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Lootboxes: Advice to the Gambling Commission from ABSG

ABSG has given advice to the Gambling Commission in regards to lootboxes. This advice outlines what lootboxes are, concerns around them, and how to protect consumers.

Published: 13 August 2021

Last updated: 13 August 2021

This version was printed or saved on: 3 December 2022

Online version: https://www.gamblingcommission.gov.uk/guidance/lootboxes-advice-to-the-gambling-commission-from-absg

Executive Summary

Lootboxes are in-game features that allow consumers to either spend real world money or stake in-game items for a chance of winning something of an unknown value. Not all lootboxes, however, are the same.

There is a strong association between spending on lootboxes and problem gambling status. This detriment exists for children and adults. One study estimated the association to be of a similar magnitude to the link between problem gambling and the use of online slots and casino games.

Monetised lootboxes are of greatest concern – we recommend these should be the priority for policy action. The absence of money’s worth prizes mean they are not classified as gambling under the 2005 Act. But to consumers they nonetheless closely resemble gambling because they directly involve speculating money on a random event with the chance to win items which have varying value to players. The use of real money is also most associated with the risk of financial harm.

Providing these products to children should not be permitted. Public policy in Great Britain is based on the principle that commercial gaming is an activity for adults. There are exceptions to this (e.g. Category D machines) – but we note there are fewer examples of this now that the Government has taken precautionary action to prevent use of the National Lottery by under-18s.

ABSG, therefore, recommend that monetised lootboxes should not be available to children. This means the Government should consider options including:

ABSG also note concern about non-monetised lootboxes. Evidence from research shows children still perceive using these games as gambling. Despite the absence of real-world money or money’s worth prizes, children as young as 11 still report this as gambling. ABSG recommends that these products should also be removed from games that children play.

Lootboxes can be harmful to adults. Improvements to consumer information and warning labels should be mandated. This would keep these products in line with existing consumer protection principles. It is well known that consumers do not easily understand information on Return to Players (RTP), recent research, however, has shown that more accessible language in warning labels increases consumer understanding of the costs of their gambling. More prominent and accessible information is therefore an essential part of reform.

Any new consumer protection regulations would need future proofing. Lootbox features are likely to decline as new products are introduced by games developers. They should be prevented from introducing innovations which monetise ‘surprise-mechanics’ in games used by children.

Regulations are only effective if there is an agency with responsibility for enforcement and resources to monitor and oversee the market. ABSG does not believe this will be best achieved by simply amending the existing legal definition of gambling so that lootboxes are captured within the remit of the Gambling Commission. The lines between gambling, gaming and online retail are blurred. The Government’s Online Harms’ White paper proposed measures to address a wide range of online risks – and lootboxes should be considered within this. A multi-agency response by Ofcom, Trading Standards, the Gambling Commission, the Advertising Standards Authority, and others is required. This should be underpinned by clearly defined roles for each agency, a well-specified policy framework, and specific outcome metrics.

Introduction

In July 2019, ABSG published advice on online harms, which highlighted concerns about these features and evidence associated with their impact1. The advice stated:

‘Playing video games, and other online games via apps on mobile phones, increasingly involve content which is very close to gambling activity. Our concerns relate to ‘skins’ gambling, ‘lootboxes’ and ‘social casino games’. Further consideration needs to be given as to whether the gambling-like content is appropriate – particularly as it is used by large numbers of children and young people. Legal definitions of gambling may currently allow certain practices to avoid regulation, even though they are potentially harmful and are perceived as gambling by those that use them.’2

In November 2020, to support the Gambling Commission’s input to policy work being led by DCMS on the issue of lootboxes, we were asked to consider:

This briefing note sets out ABSG’s response to these questions and recommendations on how risks associated with these products could be mitigated.

Although out of the scope of this advice on lootboxes, ABSG also notes other concerns related to gaming – such as games and apps which look like gambling products but are not classed as gambling under the 2005 Act because they do not have stakes or prizes. ABSG’s concerns about these types of product and the risks they create for children have been noted in previous advice.

Background

What do we know?

Lootboxes are in-game features that allow consumers to either spend real world money or stake in-game items for a chance of winning something of an unknown value 7. They are also called mystery awards, prize wheels, treasure chests, item packs and ‘gacha’ games.

Not all video games make the same type of offer. Some games, such as FIFA, offer consumers monetary purchases in the game. Others, such as Half Stone, are free of monetary value. Some games (for example Path to Exile) allow consumers to disable their ability to buy lootboxes.8 The items available from both forms of lootboxes often contribute to a player’s social currency within a game.910 They also appeal to players enjoyment of experiencing ‘surprises’ within games. These features help explain their popularity and appeal to players.

In some respects, lootboxes are not unlike an online version of selling card or sticker collections of footballers or Pokemon characters. These all remain highly popular amongst young consumers and are widely available in UK shops. They encourage further purchases, competition for high value items, sharing, swaps and other behaviours that can be part of social interactions and relationship building in childhood.

Lootboxes, however, differ in two important ways. First, they are ‘packaged’ very differently from physical card packs, with much higher levels of multi-sensory stimulation associated with the surprise. Second, they potentially allow virtually unlimited online spend. Press reports of children spending large sums on in-game features have become more common in recent years,11 although we know of no empirical study has been carried out to date on actual spend and no industry disclosure on annual customer spend by age group.

The widespread availability of in-game features is reflected in survey data of usage by children. Different studies have found differing levels of usage – with differences likely to be accounted for by sampling strategies in each study. The most recent Gambling Commission sponsored IPSOS survey found that 23% of 11-to-16-year-olds in the stratified sample (England and Scotland only) had paid to use lootboxes.12

Although data on the actual or average spend on in-game features is not available (although the Government’s call for evidence should help resolve this), there is little doubt that the market worldwide is significant and growing. For example, Foye et.al 2018 estimated that, by 2022, lootboxes and skins gambling would generate $50 billion.13 A recent survey of the 100 top grossing games on Google Play and the Apple App Store found that 58% of video games on Google Play and 59% of iPhone games contained lootboxes. 93% of Android games and 95% of iPhone games that featured lootboxes were marked as suitable for children aged 12+ years.14

The report of the DCMS Committee on Immersive and addictive technologies15 makes specific reference to the absence of evidence in their recommendation:

“We recommend that lootboxes that contain the element of chance should not be sold to children playing games, and instead in-game credits should be earned through rewards won through playing the games. In the absence of research which proves that no harm is being done by exposing children to gambling through the purchasing of lootboxes then we believe the precautionary principle should apply and they are not permitted in-games played by children until the evidence proves otherwise.”

The Government’s ‘Call for Evidence’ should provide more evidence on:

Evidence of harm

Summary of key points

Studies have found links between lootbox purchases and problem gambling amongst young people. These correlations have been estimated to be as strong as those between problem gambling and using online slots and casino games.

Lootboxes are engaging children in gambling-style behaviour from a young age. Many studies have shown that people under-18s clearly perceive lootboxes to be gambling. How children perceive lootboxes is important and should be reflected in public policy.

Lootboxes do not meet the legal definition of gambling - and are therefore legal for under-18-year-olds. A situation, however, where children are experiencing what they perceive to be commercial gambling is highly concerning. Particularly as public policy in the UK widely accepts that, with a small number of exceptions, children should not take part in commercial gambling.

High-levels of expenditure on gambling-like products – often in short periods of time – is a source of consumer detriment. This is more concerning due to the unclear information provided to consumers on these products.

In analysing the evidence, we have considered three main areas of potential detriment:

Links to current harmful behaviour

There is evidence suggesting a correlation between lootbox exposure and problem gambling.1617 A survey of 16-to-18-year-olds, using correlational analysis, found evidence of a link between lootbox spending and problem gambling. This link was more than twice as strong in its effect than links found in previous studies in an adult population. It was particularly strong in those in the sample classified as ‘problem gamblers.’

Another recent study of an older age group (16-to-24-year-olds) found that lootbox purchasers were more likely to have engaged in gambling activities in the last year. The odds of being classified as a problem gambler were 4.4 times higher amongst those who purchased lootboxes compared with those that did not18. This association between lootboxes and problem gambling for this cohort was of a similar magnitude as for those who took part in online casino games or slots.

Without further longitudinal analysis, however, it is not possible to determine the directions of causality i.e., whether play with lootboxes is causing problem gambling in this population or whether children with an existing problem are suffering greater harm as a result of the additional opportunities presented by lootboxes to spend money on games of chance. Research is also unclear on which communities or people may be particularly at risk, beyond general trends in relation to gender and age.

These findings all indicate an association between lootboxes and problem gambling. The direction of causality is not clear, but the evidence of a strong association is sufficient to support concern about their harmful effects and to suggest that young people participating on lootbox purchases should be considered as a high-risk of experiencing gambling harms.

These correlations are not surprising. The absence of money’s worth prizes means that lootboxes are not captured by the legal definition of gambling – but from the consumers perspective they share the speculative features of gambling. Online items have meaningful value to consumers who increasingly socialise, work, and interact online.

Links to future harmful gambling

In addition to harm caused to children now, there are also concerns about its longer-term impact19. We know that children have a lower ability to judge risk and to understand the future impact of decisions. But it is a more complex task to understand the risks for longer-term impact of problematic gambling later in life resulting from the use of lootboxes from a young age.

Although the evidence base around early gambling behaviour is less well developed than in other areas of public health, these associations are well established in relation to early exposure to activities such as drugs, alcohol20, and smoking.21

Research has also shown that children themselves see buying lootboxes as gambling. In a survey of 11–14-year-olds, 58% saw purchasing lootboxes as a form of gambling22. This suggests that regardless of whether legislation technically capture these products as gambling or not, they are nonetheless viewed as gambling by children themselves – and this should influence how these products are treated by public policy.

There is already considerable public debate about how appropriate it is to expose children to gambling at an early age – even stronger concerns should exist in relation to widespread participation in digital activities children themselves perceive to be online gambling.

In December 2020, the Government announced a change in the age limit for participation in the National Lottery from 16 to 1823. The change in the National Lottery age limit reflects the increasing shift from draw-based games to more online-based play. This change was not justified on the basis that participation in the National Lottery by under-18s is seen as a high risk to them now, but because of the need to take a precautionary approach to how it might affect them in the future and the need to prevent it from becoming a pathway to harmful gambling.

The precedent set by this precautionary approach adds to the case the participation in lootboxes, which in the eyes of children are experienced as gambling, should also be restricted to people aged 18 and over.

High levels of unplanned expenditure

A key area of concern includes instances of high levels of expenditure – particularly when this was unplanned or based on unclear information about the product. Of even greater concern is when the expenditure is by a child without parental permission.

Instances of these types of expenditure have been widely reported in the media – as demonstrated in the following case studies. The Government’s call for evidence should provide greater clarity on the instances of this type of issue. This should move us from an anecdotal understanding of this type of consumer detriment to a more evidence-based picture.

Case studies involving children

  • a five-year-old boy with autism was able to spend £300 on in-game items in a Mini Golf game rated as suitable for children aged 3 and above after the game was installed on a parent’s phone24
  • four children under the age of 10 spent nearly £550 in three weeks buying player packs in a FIFA 19 (rated suitable for children aged 3 and above) after seeing how a parent made the purchase. Their parents only realised when their bank card was declined elsewhere because their account had been emptied25
  • an eight-year-old and a nine-year old spent over £600 on an online gaming platform when a parent did not realise that their bank details would be linked to their children’s devices. The platform refused to refund the money and terminated their accounts on the grounds of fraud.26

Case studies demonstrate that:

Under-utilisation of existing consumer law

Existing consumer protection legislation is not being fully utilised to protect children and young people who make in-game purchases.

In 2011, the Office of Fair-Trading published principles on free to play games. They recommended that optional purchases in-games should not be offered and that information relating to costs should clearly displayed29. The principles also specify that there should be no direct exhortation to children to buy advertised products, no payments taken from account owners without their consent and no exploiting of children’s inexperience.

The following textbox sets out consumer protects within EU law. We recommend that the Government are encouraged to review to what extent equivalent protections exist in UK law post-Brexit. If UK laws are reviewed in this area in the future, we also recommend that close attention is paid to online products such as lootboxes.

EU Consumer protections

Consumer protection is a harmonised matter across the EU – key principles are as follows:

  • when dealing with consumers a business must ensure that they act fairly; they must provide accurate information and avoid business practices that are unfair, misleading, or aggressive. The Regulations prohibit 'misleading actions' and 'misleading omissions' that cause, or are likely to cause, the average consumer to take a 'transactional decision' they would not have taken otherwise. They apply to commercial practices relating to products (which includes goods, services, and digital content) before, during and after a contract is made
  • whether a commercial practice breaches the general prohibition and the prohibitions relating to misleading and aggressive practices will be judged by reference to the ‘average consumer’, the ‘average member’ of a targeted group of consumers and the ‘average member’ of a vulnerable group of consumers (as appropriate). The concepts do not refer to actual consumers, and there is no requirement to show evidence of actual consumers being affected by an unfair commercial practice
  • where a practice is directed to a particular group of consumers, the ‘average consumer’ refers to the average member of that group30
  • these Regulations also include specific banned practices that are always considered to be unfair and therefore are prohibited in all circumstances. These include: making a direct appeal to children to buy a product or to persuade their parents to buy a product for them (pester power)31.

International approaches

There are indications of growing cross jurisdictional concern. To date four jurisdictions have chosen to legislate against lootboxes,32 33 34 35 and 19 regulators have signed a declaration expressing concern about their impact36.

International approaches to concerns about lootboxes

  • in 2020, a court in the Netherlands agreed with the regulator that EA’S Fifa Ultimate Team pack opening (lootbox) was classified as gambling. EA are currently appealing the ruling
  • Belgium regulator banned lootbox mechanics in 2018. Their law goes further than the UK law as a product is classified as gambling by having a gambling mechanic within it. It does not need to offer a prize
  • China required the publication of all lootbox odds as well as limiting the amount of boxes purchased in 2019
  • South Korea, like China, must disclose the probabilities of receiving any given reward from a lootbox
  • cross jurisdictional Strategic Implementation Group for Scotland (SIGS) signed by 19 regulators including the Gambling Commission declaring concern in this area
  • several class action lawsuits have been brought against games companies throughout the world alleging that they are offering gambling products. The latest is in Canada where EA Games is being accused of profiting from an illegal gambling business by selling lootboxes. All previous cases have so far have been dismissed
  • a number of elected representatives, such as senators in The United States, have tried to bring forward legislation banning, or curtailing lootboxes in some form. So far these have also been unsuccessful.

Conclusions

Loot boxes have a strong association with gambling harms – and children perceive their use as gambling. Current evidence suggests a link with harm to consumers now – as well as the potential for young people to suffer harm in the future as a result of early engagement in behaviour that, from their perspective, feels like gambling. ABSG recommends public policy action based on evidence of harm in the present, as well as the precautionary principle because of the concern about the potential for future harm to children.

Further research on actual levels of spending, and other industry held data, would bring greater transparency and understanding of patterns and trends amongst children and young people.

ABSG recognise the complexity of blurred lines between gambling, gaming, and online retail. This challenge will not be best met by simply amending the definition of gambling to capture lootboxes. A cross-government approach to online harms is required. For this to be successful it will need a clearly defined policy framework, with clear roles for regulators including Ofcom, trading standards, the gambling Commission, the Advertising Standards Agency, and others.

Annex A: Links to Recent Research with abstract summaries on key conclusions

Examples of lootboxes being used by consumers and children

The following information provides some of the wider context and issues related to this topic area:

Clips from You Tube of consumers using different types of lootboxes:

Summary of recent research

Adolescents and lootboxes: links with problem gambling and motivations for purchase (opens in a new tab) Zendle et al, Royal Society Open Science, June 2019

A large-scale survey of 16- to 18-year-olds (n = 1155) found evidence for such a link (between lootbox use and problem gambling) (η2 = 0.120). The link between lootbox spending and problem gambling among these older adolescents was of moderate to large magnitude. It was stronger than relationships previously observed in adults: 'Video game lootboxes are linked to problem gambling: Results of a large-scale survey' (opens in a new tab), David Zendle and Paul Cairns, PLOS ONE 14(3), November 2018.

‘The prevalence of lootboxes in mobile and desktop games’ Zendle et al, Addiction 115(9), September 2020

Lootboxes in online games and their effect on consumers, in particular young consumers (opens in a new tab) Cerulli-Harms et al, Policy Department for Economic, Scientific and Quality of Life Policies, European Parliament, June 2020

Lootboxes are again linked to problem gambling: Results of a replication study (opens in a new tab) David Zendle and Paul Cairns, PLOS ONE, March 2019

eSports, skins and lootboxes: Participants, practices and problematic behaviour associated with emergent forms of gambling (opens in a new tab) Joseph Macey and Juho Hamari, New Media and Society, 21 (1), January 2019

The Relationship Between Video Gaming, Gambling, and Problematic Levels of Video Gaming and Gambling (opens in a new tab) James Sanders and Robert Williams, Journal of Gambling Studies, 35 (2), June 2019

The relationship of lootbox purchases to problem video gaming and problem gambling (opens in a new tab) Li et al, Addictive Behaviours, October 2019

Are Video Games a Gateway to Gambling? A Longitudinal Study Based on a Representative Norwegian Sample (opens in a new tab) Molde et al, Journal of Gambling Studies, 35 (2). June 2019

Problem gamblers spend less money when lootboxes are removed from a game: a before and after study of Heroes of the Storm (opens in a new tab) David Zendle, October 2019

Lootbox engagement and problem gambling among adolescent gamers: Findings from a national survey (opens in a new tab) Kristiansen and Severin, Addictive behaviours, April 2020

Annex B: Extract from ABSG advice (published July 2019)

Full version is available here

Lootboxes are in-game features which allow players to stake either real world money or in-game items for a chance of winning something of an unknown value (see Case study 2). Nearly a third of 11 to 16-year-olds have paid money or used in-game items to open lootboxes.37

Lootboxes

Many video games make use of lootboxes as a way of increasing revenues for developers. One such game is StarWars Battlefront, which makes extensive use of lootboxes - with characters, ‘skins’, weapons, and other valuable resources all available via this mechanic. Some of these in-game items have different tiers of quality – ‘common’, ‘uncommon’, ‘rare’ and ‘epic’.38 This means that players with money to spend can make faster progress – but this is also subject to a game of chance within the game. The characters available in lootboxes included those that were included in the game’s marketing.

Games such as StarWars Battlefront, and others with similar mechanics, like FIFA Ultimate Team, have recently attracted media attention as a result of a claim made by a Vice President of the games developer EA Sports to a DCMS committee, likening lootboxes to Kinder eggs.39 This parallel, however, does not take account of the different values to players of the items contained within lootboxes.

Research with gaming developers has suggested that the architects of these features may have little awareness of ethics surrounding gambling or the potential for exploitation through these mechanics. Some described being incentivised to ensure they included lootboxes in their design to maximise revenues and that they would develop further to “extract further money from players”.40

Research has found a repeated association between the amount that gamers spent on lootboxes and the severity of their problem gambling status, suggesting that those who buy lootboxes and also gamble on other activities are at increased risk of experiencing gambling-related harms.4142

The similarities between lootboxes and gambling are clear, and some jurisdictions are already taking steps to ban the provision of these games to under-18s. For example, Belgium has already imposed laws which has led to Nintendo removing games from that jurisdiction43. In the USA, a ‘Protecting Children from Abusive Games Act’ is being proposed which would prohibit video game companies from allowing under-18s to access lootboxes and ‘minor-oriented’ games to include pay-to-win features.44

There are additional concerns around lootboxes, as the information offered to players is not regulated and therefore consumers will not always have the necessary information to make informed decisions. In some jurisdictions there is now a mandatory requirement to provide more information. For example, in China, a new rule was introduced requiring lootboxes to display the odds of obtaining different prizes.45