Loot Boxes

A controversial issue in video gaming in the past year is the role of “loot boxes”.  “Loot boxes” are virtual items containing a randomised assortment of virtual items that can be purchased using either in-game currency or real money.  Previously, these items were cosmetic items which didn’t affect in-game performance, or were limited to free-to-play mobile games.  Where the game itself was free the loot boxes simply subsidized the cost of the game.

This year many games started to include items that could either directly impact in-game performance or unlock popular characters such as in the case of Star Wars Battlefront II.  Designers input odds of winning a variety of classes of prizes with more powerful items or more cosmetically altering products being rarer.  Many people are now arguing that these loot boxes constitute gambling and the practice should either be prohibited or reserved for games targeted at an adult audience only. This argument is potentially flawed.

Many people argue that loot boxes are gambling because the psychological high that one gets from opening a loot box is similar to the one that someone gets from playing a slot machine. As a result, many gamers act like addicts, spending money opening loot boxes chasing the psychological high of finding a desired item.  This can be especially problematic since many loot boxes are included in games that are popular among younger gamers: FIFA, Madden, and the Star Wars series. Young gamers are thought to have less developed mental capacities and are often unable to assess the costs of engaging in purchasing loot boxes.

The fundamental problem with this argument is that loot boxes do not constitute gambling in the traditional sense. This is because when I purchase a loot box using either virtual or real currency, I am guaranteed to win a prize.  This is true even in games where loot boxes have a demonstrable impact on gameplay such as EA Sports’ Ultimate Team Mode.  While there is no guarantee that the prize is any good, I am still guaranteed to win a prize.  In that regard, they are closer to buying the Pokémon cards of the 90s generation or the hockey cards of our parents’ generation. While I may not win the holographed Charizard, I am still guaranteed to win a few Pokémon cards to put in my deck.  By comparison, if I purchased a 649 or a Proline lotto ticket, there is no guarantee that I would win a prize whatsoever.

In Canadian law, gambling has three elements.  They are (1) that winning depends on chance; (2) participation requires payment; and, (3) a prize is offered. While the Canadian government has not decided if loot boxes constitute gambling, the British Government’s Gambling Commission stated that loot boxes do not constitute gambling because the items in the boxes have no real world value.  This is because they cannot be converted into real currency nor can they be traded for items that have a real value. However, if these items could be converted to real currency then the British government would potentially deem it gambling.

It is unlikely that a Canadian court would deem the purchase of loot boxes, even using real currency, to constitute gambling. In American courts, the purchase of a pack of baseball cards didn’t constitute gambling because the buyer is guaranteed to get a fixed amount of cards regardless of their value.

One possible way to resolve this problem would be to copy what the Peoples Republic of China is doing. In China, the government requires publishers of video games containing loot boxes to disclose the odds of winning a particular class of prizes from a loot box.

In general, this is approach could be adopted, but with one exception.  Instead of the state requiring publishers to disclose the odds of loot boxes, it would be better for the publishers to self-regulate.  Self-regulation has worked well with other important societal issues affecting the video game industry such as the sale of violent video games to minors.

Apple has taken the lead on self-regulation.  In December 2017, Apple required publishers of games containing loot boxes that are purchased through real world funds to disclose the odds of winning specific items.  This type of regulation would alleviate many of the fears of gambling while also allowing individual gamers to decide if they want to purchase loot boxes or not.  A further option that would mitigate outrage is to limit loot boxes to cosmetic items only.  This would prevent consumers from entering into a figurative arms race to purchase crates containing a better class of in-game weapon to get a competitive advantage when playing the game.  In the case of Star Wars Battlefront, the outrage was so much that it played a central role in causing developer Electronic Arts’ stock value to decline by 8.5% in the month that the game came out causing a loss of $3.1 billion in shareholder value.

As 2017 comes to an end, it is likely that loot boxes will be here to stay.   Looking at a Toys R Us flyer from Christmas 1996, most video games cost between $42 to $60 USD.  Adjusted for inflation they would now cost $66 to $92.  When converted into Canadian dollars it would equal $83 to $116 Canadian.  However, looking at this year’s flyers, most video games cost from around $40 to $80.  Unless consumers want to see the costs of their video games significantly increase, loot boxes and revenue from other non-traditional sources are necessary to avoid that problem.  At the same time, game developers need to be careful to recognize the wants of gamers and consumers to prevent either governmental regulation or consumer backlash such as in the case of Electronic Arts.


Image obtained from: https://www.extremetech.com/gaming/257387-gamers-hate-buying-loot-boxes-games-using