The Loot Box Crackdown – Will the UKGC Participate?

Posted by Harry Kane on Tuesday, September 25, 2018

It was at the tail end of last year that loot boxes became a significant talking point in the gaming market, after the Belgian regulator challenged this concept and laid out a proposal to outlaw it completely.

The UKGC took a different approach, however, by claiming that loot boxes did not fit their definition of gambling as the available prizes could only be used in games in which they were won.

The fact that they could not be cashed out meant that they did not fit the description of licensable gambling activity, and while the regulator pledged to continually review the practice they stopped short of taking direct action.

It’s fair to say that this opinion is widely at odds with fellow regulators in the EU, with a 14 European jurisdictions joining Belgium, the Netherlands and the U.S. in expressing concern over loot boxes and the wider practice of skin betting. We’ll explore this further in the article below, while asking whether this could change the outlook of the UKGC?

Loot Boxes – The Story so Far

Video gamers will be familiar with loot boxes and the concept of skin betting, with the former including random prizes that can be utilised in specific games and are purchased using real money.

In general terms, skin betting is the wider use of virtual goods and cosmetic elements as virtual currency. Once again, these will be purchased using real money, while these items may or may not have a direct influence on gameplay.

These related concepts first hit the headlines last year, when Belgium and the Netherlands commissioned a full investigation into the use of loot boxes and their legality. Regulators in both nations ultimately found that loot boxes were in direct violation of their existing gambling laws, before banning the practice and aggressively targeting game developers who did not comply with the new legislation.

This hard line approach was recently (and unsurprisingly) tested by publisher Electronic Arts, with the team behind the FIFA franchise reliant on loot boxes to drive a significant revenue stream. The developers subsequently included a barely disguised loot box system in its recent FIFA 19 game, and this has prompted the Belgian regulators to open up a criminal investigation against the brand.

At the same time, the Gambling Regulators European Forum recently got together with the Washington State Gambling Commission, with these entities releasing a joint statement on September 17th. This statement revealed the extent of the concern that exists about the loot box systems deployed across a number of high profile games, with this described as being tantamount to gambling.

Interestingly, one of the biggest concerns revolves around a so-called “blurring of the lines” between gambling and alternative forms of digital entertainment, which is enabling potentially vulnerable and underage gamblers to access real money wagering in a number of different forms.

Why the UKGC May be Compelled to Change Course

The idea of lines being blurred between regulated and unregulated forms of digital entertainment is an interesting one, as this was also touched on by the UKGC in its initial review of loot boxes last autumn.

The British regulator also raised concerns that loot boxes and skin betting represented a grey area in respect of gambling law, despite the fact that they did not fit the technical definition of online wagering.

The question that remains is whether this amount of common ground could be enough to compel the UKGC to join forces with its European counterparts? Many would argue no, particularly given the increasingly strained nature of Brexit and the impact this is having between the UK and various EU member states.

This may be a short-sighted view, however, particularly given the UKGC’s renewed focus on safeguarding vulnerable players and creating a more transparent iGaming market for the future. These remain two of the organisation’s three core strategic objectives through 2021, while they have already influenced a number of regulatory decisions taken during 2018 so far.

The first concern here is that if problem or underage gamblers are able to access a form of real money wagering through loot boxes and video games, the UKGC has a duty to take action. Similarly, it cannot sit idle while gambling activities are made accessible to an unverified customer base, as this will reflect badly on the gambling industry and strike a significant blow to its reputation.

Such inactivity would also pale when compared with the seemingly strong and proactive approach of European regulators, creating wider issues for the perception of the UK marketplace as a whole.

Will the UKGC Follow the Example of Euro Regulators?

The issue of loot boxes has become a major talking point in the global marketplace, along with social casino gaming and the rise of underage wagering as a serious social issue.

The approach of some game developers has hardly helped either, with the team behind Star Wars: Battlefront II coming under heavy fire for their use of loot boxes. This game captured the attention of Washington and the U.S. Congress for its supposedly predatory tactics last year, while the developers’ defensive response has already become the most disliked comment ever on Reddit.

Despite its initial stance, there’s no doubt that the UKGC could be encouraged to outlaw the use of loot boxes in the UK, or at least implement stringent regulatory measures to help protect gamers. This would require some forethought and collaboration, but this type of response would certainly be consistent with the organisation’s strategic objectives and ethos.

Ultimately, it will be hard for the UKGC to act unless it announces a further review and reclassifies loot boxes as examples of gambling activity. This may be difficult given that the nature of loot boxes remains unchanged since last year, but it’s the only way that the regulator could look to take direct action against the practice and offending developers.