When Gaming and Gambling Collide

The arrival of loot boxes and their worth
Loot boxes have not gone unnoticed by government officials, and lawmakers across the globe have weighed in on their pros and cons. One of the key points of discussion is whether or not loot boxes constitute a form of gambling, as this determines how lawmakers should view—and treat—them.
| Cemal Ozgur | Issue 146 (Mar - Apr 2022)

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When Gaming and Gambling Collide

In This Article

  • The online gaming industry has been changing rapidly, and companies have devised new methods of funding their games that are often harmful to children.
  • The collective microtransactions industry, which includes loot boxes, is startlingly massive.
  • Loot boxes present a number of striking similarities to real-world gambling.

Video games have exploded in popularity since their inception in the 1970s and are now a permanent part of the entertainment industry. The marriage of video games and the internet in the 1990s brought the advent of online gaming, which can be played with both friends and strangers alike. Online games offer gamers the ability to play exciting and massive games with hundreds, or even thousands, of other people at the same time. The online gaming industry has been changing rapidly, and companies have devised new methods of funding their games that are often harmful to children—and sometimes even predatory.

Setting the stage

Before the advent of online gaming, video game companies made the majority of their sales via hardware such as consoles, physical copies of games, and additional merchandise. Online gaming presented a new challenge to this business model: these companies no longer sold the hardware on which their games were played. Anyone with a computer, or the appropriate console, could play them. Companies had to be clever to adapt and have since devised a variety of methods to earn money from online games. Some of the less popular methods included “pay to win” features, such as being able to purchase stronger in-game gear and weapons with real-world money, and paying for games upfront. Statistics show that gamers do not mind buying single-player games upfront; however, they are much more skeptical of purchasing online, multi-player games upfront at the cost of a single-player game. Thus, the video gaming industry gained some critical insight into consumer buying habits: people despise games where a player has a higher chance of winning simply because their wallet is fatter than another player’s; and they largely do not want to pay high sticker prices upfront for online multi-player games.

Enter “free to play” games and microtransactions

With this knowledge in mind, gaming companies figured that perhaps players could be motivated to pay through a variety of incentives instead of being forced to pay for a game without being able to try it first. This brought about the inception of “microtransactions,” or payment transactions that players can make inside of a game to purchase various items within that game. These items can include cosmetics called “skins” that change how their characters or items appear, helping their avatars look cooler and flashier without directly impacting gameplay. Skins often range in tiers of rarity and look: some are “common” and may cost less than a dollar, while others are “epic” or “mythical” and can cost $10 or $20—or even more—due to how valuable and decked out they are. Some skins are worth hundreds, or literally even thousands, of real-world dollars and are often gambled or traded on unregulated websites that are readily accessible to children and teenagers.

Online games will often entice players into buying skins through a variety of methods, including bundled sales (selling bundles of skins, content, or items), promotional events, and making default gear look bland and unappealing in order to make skins look more appetizing. They are incredibly captivating, and many gamers often cannot resist caving-in and purchasing skins at least occasionally—especially for a game that they play consistently. Microtransactions offer companies a way to gain revenue that does not bar players from initially trying out games or impact gameplay—assuming that pay-to-win models are avoided. They also give gamers a way to support developers for games that they like without impacting the balance, or equal fairness, for all players. Problems primarily begin to emerge once vulnerable children are targeted and when rewards begin to become randomized.

The arrival of loot boxes and their worth

Most online games tend to have their own in-game currencies which can be used to purchase skins, but these currencies are usually very hard to acquire without spending some amount of real money. Skins are often rather expensive upfront when not on sale or part of a bundle, and the hefty price-tag can usually dissuade potential buyers. It leaves players wondering if they can get their hands on skins without having to pay a ton of money.

Loot boxes are a way around this problem: imagine that instead of spending $20 on just one skin, a player can choose to instead buy a crate that gives a bunch of completely random items with specific percentage chances of receiving rare skins. Think of them as mystery bags that only cost a dollar or two each that are primarily filled with junk but with slim odds of containing something extraordinarily valuable. Instead of spending $20 upfront on a specific skin players can instead get 20 loot boxes (at a cost of $1 each) and have a chance to get that skin, along with a variety of other rewards, for the same price. It’s a dice roll to hopefully attain something rare, but there are very rarely any guarantees. Often, extremely rare skins are made available only through limited edition loot boxes that can really hit people’s “fear of missing out.” Gamers can buy 30, 50, or even 100 loot boxes and never get the one skin that they really, really want.

Tough luck!

The collective microtransactions industry, which includes loot boxes, is startlingly massive. Juniper Research, a research and consulting firm, has found that video game players spent a combined total of roughly $30 billion on these microtransactions in 2018 and projected that this number will climb to about $50 billion by 2022. The firm also “…strongly recommends regulation for skin trading and gambling, in an attempt to both prevent youth participation and remove malicious actors who run (web)sites which steal skins or short-change users” [1]. Activision Blizzard, a popular gaming company that has developed famous games such as World of Warcraft and StarCraft 2, reported an all-time high revenue of $7.16 billion in fiscal year 2018; more than half of that money ($4 billion) came from “in-game net bookings,” which includes loot boxes, skins, and other microtransactions [2].

Loot boxes have been compared to gambling

 A study done by Dr. Aaron Drummond of Massey University’s School of Psychology, in collaboration with Dr. James Sauey of the University of Tasmania’s Department of Psychology, wanted to examine various online games and determine if their microtransactional mechanics constituted a form of gambling. The pair used the following criteria to determine an action to be an act of gambling: 1) the exchange of money or valuable goods; 2) an unknown future event determines the nature of the exchange; 3) chance at least partly determines the outcome; 4) non-participation can avoid incurring losses; and 5) winners gain at the sole expense of losers. They then looked at 22 different popular online games and found that 10 of them had loot box mechanics that fit these criteria. The scholars concluded that “loot boxes present a number of striking similarities to real-world gambling” [3].

Loot box systems do vary slightly across games. The most predatory games, the most infamous example having been Star Wars Battlefront II, lock content behind loot boxes that cannot be acquired via any alternative methods. Some games, such as Overwatch and Hearthstone, are more generous. These two in particular have “pity timers” that only slightly increase the odds of getting rare items, with the eventual promise of a high-quality item from loot boxes the more they are purchased. However, the binding rule across virtually all loot boxes is that there are usually no guarantees that a player will receive any specific item. Loot boxes are defined by their elements of chance and luck.

Stanford University professor Brian Knutson has found that the anticipation of a reward or monetary risk gives us greater pleasure than the act of receiving it does [4]. Think back to your childhood and the joy of receiving or opening of presents on a special holiday, perhaps on your birthday or the morning of Christmas Day. Did you sometimes stay up late at night out of pure suspense for what you might receive even if you had no idea what you might get? Were you just as excited the next night, after receiving your gift? Companies are well aware of this research and have since tried to make opening loot boxes as exciting as the night before Christmas. The simple act of opening loot boxes is designed to be incredibly suspenseful, exciting, and addicting. There are often loud noises and bright lights upon opening them that make our dopamine receptors go absolutely haywire with joy. Some games give players a few loot boxes when starting out in order to get them to experience the rush that comes from opening a loot box but rarely give them enough to allow them to feel content. Sometimes the resulting feeling is, “I need to open more loot boxes right now.” Failing to receive a special item from a loot box often results in feelings of frustration and tantalization as opposed to gratification and contentment.

Government responses to loot boxes

Loot boxes have not gone unnoticed by government officials, and lawmakers across the globe have weighed in on their pros and cons. One of the key points of discussion is whether or not loot boxes constitute a form of gambling, as this determines how lawmakers should view—and treat—them.

The attitude of various government officials across the globe seems to be along the lines of, “We think this is gambling, but we are not entirely sure.” The Netherlands Gaming Authority has stated that loot boxes are on the brink of violating their laws [5], and Belgium’s Minister of Justice is in support of having them banned outright [6]. America also has strong opposition to loot boxes, with the Republican Senator from Missouri Josh Hawley proposing the “Protecting Children From Abusive Games Act” in 2019. He claims the bill specifically clamps down on games, and their developers, that are enticing children under the age of 18 to gamble via loot boxes. The states of Minnesota and Hawaii also introduced bills in their respective state legislatures with similar goals in mind.

Among these countries, however, New Zealand believes that loot boxes “do not meet the legal definition of gambling” [7]. 

Closing

Debate continues regarding whether or not loot boxes are definitively a type of gambling and if their pros outweigh their cons. Specific antics aside, we should all be able to agree that loot boxes, and perhaps microtransactions in general, that intentionally target minors are predatory and wrong. These practices have no business being in games targeted towards children. The exact psychological ramifications are yet to be known, but commentators believe that these types of practices are nothing short of “entry level gambling.” Governments and institutions should allocate more resources towards research projects to discover how loot boxes affect children, and lawmakers should clamp down on gaming companies that have intentionally and maliciously employed predatory practices towards minors.

References

  1. https://www.juniperresearch.com/press/press-releases/loot-boxes-and-skins-gambling
  2. https://www.techspot.com/amp/news/73230-over-half-activision-blizzard-716-billion-yearly-revenue.html
  3. https://medicalxpress.com/news/2018-06-videogame-loot-similar-gambling.html
  4. https://www.coursera.org/lecture/neuroeconomics/brian-knutson-the-nucleus-accumbens-rewards-and-risks-expert-opinion-OBu2J
  5. https://nos.nl/artikel/2228041-populaire-games-overtreden-gokregels.html
  6. https://myprivacy.dpgmedia.be
  7. https://www.gamasutra.com/view/news/311463/New_Zealand_says_lootboxes_do_not_meet_the_legal_definition_for_gambling.php 

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