A year ago, Belgium’s Gaming Commission (Commission des Jeux de Hasard) dealt a major blow to the video games industry by finding that loot boxes constitute gambling. Major publishers opposed the decision but eventually had to comply. Activision-Blizzard and EA, among the market’s largest players, removed the option to buy boxes with real money from Belgian versions of their games. Later, in February this year, Poland’s Ministry of Finance also addressed loot boxes. Its position was that paid boxes cannot constitute gambling under Polish law. It is worth considering what these decisions mean for Poland’s rapidly growing games industry and player community.
What exactly are loot boxes?
First, we should explain loot boxes. In essence, they are packs of random virtual items, most commonly used in video games. The name comes from the virtual chests used in many games, which may yield an extra weapon, skin or character. Contents are determined randomly, so items vary in their statistics and usefulness in the game. One may obtain something of greater or lesser in-game value, depending on luck. Publishers usually use loot boxes to monetise games and earn additional revenue from their virtual worlds. Although boxes can often be bought with in-game currency, developers also readily allow them, or the keys that open them, to be bought with real money.
Not all loot boxes are alike
Some boxes contain only cosmetic elements, such as weapon skins. Others significantly affect game mechanics by giving users an advantage. Blizzard’s Overwatch illustrates the first approach. FIFA Ultimate Team card packs containing footballers, and generating the bulk of EA’s annual revenue, are a prominent example of the second. Some form of loot box is also used by the vast majority of free mobile games, where it is likewise a principal revenue source.
Controversial boxes
Loot boxes, like other in-game microtransactions, raise considerable controversy beyond strictly legal issues. At first glance, allowing players to spend extra money on items that do not affect gameplay is merely an optional extra. They also seem justified in free games, especially mobile games. For many consumers, however, the problem arises when, after buying a new AAA game for USD 60, or PLN 240–250 in Poland, they reach a point where boxes become necessary.
The need to grind
At that point, players must either grind, repeatedly engaging in often tedious gameplay to accumulate enough virtual currency, for example, or spend real money on boxes. In late 2017, several games became notorious for this unflattering use of loot boxes, including Star Wars: Battlefront II, Middle-earth: Shadow of War and Need for Speed: Payback.
The loot box controversy
In Shadow of War, for example, purchasers had to endure tedious grinding or buy boxes to finish the game. NFS: Payback likewise ‘encouraged’ players to use boxes at every turn; even visual car customisation depended on random cards. This was particularly striking because both were full-priced single-player games costing USD 60 at launch. Star Wars was somewhat different. Battlefront II is mainly multiplayer, and its emphasis on loot boxes favoured those who used them. Progression without boxes was effectively impossible. Chris Lee, a member of the Hawaii House of Representatives, called it ‘an online casino designed to trap young children’.
Loot boxes = gambling?
The controversy drew the attention of authorities in several countries. In April 2018, Belgium’s Gaming Commission concluded that loot boxes were gambling and banned them. Belgian residents can therefore no longer buy FIFA Ultimate Team packs with real money, for example. Authorities in the Netherlands, the United Kingdom and the United States also took an interest. Following the controversy, Gazeta Prawna twice asked Poland’s Ministry of Finance about the issue. Initially, the Ministry said it was analysing it. On the second occasion, reported in the article of 26 February 2019, ‘Good news for the games industry: loot boxes cannot be treated as gambling’, https://biznes.gazetaprawna.pl/artykuly/1399853,dobra-wiadomosc-dla-branzy-gier-loot-boksow-nie-mozna-traktowac-jak-hazard.html?r=22688), it stated that loot boxes do not constitute gambling.
What does the Gambling Act say?
The Ministry relied on Article 2(1) of the Gambling Act. In its view, games containing loot boxes do not fall within the closed list of gambling activities in that provision, which includes number games, lotteries and bingo. It also stated that randomness alone is insufficient to establish gambling. In our view, its approach to the issue is, broadly speaking, superficial.
Implications of the Ministry’s position
The Ministry’s position should be read in the historical context of this publication, not as a guarantee that every loot box model is lawful. Assessing a particular system requires considering its mechanics and the applicable rules, as well as separate consumer and child protection issues.
What next?
Does this mean publishers need not worry about gambling regulation? No, especially since it varies considerably between countries. Video games are a global industry: developers create games for a worldwide audience, not individual countries. In our view, inability to use loot boxes in one or several countries may significantly affect the entire industry.
A revolution may be coming
The Belgian regulator’s decision created an unprecedented situation. Major publishers had to withdraw some paid options from an important EU market. These options often matter to game mechanics and affect gameplay balance. Publishers may be forced to redesign some game modules, inevitably changing their approach to new titles.
A new FIFA?
EA and its flagship FIFA series are the clearest example. A large part of the giant’s revenue comes from microtransactions in Ultimate Team, an integral part of the game. Each annual FIFA release makes players build their teams again, spending considerable sums. Belgian players’ inability to use paid microtransactions will disadvantage them against others. In our view, this could force EA to change a ten-year-old model that is a cornerstone of its funding. That would be a considerable revolution.
The decline of loot boxes
If EA changed FIFA’s monetisation model, other publishers might follow. Given the market’s tendency to copy trends, this seems almost certain. Loot boxes’ poor public image also suggests a change in publishers’ approach may be expected. The business strategies of major market players and their responses to anti-loot-box regulation therefore merit attention.
Good news and bad news
Gazeta Prawna’s headline of 26 February 2019 describes the Ministry’s position as good news for the industry. In our view, whether it is good or bad is less clear-cut. Developers certainly welcome profitable loot boxes, but many players view them negatively. Regardless of the Ministry’s stance, other countries’ approach may indirectly affect Polish developers. The loot box era may gradually end, with another form of monetisation taking its place. What that might be remains unknown. What is certain is that at least some publishers will not abandon monetisation, continuing the trend of turning games into services. ‘Games as a service’ itself warrants separate consideration.
Archive — published on 26 April 2019.
