Living in a box: was the UK government wrong to refuse to clamp down on loot boxes?

Loot boxes have publicly been in the UK government’s crosshairs ever since the Conservative Party’s 2019 election manifesto promised to tackle “issues” around these in-game virtual chests containing undisclosed items as part of a planned review into the Gambling Act 2005. Yet, more than two-and-a-half years on from the party’s landslide General Election victory that December, we are still waiting for the long overdue white paper into updates to gambling laws before a consultation period begins.

What we do know is Culture Secretary Nadine Dorries has confirmed that loot boxes will not be regulated under the country’s gambling laws as a result of the review. Instead, Dorries called on games platforms and publishers to do more to protect the public from the harms of loot boxes. In other words, the sector must step up, better self-regulate and safeguard players. This includes being upfront regarding the odds of receiving certain items from loot boxes.
The decision to put the onus of policing the games industry on the industry itself has been met with a backlash from those opposed to loot boxes. Critics view this move as the government passing the buck when it should be doing more to clamp down on these supposed ‘predatory’ mechanics.

While there was no sufficient evidential link found between loot boxes and problem gambling to make it causal, the review did concede there’s a relationship between the two. For instance, iGAME, the UK research and innovation hub for games and media companies, found that gamers who have purchased loot boxes may be more likely to suffer problems linked to gambling, mental health, finances and problem gaming, with children and young people at a higher risk than adults.

Open sesame 

Loot boxes have been around in the video gaming industry for over a decade and are at the heart of many games such as FIFA, Call of Duty and Star Wars Battlefront II. There have long been calls for loot boxes to be classed as gambling because the contents of these paid-for packs/boxes are random, which is where the element of chance and hope of gain comes into play. Publishers say they put loot boxes into their games to give players who don’t have the time to grind the game to get the best teams or weapons as a way of staying on a similar level to those who do put in the time and effort.

While the government will continue to examine the evidence linking the two, there is still room for this billion-dollar industry to keep ballooning until there is clear intervention in the form of legislation. Jonny Peniket, an esports consultant at gambling harm minimisation consultancy EPIC Risk Management, feels that the government has missed the boat. He says: “I think the government has messed up on this one. At this point, they can’t show that the relationship between loot boxes and gambling is causal, and I think that misses the mark.

“This is because it doesn’t matter if the relationship is causal or not, it matters that there is a relationship to begin with. The government says that loot boxes don’t cause gambling addiction, so that implies loot boxes are not harmful, which I think shows the issue is not really understood.”

The Department for Digital, Culture, Media and Sport (DCMS) has said that purchasing loot boxes should not be made available to children or young people without approval from a parent or guardian, but it will not propose any legislation on this matter.
Research commissioned by charity GambleAware, carried out by researchers at the universities of Plymouth and Wolverhampton and published in 2021, found that of the 94% of children who play video games, up to 40% open loot boxes. There are also many stories that emerge from time to time of children spending an inordinate amount of money on these packs without truly knowing or even understanding the consequences of their actions.

Cam Adair, a video gaming addiction expert and founder of Game Quitters, has said that loot boxes should not be made available to children for several reasons. “Children’s brains are still developing, and self-regulation is a lot harder because they tend to be more impulsive and might not fully understand the value of money,” he remarks. Adair goes on to suggest that while the government might have the best of intentions by telling the industry to self-regulate, there are pitfalls to this when the practice is such a money-spinner for the video games industry.

He adds: “I think self-regulation comes with the best of intentions, but it comes with a larger issue. There is a great example from the UK. We were working with an operator who was interested in educating parents and students on the risks of loot boxes and overspending. However, because loot boxes are not regulated under gambling law, the operator said it was very unlikely that an educational programme like that would qualify for RET [research, education and treatment] funding. So, it shows that while the government wants to help, it is a vicious cycle as to whether there is a need for these educational programmes but because of the government’s stance, these programmes can’t be funded even though they should be.”

The cash cow

When discussing whether self-regulation is enough, we have to understand why the industry would want to curtail possibly its biggest and easiest money-making tool. Although it is worth noting that Activision Blizzard, the US video game holding company, announced in August that it would not sell loot boxes for its upcoming Overwatch 2 title.

In its financial results for the 12 months between March 2021 and March 2022, games publisher EA recorded just under $5bn in revenue from its live services portion of its games, which covers the loot boxes found across EA Sports’ Ultimate Team modes as well as the cosmetic packs in Apex Legends.

Research published last year by Juniper Research found that revenue generated from loot boxes in video games will exceed $20bn by 2025 if revenue maintains a 5% yearly growth rate. The research by GambleAware found that 5% of games generate half of their revenue from loot boxes, with young men most likely to use them. It also discovered that the top 5% who purchase loot boxes spend between $70 (£57.14) to $100
per month.

According to Peter Lewin, senior associate at sports and gaming specialist law firm Wiggin, loot boxes are just the latest money-making mechanic and the industry will eventually move on to other ways of increasing revenue. He says: “Big paid-for DLC [downloadable content] and season passes were the ways companies used to make the extra revenue on top of game sales. Now we see loot boxes being that mechanic, but we are already seeing the subscription-style games-as-a-service model creeping up in more and more modern games.

“There comes the point when businesses draw a line in the sand and say, ‘We’re not going to do loot boxes, we are going to go with something else’. That something else could be subscriptions and battle passes. Already we have seen Activision Blizzard come out and say that when Overwatch 2 releases towards the end of this year it will not have loot boxes. So, we are seeing businesses intentionally moving away from loot boxes for one reason or another.”

Following in Belgium’s footsteps

When the official news was announced that the UK wouldn’t regulate the practice of loot boxes, at the time of writing, it was argued by some that this approach is too lax compared to our European neighbours. Belgium banned loot boxes after a 2018 investigation deemed them to be games of chance and subject to the country’s gambling laws. While there are still workarounds via VPNs, loot boxes have been scrapped, and there is an inkling Spain will follow suit.

There is also an ongoing battle with loot boxes in the Netherlands. EA Games was originally hit with a €5m fine in October 2020 by the Netherlands Gambling Authority (KSA) over loot boxes in FIFA Ultimate Team. This may make it sound like the Netherlands is going the way of Belgium but, in March this year, the Dutch Administrative Jurisdiction Division overturned the KSA’s fine on the grounds that EA did not break the country’s gambling laws.

Peniket believes this is the right way to go: “The UK government should absolutely follow Belgium’s lead and the lead of the Netherlands, despite the appeal, so I think they will come back and regulate. There are also promising changes coming in Spain as well. I hope that with each country that makes a change, it makes it easier for the next, and I think that with this weak response [in the UK], we are very much at risk of falling behind the rest of Europe.”

Lewin disagrees and suggests this period of self-regulation should be used to further educate. “I think the reason the government has taken the stance they have is that they want to gather more evidence on loot boxes, and not just evidence but more well-researched evidence,” he comments.

“The approach Belgium has taken has impacted parts of the industry, as seen with Activision Blizzard skipping the release of Diablo Immortal in the region. When we look at the ban in Belgium, we need to look at how stringently it has been enforced. So, the overall question is, is it better to ban loot boxes outright and not enforce it or is better to have a flexible approach that has put some soft guardrails around it? I don’t think there is a right or wrong answer.”

Should the industry do more?

In the government’s July 2022 statement on protecting young people from purchasing loot boxes without parental/guardian approval, Dorries said: “Games companies and platforms need to do more to ensure that controls and age-restrictions are applied so that players are protected from the risk of gambling harm. Children should be free to enjoy gaming safely, while giving parents and guardians the peace of mind they need.”

Dorries also said that if the industry does not step up its game, then the government’s hand would be forced to bring in legislative measures. The next review into loot boxes is set for Q1 2023.

While the UK government has been seen to pass the buck by not including a loot box ban in the white paper, it could be a chance for the government to make a more informed decision later down the line. But, as Lewin said, is it better to bring in such a heavy-handed approach like Belgium without fully understanding the implications of loot boxes or should the approach be more cautious?

It’s possible we could see loot boxes disappear in the next few years as the industry moves towards producing titles that fit the games-as-a-service model instead. But, as we saw with big paid-for DLC and season passes just over a decade ago, could loot boxes be just a footnote in the ongoing mission the video games industry has of covering the spiralling cost of development?

The argument that loot boxes stifle innovation is perhaps valid, particularly when we see every iteration of FIFA or NHL include such incremental changes that it is hardly noticeable. Yet we also see games like Red Dead Redemption 2, which cost between $170m and $240m to create, where the publisher needs to find a way of recouping that cost through means aside from just game sales.

To conclude, while loot boxes have some link to gambling as found in the call for evidence, and while they are still available to the public in their favourite games, the government should make the dangers of loot boxes more blatant to all demographics through education.

Loot boxes are a massive cash generator for the video games industry, and a potential blanket ban could see some of gaming’s most popular titles die out due to the drastic change in revenue streams. It might end up being a case of be careful what you wish for as the next form of monetisation in video games could be more controversial still.