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On 13 October 2022, the House of Lords is due to debate a motion moved by Lord Foster of Bath (Liberal Democrat) that “this House takes note of the response by His Majesty’s Government to the consultation on loot boxes”.
The motion refers to a consultation on computer game loot boxes launched by Boris Johnson’s Conservative government in September 2020. The Johnson government published its response to the consultation in July 2022.
1. What are loot boxes?
Loot boxes are items within computer games which are accessed either through game play or are purchased with in-game virtual currencies or with real-world money. Loot boxes are usually randomised rewards; therefore, users do not know what is in the loot box before opening it. The contents of loot boxes can range from new computer characters to weapons, armour, or ‘skins’ which change the appearance of computer characters. Loot boxes can improve the enjoyment and interest of computer games for their users.
2. Why are loot boxes controversial?
Concerns have been raised about whether the purchase of loot boxes is like a ‘game of chance’ and therefore a form of gambling. Particular concerns have been raised about loot boxes within games which are targeted at children or young people.
In 2016, the Gambling Commission identified loot boxes as a potential risk to children as part of a wider review of gaming and gambling. The Gambling Commission subsequently stated that whether it has powers to intervene in the loot box market is based on a judgement of whether a particular activity is considered a game of chance played for “money or money’s worth” under relevant provisions of the Gambling Act 2005. The commission said that:
Where in-game items obtained via loot boxes are confined for use within the game and cannot be cashed out it is unlikely to be caught as a licensable gambling activity. In those cases, our legal powers would not allow us to step in.
However, the commission noted that many parents “are not interested” in whether an activity meets a legal definition of gambling. They are interested in whether the activity “could present a risk to their children”. The commission said it was concerned that, due to the growth of the loot box market, “the line between video gaming and gambling is becoming increasingly blurred”.
The Gambling Commission’s Young People and Gambling Survey 2019, published in 2021, surveyed almost 3,000 school pupils between the ages of 11 and 16. The survey included specific questions about loot boxes and in-game purchases. The survey found that 52% of respondents had heard of loot boxes. Of which, 44% had paid money to access loot boxes and 6% had bet with in-game items either with friends or on unlicensed third-party websites.
A study published in 2020 surveyed the 100 top-grossing games on the Google Play store and the iPhone/Apple app store. The study found that 58% of the Google games and 59% of the iPhone games contained loot boxes. Of those that contained loot boxes, 93% of the Google games and 95% of the iPhone games were available to children aged 12 and over.
Some countries, including Belgium and the Netherlands, have ruled that the sale of loot boxes in certain circumstances is a form of gambling under their gambling legislation. China legally requires gaming companies to disclose the probability of obtaining certain rewards within loot boxes.
However, some gaming companies have defended loot boxes. In 2019, the games company Electronic Arts told MPs that in its view loot boxes were analogous to the plastic toys contained in Kinder Eggs. Some companies have also responded to criticism by voluntarily removing paid-for loot boxes from their games.
3. Calls for UK regulation of loot boxes
In September 2019, the House of Commons Digital, Culture, Media and Sport Committee published its report ‘Immersive and addictive technologies’. The report discussed financial harms associated with online gaming, including gambling-like behaviours which can affect some users. The committee heard evidence that there were “structural and psychological similarities” between loot boxes and gambling. The report recommended that loot boxes should not be sold to children where there was an element of chance involved in the purchase. The report also recommended that the government should legislate under section 6 of the Gambling Act 2005 to “specify that loot boxes are a game of chance”.
The Conservative manifesto for the 2019 general election committed to undertake a review of the Gambling Act 2005 “with a particular focus on tackling issues around loot boxes”.
Following the election, Boris Johnson’s Conservative government published its response to the Commons committee report in June 2020. It stated that the government wanted to assess more evidence on loot boxes before deciding whether to regulate their use. The government said that, as part of its wider review of the Gambling Act 2005, it would therefore launch a call for evidence on loot boxes.
In July 2020, the House of Lords Social and Economic Impact of the Gambling Industry Committee published its report ‘Gambling harm: Time for action’. The report considered gambling among children and young people, including online gaming. The committee recommended that loot box purchases should be more tightly regulated by amending section 6 of the Gambling Act 2005 to specify “that loot boxes and any other similar games are games of chance, without waiting for the government’s wider review of the Gambling Act”.
The government’s response to the Lords committee report said it would set out its position once the evidence from the loot box consultation had been considered.
Lord Foster of Bath is vice chair of the All-party Parliamentary Group (APPG) for Gambling-related Harm. The APPG made a submission to the review of the Gambling Act 2005 in which it called for loot boxes to be classed as a form of gambling.
4. Outcome of the government’s call for evidence on loot boxes
The Johnson government published its response to the loot box consultation in July 2022. At the time of writing, the outcome of the wider review on the Gambling Act 2005 had not been published.
The call for evidence found that the loot box market was estimated to be worth £700mn in the UK in 2019. The evidence the consultation considered identified “a range of potential harms associated with the purchase of loot boxes”. These included harms relating to gambling. Empirical studies had found a “stable and consistent association between loot box use and problem gambling”. The evidence also suggested a range of other “potential mental health, financial and problem gaming-related harms”. The consultation found that the risks of harm “are likely to be higher for children and young people”.
However, the response stated that there were a “range of plausible explanations” for the association between loot box use and problem gambling, and that the research “has not established whether a causal relationship exists”.
In light of the findings, the government concluded that it wanted to see “improved protections for children, young people and adults” when buying loot boxes. To that end, the government concluded that:
- purchases of loot boxes should be unavailable to all children and young people unless and until they are enabled by a parent or guardian
- all players, including children, young people, and adults, should have access to, and be aware of, spending controls and transparent information to support safe and responsible gaming
- better evidence and research, enabled by improved access to data, should be developed to inform future policy making on loot boxes and video games more broadly
In considering further actions, the government said it had considered three types of response: improved industry-led protections; legislative changes to the Gambling Act 2005; and strengthening other statutory consumer protections.
The government said that it favoured the first of the three responses. It claimed that games companies “have the technical expertise and capability” to develop and improve protections for users. It said, “an industry-led approach, at least in the first instance, avoids the risk of unintended consequences which may be associated with legislation”.
On reforming the Gambling Act 2005, the government concluded that it “does not intend to amend or extend the scope of gambling regulation to cover loot boxes at this time”. It said legislative changes could have “significant implementation challenges and risks of unintended consequences”. The government believed that, although loot boxes had some similarities with gambling, an important distinction was the ability to “cash out rewards”. The government said that a loot box prize “does not normally have real world monetary value outside of the game”.
In light of the decision not to legislate about loot boxes, the government recognised that statutory consumer protection would continue to be the “relevant regulatory framework for loot boxes”. It took the view that the UK’s current consumer protections provided a “strong foundation” for mitigating the risks of harms associated with loot boxes.
5. External commentary
UK Interactive Entertainment (UKIE), a trade association for the UK gaming industry, reacted to the government’s response. UKIE stated it had submitted evidence to the consultation which “demonstrated the effectiveness” of the industry’s self-regulatory measures for loot boxes. UKIE’s chief executive, Dr Jo Twist, said that, as a “responsible industry”, the gaming sector was “committed to exploring additional ways to support players and parents” to raise awareness of loot box parental controls.
However, the Children’s Commissioner expressed concern about the government’s response to the consultation. It said the government should:
Listen to children and parents to take firm action to prevent under-18s from buying loot boxes. Relying on voluntary industry action and on parental controls will leave many children exposed to the financial and psychological harms of loot boxes.
Dr James Close, an academic from the University of Plymouth who has published research on loot boxes for GambleAware along with Dr Joanne Lloyd from the University of Wolverhampton, told the BBC he was “dismayed” by the government’s response to the consultation. His research found evidence of similarities between loot box use and gambling. He challenged the government’s contention that a lack of evidence of causation between loot box use and gambling meant there was no need for government intervention. Dr Close said “if people at serious risk of harm are engaging heavily in this form of monetisation, then it doesn’t matter whether loot boxes cause problem gambling”. He also challenged the claim that loot box rewards have no real-world value, as there are secondary online markets which allow users to sell loot box items.
The charity GambleAware said it welcomed the government’s recognition of the potential risks of loot box use leading to the “normalisation of gambling-like activities”. However, it hoped that in the future the government “may consider legislative action on their use”.
6. Read more
- House of Lords Library, ‘How should gambling regulation change to reduce gambling harm?’, 20 April 2022
- European Parliament, ‘Loot boxes in online games and their effect on consumers, in particular young consumers’, July 2020
- Children’s Commissioner, ‘Gaming the system’, October 2019
- Tom Faber, ‘Gaming’s loot box—the slippery slope of paying for rewards’, Financial Times (£), 16 August 2022
- Rob Davies, ‘UK will not ban video games loot boxes despite problem gambling findings’, Guardian, 17 July 2022