Friday, October 20, 2017

Loot Boxes, Gambling, And The Butterfly Effect

"In chaos theory, there's a concept known as sensitive dependence on initial conditions. Most people call it the butterfly effect. In EVE, we call it the sandbox."

When I last wrote about gambling and video games, two men had just pled guilty to running an unlicensed gambling site based on FIFA 17 in the UK. Much has transpired since early February, but I never really had a hook for the story until now. Apparently a concerted effort is underway to get loot boxes, often referred to as lockboxes in MMORPGs, declared a form of gambling.

I'm not sure, but the issue may have come to a head with the implementation of loot boxes in Star Wars: Battlefront 2. I think the original concern is that a AAA game costing $60 will also have lockboxes. On top of that, the game is balanced around the cards that come from the loot boxes, meaning players will most likely spend a lot of money buying loot boxes. Several YouTube personalities came out against the implementation in Battlefront 2. Boogie2988 produced a short, NSFW Francis video about the situation.


The video that really captured my attention, however, is one I watched while attending EVE Vegas. John "TotalBiscuit" Bain produced a piece that, among other things, argued that loot boxes are a form of gambling. The video should start running at 28:52 and run for approximately 13 minutes. I think Bain explains the case for the ESRB declaring lockboxes gambling and automatically rate any games selling lockboxes with an M for Mature (age 17 and over).


In a report published last week, Eurogamer disclosed the reasoning behind the ESRB not declaring loot boxes a form of gambling:
"ESRB does not consider this mechanic to be gambling because the player uses real money to pay for and obtain in-game content," a spokesperson for the ESRB tells Eurogamer.

"The player is always guaranteed to receive something - even if the player doesn't want what is received. Think of it like opening a pack of collectible cards: sometimes you'll get a brand new, rare card, but other times you'll get a pack full of cards you already have.

"That said, ESRB does disclose gambling content should it be present in a game via one of two content descriptors: Simulated Gambling (player can gamble without betting or wagering real cash or currency) and Real Gambling (player can gamble, including betting or wagering real cash or currency). Neither of these apply to loot boxes and similar mechanics."
I think the ESRB is likely covered by US federal law. While loot boxes possess the three elements of gambling -- consideration, chance, and a prize -- a court case from Maryland throws into doubt one of the elements. A prize is only an element if the player has the chance to win something of value. In Mason v Machine Zone, a judge ruled that virtual goods have no real world value. On page 3 of the ruling, the judge wrote:
Crucially, there is no real-dollar value attached to “gold,” chips, or any Casino prizes. On the contrary, Defendant’s Terms of Service (“ToS”)—appended to Plaintiff’s Complaint—provide that “Virtual Currency and Virtual Goods may never be redeemed for ‘real world’ money, goods or other items of monetary value from [Defendant] or any other person”; that players receive a nontransferable “revocable license to use the Virtual Goods and Virtual Currency” solely for personal entertainment purposes; and that, aside from the foregoing license, players have “no right, title, or interest in or to any such Virtual Goods or Virtual Currency.” (ECF No. 1–2 at 9.)

Although the ToS expressly bar players from “buy[ing] or sell[ing] any Virtual Currency or Virtual Goods outside the Services or in exchange for ‘real world’ money or items of value” (id. at 10), Plaintiff alleges that “players have created secondary markets to buy and sell Game of War accounts” (ECF No 1 ¶ 37). Plaintiff does not allege that Defendant hosts or sanctions these secondary markets, nor does she allege that she has ever sold or attempted to sell an account—nor even that she intends to do so in the future. 
Note I stated federal law. The actions taken against the CS:GO gambling sites were instigated by the Washington State Gambling Commission, not a federal agency. Until either federal law changes, or threats to change federal law begin to alarm the ESRB, I do not expect the ESRB to change its industry-friendly ruling.

Just because the US has no issues doesn't mean that game publishers like EA are home-free. I believe that Europe may wind prove a harsher environment for loot boxes to flourish. For now, PEGI, the European game rating organization, does not view loot boxes as gambling. But as Eurogamer explained, PEGI views its role a bit differently than the EBSI:
"Loot crates are currently not considered gambling: you always get something when you purchase them, even if it's not what you hoped for," says Dirk Bosmans, from European video game rating organisation PEGI. "For that reason, a loot crate system does not trigger the gambling content descriptor."

PEGI's gambling content descriptor warns players a game "teaches or encourages" gambling. A game gets this descriptor if it contains content that simulates what is considered gambling, or they contain actual gambling with cash payouts. Bosmans doesn't believe the latter exists on the current consoles. As for the former...

"It's not up to PEGI to decide whether something is considered gambling or not - this is defined by national gambling laws,” Bosmans says.

"If something is considered gambling, it needs to follow a very specific set of legislation, which has all kinds of practical consequences for the company that runs it. Therefore, the games that get a PEGI gambling content descriptor either contain content that simulates what is considered gambling or they contain actual gambling with cash payouts.

"If PEGI would label something as gambling while it is not considered as such from a legal point of view, it would mostly create confusion."
The country most likely to change its regulations to regard loot boxes as gambling is the United Kingdom. In March 2017, the United Kingdom Gambling Commission published a white paper that referenced loot boxes:
3.17: Away from the third party websites which are overtly gambling (offering betting, casino games and lottery products) the ability to exchange in-game items for cash or trade on secondary markets also risks drawing elements within games themselves into gambling definitions. By way of example, one commonly used method for players to acquire in-game items is through the purchase of keys from the games publisher to unlock ‘crates’, ‘cases’ or ‘bundles’ which contain an unknown quantity and value of in-game items as a prize. The payment of a stake (key) for the opportunity to win a prize (in-game items) determined (or presented as determined) at random bears a close resemblance, for instance, to the playing of a gaming machine. Where there are readily accessible opportunities to cash in or exchange those awarded in-game items for money or money’s worth those elements of the game are likely to be considered licensable gambling activities.

3.18: Additional consumer protection in the form of gambling regulation, is required in circumstances where players are being incentivised to participate in gambling style activities through the provision of prizes of money or money’s worth. Where prizes are successfully restricted for use solely within the game, such in-game features would not be licensable gambling, notwithstanding the elements of expenditure and chance.
(pages 7-8) 
Over at Esports Betting Report, Joss Wood used Overwatch as a game with loot boxes that likely complies with the strictures listed in the white paper:
Blizzard’s Overwatch game provides a good example of a game that is likely to comply with the UKGC’s strictures. However, it could easily slip into the gambling definition if the developers expand its features. 
Overwatch has several features that make it of interest to the UK gambling regulator:
  • The game targets children as well as adults.
  • Loot boxes contain random prizes.
  • Players can purchase loot boxes online.
In Overwatch, players can obtain “loot boxes” in several ways:
  • Playing in arcade games.
  • As a prize for leveling up.
  • Purchased directly from the online store.
Each loot box contains a random selection of four items that can players can use in-game.

From the UKGC’s perspective, Overwatch already contains several elements that contribute to a possible definition of gambling.

Loot boxes contain prizes that the publisher determines by chance. They have a monetary value because players can buy them online. Players can even buy them using World of Warcraft gold. (Users can acquire gold for real money at third-party sites online.)

Overwatch is a game with many players under the age of 18. If any gambling is identified, the UKGC will certainly take legal action.
Wood explains that Overwatch avoids the definition of gambling because players cannot trade the in-game items acquired in their loot boxes with other players. Since the items are non-transferrable, there is no way of using them to gamble or exchange for money on third-party sites. If Blizzard tried to enhance the game by making the items tradable, the company would risk the UKGC determining that the game qualifies as gambling. Such a determination would then require Blizzard to acquire a gambling license and Overwatch would then fall within the UK Gambling Act and UKGC regulations.

The subject has received a lot more attention than I thought would normally occur. An online petition reached the 10,000 signature threshold required to elicit a response from the government. A reddit user, Artfunkel, even worked with Daniel Zeichner, the Labour MP for Cambridge, to submit two questions to the government:
1. To ask the Secretary of State for Digital, Culture, Media and Sport, what assessment the Government has made of the effectiveness of the Isle of Man's enhanced protections against illegal and in-game gambling and loot boxes; and what discussions she has had with Cabinet colleagues on adopting such protections in the UK.

2. To ask the Secretary of State for Digital, Culture, Media and Sport, what steps she plans to take to help protect vulnerable adults and children from illegal gambling, in-game gambling and loot boxes within computer games.
According to Artfunkel, the reason for the separate question concerning the Isle of Man is that the territory explicitly defines in-game items as money's worth in its gambling law.

The official response to both questions was the same:
The Gambling Commission released a position paper in March 2017 detailing existing protections in place for in-game gambling, virtual currencies and loot boxes. The paper can be found on the Commission’s website at the following link: http://www.gamblingcommission.gov.uk/PDF/Virtual-currencies-eSports-and-social-casino-gaming.pdf

Where items obtained in a computer game can be traded or exchanged outside the game platform they acquire a monetary value, and where facilities for gambling with such items are offered to consumers located in Britain a Gambling Commission licence is required. If no licence is held, the Commission uses a wide range of regulatory powers to take action.

Protecting children and vulnerable people from being harmed or exploited by gambling is one of the core objectives of the regulation of gambling in Great Britain and a priority for the government. The Gambling Commission have a range of regulatory powers to take action where illegal gambling is taking place. Earlier this year the Gambling Commission successfully prosecuted the operators of a website providing illegal gambling facilities for in-game items which was accessible to children - the first regulator in the world to bring such an action.

The government recognise the risks that come from increasing convergence between gambling and computer games. The Gambling Commission is keeping this matter under review and will continue to monitor developments in the market.
From reviewing gaming news sites, the reaction of most writers ranges from expectedly non-committal to confused. The problem is that the white paper is more nuanced. Where most of the activists want all loot boxes treated the same, the UKGC basically only sees an issue when third parties are introduced, thus turning the prizes from the loot boxes into money's worth. But if trade between players, either for other virtual items or for real world cash, turns loot boxes into gambling, then the trading card analogy used by both the ESRB and PEGI to justify not labeling loot boxes gambling begins to fall apart. Loot boxes are trading cards owners cannot legally trade? The argument makes no sense to me.

Now comes the plot twist some people would refer to as the butterfly effect. The latest movement against loot boxes came about due to unhappiness with game publishers/developers inserting loot boxes into $60 AAA single player video games with cooperative play. But unless the law, or regulations, change in the UK, game companies can avoid the gambling classification by simply not allowing trade between players. But a genre of games exists where banning trade between players is basically impossible: massively multiplayer online role playing games.

Many MMORPGs like Guild Wars 2, Star Wars: The Old Republic, and Elder Scrolls Online rely on lock boxes for additional revenue apart from the sales of the game (GW2) or alternate subscriptions (SWTOR, ESO). For many free-to-play titles, the cash shop is essential to keeping the game in operation. If the anti-loot box forces get their way, the turmoil as so many companies try to quickly alter their business models will provide a lot of fodder for games journalists to cover and opine on. A situation good for a blogger like me, but will it really benefit the genre in the long run? I don't know the answer as I never considered a world without loot boxes until now. Something to think about.

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