United States: e-Sports Update: "Loot Boxes" In The Crosshairs

Last Updated: September 11 2019
Article by Darius C. Gambino

As a father of young gamers, and a gamer myself, I was both intrigued and concerned when I heard about the legislation recently proposed by US Senator Josh Hawley from Missouri which seeks to ban loot boxes and pay-to-win schemes in games played by minors. A draft of the bill, dubbed the Protecting Children from Abusive Games Act, was introduced in the US Senate with bipartisan support on May 23, 2019. Despite what might be considered the best intentions, the language of the bill is incredibly broad, and targets all games where "the publisher has constructive knowledge that any of its users are under the age of 18." Such wording has the potential to ensnare every video game currently on the market, and could operate to effectively ban loot boxes for everyone (not just children). If the legislation passes in its current form, the impact on the video game and e-Sports industries will be massive.

In the past ten years, add-on content known as downloadable content (DLC) has become a key part of the video game industry. Back in the good old days of the Sega Genesis and Nintendo 64 (my heyday), games were sold exclusively in physical packages (cartridges or discs). Today, content is delivered primarily through digital download. For many games, DLC is offered at the time the game is first purchased, at some later date, or both. Often times, there are various versions of a game offered, with the versions including DLC being sold at a significantly higher price than the standard version of the game. Purchased DLC is typically delivered to the user through an online marketplace such as the PlayStation Store or the Microsoft (Xbox) Store. Recent studies show that DLC accounts for between 25-50% of a publisher's total revenue, and much of the publisher's profit is made on DLC (as opposed to on the game itself). The rise of DLC has created new revenue streams for video game developers, and has helped the industry grow in many ways.

Loot boxes are one type of DLC. They can be described as any type of in-game virtual package that provides a randomized reward to the player. For example, a loot box could include a more powerful weapon to use in-game, or some lesser reward. To acquire loot boxes, players must typically either spend real money, or spend time completing in-game challenges. For many, the allure of short-cutting the time and effort required to complete in-game challenges by spending a few dollars on a loot box is tempting. Some even refer to these systems as pay-to-win because the player can pay actual money to make their player or team better, and thus increase their chances of winning the game. This is in contrast to the player who spends no money on the game, but rather spends time in-game leveling up their character or team.

Loot boxes are not guaranteed to provide you the equipment or benefit you desire, however. When you purchase a loot box, the contents are randomized, with the high-value items only in a select few loot boxes (e.g. 1 in 50). In this way, some have argued that there is an element of gambling to loot boxes. If you don't get the content you want the first time you spend money on a loot box, you may continue to spend more and more until you acquire the content you want (that really awesome player, sword or pump shotgun). 

Some commentators have even compared loot boxes to slot machines, arguing that they both offer visual stimulation along with variable rewards.

The Entertainment Software Association, one of the video game industry's biggest advocates, addressed Senator Hawley's proposed bill when it was first publicized, noting that "Numerous countries, including Ireland, Germany, Sweden, Denmark, Australia, New Zealand and the UK, [have] determined that loot boxes do not constitute gambling." On the other hand, the Netherlands and Belgium have issued rulings banning loot boxes. The US has yet to decide whether loot boxes constitute gambling.

In addition to loot boxes, Senator Hawley's bill seeks to eliminate pay-to-win transactions, which are described as a purchase that:

  • eases a user's progression through (game) content;
  • assists a user in accomplishing an achievement;
  • assists a user in receiving an award;
  • permits a user to continue to access content; or
  • provides a user with a competitive advantage (in games featuring competition with other users).

In short, the bill seeks to eliminate games where players feel like they must spend money to gain e-advantages over the game or other online players. Interestingly, the bill has a specific carve-out for transactions that provide only cosmetic alterations to the player's in-game character. One of the biggest e-Sports franchises, Overwatch, offers loot boxes to players, but the boxes only include skins and other cosmetic customizations than have no impact on gameplay.

As an example, let's take a game that I actually play with my children, NBA 2K19. In NBA 2K, players take control of current and former NBA players, along with user-generated players. NBA 2K is a massively popular game, with an established e-Sports league including 21 teams at present. Like many other games, NBA 2K allows users to purchase virtual currency which can be spent on improving the quality of a team of actual NBA players. For example, virtual currency can be used to purchase packs of virtual basketball cards (i.e. loot boxes) that players can open and use to build a team of current and former NBA players for competitive online or offline play. The better players you have, the more successful you will be in games. Players are ranked by different tiers such as Bronze, Silver, Gold, Emerald, etc. all the way up to Galaxy Opal in NBA 2K19. Even the best online players would have a hard time winning consistently with a five-man roster of Bronze players, whereas a relative novice would likely win most of the time with a team of all Galaxy Opal players. NBA 2K does not provide a player the odds of getting any particular tier card when purchasing packs. So, you could potentially open 100 packs before you pull the high tier player you really want. Other sports games have similar pack-based systems. The baseball franchise MLB The Show uses packs and virtual currency, and also provides odds to the player at the time of purchase. For example, the player may be made aware that there is a 1:10 chance of pulling a Silver tier baseball player from a pack. The immensely popular games Madden (American football) and FIFA (soccer) also include similar virtual currency systems and packs. Since all of these games are played by users under the age of 18 (in my household at least), they are all targets of Senator Hawley's bill.

Video game publishers devote significant financial resources to developing content, and they should have the right to sell DLC such as loot boxes to consenting adults who understand the risks. By the same token, if I want to purchase a pack of virtual basketball cards to improve my team in NBA 2K, and skip the hours of play time that might otherwise be required to obtain those cards, I should have that ability. On the flip side, where children are playing games that include loot boxes and have access to the family credit card, the issue becomes thornier. In the absence of regulations, parents need to discuss the purchasing of loot boxes with children, insuring they understand that nothing is guaranteed for the money spent. If Senator Hawley's legislation is passed, parents may not have to have those hard conversations, but video game publishers will lose out on a significant and viable revenue stream. Loot boxes account for millions of dollars per year in sales for popular games, and removing that profit center could have significant ripple effects throughout the industry. It could, for example, result in layoffs, decreased investment in content development and higher game prices. It could also potentially result in decreased interest in video games and e-Sports in general.

So what is on the cards for loot boxes? We will all have to wait and see how Senator Hawley's legislation is received by both parents and gamers. Video game industry analysts seem split on the issue, with some believing that regulation of some kind is inevitable, and others stating that such legislation is unlikely to pass anytime soon. Others believe that the industry will band together and formulate their own solution to the current situation (e.g. stronger parental controls, odds disclosures, alternate game modes, etc.). In my opinion, the bill will fail simply because it takes a sledgehammer approach to an extremely complex and nuanced issue. In any event, if you're a gamer, buy your loot boxes now – if Senator Hawley and his colleagues have their way, they may soon be a thing of the past.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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