Loot Boxes and the UKGC – A Regulatory Challenge

Posted by Harry Kane on Friday, December 22, 2017

As if the online gambling market was not complex enough by itself, we must now consider the impact that cross-gaming has had on this space. After all, title such as GTA V have already enabled players to place real money wagers on various casino games, all within the context of a relevant narrative.

The success of this initiative has compelled other video games to integrate various forms of real money wagering, many of which traverse the fine lines between in-app purchasing and gambling. Take loot boxes, for example, which have recently become a controversial talking point and currently feature in an array of eighth generation console games.

In this article, we’ll explore the concept of loot boxes and similar features, before asking how the UK Gambling Commission (UKGC) is likely to regulate these in 2018.

What Are Loot Boxes?

Loot boxes first game to the attention of regulators at the end of November, when Belgium’s increasingly proactive Gambling Committee took it upon itself to challenge the concept of loot boxes. More specifically, the committee asked whether or not these brand new console gaming features should be considered as gambling, and decided empathetically that the answer to this question was yes.

This decisive response was delivered despite the relatively vague nature of lot boxes, which are essentially virtual containers that can be purchased by gamers for real money. They contain random contents that are relevant to each specific game, including everything from cosmetic items to power-ups and hardware that can dramatically increase the players’ chances of achieving their objectives.

The unknown and opportunistic nature of loot boxes, coupled with the perceived psychological rush of essentially wagering on their contents, creates a simple scenario that bears numerous similarities to gambling. These similarities were ultimately impossible for Belgium’s Gambling Committee to ignore, despite the fact that developers packaged these features as advanced, in-game purchase options.

The Challenge Facing the UKGC and its Stance so far

While Belgian’s tough stance on loot boxes has earned plaudits in some quarters, there’s no doubt that this type of gaming features remains a grey area from the perspective of most regulators. Take the UKGC, for example, which recently determined that loot boxes did not meet their rigid and comprehensive criteria for gambling, primarily because the prizes unlocked are only usable in the games in which they’re won and cannot be cashed out. From a technical perspective, they therefore do not fit the bill for licensable gambling acvitiy, and it’s interesting to note that the U.S. regulator adopted a similar approach.

However, this did not stop the UKGC from expressing concern over loot boxes and their impact on potentially vulnerable gamblers, particularly as many of the games that feature these are accessible to children. From EA’s Battlefront II to Blizzard’s Overwatch, there remains a strong concern that loot boxes could introduce children to the concept of gambling at a young age and encourage potentially damaging behaviour in the future.

Given that the UKGC has made the protection of vulnerable gambler a strategic focus for the next four years and beyond, it’s fair to say that representatives will be keeping a close eye on loot boxes and their development in the months ahead.

Numerous U.S. state governors have also expressed concern, despite the regulator’s claims that loot boxes do not fit the classic definition of gambling. Hawaiian state representative Chris Lee went so far as to describe these features as example of “predatory gaming”, for example, while claiming that they are specifically designed to exploit human psychology and profit directly from this. He is even formulating legislation to ban this practice, with others likely to follow suit in 2018.

Blurring the Lines – Loot Boxes in 2018

For now, the majority regulators seem to be content with allowing loot boxes to remain unregulated. This is certain to change in 2018, however, particularly with bills being prepared for the U.S. Senate and regulators in Europe and Australia likely to push for bans during the next few months. Even the UKGC will be forced to pay closer attention to the deployment of loot boxes, after a petition for relevant gambling laws to be adapted passed the 10,000 signatures required to trigger a response from the UK government.

The petition, which seeks to further regulate video games that feature gambling mechanics and indirectly target children, will take the debate surrounding loot boxes onto an entirely new level and almost certainly force the UKGC to review its guidelines on computer games in the near-term. In the most extreme scenario, this could see loot boxes recognised as a form of in-game gambling, making is eligible for more stringent regulatory measures and sanctions.

The petition also focused on the idea that the value of loot boxes is often lower than the amount wagered by players, and while this is hard to define it certainly provides an important talking point for regulators.

The UK regulator has already stated that loot boxes have served to further blur the lines between video gaming and gambling, and that it intends to monitor this space closely in 2018. So, even though it confirmed that it was only duty-bound to intervene directly once the practice met its definition of gambling under UK law, it could well be forced to revise this stance if the government chose to issue a directive.

The Last Word

Make no mistake; this represents a potentially industry-defining regulatory issue in 2018, and one that will provide a huge challenge to the UKGC. The debate is already one of the most divisive and furious to have gripped the gaming market in years, while it will also have an impact on the development of console games and responsible gambling practices in the future.

In simple terms, billions of dollars are on the line here, with console game developers becoming increasingly reliant on in-app purchases to maintain their profitability in the current marketplace. Remember, console games are continuing to borrow heavily from the freemium gaming template, meaning that loot boxes and similar purchase options are set to play a pivotal role in making titles more accessible to players.

Should they subsequently be heavily regulated or outlawed, developers would be forced to reconsider this approach the redefine their future revenue streams.