Christina Thakor-Rankin, Principal Consultant at 1710 Gaming, shares her thoughts on loot boxes – and has a message for regulators.

The last couple of years has seen the lines between the worlds of traditional video ‘gaming’ and traditional ‘gambling’ beginning to blur as developments in the former change what used to be a pure skill-based experience, into one which is increasingly linked to gambling.

Last year the talk was all about skins, free or paid for cosmetic in-game goods which did not impact on the performance of the player or the game, but which could be exchanged for real cash outside of the game, either at an online skins exchange site, or more invidiously, converted to cash or cash equivalent which could then be used to place bets and gamble on skins-betting sites.

This year, the talk has moved onto another free or paid-for in-game goods: loot boxes.

It is important to note that skins and loot-boxes are not the same thing: whilst one facilitates gambling – the other is gambling.

A quick recap

For those in need a quick reminder: skins or cosmetic (decorative) enhancements have been around for years and are either earned by playing the game, or for those in a hurry, simply bought as an in-game purchase for real cash, and historically have had no value outside of the game to which they apply – beyond status and bragging rights.

The game-changer came with the game Counter Strike Global Offensive and the launch of an associated skins exchange site which for the first time ever enabled players to exchange (buy or sell) skins which they had either earned or bought in the game. Suddenly, something which was nothing more than an aesthetic or decorative asset with no value outside of the game, became something which had very real cash value, both within, and more importantly, outside of the game.

In theory, and one of the stated reasons for the exchange was that it would add to the game experience by allowing players to act out the scenario of trading goods on a black market.

The reality is that it spawned a new cottage industry and the creation of ‘virtual convertible goods’ – effectively a new form of unregulated currency.

The impact of this was two-fold. Firstly, any player, including pre-teens and teens who had previously spent several hours a day playing the game for just fun, could now play the game as a means of generating cash – any ‘skins’ accrued or earned from playing the game normally could now be converted into real hard cash on the exchange sites. Secondly, the creation of a new form of currency created the opportunity to diversify into markets where activities using regulated currencies are prohibited, such as betting and gambling.

If the arrival of Bitcoin and other cryptocurrencies saw the launch of hundreds of unregulated, but not necessarily illegal, Bitcoin betting and gambling sites, so the arrival of virtual convertible goods, launched hundreds of skins-betting sites, but without the challenge, complexity and hassle of mining and crypto-currency wallets and exchanges, making it easier to understand and use, and freely accessible to a new audience of young and impressionable minds to whom betting and gambling could be presented as cool and an easy way of making money.

Skins allowed gaming to take an attribute of gaming and adapt it to the world of gambling via a bridging mechanism. What loot boxes do however, is take the principles of gambling (chance and prize or win) and drop them straight into the world of gaming without any adaption.

What is a ‘loot box’?

So, what is a ‘loot box’? Loot drops have been around for some time. The original aim of the ‘loot drop’ is to reward players for playing by randomly dropping them a free in-game item, to drive engagement and stickiness. The monetisation of this simple free reward and retention mechanism is today’s loot box.

A loot box contains a random selection of in-game items and content. Some of it could be a skin – a cosmetic item which is nothing more than aesthetic or decorative, or it could be new outfits, weapons, instruments and strategic devices for a character which could enhance the character’s abilities or impact on that character’s performance, which normally could only be earned as a skill based reward by playing and getting better at the game.

The introduction of the paid for loot box has serious ramifications on the world of both gaming and gambling.

Firstly, it takes one of the oldest forms of gambling and places it right at the heart of gaming. A loot box is like buying a raffle ticket. The player pays a fixed amount for a ticket, or in this case a ‘loot box’ without any indication of what that box might contain. If they are lucky, the box will contain something which is relatively rare and valuable, useful to the player or an item which is relatively popular, and can be sold or exchanged. If they are not so lucky the box will contain items which are nothing more than low value skins or items which are so common as to be practically worthless.

Just like a raffle, or hitting spin, a player could spend $10 and get exactly what they wanted on the first hit; or they could spend $100s and never get anything of actual value, the value of the contents of the loot box being significantly less than the cost of purchase even. In short, the player pays a consideration and takes a chance of an outcome where the prize is determined randomly and could be a ‘win’ for the player if the box contains something they wanted, or a ‘loss’ if the contents turn out to be worthless to them. This is basically gambling.

The appeal is to a broad spectrum of ages

Unfortunately, loot boxes are not limited to over-18 games. They are included in and form an integral part of games which are designed to appeal to a broad spectrum of ages, such as Star Wars: Battlefront II, where loot boxes can be bought using an in-game currency called Crystals, which themselves are either earned through play, or purchased at a cost of around $5 for 600 Crystals to $100 for 12,000 Crystals.

Further, the application, mechanism and motivations behind a loot box mirror those of traditional slot games, packaging the loot box and its opening in such a way as to emulate the same emotional and chemical reactions as a big win or triggering a bonus round or feature in a slot game – the aim is to make it compelling, or addictive.

And whilst adults have been gambling for years, the issue here, and something which makes is slightly more concerning than skins betting – more than the fact that this feature is in games which appeal, and are designed to appeal to youngsters, and where the cost of a loot box is earned by play or at a relatively modest purchase price – loot boxes, or gambling, seems to be presented in this context as a legitimate and acceptable means of fast-tracking a player’s progress in the game.

A risky message

The implied message is that gambling is a quick and easy route to success. This is a risky message to send out to anyone at any time, but to do it within the context of an activity which is supposed to be nothing more than a game is arguable both dangerous and irresponsible.

By introducing loot boxes game developers have also introduced the concept of ‘pay to win’ – the more loot boxes a player ‘buys’ the greater their chances of ‘winning’ contents which will help fast-track their progress.

For traditional gamers this pretty much ruins the game, the point of which is skill not gambling, so within the gaming community a backlash is building. This is already having an impact with some game developers going back to loot boxes which contain only skins or cosmetic items and nothing which could materially impact or aid the progress of the player.

Unfortunately, the genie that is the lucrative new revenue stream of paid for loot boxes is well and truly out of the bottle, and is unlikely to simply fade away, resulting in a very dangerous situation where youngsters are being led to believe that not only is gambling ok, but potentially, a necessary and integral part of success and progression in the game.

For those jurisdictions where betting and gambling fall under regulation, and which define consideration or prize as ‘money or money’s worth’, or gambling as having an element of randomness or chance, both skins and loot boxes are already covered by regulation – permitted or prohibited. There are also those jurisdictions where video gaming has been so much a part of the national culture for so long, such as China, Japan, and South Korea, and where authorities have introduced laws that attempt to regulate loot boxes or specific forms of ‘gacha’.

Regulated jurisdictions notwithstanding, this still leaves a large part of the world where the law is silent on the concept of ‘money’s worth’ or virtual goods, and in a digital world where the imposition of hard borders is virtually impossible, regulators can only do so much to guard against youngsters accessing loot boxes.

Long-term solution

The long-term solution lies with the game developers themselves, and fortunately, many are already realising that a pay-to-win mechanism goes against the very nature and purpose of the skill based game.

In the meantime, the best we can do is ensure that regulators continue to regulate and make the public aware of the risks hidden within an activity which on the face of it looks harmless, but which could be breeding a new generation of young gamblers.