including many children and parents, lootboxes are a real menace, and often the consequences are seen far too late when money has already been lost. If you personally don’t buy lootboxes – as I don’t myself – then that’s great. Good for you. But the practice is harmful to many gamers, and there can be no denying that the implementation of lootboxes makes many games worse. In order to make lootboxes appealing, in-game content which could be acquired through normal gameplay – as games of the past offered – has to be cut and hidden behind a paywall and randomised rewards. These are designed to look exciting and to give players a feeling comparable to playing a slot machine or a game in a casino. Winning may feel good – but it often costs a lot of money to buy enough lootboxes in order to “win”. The only real winners are the games companies themselves.

Lootboxes make games less enjoyable.

Because in many cases in-game items can be resold – if not within the game itself then almost certainly via the online “grey market” – the last technical defence of lootboxes falls away. There is something of “real-world value” contained within each lootbox; if there wasn’t, no one would be buying them. The practice is gambling, it’s just taken time for governments to catch up to the reality of the situation. That’s understandable in a way – technology moves fast, after all – but it’s a great argument for setting up proper, independent regulation of video games to ensure that this is the last time they’re able to get away with something like this.

With video games being more profitable than ever – and with prices for games set to rise next generation (check back for my thoughts on that in the coming days) – there’s no excuse for lootboxes. They aren’t necessary to help make games more cost-efficient. Gaming as a hobby continues to grow, and with that growth companies can sell more and more copies of games and bring in ever-increasing amounts of cash. Lootboxes are nothing more than exploitative in-game gambling, and it’s high time we got rid of them permanently.

It took a long time to get here. It’s a story of failed self-regulation, corporate greed, and attempts to suppress valid criticism. I truly hope that now a major investigation has taken place, regulation will follow.

The House of Lords Gambling Committee report referenced in this article may be found by following this link (warning: leads to an external site): House of Lords Gambling Committee. Header image courtesy of the user Tristan Surtel on Wikimedia Commons. This article contains the thoughts and opinions of one person only and is not intended to cause any offence.