Policy Paper: Unregulated Gambling in Modern Video Games

Carter Lukes

Public Policy
 Video games are one of the biggest and popular forms of entertainment that exists, and the

community that it appeals to is wide reaching. Being that the video game industry is an 11 Billion

Dollar industry, there is a wide audience, so many game development companies look to create

new and effective ways to maximize profit. One-way game developers try to maximize profit

margins is utilizing practices similar to traditional gambling. These developers entice their users

with items known as loot boxes which provide chances to “win” some in-game item that is

considered rare. These developers will charge their users actual money, for chances to get this rare

item. Not only is this practice completely unregulated, unlike traditional gambling, but there are

also no safe guards in place to prevent children from participating in these practices. Many

legislative policy options have been proposed and discussed to address this issue, but have not

gained any momentum in federal or state legislature

From the words of Marc Whipple, currently an attorney specializing in gambling, who also

works as a general council for Crawford Intellectual Properties, stated in the Robot Congress

Podcast that there are three factors for a game to be considered gambling. These factors are

consideration, chance, and prize. Consideration simply means, did someone pay to play this game.

Chance means that there is a possibility to win and a possibility to lose. Finally, prize means that

there is something of value to be gained. This concept of paying to win a prize is not new to games.

This practice of loot boxes, in video gaming originated from the Japanese phenomenon known as

Gachapon. These Gachapon machines were coin operated vending machines which had collectable

items in their capsules. These machines would then distribute these capsules and the user would

get a collectable from it. In many situations these machines would be in heavily populated places,

and users would pay in to receive a well-made collectable that would be popular in Japanese

culture. This practice has evolved and been adapted to fit video games. The adaptation to video
games is known as Kompu Gacha, or Complete Gacha. Kompu Gacha was popular in free mobile

games, like one known as Fire Emblem. What game developers would do is they would produce

a game that was free to play, the game would cost no money to buy or to continue to play. The

developer could then charge the player in two ways. You can pay physical dollars in order to speed

up an aspect of the game, making your progression faster, or they would charge you an opportunity

to win some sort of rare prize. That prize can be a wide array of items, whether that be something

to make your playable character look different, or perhaps a more powerful weapon in the game.

The odds to receive these in-game items are never told or delivered to the consumer, meaning that

someone can spend their own money to win a prize that might have less than a one percent chance

to win. This is causing users to constantly pay into a system for the reward. This practice quickly

found its way to other video games that were not free to play. The success of Kompu Gacha was

now seen as a way to increase revenue for games developers. More recently this same practice has

been adapted for full sale games, this means that this feature is spreading and reaching more video

game consumers. Some of the more notable games that have adopted this practice are Counter

Strike: Global Offensive by Valve, Overwatch by Blizzard, and Star Wars Battlefront by

Electronic Arts. Each of these examples utilize this loot box and gambling system, but some cases

are much worse than others. In all of these cases, the game only allows the loot box feature to be

used, while connected to Internet. In the game Overwatch, you can be awarded these loot boxes

by progressing and playing the game more. Users are not charged anything to open these loot

boxes. Yet, users can spend their own money to buy more of these loot boxes in hopes of receiving

a prize. In Overwatch you can win something known as a skin. This skin chances the appearance

of one of the many playable characters for the user. This is a way to brag to other users that you

received a rare item. Other issues with the system that Overwatch provides, is that they will
constantly advertise these rare in-game items. Also, Overwatch does not display the success rates

of these rare items that can come from these loot boxes. In Overwatch’s case, the system they use

is considered gambling, a user pays into the loot box to give them a randomly selected prize. All

three factors that make up gambling are present; consideration, chance and prize. In a much more

serious case, Counter Strike: Global Offensive. You can earn the boxes through play, but you can

also buy additional boxes. To open these boxes, you need to buy a virtual key. Once you do receive

and open the loot box you will receive the in-game content much like many other loot box systems

out there. The catch is that, the developer of Counter Strike: Global Offensive, Valve, also owns a

virtual store for video games known as Steam. Through Steam there is a Marketplace where users

can sell in-game items from the various games, developed by Valve. That means that someone

who won an item in a Counter Strike loot box, can then go to the Market Place to sell the item for

Steam Credit, which can then be used to buy other games that were created by different developers.

This means that there is a more quantifiable value tied with each item that can be won. With the

case of Counter Strike users are actively paying into a system, there is a chance they can win or

lose, and finally there is a value. That value is much easier to see as now there are physicals dollars

placed with the item that can be won. At the writing of this paper, on the Steam Marketplace for

Counter Strike: Global Offensive, the ten most expensive items are worth over 1,700 United States

dollar, per item. Users from across communities have self-reported spending north of 2,000 USD

for the ability to win certain items in different games. A user by the name of “Zil-Z” self-reported

that they spent around 250 USD on Overwatch loot boxes, and roughly 2000 USD on loot boxes

from another game known as Hearthstone. While this is an extreme case, other users have reported

spending around $100 USD. If this practice continues to go unnoticed, and unregulated game

developers will continue to abuse unknowing users. Loot boxes are a form of gambling, as stated
in the Robot Congress Podcast, people have become addicted to it, and, as a result, it should be

treated and regulated like traditional gambling.

It is clear, that under the definition held in many jurisdictions across the United States,

these practices would be considered gambling. Yet, more recently the Entertainment Software

Ratings Board, more commonly known as the ESRB who control the ratings of video games in

North America, recently came out and said that it does not see these loot boxes as gambling.

Thankfully, some in the industry have realized that this practice has caused many issues with in

the video gaming community, and with this, policy changes have been suggested. One such policy

suggestion was originally made by a famous YouTuber, who is equally well known for his

opinions on the video game market and culture, TotalBiscuit. He has suggested that if any game

utilizes this form of monetization, loot boxes, then the ESRB must give that game a mature rating.

This policy can be enforced, through either amendments to a states gambling laws, or applying

political pressure on the ESRB and ensure companies strictly abide by this rule. The idea behind

rating games that use loot boxes as mature is that it will provide some sort of protections for the

consumers that follow the user ratings system. If consumers followed the rating system, this would

ensure that, only people who are adults would be allowed to purchase in game loot boxes. There

are issues that come with this form of policy or protection. While the government can help in

promoting this rating system, there is little that can be done when the system is violated, it is

difficult to penalize or enforce. Since the ESRB is an independent agency apart from any forms of

government few changes can be forced. Other issues to consider include the fact that not many

users follow strictly to the age ratings imposed by the ESRB. Many times, parents will buy games

for their children not realizing that this game is intended for mature audiences. Overall, I can see

this ratings policy having only a limited impact on regulating gambling found within video games
 Another policy that could regulate this form of in-game gabling, is forcing age gates to be

put before a consumer begins to use these features (loot boxes). Through state or federal gambling

laws, developers would be forced to require the user to enter their date of birth before using or

buying loot boxes. This form of regulation would provide an outcome similar to the previous policy

regarding rating changes. It would be difficult to enforce penalties for someone lying about their

age. Age gates will only create minor fixes, but not actually fix the issue at hand. A user can easily

lie about their age when trying to gain access to the feature.

An approach that could potentially create change, would be to have state or federal

government legally recognize and define this issue as gambling, and have it treated under the law

as gambling. An alternative that was also suggested in the Robot Congress Podcast, was regarding

how online gambling is treated in different states. Meaning, that if a state’s gambling laws do not

allow for this type of gambling, then the feature will not work in that state. For instance, in the

Robot Congress Podcast, Ryan Morrison, states that if he were to try online gambling in the state

of New York, the website would block his access to the site. Similarly, depending on your state’s

regulations towards gambling, you can or cannot access the loot box feature in the game. While

this system may seem difficult, it can be accomplished as a computer or video gaming console are

connected to the internet have a IP address that can be mapped, allowing a physical location to be

known. With this type of policy, the practice is officially recognized as gambling, a majority of

the users will not be allowed to use the feature, and there is little changing that has to be done to

the physical games with regards to updates. Over all this policy is easy for the developers, and safe

for the consumers, and also allows for states to keep their own gambling laws and regulations. The

only challenge lies with the video gaming companies as they would lose a major source of revenue,

which should be expected anyway with any suggested forms of regulation. It would be expected
that video gaming companies would oppose such regulations, yet like traditional gambling it is the

responsibility of government to safe guard common good. In the end, this is the policy that I would

recommend. This policy can also be started rather easily too, simply a state must recognize the

practice as gambling and then allow the states lawyers to take on the game developing companies.

Finally, the last policy alternative that will be considered is to, completely outlaw the

practice. This policy alternative is the most-strict. While it does mean that no one will ever suffer

from losing money to loot boxes again, it is also extremely heavy handed. This policy would

completely eliminate the issue, but it would be very difficult to implement as every state has

different gambling laws and regulations. Having every state to uphold this law would be far to

difficult, and would not be worth the reward that would come from it. This policy has been utilized

in Japan. Japan elected to ban the practice of Kompu Gacha, in social games. The ban of Kompu

Gacha was because the Minister of the State of Consumer Affairs and Food Safety, believed that

the idea of gambling should not be a part of a child’s education.

To summarize, loot boxes are in fact a form of gambling. Loot boxes meet all the

requirements for gambling, then they should be treated like such. There is consideration, chance

and finally the prize. Users have been caught up in this recent craze and have lost time, and money

over this practice, and struggled with the addiction tied to gambling. These loot boxes are having

a negative effect on its young user base, and other countries have already taken a stand against

them. America should take the next stand too, in regulating this form of gambling.
Work Cited

• Robot Congress. Ep. 52. Are Loot Boxes Gambling? (Ft Marc Whipple), 24 Oct. 2017,

headgum.com/robot-congress.

• Famularo, Jessica. “'Fire Emblem Heroes' Is a Gacha Game.” Inverse, 2 Feb. 2017,

www.inverse.com/article/27267-what-are-gacha-games-fire-emblem-heroes

• Schreier, Jason. “ESRB Says It Doesn't See 'Loot Boxes' As Gambling.” Kotaku,

Kotaku.com, 11 Oct. 2017, kotaku.com/esrb-says-it-doesnt-see-loot-boxes-as-gambling-

1819363091.

• “Forum.” MMO-Champion, www.mmo-champion.com/threads/2236731-How-much-

Money-have-you-spent-on-Loot-Boxes/page2.

• “Out of Curiousity,How Much Money Have You Spent on Loot Boxes? • r/Overwatch.”

Reddit,

www.reddit.com/r/Overwatch/comments/64xwr5/out_of_curiousityhow_much_money_h

ave_you_spent_on/.

• Vere, Kathleen De. “Japan Officially Declares Lucractive Kompu Gacha Practice Illegal

in Social Games.” – Adweek, Adweek, 18 May 2012, www.adweek.com/digital/japan-

officially-declares-lucractive-kompu-gacha-practice-illegal-in-social-games/#/.

• Anderton, Kevin. “The Business Of Video Games: A Multi Billion Dollar Industry

[Infographic].” Forbes, Forbes Magazine, 29 Apr. 2017,

www.forbes.com/sites/kevinanderton/2017/04/29/the-business-of-video-games-a-multi-

billion-dollar-industry-infographic/#2e9d519f6d27.