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Loot Boxes – Gambling or not?

Microtransactions and Loot Boxes

Most games nowadays, whether on console, PC or mobile, are likely to include micro-transactions, allowing the purchaser to either acquire new cosmetic items for their character or a boost to their gaming performance, such as access to better equipment which would in return lessen the difficulty of the game, better known as a ‘Pay-to-Win’ model. These pay-to-win loot boxes are extremely disliked by the gaming community and have received a great deal of backlash, as was seen before the ‘Star Wars: Battlefront II’ launch. The Battlefront progression system envisaged players purchasing over a €100 worth of boxes and in-game currency over and above the €60 price tag of the base game, in order to unlock powerful characters putting them above the “free-to-play” player-base (free-to-play meaning that they were not going to pay anything besides the base cost of the game) who wished to acquire characters through normal gameplay which was going to require roughly 40 hours to unlock a single character.

Over the course of the past four years, game publishers, more often than not, have started to lock in-game items behind ‘Loot boxes’. Loot boxes are virtual boxes which contain a number of different items of different rarities. The rarer the item, the less chance the purchaser has of finding it. Users wishing to acquire such items may unlock such boxes either through the game’s in-game currency, which is purchased with real-world currency (as is the case for “Rocket League”, where players must first purchase keys through the in-game store), or they may purchase loot boxes by paying in their own currency (DotA2, CS:GO). As a result, loot boxes as microtransactions, are a big part of modern gaming revenue.

However, one must note that some games allow players to acquire loot boxes through gameplay as a reward for reaching a particular milestone or achievement. Lastly and most importantly, the virtual items contained within may sometimes possess monetary value when they are tradable via a marketplace. This would apply, amongst other examples, for games developed and published by Valve, which allow players to trade, buy or sell items on the Steam Community Market.

Indeed, much of the legal issues surrounding loot boxes arise due to concepts of transferability, monetary value and publisher profits. As already discussed above, transferability means that the items received from loot boxes are tradable between individuals, allowing them to become commodities through real-world currencies. The ability to transfer items draws a line between loot boxes in a game like Rainbow Six: Siege, where skins acquired cannot be traded, and games like CS:GO (Counter-Strike: Global Offensive) or DotA2, where skin trading is a considerable part of the metagame ecosystem. Some jurisdictions may consider the latter as being gambling due to transferability whilst the Siege model would not.

In addition to the difference between transferable and non-transferable items, one must also be aware of the distinction between games were real-world money can be spent on transferable items, and situations where individuals can spend real money to bet on in-game items. Back in 2016, Valve had to take action against certain aftermarket skin betting sites for CS:GO skins (some are known to sell for thousands of dollars per skin). While the issue of aftermarket skin betting is not topic of discussion per se, the transferability and real-world value of items originating from loot boxes through skin betting could classify certain loot boxes as gambling.

Regulation Across Different Jurisdictions

Belgium – In 2018, Belgium declared loot boxes as gambling, therefore making them illegal. Game publishers found to be in violation of these regulations risk a prison sentence up to five years and a fine of up to €800,000. In cases where minors are involved, the aforementioned penalties are doubled. Publishers are currently trying to provide clarifications on the matter as they disagree that loot boxes are considered to fall within the definition of gambling, stating that whilst gambling activities such as Slots have a chance at not rewarding the player, there is no such thing as an empty loot box. However, earlier this year, we saw FIFA producer Electronic Arts drop its in-game currency for FIFA in Belgium over fears of excessive penalties and legal consequences, not long after its refusal to stop selling loot boxes.

Netherlands – In 2018, the Netherlands Gaming Authority also started to enforce regulations whereby certain loot boxes were declared to be gambling. The Authority asked game publishers to start allowing loot box purchasers to preview exactly what they would be receiving. Valve was once again targeted because of the loot boxes found in DotA2 and CS:GO, which both have different drop rates on items, depending on its rarity and quality. The Dutch player-base is now able to preview exactly what the loot box will drop prior to paying for it. As a consequence, Dutch players are not able to buy loot boxes in bulk, but they may buy and open a new loot box once the one in their inventory is opened.

China & South Korea – These countries require publishers selling loot boxes to disclose the probabilities of receiving each and every item within the boxes. In addition to this, in 2017, China also passed a law which prohibits the sale of virtual “lottery tickets”, forcing Blizzard to remove the sale of Overwatch loot boxes with real-world money. Players now buy in-game currency and receive loot boxes as a “gift” for buying the currency.

Australia – Sale of loot boxes is to be restricted to people over the legal gambling age of 18. This was a recommendation made by the Australian government after an inquiry on loot boxes. However, the recommendation has not yet been codified.

The Australian Environment and Communications Reference Committee in its conclusion stated
that “the levels of spending and state of mind seen in heavy loot crate purchasers is very similar to those who gamble in more traditional ways. Gamblers chase the emotional high of a big win by pumping more and more money into a game of chance. Since loot crates award items randomly, gamers get stuck in a similar cycle.”

France – ARJEL, the Regulatory Authority for Gaming, ruled that loot boxes do not fall within the legal definition of gambling, its reasoning being that items obtained through loot boxes have no value in the real-world (although as already discussed, some items actually do have value).

Malta – Although for the time being there are no regulations in place, the MGA stated that it is something that it will look into in 2019.

During the 2018 Gambling Regulators European Forum (GREF), 15 gambling regulators from Europe and the US, got together and announced that they will “address the risks created by the blurring of lines between gaming and gambling”. The key focus for the parties involved appears to be “tackling unlicensed third-party websites offering illegal gambling linked to popular video games“.

This publication is provided for your convenience and does not constitute legal advice.

For more information please contact Mr Reuben Portanier on rportanier@afilexion.com or Dr Gabriel Fenech on gfenech@afilexion.com

This publication is protected by copyright © 2019 GTG Advocates and © 2019 Afilexion Alliance Company Limited.