Yesterday’s topic at the Video Game Bar Association panel was loot boxes: are loot boxes legal? If they’re legal, should they be regulated? If they should be regulated, what are the pitfalls of doing so?
Loot boxes, if you’re not familiar with the concept already, are “consumable virtual item[s] which can be redeemed to receive a randomized selection of further virtual items and in-game prizes.” To some consumers—and, significantly, regulators—loot boxes are akin to gambling because they entail an element of chance in exchange for some something of value from the player, whether it be money or time spent watching sponsored advertisements. Loot boxes are often an integral part of the monetization strategy for free-to-play games, an increasingly dominant business model in the video game space.
Case law suggests that, generally, loot boxes don’t run afoul of state gambling laws unless the prizes from loot boxes can be redeemed for actual money. Nonetheless, anecdotal evidence abounds about the addictiveness of free-to-play games and the damage that can be done by giving players the ability to spend nearly infinite amounts of money on a single, highly stimulating game. For this reason, it’s easy to draw comparisons between loot boxes and activities that we’d all acknowledge constitute gambling, and legal guidelines may be appropriate.
But can we trust state and national legislators to regulate loot boxes in a nuanced and fair way? Many in the video game space are concerned that ham-fisted laws could stifle a burgeoning industry and harm young companies that employ loot boxes in ways that don’t take advantage of consumers. One panel member shared an anecdote in which an ill-informed state legislator conflated esports gambling with loot boxes. That story, and others like it, highlights the concern that many in the industry have about state intervention in the use of loot boxes. The consensus seems to be that, if loot boxes are to be regulated, the legislative priority should be curbing game companies’ deceptive and unfair practices by, for example, clearly notifying users about the odds of winning certain prizes.
Yesterday’s conversation underscores the importance for game companies of taking a thoughtful approach to how they employ loot boxes in their games. This can include using terms of service that are designed to prohibit users from finding ways to redeem or sell in-game prizes for money IRL.