In a surprising turn of events, the UK government has decided in July this year that video game loot boxes will not be regulated under betting laws. This decision comes despite the government finding a link between loot boxes and gambling harms. Instead of imposing regulations, the government has made a likely futile call on the video game industry to take action to protect young people.
Loot boxes, virtual bundles of random items exchanged for real-world money, have become increasingly prevalent in video games and the main source of income for the game developer. Games such as Apex Legends, Overwatch, Star Wars Battlefront II, FIFA 19, Middle-earth: Shadow of War, Gears of War 4, and Halo 5: Guardians are among those that have incorporated loot boxes. The presence of loot boxes in video games has increased from about 4% to 71% over the past nine years.
According to a study from Juniper Research, revenue generated from loot boxes used in video games is expected to exceed $20 billion by 2025 worldwide. This figure represents a significant increase from the revenue that was reportedly generated in 2020, which was $15 billion. The UK represents about 3% of the global gaming market, which means that loot box revenue in the UK is estimated to be nearly $1 billion in the near future.
As reported by LiveCasinoComparer.com, this comes close to the revenue of some portions of the gambling industry. The total UK gambling market size is estimated to be around £12.6 billion, £4.0 of which are generated by online casino games, £2.9 billion of which is from slot games. This would mean that the live dealer casino market, estimated to be around £0.8bn, isn’t that far from the loot box revenue. While the casino industry is heavily regulated, gambling-like behavior inside games is not.
The debate around loot boxes has intensified in recent years, with some likening them to gambling. In fact, the House of Lords has called for immediate gambling regulation, stating, “If a product looks like gambling and feels like gambling, it should be regulated as gambling.” However, the government has chosen a different path.
Following the publication of its July 2022 response to the call for evidence, the Department for Culture, Media and Sport (DCMS) convened a working group of game industry representatives to improve player protection. This led to the trade body UK Interactive Entertainment, publishing UK games industry guidance on loot boxes in July 2023. The government has stated that, if fully implemented, this guidance has the potential to enhance player protection.
Despite the lack of formal regulation, the issue of loot boxes remains a hot topic. Recent concerns over the potential harms of loot boxes, particularly to children, have prompted attempts to regulate them throughout the world. Proposed government responses have focused on two avenues for regulation: banning the sale of games with loot boxes to minors and increasing transparency through labeling and disclosure of odds within games with loot-box mechanics.
As the debate continues, the future of loot boxes remains uncertain. What is clear, however, is that the conversation around loot boxes, their impact, and their regulation is far from over.
The Case Against Loot Boxes
Critics argue that loot boxes are a form of gambling. They point to the element of chance involved in opening a loot box, which they liken to spinning a roulette wheel or playing a slot machine. They also note the potential for addiction, with players enticed by the possibility of winning rare items.
The biggest argument against loot boxes is that they enable young children to participate in gambling-like behavior, with money involved, at a tender age, without any regulation, while the gambling industry itself is heavily regulated. Critics point out that loot boxes are the back door to gambling, disguised as a video game, without any real RTP values published and without independent audits for fairness.
Research has shown a correlation between loot box use and problem gambling behavior. A report by researchers at the universities of Plymouth and Wolverhampton found that loot boxes “are structurally and psychologically akin to gambling” and that a significant number of children are opening loot boxes. The report concluded that “games developers, unwittingly or not, appear to be generating outsized loot box profits from at-risk individuals (these are likely to include both people with gambling problems or problematic patterns of video gaming) – but not from wealthy gamers”.
The Impact on Children
Children are particularly vulnerable to the allure of loot boxes. Research indicates that of the 93% of children who play video games, up to 40% have made a loot box purchase. Furthermore, about 5% of gamers generate half the entire revenue from loot boxes. This suggests that a small proportion of players, many of whom are likely to be children, are spending significant amounts of money on loot boxes.
In-game purchases such as loot boxes can cause financial and emotional harm to children and young people. Children find it difficult to track their spending in games and fail to understand the value of money, leading to poor spending decisions. Digital items are highly desirable and collectible, driving repeat buying.
The Industry’s Response
In response to these concerns, the UK games industry has agreed to abide by new principles and guidelines around loot box law in the UK. The first principle will effectively restrict anyone under the age of 18 from acquiring a loot box without the consent or knowledge of a parent, carer, or guardian.
However, critics argue that these measures do not go far enough. They call for stricter regulation, including a complete ban on loot boxes in games marketed to children. They also advocate for greater transparency, with clear disclosure of the odds of winning items in loot boxes.
Conclusion
The debate over loot boxes raises important questions about the intersection of gaming, gambling, and regulation. As the popularity of loot boxes continues to grow, so too does the need for a comprehensive and effective regulatory framework. Whether this will take the form of industry self-regulation, government legislation, or a combination of the two remains to be seen. What is clear, however, is that the issue of loot boxes is not going away anytime soon. As such, it is incumbent upon all stakeholders – game developers, regulators, parents, and players alike – to ensure that gaming remains a safe and enjoyable pastime for all.