The Mouthpiece: Gambling law, new formats and ‘loot boxes’

TAGs: loot boxes, skin gambling, the mouthpiece

“It is not wisdom but Authority that makes a law.”

 Thomas Hobbes

In September of this year, no fewer than 16 countries have joined together to eliminate, or at least control, a new menace that has arisen online. This effort is to protect our way of life: the innocence of youth, self-denial in the face of temptation. Failing to control this threat, we are solemnly assured, will lead to ruin, both of individuals and their societies.

The Mouthpiece: Thinking outside the boxWell, what dreadful thing can we be talking about? Weaponized anthrax? A new super-effective methamphetamine, as in “Breaking Bad”? An extra-loaded breed of sinsemilla buds, guaranteed to knock you into next week?

No! It is the demon of Wicked Gambling, in the new and devious form of video games. The beast which has so troubled the U.S. and European corridors of power is a relatively small item. In fact, it has no tangible form. It is a result of dedicated thinking “outside the box”, which has, ironically, led to a new sort of “box”. Specifically, the “loot box”.

So just what are “loot boxes” and why do they matter for gamblers, for bettors and operators?

Loot, gain, and gambling

The rise of the Internet has completely transformed gaming as we know it. Our focus for this discussion is the massive expansion of non-gambling gaming. No longer confined to tabletop and cardboard counter forms, games, too, went online. Video games began to offer whole new worlds of animated adventure and entertainment, none of it classifiable as “gambling”. Or was it?

Soon game designers and publishers were seeking a perfect compromise: games which offered the fast pace and excitement (and revenue stream) of the casino floor or card table, but which did not actually meet the legal definition of gambling.

Let’s review. In the ordinary definition of “gambling”, three elements have to be present and operating simultaneously. The first, and probably the most important, is “consideration”—that is, handing over something of value. This is what makes a contract stick. In classic contract law, “consideration” can be very broadly defined. That is, it can be an item of immediate value, such as cash or goods. But it can also mean one party refrains from an action to which they would otherwise have been entitled (like exercising an option to buy real estate).

In gambling law, however “consideration” has come to mean mostly money, or its immediate equivalent, like credit card charges. BUT it has to be handed over for the sole reason of taking the shot; it has to be risked. Further, it can’t be optional. If the player doesn’t have to hand over anything in order to play, then there is no consideration, and therefore the game cannot be gambling. This is why every supermarket sweepstakes for, say, a vacation in Hawaii will have a no-money option; you can enter without buying anything—just send in your name and address on a postcard.

The equivalent for video games is called “alternative financing”. That is, there are mechanisms and routines in the game which encourage players to spend extra money, but are not required or strictly necessary. Zynga poker started out with a very simple version for its online games. Chips were distributed at sign up, and periodically, so long as you kept playing. But if you were in a hurry, extra chips were available for a modest charge.

And of course, the same approach worked for video adventure games like Warcraft or Star Wars Battlefront—only they offered package deals, combinations of “magical” aids, consumables, and extra points.

Random? Chance?

These “loot boxes” or “loot crates” can be earned through successful gameplay, or purchased. The contents are randomly selected. There can be duplicate issues of low value, low level items. Rare and valuable items, less so. Thus, it is possible to lay out money, perhaps a tidy sum over time, and not get any further ahead with the fifth or sixth “loot box” that you were with the first.

The question is, does this random selection re-make the games into games of chance?

The answer is a flat, emphatic NO.

Because in order to be a “game of chance”, a transaction has to depend on chance—that is, factors beyond the control of bettors or players- to be resolved. Chance must be at least a substantial factor in determining the result. And in the case of the video games and “loot boxes”, the random selection of contents is not one of those factors. And the money is not risked. Each purchase delivers something in return for the money. The contents of a given box may or may not help players advance in a given game. But they cannot win the game. Even if a player gets an extra-special, loaded-for-bear box of goodies, that’s not the end. The contents still have to be used in playing the game. Simple possession determines nothing. Whatever this is, it isn’t gambling.

Scattered laws and unintended effects

There are, nevertheless, lawmakers who think it is. Both Belgium and the Netherlands have proclaimed “loot boxes” to be gambling, and the Dutch have already proclaimed fines and even prosecution for offending games. At least, some of them. So far, there has not been a blanket pronunciation on the concept of “loot boxes”—but individual games such as Storm Front, FIFA 18, and Counterstrike.

At the same time, other national authorities, most notably Great Britain’s Gambling Commission, have given loot boxes a pass. Their reasoning is: since the prizes unlocked in loot boxes aren’t usable except in the games in which they’re won, and once the operator won’t swap them for cash or anything else, they don’t meet the definition of consideration or of prize (the third element of the gambling triangle.)

Which is, speaking technically, very right. But from a practical point of view, it might also be kind of wrong.

The Mouthpiece: Thinking outside the boxBecause while loot boxes are not designed, advertised, or sold as gambling equipment, they can nevertheless be used in what is called “skin gambling“. At a “skin gambling” or “skin betting” site, players can bet using “skins” (computer-generated avatar characters) or in-game items like ray guns or magic swords- or loot boxes, Or even cash. While it is clear that these items are not meant to be gambled, and the Terms and Conditions which come with every game forbid such activities, as a practical matter, it is almost impossible to monitor the micro purchases and transfers of in-game goods. Some of these MMO’s have player pools numbering in the millions. The game publishers employ ombudsmen and inspectors, but there aren’t nearly enough of them for close continual inspection of every account.

But in any case, this begs the question. Just because a thing may be used, against instructions, in an illegal (or at least unlicensed) enterprise, it doesn’t mean that thing necessarily has to be controlled or outlawed. After all, the “pizza connection” drug ring of the late 1980s used pizza delivery businesses as a front—but it didn’t result in a ban on pizza. It didn’t make pizza into a controlled substance.

In just the same way there is definitely a complaint against the sites which allow use of “skins” and loot boxes as a form of currency—but not against loot boxes per se. Why is a total ban needed all of a sudden?

And a little child shall lead them?

When government wants to exceed its limits, to enact something extra intrusive, burdensome, and unnecessary, the odds are 10 to 1 that the measure it seeks will be offered as being “for the children”. Only “health and safety” is more frequently used as a smokescreen for bureaucratic meddling and national-market protectionism.

Thus, the excuse offered for outlawing something as “gambling” when it is clearly not, the cover story for reaching outside both the law and the legal definition is that it protects children and other tender-minded parties from corruption, sin, and financial ruin.

“Unlicensed websites offering skins betting can pop up at any time and children could be gambling with money intended for computer game products,” said Neil McArthur, head of the UK’s Gambling Commission (which has concluded that loot boxes per se are not gambling). Likewise, the editors of the Diagnostic and Statistical Manual of Mental Disorders (DSM-5) are asking whether “Internet gaming disorder” (note that they did not say gambling) should be listed as a mental condition.

But how much fact is there behind that assertion, and how much wishful thinking? Who is getting hurt? And for how much? To be sure, we have the usual crop of “man bites dog” stories, heartbreaking lost-the-ranch anecdotes which accompany the introduction of any new technology or gaming method. (See e.g. Ethan Gach “Meet The 19-Year-Old Who Spent Over $17,000 On Microtransactions” Nov 30, 2017, available at

We have yet to see anything like a definitive study or even a timeline to show us that there is a serious or even noteworthy situation here. Consider: how do these supposed losses stack up against similar costs for other hobbies and pastimes? When little Billy from Oakland puts down a thousand dollars on Star Wars loot boxes, that’s supposed to be a menace to society. Addiction, compulsion, mental disorder, the wise men say. But if he sinks twice that into Raiders season tickets, and goes to games dressed up as a Darth Vader skull demon, the only reaction will be envy.

And in any case, the job of suppressing abuses of the loot box system has already been done—not by the purveyors of theories and syndromes, but by dissatisfied customers. When a product does things they don’t like, customers don’t buy. The “Star Wars: Battlefront 2” has disabled its micro-purchase functions. And the reason was not the threat of government action, but the fact that sales were down. The customers didn’t like having to pay a purchase price of around $60, and then pay more for loot boxes. As usual, when it is allowed to, the market worked first and best.

Out from under?

The real concern of the authorities seems to be the loss of control. As was predicted, gambling games have taken advantage of the digital revolution to reinvent themselves into formats which offer gambling level excitement without actually coming u under gambling laws, such as DFS and subscription poker online. They have evolved from under the old regime.

But this does not sit well with the mindset which insists that every activity must be monitored and regulated by government (and if possible, taxed).

This is what prompts senators and sociologists alike to murmur about “emotional profits and losses” of the loot box system, and to say it is “psychologically similar to gambling” (and therefore must be treated just like it).

And why is this important to the future of gambling? Because this is just what everyone in the gambling industry will have to watch out for in the future. Games and gaming will continue to evolve into new formats and new combinations. But these new developments may be suppressed or even stillborn under the weight of too much government intrusion and meddling. The people who are making this industry’s future happen, should be prepared to defend it as well. This, too, is reaching “outside the box”. But it will be very necessary.

Mr. Owens is a California attorney specializing in the law of Internet and interactive gaming since 1998. Co-author of INTERNET GAMING LAW with Professor Nelson Rose, (Mary Ann Liebert Publishers, 2nd ed 2009); Associate Editor, Gaming Law Review & Economics; Contributing Editor, TSN. Comments/inquiries welcome at [email protected].


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