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Loot boxes are NOT gambling for regulators, but the UK House of Lord dissents

The UK House of Lords believes that video game loot boxes should be regulated under gambling laws

Gambling regulators had taken a stance on loot boxes and social gaming, which is now challenged by a report of the UK House of Lords.

The declaration on concerns between gaming and gambling

The blurring lines between some features of video games such as skin betting, loot boxes, social casino gaming, and the use of gambling themed content within video games available to children have been under the radar of regulators during the last years.  And such concerns led, for instance, the leading video gaming console manufacturers to commit to disclose information about the odds of obtaining the rare items discoverable on the loot boxes offered through games.

In parallel, in September 2019, the Gaming Regulators European Forum (GREF) which is an association of currently 19 gambling regulators had published a joint “Declaration of gambling regulators on their concerns related to the blurring of lines between gambling and gaming” whereby they committed to working together to analyze the characteristics of video games and social gaming to assess whether they can be qualified as gambling.

The outcome of the review of loot boxes and social gaming by GREF

Following the declaration mentioned above, GREF published a report where they held that

whether these activities ultimately trigger the implementation of gambling regulation, would depend on each national gambling definition.

So far, only The Netherlands and Belgium have taken the view that loot boxes are gambling, effectively outlawing them in their countries.  Indeed, the qualification of loot boxes and social gaming as gambling also depends on criminal laws where the international inconsistency is even higher.

The report of the UK House of Lords on loot boxes as gambling

In July 2020, the UK House of Lords published a report on the harms of gambling, which contained the recommendation to

act immediately to bring loot boxes within the remit of gambling legislation and regulation

The main point raised by the report is that “If a product looks like gambling and feels like gambling, it should be regulated as gambling” and therefore they recommend to qualify it as a game of chance.

The reasoning that led to such a straight-forward conclusion is unclear and is inconsistent with the view of the UK Gambling Commission that repeatedly held it does not believe that the language of the UK Gambling Act covers loot boxes.  It is not clear though whether the UK Gambling Commission will now be forced to review its initial positions.

The call of gambling regulators for higher transparency

Another aspect on which loot boxes have been challenged is the lack of transparency.  And indeed, the Gaming Regulators European Forum also stressed in the declaration mentioned above the need for a higher level of transparency for such types of video gaming features that can be considered similar to gambling.

The potential misleading of consumers is, in some cases, an Achilles’ heel of loot boxes and social gaming products.  Players are sometimes not adequately informed of the percentage of winnings and of the need to perform payments to progress within the game.  This aspect was challenged in the past to video game publishers and console manufacturers, for instance, for loot boxes in Italy where regulations on unfair commercial practices and misleading advertising that can lead to fines up to € 5 million per breach.

There is a substantial effort by the video gaming industry to provide the highest level of transparency to players on to-be-paid features. Hopefully, regulators and publishers will find sooner rather than later a good compromise.  But the inconsistent position of different authorities does not help investments in products by the gaming industry that are generally global.

On the topic above, you may find interesting the following articles “How loot boxes deal with regulations and limitations?” and “eSports tournaments limited by Italian prize promotion and gambling rules?“.

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Giulio Coraggio

I am the head of the Italian Technology sector and the global head of the IoT and Gaming and Gambling groups at the world-leading law firm DLA Piper. IoT and artificial intelligence influencer and FinTech and blockchain expert, finding solutions to what's next for our clients' success.

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