The prevalence of loot boxes has been a relatively recent phenomenon in online games, a way of monetising games that are often otherwise free to play. This rising prevalence has been accompanied by increasing concerns that they are a form of online gambling, and therefore ought to be regulated like other forms of gambling. This article examines the controversy and the issues that governments, industry and civil society must grapple with when considering loot boxes.

What are loot boxes?

Loot boxes are in-game mechanisms which allow the player to “win” random, in-game virtual items. As the player does not know what virtual item they will receive when they open a loot box, it is essentially a “game of chance”. In some instances, the virtual items purchased can influence the player’s in-game success – for example, they could win a better weapon. In other instances, the virtual items may have no effect on the player’s success – they could be a purely cosmetic feature to change the appearance of the player’s in-game character.

Loot boxes may be “earned” by the player based on how they have played the game, or how long they have spent playing. They may also be bought, either directly or indirectly, by real world currency. The purchase of loot boxes using real world money, a form of “microtransaction”, is the current source of controversy.

What is the controversy?

The spending of real world money to purchase what is essentially an opportunity to participate in a game of chance is what leads many to conclude that loot boxes are a form of online gambling, or should at least be regulated as a new form of online gambling.

The controversy around loot boxes has been recently considered by the Australian Senate’s Environment and Communications References Committee. The Committee published its final report in November 2018. The Committee did not decide one way or the other as to whether loot boxes are a form of gambling, instead recommending that the Government undertake a more comprehensive review.

What about “pay to win”?

Another controversial aspect of loot boxes is their “pay to win” characteristic. This is the idea that players feel as though they are required to purchase loot boxes in order to win in-game items, stay competitive, and make it more likely that they will progress or win. In some games, the alternative to purchasing loot boxes is that players are required to play the game over long periods of time to “earn” rewards that could otherwise be purchased and realised instantly using real-world money. The controversy of “pay to win” is the idea that success in the game is not determined by practice or skill, but rather by how much a player is willing to spend on in-game items. Loot boxes that only allow players to win items that do not affect success in the game avoid “pay to win” concerns.

While “pay to win” is a controversial topic in gaming circles, it is not directly relevant to considerations as to whether loot boxes constitute a form of online gambling (or ought to be regulated as such). That said, consumer law issues may arise if players are misled into purchasing games (or loot boxes) in circumstances where they were unaware that further purchases of loot boxes or other in-game items would be required in order to progress, compete or win in the game.

Not a clear-cut case

One reason why the Committee could not come to a definitive conclusion is because loot boxes do not neatly fall within the current legal definitions of online gambling.

The Commonwealth regulates the gambling industry through the Interactive Gambling Act 2001 (IGA). The IGA defines gambling as a game with an element of chance that is played “for money or anything else of value”, and where consideration has been provided by a customer to play or enter the game. The Australian Communications and Media Authority (ACMA), in its submission to the Senate committee, considers that loot boxes cannot be regarded as gambling under the IGA because they are not played for money or anything else of value.

Gambling is also regulated by the States and Territories, each with their own definitions and requirements. The NSW regulatory body, Liquor & Gaming NSW, considers that loot boxes which are not capable of being monetised outside the game, do not fall within the definition of gambling under NSW gambling laws. The Victorian Government, on the other hand, considers that the definition of gambling under the Victorian regulation means that loot boxes must be considered on a case-by-case basis. The Queensland Attorney-General and Minister for Justice did not comment on whether loot boxes meet the Queensland definition of gambling but did highlight the difficulty for States and Territories to regulate them due to the multi-jurisdictional nature of gaming.

Where the position of some of the regulators becomes less clear is when we consider that the virtual items obtained in loot boxes in some games are able to be traded between players, including for real world currency. This includes the ability of gamers to trade or sell their game accounts as a whole, including any rewards earned (or paid for) along the way, on third party platforms. The benefits of loot boxes are therefore capable of being described as valuable, in a real-world money sense.

Are these arguments missing the point?

While some have criticised this interpretation of the concept of “value”, in many ways these arguments are missing the point. The approach of governments, industry and civil society should be whether loot boxes should be regulated (whether as a form of online gambling or not) – not whether they fall within existing statutory terms that were drafted well before their advent.

When seen in this light, and in the context where Australian regulators have so far appeared to be content to take a “hands off” approach under existing rules, industry has the opportunity provide leadership on this issue, before government and regulators feel compelled to intervene. We also note that while some other jurisdictions have banned loot boxes, it is not necessarily the case that Australia will follow suit given the way that online gambling is currently regulated (for example, via point-of-consumption taxes and other controls, rather than outright prohibition).

It should also be noted that many games developers have sought to monetise their products in new ways that avoid the potential problems of loot boxes. This includes concepts such as battle passes, or allowing players to see what they will obtain in loot boxes (thereby, removing the element of randomness).

Authors: Andrew Hii and Catherine Gamble

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