Call for loot boxes to be regulated as gambling products

The DCMS Select Committee Report on Immersive and Addictive Technologies has now been published online. A summary of the report and its conclusions and recommendations can be downloaded below.

You can read here our website posting relating to the launch of the inquiry that has resulted in this report.

In the report, the Committee has called for regulation under gambling laws of video game “loot boxes” and for a ban on their sale to children. Of major concern is the Committee’s criticism of “lack of honesty and transparency” on the part of representatives of some games and social media companies when giving evidence.

The www.parliament.uk website summarises the report as follows:

Committee’s Report

The wide-ranging report calls upon games companies to accept responsibility for addictive gaming disorders, protect their players from potential harms due to excessive play-time and spending, and along with social media companies introduce more effective age verification tools for users.

The immersive and addictive technologies inquiry investigated how games companies operate across a range of social media platforms and other technologies, generating vast amounts of user data and operating business models that maximise player engagement in a lucrative and growing global industry.

  • Sale of loot boxes to children should be banned
  • Government should regulate ‘loot boxes’ under the Gambling Act
  • Games industry must face up to responsibilities to protect players from potential harms
  • Industry levy to support independent research on long-term effects of gaming
  • Serious concern at lack of effective system to keep children off age-restricted platforms and games

MPs on the Committee have previously called for a new Online Harms regulator to hold social media platforms accountable for content or activity that harms individual users.  They say the new regulator should also be empowered to gather data and take action regarding addictive games design from companies and behaviour from consumers. E-sports, competitive games played to an online audience, should adopt and enforce the same duty of care practices enshrined in physical sports. Finally, the MPs say social media platforms must have clear procedures to take down misleading ‘deep-fake’ videos – an obligation they want to be enforced by a new Online Harms regulator.

In a first for Parliament, representatives of major games including Fortnite maker Epic Games and social media platforms Snapchat and Instagram gave evidence on the design of their games and platforms.

Chair’s comment

DCMS Committee Chair Damian Collins MP said:

“Social media platforms and online games makers are locked in a relentless battle to capture ever more of people’s attention, time and money. Their business models are built on this, but it’s time for them to be more responsible in dealing with the harms these technologies can cause for some users.

“Loot boxes are particularly lucrative for games companies but come at a high cost, particularly for problem gamblers, while exposing children to potential harm. Buying a loot box is playing a game of chance and it is high time the gambling laws caught up. We challenge the Government to explain why loot boxes should be exempt from the Gambling Act.
 
“Gaming contributes to a global industry that generates billions in revenue. It is unacceptable that some companies with millions of users and children among them should be so ill-equipped to talk to us about the potential harm of their products.

“Gaming disorder based on excessive and addictive game play has been recognised by the World Health Organisation. It’s time for games companies to use the huge quantities of data they gather about their players, to do more to proactively identify vulnerable gamers.

“Both games companies and the social media platforms need to establish effective age verification tools. They currently do not exist on any of the major platforms which rely on self-certification from children and adults.

“Social media firms need to take action against known deepfake films, particularly when they have been designed to distort the appearance of people in an attempt to maliciously damage their public reputation, as was seen with the recent film of the Speaker of the US House of Representatives, Nancy Pelosi.”

Regulate ‘loot boxes’ under the Gambling Act:

Loot box mechanics were found to be integral to major games companies’ revenues, with further evidence that they facilitated profits from problem gamblers. The Report found current gambling legislation that excludes loot boxes because they do not meet the regulatory definition failed to adequately reflect people’s real-world experiences of spending in games. Loot boxes that can be bought with real-world money and do not reveal their contents in advance should be considered games of chance played for money’s worth and regulated by the Gambling Act.

Evidence from gamers highlighted the loot box mechanics in Electronic Arts’s FIFA series with one gamer disclosing spending of up to £1000 a year.

The Report calls for loot boxes that contain the element of chance not to be sold to children playing games and instead be earned through in-game credits. In the absence of research on potential harms caused by exposing children to gambling, it calls for the precautionary principle to apply. In addition, better labelling should ensure that games containing loot boxes carry parental advisories or descriptors outlining that they feature gambling content.

  • The Government should bring forward regulations under section 6 of the Gambling Act 2005 in the next parliamentary session to specify that loot boxes are a game of chance. If it determines not to regulate loot boxes under the Act at this time, the Government should produce a paper clearly stating the reasons why it does not consider loot boxes paid for with real-world currency to be a game of chance played for money’s worth.
  • UK Government should advise PEGI to apply the existing ‘gambling’ content labelling, and corresponding age limits, to games containing loot boxes that can be purchased for real-world money and do not reveal their contents before purchase.

Long-term effects of gaming:

‘Gaming disorder’ formally designated by the World Health Organisation should be included in independent research into the long-term effects of gaming in a strategy developed by Government and paid for in part by an industry levy. MPs consider the games industry has not sufficiently accepted responsibility for either understanding or preventing this harm and should contribute financially to research on potential harms associated with its products, as the gambling industry is already expected to do.

  • The Department should immediately update its areas of research interest to include gaming disorder, working with researchers to identify the key questions that need to be addressed and develop a strategy to support high-quality, independent research into the long-term effects of gaming. The Government should also require games companies to share aggregated player data with researchers and to contribute financially to independent research through a levy administered by an impartial body.

Gaming lacks ‘protection for vulnerable’:

The Report cites evidence that “gaming is several years behind gambling in relation to protecting the vulnerable,” a statement described by a Government Minister as “lamentable” if true. One member of the public reported their adult son had built up debts of more than £50,000 through spending on microtransactions in an online game, RuneScape. Jagex, the company behind it confirmed players “can potentially spend up to £1,000 a week or £5,000 a month” in the game.

The Report notes that games companies were generally reluctant to accept a role or responsibility to intervene on player spending, with difficulty in determining what level of spending might be harmful.

Potential harms – some in games industry ‘wilfully obtuse’:

MPs found it difficult to get full and clear answers, expressing disappointment at the way some representatives engaged with the inquiry, particularly in acknowledging what data is collected, how it is used and the psychological underpinning of how products are designed. Representatives from the games industry were found to be wilfully obtuse in answering questions about typical patterns of play, considered essential information in better understanding of engagement with gaming.
 
Some games and social media company representatives were found to have “demonstrated a lack of honesty and transparency” in giving evidence, with the Report questioning what companies had to hide.

  • The Report calls on the industry, particularly large multinational companies, to recognise responsibility to protect players from potential harms and to observe the relevant legal and regulatory frameworks in all countries their products reach.

Safeguarding younger players:

With three-quarters of those aged 5 to 15 playing online games, MPs express serious concern at the lack of an effective system to keep children off age-restricted platforms and games. Evidence received highlighted challenges with age verification and suggested that some companies are not enforcing age restrictions effectively.

Age-ratings:

Legislation may be needed to protect children from playing games that are not appropriate for their age. The Report identifies inconsistencies in ‘age-ratings’ stemming from the games industry’s self-regulation around the distribution of games. For example, online games are not subject to a legally enforceable age-rating system and voluntary ratings are used instead.
Games companies should not assume that the responsibility to enforce age-ratings applies exclusively to the main delivery platforms: all companies and platforms that are making games available online should uphold the highest standards of enforcing age-ratings.

As previously reported by us here, in a website posting in November 2017 (that can be downloaded below), the Gambling Commission publicly stated what we understand to remain its present position on loot boxes within video games.

UPDATES

1. The Gambling Regulators European Forum (GREF) – to whom David Clifton delivered its annual lecture during ICE in February this year – has concluded (not surprisingly in our view) that loot boxes do not universally constitute gambling, not least because the definition of ‘gambling’ differs amongst the member countries of GREF with the consequence that a ‘loot box’ will not meet the statutory definition of gambling in all those member countries.

GREF has published a report (that you can download below) entitled “Synthesis of the works carried on by GREF eGambling Working Group with regard to the implementation of the Declaration of gambling regulators on their concerns related to the blurring of lines between gambling and gaming”. The report’s ‘Conclusions’ section reads as follows:

Relevant national authorities responsible for consumer protection enforcement, health, education, digital and financial regulation should continue to be involved in the debate relating to the risks being posed by the blurring of lines between gambling and other forms of digital entertainment such as video gaming, i.e. skin betting, loot boxes, social casino gaming and the use of gambling themed content within video games available to children.

However, it is recognized that whether these activities ultimately trigger the implementation of gambling regulation, would depend on each national gambling definition.

Where possible, according to their national legislative framework, gambling regulators should consult with other relevant stakeholders to this Declaration of proposed actions, to consider more coordinated responses.

The video game industry and the social gaming industry are encouraged to provide and the consumer protection organizations to advocate, for more accurate information being displayed to consumers (e.g.: specify the scope of the “in-game purchases” label). Better consumer information would give players more certainty on in game purchases (disclosure of the content of loot-boxes and of the drop rates44) as well as more flexibility in the playing of the game. This would include the possibility to acquire the same content in different ways by direct sale of in-game items included in loot-boxes, and providing for exchangeability of in-game items and enabling refunds).

GREF members will continue to develop their close cooperation and exchange of information on issues relating to loot boxes and skin gambling, where these trigger gambling regulatory concerns.

2. On 22 October 2019, coinciding with publication of a report into online gaming entitled “Gaming the System”, the Children’s Commissioner for England, Anne Longfield, has called for changes to gambling legislation so that ‘loot boxes’ are classified as gambling.