The Australian Senate has joined the international battlefield over whether “loot boxes” in video games constitutes gambling.
On 28 June 2018, following a motion proposed by Greens Senator Jordon Steele-John, the Australian Senate agreed to refer an inquiry into the use of loot boxes in video games to the Senate Environment and Communications References Committee (the Senate Committee).
The Senate inquiry (Inquiry) has arisen due to growing concern from both the gaming community and the general public that the purchase and use of loot boxes in video games exhibit gambling-style mechanics yet are easily accessible to children playing the games.
What are “loot boxes”1?
Loot boxes are voluntary features available in some video game titles which allow players to purchase in-game boxes which contain virtual items which can be used to enhance a player’s game and experience.
In the majority of these games, loot boxes or similar virtual items can be found or earned as rewards for playing the game, uncovering the loot boxes or by earning points or other virtual items such as coins, crystals or tokens to obtain a loot box. In these games, the player never spends any real world currency to obtain the loot boxes.
However, some AAA gaming titles (most controversially, Star Wars Battlefront II) have recently included an additional feature where players can choose to purchase additional virtual items (e.g. coins, tokens, crystals etc.) using real world currency. These can be used to purchase loot boxes at a faster rate, or alternatively, real currency can be used to obtain loot boxes. Further, in some cases, the items which can be obtained from opening loot boxes can be traded outside of the game on third party platforms.
The availability of these features has sparked debate over whether loot boxes constitute a form of gambling and whether it is appropriate for them to be included in video games which are popular with, and accessible by, younger audiences.
What will the Senate Committee consider?
In its Inquiry, the Senate Committee will consider the extent to which loot boxes may be harmful, with particular reference to:
a) whether the purchase of chance-based items, combined with the ability to monetise these items on third-party platforms, constitutes a form of gambling; and
b) the adequacy of the current consumer protection and regulatory framework for in-game micro transactions for chance-based items, including international comparisons, age requirements and disclosure of odds.2
These Terms of Reference echo the recent community concern referred to in various publications and studies by psychologists3 which conclude that, in relation to a number of games that include a loot box style feature, the purchase and use of loot boxes exhibits a number of the criteria required to meet the psychological definition of gambling. This has resulted in a number of calls for the use of loot boxes to be banned, or at the very least, regulated.
Do loot boxes meet the legal definition of gambling?
It is not as simple to reach a conclusion as to whether loot boxes meet the legal definition of gambling under Australian gambling law. As we have previously discussed in our Focus Paper entitled ‘The gloves are off on the gaming Battlefront: International and Australian gambling regulators weigh in on loot boxes’, under Australia’s Federal gambling law, the Interactive Gambling Act 2001 (Cth) (the IGA), a “gambling service” is defined to include the conduct of a “game” where:
- the game is played for money or anything else of value (the Prize Element);
- the game is a game of chance, or of mixed chance and skill (the Chance Element);
- the player/customer gives or agrees to give consideration to play or enter the game (the Consideration Element).
The general position in Australia is that all three elements must be satisfied in order for a “game” to constitute a gambling service (the General Test). This strict interpretation has been applied generally in connection with the interpretation and enforcement of the IGA. In particular, the position to date has been that games which involve loot boxes generally do not constitute a “gambling service” under the IGA because they are not played “for money or anything else of value” or with the object of winning money or other valuable items.4
Certainly, paragraph (a) of the Terms of Reference of the Inquiry seems to reinforce the view that loot boxes, on their own, do not fall within the legal definition of gambling. It is only when the purchase of loot boxes (or chance-based items) is combined with the ability to monetise the items, or exchange or trade the items for real currency using third-party sites and platforms, that there is a concern that the legal test of “gambling” would be satisfied due to the prize element being present.
Notably, the third party sites and platforms which allow for loot boxes and items obtained from loot boxes to be traded and exchanged for real currency are in most circumstances, not authorised, supported or associated with the game developers and publishers who provide the underlying game.
What is the rest of the world doing?
The Australian Senate Inquiry is a late participant in the international debate relating to loot boxes with a number of global regulators and law makers already having reached a position.
As early as December 2016, the Chinese Ministry of Culture issued a notice putting in place certain restrictions on the operation of network or online games. One of the restrictions introduced by the notice was a ban on in-game features which required users to pay cash or virtual currency for a random allocation of virtual items. Notably, loot boxes as a general concept or feature have not been banned; however, the requirement that a user must pay real money (i.e. provide consideration) in order to obtain a loot box is prohibited.
Falling on one side is the position taken by the Belgium Gaming Commission and the Netherlands Gaming Authority to the effect that paid loot boxes breach their respective gambling legislation. However, this has not been the view expressed in all jurisdictions.
In April 2018, the Belgium Gaming Commission released its research report on loot boxes5 concluding that the use of paid loot boxes in certain video games constitute games of chance in breach of Belgian gambling law as they satisfy each of the “constitutive elements of gambling” and do not fall within one of the exceptions provided for in Belgian gambling legislation. Accordingly, the Belgium Gaming Commission has taken a strong stance concluding that “because paid loot boxes in the examined video games are illegal, criminal prosecutions should be undertaken if these loot boxes continue to be offered.“6
The Netherlands Gaming Authority followed with the publication of its own report into loot boxes in April 20187. The study concluded that four of the ten loot boxes considered contravened the Dutch Betting and Gaming Act as paid loot boxes, where prizes could be won and traded outside of the game (and where those prizes had a market value), constitute a game of chance, the offer of which is prohibited in the Netherlands without a licence granted by the Netherlands Gaming Authority.
In the United States, Senators in Hawaii and in Washington State have, separately, introduced legislative bills in attempts to regulate and crack down on the use of loot boxes on the basis that they demonstrate gambling-like mechanisms which may be harmful or addictive, particularly for children.8
On the other hand, Tim Miller, the Executive Director of the UK Gambling Commission (UKGC) has stated that, from the perspective of the UKGC, loot boxes do not constitute gambling (and therefore do not require a gambling licence) because the items obtained in the loot boxes cannot be considered money or money’s worth and therefore, no monetary risk is involved.9 The Gambling Compliance Office of New Zealand’s Department of Internal Affairs has also confirmed that loot boxes do not meet the legal definition of gambling under NZ law.10
Most recently, in late June 2018, the French gambling regulator, Autorité de regulation des jeux en ligne (ARJEL), released its activity report for the year 2017 – 201811. In its commentary relating to loot boxes, the regulator indicated that, while there are significant concerns about the use of loot boxes and other micro-transactions in video games and that the issue should be further considered and monitored, it could not declare loot boxes to be a form of gambling in breach of French gambling law.
This conclusion was reached on the basis that the items from loot boxes did not generate real-world monetary value, unless they were traded or exchanged on third-party platforms, none of which were offered or authorised by the game developers themselves. Certainly, a number of game development studios and game distributors have taken steps to warn consumers about the risks of using these third party sites and restrict significantly the use of unauthorised third-party “marketplace” sites and platforms which allow virtual items to be sold and traded outside of the game.12
It will therefore be interesting to see the view reached by the Australian Senate Inquiry, given the position expressed to date.
Where do we go from here?
The Inquiry is open for public submissions until 27 July 2018 with the report by the Senate Committee due by 17 September 2018. It is possible that the Senate Committee may conduct public hearings where oral submissions can be made by stakeholders.
Of particular interest is the fact that Senator Duniam, in moving his motion, described loot boxes as “gaming micro-transactions for chance-based items“.13 This description was carried through to the Terms of Reference and appears to broaden the scope of the Inquiry to require a consideration of micro-transactions in games generally.
That is, while the primary focus of the Inquiry is in relation to the use of loot boxes in video game titles, it is possible that the Inquiry may also consider the use of in-app/in-game purchasing mechanisms available in online social casino games which utilise a freemium model.
Notably, concerns relating to children playing social casino games were raised briefly by Opposition Senator Antony Chisholm as a point for consideration in the loot box Inquiry. This is despite the fact that the types of games and transactions which are often offered in social casino games are quite different and distinct from the availability loot boxes in video games.
It will nevertheless be interesting to see where the Senate Inquiry leads and what recommendations are made. In particular, the Inquiry marks the first major consideration by the Senate of the general legal definition of “gambling” and what constitutes a prize of money or “anything else of value” in this context.
Addisons’ Media and Gaming team will be monitoring the Inquiry closely and will keep you updated as the Inquiry progresses. If you would like to discuss making a submission to the Inquiry or if you have any queries, please do not hesitate to contact us.
1. For more information about loot boxes, please see our previous Focus Paper, ‘The gloves are off on the gaming Battlefront: International and Australian gambling regulators weigh in on loot boxes’.
2. Full details of the Senate Committee inquiry and the full Terms of Reference are available at: https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Environment_and_Communications/Gamingmicro-transactions/Terms_of_Reference .
3. Aaron Drummond and James D. Sauer, ‘Video game loot boxes are psychologically akin to gambling’ (2018) Nature Human Behaviour https://www.nature.com/articles/s41562-018-0360-1.epdf?author_access_token=raxrw9GLiFTk0XGW64NfOdRgN0jAjWel9jnR3ZoTv0OKJNHXq8sGbZ_YLpCInAs0rZRETn6FMTPN_cH-8-gfM3iM9M9YTvrz7Pp6snTN8N7jkz-rZfLKAnoADWMxgoeQWBaRACTsk3ElN1SHCnSI-w%3D%3D.
4. Alex Walker, ‘Australia’s Telco Regulator Is Keeping an Eye on Loot Boxes’, Kotaku (online) 24 November 2017 “>https://www.kotaku.com.au/2017/11/australias-telco-regulator-is-keeping-an-eye-on-loot-boxes-too/>.
5. Belgium Gaming Commission, ‘Research Report on Loot Boxes’ (April 2018) https://www.gamingcommission.be/opencms/export/sites/default/jhksweb_nl/documents/onderzoeksrapport-loot-boxen-Engels-publicatie.pdf.
6. Ibid, page 17.
7. Netherlands Gaming Authority, ‘Study into Loot Boxes: A Treasure or a Burden?’ (19 April 2018), English version available at: https://www.kansspelautoriteit.nl/nieuws/alle-nieuwsberichten/2018/april/artikel-0/;
Andy Chalk, ‘Netherlands Gaming Authority cracks down on loot boxes in some games’ PC Gamer (online) 19 April 2018 https://www.pcgamer.com/netherlands-gaming-authority-cracks-down-on-loot-boxes-in-some-games/.
8. Jason M. Bailey, ‘A video game “loot box” offers coveted rewards, but is it gambling?’, The New York Times (online) 24 April 2018 https://www.nytimes.com/2018/04/24/business/loot-boxes-video-games.html.
9. Tim Miller, UK Gambling Commission, ‘Loot Boxes within Video Games’ (online) 24 November 2017 http://www.gamblingcommission.gov.uk/news-action-and-statistics/news/2017/Loot-boxes-within-video-games.aspx.
10. Alex Osborn, ‘New Zealand Gambling Regulator Deems Loot Boxes Not Gambling’ IGN Australia (online) 18 December 2017 http://au.ign.com/articles/2017/12/18/new-zealand-gambling-regulator-deems-loot-boxes-not-gambling.
11. Andy Chalk, ‘French gambling regulator determines that loot boxes are not legally gambling’ PC Gamer (online) 5 July 2018 https://www.pcgamer.com/french-gambling-regulator-determines-that-loot-boxes-are-not-legally-gambling/.
12. Joshua Duckworth, ‘PUBG Skin Trading Website Banned by Valve’ Game Rant (online) 26 June 2018 https://gamerant.com/pubg-skin-trading-site-ban-valve/.
13. Commonwealth, Parliamentary Debates, Senate, 28 June 2018, 34 (Anthony Chisholm).