Legal update - Loot boxes: are we asking the right question?

Legal update - Loot boxes: are we asking the right question?

By IAGR Media

Legal update by John Dalzell, Dentons Australia

'Whether loot boxes fulfil the technical requirements to be classified as gambling is a legal matter that will vary from territory to territory and from country to country. However, the evidence presented here clearly shows that there is a very real relationship between loot box spending and problem gambling. It is our opinion that this relationship remains serious and potentially dangerous regardless of whether loot boxes are technically considered a form of gambling or not'

David Zendle, York St John University, Video game loot boxes are linked to problem gambling, published in the US National Library of Medicine National Institutes of Health 21 November 2018

Generally speaking, a loot box is a digital container embedded within a video game which contains randomised rewards gained by playing the game or using real money. These ‘in-game’ transactions have produced literally billions of dollars in revenue for game manufacturers and have been the subject of recent scrutiny by governments.

When governments and regulators have considered whether spending real-world money on loot boxes in video games should be outlawed, they have approached the issue by asking themselves the question 'is the use of loot boxes gambling?' To answer that question, there then must then necessarily follow an analysis of the elements involved in playing with loot boxes against the legal elements of gambling in that jurisdiction. For example, is it a game of chance, is the player able to influence the outcome of the game, is there a reward with real-world value at the end, and so on.

Applying this technical approach has led to loot boxes being banned in the Netherlands (being held to be a breach of the Dutch Betting and Gambling Act, Article 1) and, shortly after, in Belgium, where the Gaming Commission held that loot boxes constitute a ‘game of chance’ and therefore offended its gambling legislation.

These decisions are in contrast to the UK and US, who have both ruled the loot boxes do not contradict their gambling regulations (in answering the question, the UK Gambling said the boxes did not come under its control because rewards were usable only in the game).

In my own jurisdiction of Australia, the issue became so bogged down in political in-fighting that no logical conclusion either way could be made. The Australian Senate Committee tasked with investigating loot boxes was chaired by Greens Senator Jordon Steele-John, who recommended that 'Parliament take action to ensure that no young person who plays video games is exploited by gambling-like mechanisms' before sadly resigning himself to the fact that the other committee members did not agree with him:

'[the other political parties] combined to outvote me in this effort and replace the committee’s considered and appropriate recommendations with a single watered-down recommendation for a government review.'

While the legal analysis of loot boxes is an interesting exercise in legal semantics, recent research on the effect of loot boxes on young players suggests that it may not be the correct approach.

In a large scale survey of gamers (over 7000) a significant link was found between the amount that gamers spent on loot boxes and the severity of their problem gambling leading the researchers to conclude that the gambling-like features of loot boxes are specifically responsible for the observed relationship between problem gambling and spending on loot boxes. While the authors concede that there is a chicken and egg quandary as to whether loot boxes cause gambling or gamblers are attracted to loot boxes, either way, there is enough of a statistically significant link for regulators to be concerned.

These findings support the conclusions of Dr Daniel King’s excellent literature review1 on gaming and gambling crossover to identify whether these activities may contribute to the normalisation of gambling among young people. Dr King found that there is academic commentary on, and some preliminary research support for, the notion that simulated gambling in adolescence increases the risk of monetary gambling in adulthood.

Dr. King also hit on another problem with applying a strict legal analysis of loot boxes preferred by most regulators and all governments: there are often several legal entities involved in the process – and while not one single company may constitute gambling, the collective effect of the companies together is to promote and facilitate gambling. King puts it succinctly in his conclusion:

'many of the commercial relationships and corporate strategies at play appear to exist and operate independently of each other. For example, the companies that develop and publish online games with monetised goods (skins) are understood to be independent of the operators that offer gambling products involving skins. Similarly, the online social influencer that promotes an online game that enables avenues to gamble does not usually directly benefit from the commercial success of that game or gambling activity. Thus, it may be appropriate to conceptualise the relationships between these various companies and stakeholders as a ‘corporate synergy’, where the popularity and success of one party influences the popularity and success of another party but where these parties are, by legal definition, otherwise distinct and separate.'

Therefore while the simple process of opening a loot box may not itself constitute gambling and offend gambling legislation, the fruits of the loot box, such as skins, can be used to gamble through a separate company or companies.

Conclusion

If recent studies and research are correct in their conclusion that using loot boxes is likely to lead to gambling and even problem gambling by normalising gambling behaviours in the young and vulnerable gamer, regulators should consider taking a much broader view about the harms of loot boxes rather than focusing on a narrow legal analysis of gambling legislation. The question perhaps should not be 'is the use of loot boxes gambling?' rather 'is the use of loot boxes likely to lead to problem gambling'? The research suggests it does.

[1] King, D 2018, Online gaming and gambling in children and adolescents – Normalising gambling in cyber places, Victorian Responsible Gambling Foundation, Melbourne.

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