Anyone familiar with the video game industry will be familiar with ‘loot boxes’. For video game developers, loot boxes provide an effective way to monetise their content, even if the game itself is free to purchase. For gamers, loot boxes can give them a competitive edge over other gamers. According to the UK Children’s Commissioner, ‘[t]he current loot box market is estimated to be worth £20 billion worldwide’.
Despite the monetary and competitive advantages loot boxes can provide for both video game developers and players, comparisons have been drawn between loot boxes and gambling. Given that many video games are also predominately played by children, the proliferation and operation of loot boxes is becoming a matter of increased public and regulatory interest globally, including in Australia which has since conducted its own first government inquiry into the provision of loot boxes here.”
Since then, Australia has also conducted its own first government inquiry into the provision of loot boxes here.
What is a ‘Loot Box’
Loot boxes are essentially described as virtual boxes, crates or chests that contain randomly allocated virtual items that can be used in-game. Some of these virtual items will be relatively common and worthless, whereas some will be rare and highly sought after, often conferring significant in-game advantages for players in an online multiplayer setting.
In most cases, loot boxes can be purchased using in game credits. Generally, game credits are obtained by earning them in-game or by purchasing them with real world money. Some games also allow players to sell items gained through loot boxes for real world money in the form of a ‘cash out’ feature. In some instances, third party platforms are developed solely for this purpose (also potentially raising other concerns in breach of a games’ EULAs). Although this kind of ‘cash out’ feature remains unavailable for most games, in conjunction with the development of blockchain based software, this feature could become increasingly more prevalent in video gaming in the near future.
Loot boxes under current Australian law
Gambling in Australia is largely regulated by the states, which each have their own set of gambling laws. For example, in New South Wales, s 5(1)(d) of the Unlawful Gambling Act 1998 (NSW) (“UGA“) provides that ‘any game that involves the disposal of money by lottery or by chance is an unlawful game’. According to Liquor and Gaming NSW, loot boxes which provide items that can only be used within the game itself, or can only be traded amongst players within the game, should not be considered gambling (and therefore not an ‘unlawful game’) pursuant to the UGA. However, if items gained from loot boxes can be traded or sold outside of the game for real world value (e.g. by way of a ‘cash out’ feature) then the game may be considered to be gambling, and therefore an ‘unlawful game’, under the UGA, depending on the individual circumstances.
The finding of an ‘unlawful game’ under the UGA has potential, wide ranging consequences for both gaming providers and players. For example, anyone who has assisted in organising or conducting an unlawful game may be liable for a fine or a term of imprisonment. Additionally, it is also an offence to participate in an unlawful game.
In addition to each individual state gaming legislation, the provision of loot boxes may also be regulated by Commonwealth legislation in Australia, under the Interactive Gambling Act 1998 (Cth) (“IGA“). Again, whether loot boxes are considered gambling under the IGA is likely to depend on whether a loot box constitutes a game ‘played for money, or anything else of value’. In the opinion of the Australian Communications and Media Association (“ACMA“), loot boxes which do not have a ‘cash out’ feature are unlikely to be considered gambling in breach of the IGA.
Australia’s first government inquiry
The Senate Standing Committee on Environment and Communications (“SSCEC“) recently undertook its own inquiry into ‘Gaming micro-transactions for chance-based items’ (i.e. loot boxes) in Australia. The final report was released in November 2018, recommending that the Australian Government undertake a comprehensive review of loot boxes in video games.
The report included evidence submitted by university academics drawing psychological links between loot boxes and gambling and highlighting the capacity of loot boxes to normalise gambling amongst children. An alternate argument against classifying loot boxes as gambling draws parallels between loot boxes operating in ways not dissimilar to collecting baseball cards, which traditionally have not been considered, or found to be associated with, gambling. Although the inquiry did not provided a definitive conclusion on such comparison, other submissions put forward in the SSCEC’s inquiry argued that there are psychological differences between these two forms of entertainment, with the potential for psychological harm being greater in the case of loot boxes.
However, despite the recommendation provided by the SSCEC’s inquiry, and accompanying psychological evidence, the Australian government’s response in March 2019 last year was that more research is required before it would take any further action.
This response is in stark contrast to similar inquiries conducted in relation to loot boxes in other jurisdictions that resulted in more proactive outcomes and regulatory reform. In Belgium, loot boxes were declared to constitute gambling by the Belgian Gaming Commission, resulting in some developers deciding to pull their video games from the market. In China, video games containing loot boxes need to disclose the odds of success. More recently, the UK’s Children’s Commissioner has released a report on loot boxes called ‘Gaming the System’, which sets out a number of policy recommendations aimed at regulating the use of loot boxes in games, including proposed amendments to the UK’s gambling legislation. The UK NHS’s Mental Health Director has also called for loot boxes encouraging gambling to be banned, citing the links between loot boxes and gambling, and the potential negative mental health effects which loot boxes can have upon children in particular.
Given the Australian government’s response to the SSCEC’s inquiry last year, it is unlikely that there will be any substantial regulatory reform relating to loot boxes in Australia in the immediate future.
However, with the increased regulatory attention loot boxes are receiving more broadly, the scientific evidence linking loot boxes and gambling, and continuing developments in blockchain based software within the video game industry, the Australian government may be forced to take more action sooner rather than later.