Microtransactions, including loot boxes and special passes, have rapidly emerged as significant, albeit contentious, revenue sources for real-money gaming (RMG) companies. Despite their financial potential, these microtransactions are entangled in a web of legal complexities, creating a challenging landscape for RMG companies navigating the intersection of historical precedent, existing legal frameworks, and industry innovation.
Video Game Monetization
Video games, of course, have become an integral part of contemporary American culture. Approximately 227 million Americans play video games for at least one hour weekly, with 77% playing three or more hours. The video game industry traditionally has derived revenue from four sources: brick-and-mortar retail sales and digital downloads, subscription models, live experiences such as traditional arcade games or in-person virtual reality games, and advertising.
The rise of skill-based and real-money games has spawned two additional revenue models:
- Rake, Vigorish, and Commissions — Borrowed from traditional casino games and sports betting, these money-making schemes build in a house advantage by altering the payout odds rather than leveraging a natural advantage in the gameplay. With a rake, the platform operator removes a small portion of the betting stake. This is most common in poker. Say three players are still in the pot at showdown, each wagering $25. With a 4% rake, the house claims $3, with the remaining $72 going to the winner of the hand. Sportsbooks use vigorish, or "vig" in hopes of profiting regardless of a game's outcome. They accomplish this by paying 10:11 odds on most straight bets. Losing bets pay $11 and winning bets collect $10. The bookies' goal is to balance the wagering. With 100 units ($1,100) bet on both sides of a game, the sportsbook would be $100 to the good no matter who wins. Commissions in baccarat are similar. The banker wins slightly more often than the player, so bets on the banker pay 5% of their winnings when that happens.
- Microtransactions — Used extensively in current-generation online games, Microtransactions are increasingly finding their way into skill and gambling games. These small, in-game purchases allow developers to monetize free-to-play titles. Players who enjoy the core experience may be inclined to purchase items that speed their progression through the game's levels, customize aesthetics, or gain an edge over others. However, designers must carefully balance microtransactions to enhance gameplay without enabling pay-to-win. In real-money games like casino and sports betting apps, microtransactions enable incremental spending on each wager without needing to deposit larger sums.
Regulatory Quandary
While most of these revenue streams fit neatly within established regulatory frameworks, microtransactions present unique challenges. Since 2017, loot boxes and gacha systems — two popular forms of microtransactions — have fallen into legal and moral gray areas. Their legality remains uncertain, and they raise numerous legal and ethical concerns. Critics argue that loot boxes manipulate gamers into overspending, fostering addictive behavior. Further, the lack of oversight concerning minors' engagement with microtransactions has sparked widespread concern.
Despite these legal and moral quandaries, microtransactions remain a vital revenue source for gaming companies, particularly those in the RMG sector. Consumers are spending record amounts on these microtransactions, demonstrating their substantial revenue potential. In 2020, global consumer spending on loot boxes reached an astounding $15.265 billion. Projections suggest this figure will continue to rise, potentially reaching $20.331 billion by 2025.
The figures underscore the importance of microtransactions for RMG companies. However, to harness this potential fully, these companies must navigate the complex legal landscape surrounding microtransactions. They must develop strategies and implement practices that respect both legal requirements and ethical considerations, ensuring they maximize revenue without incurring legal liabilities or damaging their reputation.
Micromanaging Microtransactions
Given the profound social and economic concerns microtransactions create, several countries now require loot boxes to disclose their odds. Belgium and the Netherlands have banned them outright. Consumer advocacy groups in the United States have also called for stronger regulation, citing a link between loot boxes and problem gambling. Parents have filed several lawsuits as well, claiming games pushed their children into spending hundreds or thousands of dollars.
Game developers and publishers find themselves walking a fine line. When handled ethically, microtransactions can enable valuable products and experiences that would otherwise be impossible. But anything resembling gambling mechanics risks a backlash, not to mention the actual harm suffered by those unable to control addictive impulses.
An attorney specializing in real-money gaming law can help RMG businesses and video game developers remain vigilant when deciding whether to employ such a revenue model.
Spending Limits
As with slot machines, real-money gamers can get caught up in the excitement generated by the bells, whistles, and animation that promote the games. These frills can also cause them to lose sight of just how much money they have lost. RMG companies can adopt several measures to protect players and themselves from adversity that comes from overspending and buyer's remorse:
- Daily Maximums — Implementing a cap on how much money players are allowed to spend on microtransactions in any 24 hours offers a straightforward yet powerful guardrail. Even in the absence of specific legislation, this proactive strategy ensures responsible spending and demonstrates the company's commitment to keeping gaming fun.
- In-Game Notifications — Timely alerts can be a game-changer. Interrupting a gaming session at regular intervals or posting spending statistics each time players initiate another deposit or purchase can induce them to take a step back and consider the wisdom of their decision.
- Cooling-Off Periods — Introduce mandatory breaks from the game. The system could be programmed to lock out players for 24 hours when certain conditions are met, such as multiple deposits, purchases, or significant bankroll depletion. This would help control compulsive spending and the urge to "get even" by chasing losses with ever-larger bets.
Age Verification
Numerous reports on loot boxes and other transactions in games targeted to children and adolescents say they induce "gambling-like" behaviors or serve as a gateway to compulsive gambling. This may prove especially troubling, as underage players lack the experience and judgment most older players develop.
In addition to prohibiting people under the legal gambling age
from participating in RMGs, game companies should empower parents
and guardians to oversee their children's video game activity.
Comprehensive parental control options and age-verification
requirements would demonstrate an organization's commitment to
responsible monetization practices.
Parental controls that allow guardians to set hard limits on
whether and how much their kids can spend on a game should also be
transparent in explaining the actual cost of such purchases. Games
should also provide detailed activity reports and notifications
directly to parents via email or text message whenever purchases
are made, when limits are approached, and when any attempt is made
to increase or circumvent the limits they set.
Age verification for poker, sports betting, and real-money hypercasual games must be robust and foolproof.
Platforms that offer gambling, betting, and other games involving real currency face the challenge of keeping minors off their sites. While most platforms clearly state in their terms of service that players must be over 18 or 21 to participate, additional safeguards are necessary to uphold this policy. Of course, these sites must verify players' identities and ages when players set up their accounts, log in, and add or withdraw money.
Third-party providers specializing in age and identity verification can add another layer of security. These services use sophisticated algorithms to cross-check user information against multiple databases and employ artificial intelligence, machine learning, and biometrics.
Sites can use geofencing to exclude precise areas from access to their real-money games. Though hardly foolproof, thanks to VPNs and spoofing software, geofencing can draw boundaries around schools and other areas where teenagers congregate.
Conclusion
The legal landscape surrounding real money games varies across different jurisdictions. Operators must navigate complex legal frameworks to ensure compliance with regulations in their territories. Additionally, players need to be aware of the legal status of real money gaming in their respective regions to avoid any legal consequences. When navigating the complex world of microtransaction regulations, RMG companies should keep the following points in mind.
It is best to consult with a legal counsel or a law firm specializing in video game law to understand the regulatory landscape and prepare for potential changes. Apart from legal consultation, collaboration with legal experts might also help as they could guide on the legal challenges associated with microtransactions.
An attorney specializing in real-money games can help platforms anticipate regulatory shifts and adjust their business models as microtransaction regulations continue to evolve. By adopting clever legal and ethical strategies, RMG companies can future-proof their business from any legal risks and liabilities.
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.
