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The $15 Billion Industry Built on Random Rewards

Why I Got Worried About Loot Boxes and the potentially harmful effects on younger gamers

The thrill of approaching a loot box is a feeling many gamers pursue, but it comes with growing concerns. Are loot boxes just a way to obtain rewards, or are they a form of disguised gambling?

This debate has sparked controversy, with some countries taking action. This article explores the similarities between loot boxes and gambling, and their impact on gamers, and argues for stricter regulations to protect vulnerable players.

Why Gamers Buy Loot Boxes?

The allure of loot boxes, also known as gacha referencing Japanese capsule toy machines, stems from their ability to provide players with these desirable experiences: gameplay enhancements, the thrill of the unknown, and the pressure of "Fear of Missing Out" (FOMO).

Loot boxes are a way for players to obtain sought-after in-game items such as rare weapons, unique character skins, and exclusive gameplay boosts. This concept, found in shooter games such as weapon crates, card games as booster packs, and battle royales as llama-shaped loot drops taps into the desire for valuable and potentially game-changing rewards.

But there's a catch, loot boxes often contain items of varying rarities, with the most desirable ones appearing significantly less frequently. This deliberate scarcity fuels the excitement of the chase, keeping players hooked on the possibility of uncovering that game-changing item.

How Are Loot Boxes and Gambling Alike?

Loot Boxes and Gambling share key characteristics that raise concerns about potential distress, particularly for younger players.

  • Element of Chance - Players are uncertain about what they will receive when purchasing loot boxes or engaging in gambling activities. This unpredictability creates a sense of excitement and anticipation, akin to buying a lottery ticket or playing a slot machine. But unlike some gambling, where players can influence their odds, loot boxes often have undisclosed drop rates or opaque odds, making it difficult for players to determine the true value of their purchase.

 

  • Real Money at Stake - Loot boxes and gambling involve spending real or in-game currency to win valuable in-game items. This raises concerns for players unaware of the risks or potential excessive spending. Unlike traditional gambling, loot box rewards are limited to the game environment and cannot be instantly converted to cash.

 

  • Psychological Similarities- Both loot boxes and gambling cause harm, particularly to younger players. The unpredictable nature of loot boxes can create a mix of emotions - from excitement to frustration. While receiving a desired item can be rewarding, the lack of a guaranteed reward often leaves players disappointed, and tempted to keep spending in search of better luck. This repetitive cycle can lead to psychological addiction, which closely resembles traditional gambling.

 

  • Lack of Transparency- Unlike casinos where odds are often clearly displayed, loot box drop rates for valuable items can be obscure or entirely hidden. This lack of transparency makes it difficult for players to assess the true cost of acquiring a desired item, fueling the cycle of spending in hopes of getting lucky.

 

  • Time-Limited Offers and FOMO- Games have time-limited loot boxes and exclusive items, creating urgency and FOMO to pressure players into buying them. This strategy resembles casino tactics that use limited-time promotions to encourage more gambling.

 

  • Near Miss Manipulation- Loot boxes show near misses, making players feel close to obtaining rare items and encouraging them to spend more. This exploits "loss aversion" or feeling the pain of losing more than of gaining. Slot machines also use near misses to keep players engaged and hopeful.

 

  • Pay to Win Mechanics: Pay-to-win gameplay tied to loot boxes forces players to spend real money to stay competitive, similar to high-stakes gambling.

Recognizing these similarities helps us understand why loot boxes often raise concerns about detrimental effects, especially for children who might be more susceptible to the excitement of chance and the pressure to keep up with friends in online games.

The ongoing debate surrounding loot boxes and the role of regulatory bodies like the Gambling Commission highlights the complexities of in-game monetization and its potential impact on players.

 

Financial Impact of Lootboxes on Gamers

 

image credit: Statista

 

In addition to the evident parallels between loot boxes and gambling, it is also essential to acknowledge the growing impact they have on gamers' financial well-being.

The global gaming community currently consists of approximately 3.09 billion individuals actively engaged in playing video games. This number is projected to reach around 3.32 billion worldwide by 2024.

In the UK, the provisional total for betting and gaming receipts during the 2023-2024 financial year of April to March is £3,389 million. This figure represents an increase of £86 million (3%) compared to the corresponding period in the previous financial year.

Dr David Zendle & Dr Paul Cairns conducted a research study that highlights a significant link between loot box spending and problem gambling. It doesn't definitively answer whether loot boxes cause gambling problems or vice versa, but the connection is concerning. The study emphasizes the risk of developing addictive behaviors and other negative psychological effects.

This calls for stricter regulations on loot boxes and suggests age restrictions and potentially classifying loot boxes as a form of gambling to bring them under a more strict oversight.

However, the impact of loot boxes on gamers goes beyond just the financial aspect. It has particularly affected one of the most vulnerable groups, children.

 

How Much Money do Video Game Developers Earn from loot boxes?

study conducted by Tomomichi Amano and Andrey Simonov shed light on the financial side of loot boxes. According to them, loot boxes generate a massive $15 billion in revenue annually, with a significant portion of that coming from a small group of high-spending players known as "whales."

The researchers propose that implementing spending caps could potentially address regulatory concerns and provide consumer protection, particularly for these high-spending players. However, they also emphasize the importance of striking a balance between regulation and consumer enjoyment, as well as the impact on the revenue of gaming companies.

How Loot Boxes Affect Young People

In-game purchases like loot boxes pose a significant risk to children and young people, according to a new report by academics from Newcastle and Loughborough Universities. The study, titled "Between Gaming and Gambling: Children, Young People, and Paid Reward Systems in Games," by Dr. James Ash, Dr. Rachel Gordon, and Dr. Sarah Mills, interviewed 42 families and observed gameplay to investigate the impact of loot boxes.

Children often struggle to grasp the value of in-game currencies and real-world money, leading to poor spending decisions. Additionally, the enticing and collectible nature of loot box rewards can fuel repeat purchases, potentially exceeding intended budgets.

The study suggests game developers manipulate players, especially children, into spending more money. This, combined with the randomness of loot boxes, can lead to frustration and disappointment, affecting a child's emotional well-being.

Worldwide Regulations on Loot Boxes

How many more children's lives will be affected before governments worldwide take action?

Some countries haven't implemented specific regulations on loot boxes while others have strongly strived to protect the most vulnerable demographic. Here's a look at the current global landscape:

Belgium and Netherlands

Belgium and the Netherlands have taken the most decisive action, implementing complete bans on loot boxes due to their classification as gambling. This means these countries prohibit the sale of loot boxes in games, regardless of whether they can be purchased with real money or in-game currency.

China

China has implemented some of the most comprehensive regulations on loot boxes globally, reflecting their concern about the potential gambling-like behavior they can encourage. These regulations aim to increase transparency and limit spending:

  • Players cannot directly purchase loot boxes with real or virtual currency in-game, removing the pay-to-win element.
  • Developers must ensure that items obtained through loot boxes can also be acquired through other means, allowing players to progress without relying on luck. Mechanics that create forced spending are prohibited, and the odds of obtaining specific items in loot boxes must be disclosed and accurate.
  • A record of loot box outcomes for the past 90 days must be publicly available. Games with loot boxes must display a clear in-game counter for players to track their remaining daily limit for opening boxes, and China sets limits on the total number of boxes a player can open.

Australia

Australia has taken a recent step towards regulating loot boxes, aiming to protect consumers and address concerns about gambling mechanics in video games. The new laws, implemented in September 2023, focus on classification: M Rating for Loot Boxes. Games containing in-game purchases linked to chance, including loot boxes, will now be classified as M-rated. This means they are recommended for players 15 years and older, but not legally restricted for younger audiences.

The classification acts as a parental advisory, informing parents about games with loot boxes so they can make informed decisions for their children. Australia's regulations differ from China's stricter approach. The M rating is a valuable tool to inform parents and influence game development.

USA

The US presents a complex picture. There's no federal regulation on loot boxes, but some states are exploring options. The gaming industry has proposed self-regulatory measures, such as age restrictions and disclosure of odds, but the effectiveness of these remains under debate.

As technology and consumer spending habits evolve, the debate around loot box regulation is likely to continue, with more countries potentially implementing new measures to protect players.

 

Recommendations for Responsible Gaming of Minors

Parents can make well-informed decisions about the suitability of video game content for their children by checking the age ratings displayed on game boxes or digital store listings. These ratings, which take into account age and maturity level, are essential in ensuring a safe and enjoyable gaming experience.

It is important for parents to carefully consider these ratings and select games that align with the recommended age guidelines. Here are some common age rating systems to look for when choosing games:

ESRB (Entertainment Software Rating Board)

  • EC (Early Childhood) - Suitable for ages 3 and older.
  • E (Everyone) - Suitable for all ages.
  • E10+ (Everyone 10 and older) - Recommended for ages 10 and up.
  • T (Teen) - Suitable for ages 13 and older.
  • M (Mature) - Recommended for ages 17 and older.
  • AO (Adults Only) - Intended for adults aged 18 and older.

PEGI (Pan European Game Information)

  • 3+ - Suitable for ages 3 and older.
  • 7+ - Suitable for ages 7 and older.
  • 12+ - Recommended for ages 12 and up.
  • 16+ - Recommended for ages 16 and up.
  • 18+ - Intended for adults only.

ACB (Australian Classification Board)

  • G - Suitable for all ages.
  • PG - Parental guidance recommended.
  • M - Recommended for mature audiences.
  • MA 15+ - Suitable for 15 years and older.
  • R 18+ - Restricted to adults aged 18 and older.

Apart from these age ratings, here are other recommendations for parents:

  • Talk to your child about gaming risks and their concerns. Secure passwords and oversee downloads for their online safety.
  • Assess your child's games for suitability and age or maturity alignment to make informed content decisions.
  • Monitor credit card transactions for gaming to prevent unexpected expenses, identify unaccounted charges, and take necessary actions.
  • Encourage your child to engage in various hobbies and activities to maintain a healthy and balanced lifestyle.

Lastly, advocate for safer game design by sharing your expectations with developers and authorities. Your input as guardians helps improve safety measures and regulations in gaming.

 

The $15 Billion Question: To Regulate or Not?

Loot boxes share a disturbing resemblance to gambling with their element of chance, real money spending, and psychological manipulation techniques. The world is divided on whether to regulate loot boxes or not. 

While some may argue that stricter regulations could suppress innovation in the gaming industry, I suggest that regulatory bodies should look at alternative monetization models that don't exploit players. This could involve offering a fair and balanced core game without excessive reliance on in-game purchases to progress or compete.

Additionally, regulations can be designed to target the core exploitative features of loot boxes, allowing for continued innovation in other areas of in-game purchases. In the long run, developers who prioritize a positive player experience might thrive. 

Protecting vulnerable players from predatory loot box practices is more important than concerns about hindering the gaming industry. 

About the author

Angel Cabal

Ex-soccer player for Real Oviedo Football Club and long-time casino enthusiast with a profound understanding of the iGaming industry. I'm constantly on the lookout for the latest bonuses, leveraging my 10+ years of expertise to maximize your gambling returns.

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