Loot Boxes in Videogames: Gambling by Any Other Name?
To quote classicist author Edith Hamilton from her book The Roman Way to Western Civilization, “The comedy of each age holds up a mirror to the people of that age, a mirror that is unique.” Nowhere is that statement truer than when discussing the comedic genius of the hit animated television series South Park, now approaching its twenty-second season.
In its 2006 Primetime Emmy Award-winning episode “Make Love, Not Warcraft,” South Park delved into video gamers’ obsession with the wildly-popular PC game World of Warcraft. One of the show’s plotlines focused on a player whose in-game character had become so powerful the game’s developer had to devise a way to stop him. The developer’s solution: give another player the legendary “Sword of a Thousand Truths,” a unique item that might even the odds.
Eight years later, South Park lambasted so-called “freemium” games in its Primetime Emmy Award-nominated episode “Freemium Isn’t Free.” This episode, too, took a hard look at gaming culture, paying particular attention to “freemium games”—in which players can play a videogame for free, but to obtain certain desirable upgrades or items they must pay real-world money. In this episode, an eight-year-old character spent thousands of dollars on freemium upgrades, much to his father’s chagrin.
Not surprisingly, South Park’s observations about videogame culture were right: gamers will place a premium on certain virtual items, and are eager to spend big money to get them.
Typically, gamers obtain virtual items in one of three ways. First, they can find the item in the ordinary course of gameplay (for example, by completing a quest or using fictional, in-game currency). Second, they can pay real money for an item and purchase it online at a set price. Third, gamers can purchase a “loot box” containing randomized in-game items of unknown value. It is this third option that has lawmakers questioning whether this type of transaction is tantamount to “gambling,” and, if so, whether it needs to be regulated.
What Is a Loot Box, and Why Do Legislators Care?
A loot box is a non-descript virtual crate that contains random items for in-game use. The items in a loot box are of varying degrees of rarity. Typically, a loot box is less likely to contain an item like the Sword of a Thousand Truths, and more likely to contain something mundane, like a plain sword. Players earn loot boxes in the ordinary course of gameplay, perhaps as a reward, but can also pay real money for them. Often, game developers store credit card or other payment information so players can purchase loot boxes and other items almost instantaneously.
So is purchasing a virtual item of unknown value for real-world money a form of “gambling”? Several nations, including China, currently regulate loot boxes as gambling transactions. The U.S., however, has not gone so far. But that could change. In general, to be considered gambling, a game or contest must involve three elements—prize, chance and consideration. At a November 21, 2017, press conference, Chris Lee, a member of the Hawaii House of Representatives, referred to loot boxes as “predatory,” and insisted they are “designed to prey upon and exploit human psychology in the same way casino games are.” He has even considered legislation that would prohibit minors from purchasing loot boxes.
Senator Maggie Hassan of New Hampshire agrees with Representative Lee. Recently, she wrote a letter to the Entertainment Software Rating Board (ESRB), requesting that when rating games for age appropriateness—i.e., “Everyone,” “Teen,” and “Mature”—the ESRB consider the effect loot box transactions may have on children.
Despite the attention loot boxes have received from legislators, no U.S. court or state Attorney General has yet made a determination as to whether they constitute gambling under state law.
Game On or Game Over for Loot Boxes?
Videogames have evolved rapidly since their inception. For example, players from all over the world can now participate in videogame “eSports” competitions, with six-figure top prizes. These events are becoming more like regular sporting events; there are even play-by-play commentators. With this rapid evolution comes a treasure trove—or perhaps a loot box—of new legal issues.
In response to lawmaker and consumer concerns, the ESRB announced at the end of February 2018 that it will, in fact, begin assigning “In-Game Purchases” labels to games in which a player may receive an offer to buy additional content after having already purchased or downloaded the game. But short of banning loot boxes altogether, there is no sure way of preventing children and others from overspending on them. States could regulate loot boxes like they regulate gambling, but traditional age restrictions may be ineffective on the Internet. In response to a prompt requesting a user’s age, a child can easily claim to be over 18. Warnings, too, may be ineffective, and simply clicked-through without any real appreciation for the content.
Alternatively, legislators may consider prohibiting game developers from storing credit card information, so every time a player wants to purchase a loot box—or any item, for that matter—she will be required to input payment information. This restriction will make purchasing loot boxes online more like purchasing a random pack of collectable playing cards in-store; where rather than just clicking a button, she actually has to engage in a regular transaction, and perhaps ask her parents for some cash.
Other issues, unrelated to the aforementioned concerns over gambling, similarly arise. Suppose a player pays $1.00 for a loot box and finds a limited release item. Five years later, that item is worth $300. The player then sells the item for $300 online. That $299 is income, but will it be reported? The IRS may not care so much if these trades were infrequent—but they aren’t. To the contrary, gamers trade billions of dollars in virtual items every year through digital marketplaces, like eBay, or via in-game trading. As a result, these opportunistic gamers next big enemy could be the taxman, rather than the boss at the end of the game’s level.
And then there is the issue of theft. For instance, someone may hack or otherwise steal a gamer’s online credentials to hijack his account and remove his items. If the account contained hundreds (or thousands) of dollars in items, would the thief be subject to a fine or imprisonment, as if he stole tangible property? According to the Dutch Supreme Court, yes. In 2007, two hoodlums in the Netherlands threatened a boy with a knife until he logged into a videogame and abandoned some items for the attackers’ taking. The two attackers were convicted of theft, and, when one of the defendants appealed, the Dutch Supreme Court upheld the conviction rejecting the defendant’s assertion that the items “had no economic value.”
Many players take videogames seriously. And now, more legislators do, too. It is only a matter of time before in-game disputes—whether over loot boxes, theft, or crime—make it to the courts. Indeed, less than a month ago the Ninth Circuit, in a related context, held in Kater v. Churchill Downs Inc., that virtual chips for use in a virtual casino are a “thing of value” under Washington gaming laws because they allow players to place a wager or spin a slot machine.
The legality of loot boxes remain in flux, with the obvious monetary incentives for game developers running up against protestations from concerned parents and legislators. But until a definitive domestic law or regulation is passed, the answer to whether loot boxes are a form of gambling may ultimately come down to a roll of the dice.
“Loot Boxes in Videogames: Gambling by Any Other Name?” by Jeffrey N. Rosenthal and Ethan M. Simon was published in The Legal Intelligencer on April 24, 2018.
Reprinted with permission from the April 24, 2018, edition of The Legal Intelligencer © 2018 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, email@example.com or visit www.almreprints.com.