Lootbox regulation's coming; esports beware
A look at loobox regulation on the horizon, and how it could impact esports betting.
Let’s ease ourselves in with the easy topic of lootboxes.
*exhales*
Right, where do we begin?
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A free-to-play video game model with in-game micro-transactions is increasingly the commercial multiplayer model taken by publishers.
It makes sense, dazzle the consumer with exceptional gameplay at no cost and then charge them a whack to look cooler than their pals while playing the game.
Alternatively, give birth to the goldmine that is FIFA Ultimate Team. Not only can you charge £40 for the game, you can charge £60 for the game plus some lootboxes. Oh, then you’re welcome to continue to charge god-knows-what for a few packs.
When I was a young whipper snapper, I bloody loved Panini sticker albums. Hell, I still do. Equally, I’ve been partial to a few naughty FIFA Ultimate Team campaigns in my time. (Sidenote: FIFA 2013 Marseille, Loic Remy, Ayew & Ayew, Valbuena, Lucho Gonzalez, M’bia, Diarra, Azp – my first year university unstoppable juggernaut)
Why I’ve decided to highlight them today is that there’s going to be some extremely important policy decisions made soon. For the esports industry, the education piece is vital so that ‘esports betting’ doesn’t get lumped in with lootboxes from a regulatory perspective.
From a video games perspective, it’s vital the ‘legal’ classification of lootboxes is correct.
From a buyer’s point of view, increased consumer protection is just as important. Many lootboxes, pay-to-win mechanics and (so on) are ‘predatory’ in nature and have been unpoliced for far too long.
Painting the picture
Recent years have seen a vast increase in the number of pure academic studies from professors far more knowledgeable than I around lootboxes, random reward mechanisms and a potential correlation to problem gambling down the road.
They come not in reaction to policy developments across the world; and in Europe namely Belgium and Netherlands which have been pointed to as ‘examples’ of lootbox regulation.
Recent policy developments:
South Korea: With a year’s grace period, probability disclosures for looboxes and other “probability-type items” will be required by law in South Korea/Hanguk from 2024 (Credit: Lion Y. Xiao)
Belgium: When considered in line with the Gambling Commission’s definition, a player who pays for a loot box is considered to engage in gambling under Belgian law. (Source) Enforcement, however, has been poor (Xiao, 2023)
Netherlands: A fine example of where Gambling Commission and government clash, with KSA, EA and the government rules at loggerheads. TL:DR – EA were fined, then per appeal, unfined by the government despite gambling regulator enforcement (Source)
As Xiao (2023) discusses, the Belgian ban on lootboxes should theoretically have been a net positive for consumer protection, and policing a random monetisation method. However, per Xiao’s research, 82% of the highest-grossing iPhone games in Belgium continued to generate revenue through a randomised monetisation method, as did 80.2% of games rated suitable for young people aged 12+.
Xiao outlines, correctly, that “although the initial imposition of this measure promoted discussion and debate about lootbox regulation (both domestically and internationally) and likely provided better consumer protection in relation to specific games operated by well-known companies, an unenforced ‘ban’ has many negative consequences.”
The two following points are key, in what an unenforced ‘ban’ can do:
Giving consumers, parents and policymakers a false sense of security;
Allowing non-compliant games to replace games that have been removed from the national market by more socially responsible companies.
Now, as Xiao recognises (and I encourage you to read his paper), policy-making with regards to lootboxes is very much a double-edged sword.
The comparisons with gambling regulation, the nudge to black market and circumvention from large spenders are there for all to see.
The pro-gambling lobby, and anti-prohibitionist lobby will always point to limited if no measures, and claim the black market will blossom. There is clearly no 100 percent perfect way to regulate gambling, eliminate black market gambling risk and protect both the interest of VIP high-spending (and majority revenue generating) consumers, plus the casual consumer – but a balance must be struck, and the current discourse can and could be dangerous.
Clearly, the Belgian approach of regulation and an outright ban could, on paper, be perfectly effective. Ultimate Team packs, and certain Steam games are simply not available due to RNG mechanisms in the game. That said, with 82% of the highest grossing mobile games still featuring random mechanics, it’s not a policy gold standard that should be adored by all.
The European Union is gearing up to do something. MEPs have voted through an intervention that proposes an assessment to consider disabling in-game payments and thus outlawing lootboxes altogether to ‘protect children and avoid the fragmentation of the single-market’s approach to gambling regulation’. This would undoubtedly be a horrid mess given the nation-by-nation case studies, and should be avoided at all cost.
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So what should happen to lootboxes?
I’ve said that I’ll try to keep this more limited to gambling and esports, for which consumer protection in video games is a whole different ball park.
Ollie’s opinion: I fully understand why lootboxes can fall into the ‘predatory’ ballpark, and also understand why things considered random when purchasing could fall under gambling legislation.
My main points are as follows:
Consumer protection: The biggest issue, purchasing too many in pursuit of X or Y card or power-up in a digital nature with parents credit card should be policed. You can hark on about proper parenting and monitoring, but it’s not always that easy and the ease of purchase does provide a scintilla of sympathy.
Keep GCs away: Gambling Commissions can barely regulate gambling companies, never mind lobbing a swathe of video game companies on top. Plus, you open an entire box of worms that pose far more questions than answers with regards to gambling legislation and the reach of a GC.
If you start regulating random outcomes from a lootbox, then do you have to start regulating where the circle shrinks to in Fortnite?
Does opening a chest in Fortnite constitute gambling?
Why aren’t the casinos in GTA regulated?
Where does it end? No one wants the Gambling Commission regulating or asking for disclosure of odds on each toy appearing in a McDonalds happy meal. Asking a 7 year-old for their pay cheque in an affordability check over 3 packs of Panini stickers for their World Cup album probably isn’t the way to go, either.
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Why is it important to esports?
Through everyone’s favourite, highly involved and proactive (/s) publisher Valve, the phenomenon of skin betting came about and quite rightly outraged the betting world.
CS:GO Lounge at its peak had over 103m skins wagered over a seven month period in 2016, with over US$1 billion handle. The average real world value per item was US$9.75, and on a single game over 320,000 skins (SK Gaming vs Team Liquid) were wagered. In 2016, it’s estimated that around $7.4 billion total was wagered.
The issue here is that this is actually betting on esports. It’s not just opening a case. It’s then wagering them to increase monetary value, and several 3rd party marketplaces existing to then transfer the items to real fiat currency.
As a result, despite Valve’s feeble C&D orders that were weakly enforced, lootboxes and skins will always be associated by those with less intricate knowledge of the industry, with esports.
We’re heading to a pivotal time for esports betting – gambling reform and regulatory shake-up is happening across the board.
Esports betting simply cannot afford to be caught up in a regulatory jumble with practices that simply put, have nothing to do with esports.
You only have to look at the recent launch in Massachusetts, where the state-endorsed betting catalogue includes pretty much every sport. Except Cornhole, and esports, that is. There’s little understanding across regulators who are well established, and the quiet, unpleasant hum of predatory lootboxes in the background will do little to help the market blossom.
Esports betting has a plethora of issues. It should have the best in-play product of any sport out there; it doesn’t. Microbetting, the greatest ‘sportsbook innovation’ should be esports’ bread and butter; it’s not. With soaring CPAs across top tier sportsbooks, esports should give access to younger punters with lower CPA, but potentially growing ARPUs; it often doesn’t.
Esports betting needs to be better understood by regulators, and it cannot afford to be dragged into the lootbox debate.
Gambling Commissions need to be kept out of it, and consumer protection needs to be at the forefront of policy makers decisions in coming months.
Esports should not be a standalone book expected to drive the top-line, but an integrated strategy aimed at reducing overall CPA and attracting a different type of bettor. It’s not as expensive as you think, it just requires a little nous and critical thinking.