The UK Gambling Commission (“UKGC“) has clarified that video game ‘loot boxes’ and the purchasing of mystery in-game content do not fall within the meaning of ‘gambling’ under current UK legislation.

Giving evidence at the Department for Culture, Media and Sport inquiry on ‘Immersive and addictive technologies’, the UKGC has provided helpful clarification on whether ‘loot boxes’ or other in-game purchases whose content is only revealed after purchase are classified as gambling under UK legislation.

The Gambling Act 2005 (the “Act“) classifies “betting”, “gaming” or “participating in a lottery as gambling. “Gaming” is further defined in the Act as “playing a game of chance for a prize”. This definition can essentially be reduced to two key elements: (a) an element of chance; and (b) the possibility of winning a prize for “money or money’s worth”. As a consequence, loot boxes have carried the risk of falling within the ambit of the Act and triggering a raft of regulatory requirements throughout the game’s supply chain.

The UKGC has told MPs that such activities are unlikely to fall within the current meaning of ‘gambling’ under the Act provided there is no official way to monetise the content. However, the interpretation of whether something is ‘money’s worth’ will always depend on the exact circumstances. In the case of EA’s FIFA player packs, for example, the UKGC observed that its conclusion that player packs are not gambling was informed by factors such as EA’s efforts to prevent secondary markets and proactively stop players from exchanging the packs for cash.

UKGC chief executive, Neil McArthur, explained that the UKGC is more concerned with the risks posed by these third party secondary markets where gamers can buy, sell or bet with in-game content (known as ‘skin betting’). Unauthorised secondary markets are particularly prevalent for games such as EA’s FIFA and Valve’s Counter-strike: Global Offensive. Studies suggest that these unauthorised sites, the use of which is often expressly prohibited by the terms and conditions of use for a game, pose a particular risk to children. The number of child gamblers has quadrupled in two years, with one study reporting that 54% of 11 to 16 year olds are aware that it is possible to use real money in order to acquire loot boxes in games.

UKGC Programme Director, Brad Enright, noted that games companies such as EA have faced a ‘constant battle’ against unauthorised third party sites. Whilst the increased risk of skin-betting posed to children (regardless of whether or not the game developers intended or permitted such trading to take place outside the confines of the game) has resulted in such sites being closed down by the UKGC, Enright stressed that it is not enough for gaming companies to simply prohibit the use of such sites in their terms and conditions. He also highlighted that the UKGC’s role is not to monitor the internet on behalf of games providers.

It is clear that the regulatory heat is intensifying in relation to secondary markets and the regulator has made it clear that it expects companies to take a more active role in policing the internet for unauthorised secondary sites and to take proactive steps to enforce their terms and conditions.