The Senate inquiry into loot boxes isn't due to report back until mid-September. Ahead of their deliberations, members of industry, academia and the public have made submissions to the panel. Here's what they had to say.
Note that some submissions below are abridged for brevity. I've also bolded segments of particular interest.
QLD's Attorney-General and Minister for Justice, Hon. Yvette D'Ath
As Attorney-General and Minister responsible for the regulation of gambling in Queensland, I am well aware of the recent community debate around video game features that resemble gambling. Generally, these features are offered through microtransactions that are a side-element to the actual game. Micro-transactions of this nature may take many forms.
Chiefly relevant to the Committee's inquiry are micro-transactions that involve the purchase of a virtual container, generally referred to as a loot box, containing an item that is unidentifiable at the purchase point (alternately, the game may present the player with a loot box but require the purchase of a key to open it). The purchase may require real money (via a credit card transaction) or credits accumulated by achievements within the game, or a combination of both. Where loot boxes are accessed via the use of accumulated in-game credits, the player may be given the option of purchasing extra credits with real money in order to speed up the availability of loot boxes to the player.
In most cases, the virtual items obtained from loot boxes have no effect on gameplay and are purely cosmetic. For example, the item may be an article of clothing or a "skin" that alters the player's appearance, or the appearance of a weapon or vehicle, within the game. However, despite their generally cosmetic nature, these items can change the way the player is perceived by other players within the game, therefore adding to the player's prestige and status and creating something of value to the player.
In this regard, the potential association between loot boxes and gambling arises because the player is spending money to obtain what is essentially a prize chosen at random. While the mechanics of the particular game may provide that a prize will be awarded each time a loot box is opened, the digital item representing the prize may vary widely in its value to the player, regardless of whether that value can be realised in a real monetary sense.
I am also aware of a concern that the loot box features of some games may be designed around compulsion, and may therefore lead to harms similar to those experienced by some gamblers, especially in unregulated environments (for example, an inability to control or track expenditure). Players may, for example, be driven by compulsion to overspend (or spend more time playing games than they otherwise would) in pursuit of a particular chance-based item that would increase their in-game prestige'. Accordingly, there is significant concern that some loot box facilities featuring chance-based items may normalise gambling behaviours, particularly in children, regardless of whether loot boxes are earned in-game or paid for with real money.
I note the issue driving loot boxes to national attention was the decision of American developer Electronic Arts (EA) to make non-cosmetic items (that is, items that could affect the· outcome of a game) available to players through purchasable loot boxes within the game Star Wars: Battlefront II. This "pay to win" approach outraged the gaming community, which successfully influenced EA towards a solution in which paid loot boxes no longer form part of the game.
I am also aware of concerns regarding the use of loot boxes within the game Fortnite, which arose as a result of the unprecedented popularity of that game, particularly with people under 18. However, I am advised that Fortnite's developer has also responded to community criticism by removing the random element from loot boxes available within that game.
However, it cannot be assumed that similar market-led corrections will be adopted by all developers, or that more insidious uses of gaming micro-transactions that resemble gambling will not emerge in the future. Game developers are, after all, increasingly reliant on the use of micro-transactions to monetise gameplay and thus fund both the initial development of the game and the development of additional downloadable content to keep the game fresh and exciting.
I will therefore be monitoring the Committee's inquiry with significant interest, as I expect that the inquiry's outcomes, and the Australian Government's response, will assist in my own ongoing consideration of the extent to which loot boxes may represent gambling, and of any remedial responsive action that might necessarily be undertaken to protect young Queenslanders from potential gambling-related or gambling-like harm.
However, I am aware that some features of online multiplayer gaming may make the regulation of loot boxes at the state level impractical. For example, many game developers, including the developers of games at the centre of recent loot box controversies, are based overseas and have global markets. I am advised that games may be purchased, patched and played via digital distribution platforms located on servers outside the jurisdiction in which the player resides.
Additionally, from an Australian perspective, multiplayer games, including those games involved in recent loot box controversies, are generally played on Oceanic servers that combine players from multiple Australian jurisdictions (and the wider oceanic region) in a single game. In addition to the significant regulatory difficulty suggested by these cross-border scenarios, I understand that players desire fairness and equality in all aspects of the game, and would likely object strenuously to state-based legislation that potentially made a loot box facility available to some of the players in a game but not to others even if chance-based items are purely cosmetic.
Accordingly, the Committee may wish to consider whether the Australian Government may be well placed to address the issue through amendments to the Interactive Gambling Act 2001 (Cth). This is due to the online and cross-jurisdictional nature of video gaming, as discussed above, and the national application of that Act. The approach would appropriately reflect the Commonwealth's responsibility for online gambling and ensure consistent implementation of any relevant intervention across all Australian jurisdictions.
I also note that the Australian Government has legislative responsibility for the classification of publications, films and computer games through the Classification (Publications, Films and Computer Games) Act 1995 (Cth). The Committee might therefore consider whether there is value in introducing an "R18+" rating for games with loot box facilities that resemble gambling. This would ensure that such games are categorised for an adult market in line with current restrictions on the age for gambling participation.
I thank the Committee for its consideration of this issue and await the Committee's report with interest.
The Institute of Games
Gambling is defined in the Victorian Gambling Regulation Act 2003 as an activity which includes all of the following:
- a prize of money or something else of value is offered or can be won;
- a person pays or stakes money or some other valuable consideration to participate; and
- the outcome involves, or is presented as involving, an element of chance.
An activity is defined as 'gambling' if it involves an element of chance. This applies even if the outcome of the activity may be influenced by a person's skill. As outlined in Drummond and Sauer’s study: ‘Video game loot boxes are psychologically akin to gambling’ there are video games that offer lootboxes. Lootboxes are digital containers that contain random rewards.
A lootbox constitutes a form of gambling if both of the following conditions are met:
- An amount (usually between $0.99 and $2.99) must be paid to obtain or open the lootboxes. Once opened one or more virtual items are received by the player. The value of these virtual items ranges between $0 and thousands of dollars.
- An online marketplace is available to the player on which the virtual goods can be traded, sold or gambled with; regardless of whether this is within the game or on a standalone website separate to the game
When these conditions are met, the virtual goods obtained through the lootbox mechanism hold a real money value. By using a lootbox the player pays money for an uncertain outcome involving an element of chance and has the ability to cash in their winnings.
Is the current consumer protection and regulatory framework for in-game micro transactions for chance-based items adequate, including international comparisons, age requirements and disclosure of odds.
The Institute of Games polled 300 parents on their awareness of the links between gambling and video games.
- Only 5 parents were aware of the existence of lootboxes.
- 100% of parents reported they wanted to see more resources to raise awareness about the links between gaming and gambling - 100% of parents reported they wanted to see more education to their children about the risks of gaming and how to deal with these risks.
The Institute of Games has ongoing conversations with Teachers, Social Workers and other professionals that support children and young people. An overwhelming majority are almost completely unaware of the links between gaming and gambling. The Institute of Games has ongoing conversations with gamers and has studied online forum conversations between gamers on platforms like Reddit. The majority of gamers question the morality of offering chance based items for purchase. This information leads us to believe that community sentiment is right to improve the consumer protection and regulatory framework.
The Institute of Games recommends to improve the consumer protection and regulatory framework by:
- developing an ethical framework for the video game industry to ensure children’s rights are upheld and child safety standards are applied in online environments;
- delivering prevention resources and workshops for parents and children;
- amending the classification system to include clearer information about gambling in the game;
- regulating chance based microtransactions as described above under gambling regulation.
Alex Knoop, LLB
Loot crates are simply one form of many revenue streams available to developers in their quest to keep consumers engaged with their product. They are choosing to pursue the loot crate revenue stream because it is currently the most lucrative option available.
Loot crates utilise the same psychological principles as slot machines in the form of ‘hook loop’ mechanics and these have been described by psychologists as creating some of the most powerful addictive effects. These mechanics are deliberately added to games in order to exploit people’s psychological vulnerabilities for consumer retention and profit.
Based on survey data it was established that most Australian children and well over half of Australian adults are ‘gamers’, which raises concerns about their exposure levels to these harmful mechanics. In particular, a key concern is that it could lead to problem gambling, or normalise gambling behaviours.
Unfortunately, there is already evidence surfacing of problem gaming behaviours in both children and adults. Even worse was that most of the popular game titles analysed had some form of these mechanics present in a way which is considered a medium to high risk of being predatory and thus likely to cause harm.
Australian agencies have the frameworks in place to easily address these issues under existing consumer protection law, the National Classification System and gambling legislation, however loot crates are falling just outside of the scope of all of these areas of law.
For consumer law it is difficult to prove if there is misleading or deceptive conduct occurring due to the lack of information about the drop rates of loot boxes. In classification legislation, gambling is not a key consideration requirement, and as such does not get closely analysed by the classification board, and gambling legislation struggles to link loot crates to the current definitions of gambling.
Internationally, some countries have banned loot crates outright such as Japan, Belgium and the Netherlands. Other have opted to attempt to regulate them with limited success such as China which made their sale illegal and odds disclosure mandatory. This has had limited success with developers quickly responding by slightly re-writing their loot crate mechanics to once again sit just outside the scope of the law by offering loot crates for free with virtual currency purchases, and thus exploiting loopholes in the legislation.
Several international rating agencies and gambling boards have said that loot crates do not fit the definition of gambling because the items do not hold real-world value. The fact that developers do not expressly allow the items to be converted to real-world money through their game reinforces this, despite conversion occurring through third party websites.
This ignores the fact that there is a causational link that has been established which shows that where developers allow microtransactions for loot crates, and the trading of those loot crate items between players, this gives rise to grey markets and middle-men which exploit the operation of these systems.
Based on all of this information I am of the conclusion that loot crates are gambling and are causing harm to the Australian public. I believe that the most effective means of addressing the issue is to bring loot crates within the definition of ‘gambling’ through strategic amendments to key legislation. Further, combine those amendments with new legislated requirements that all odds be disclosed, extra addictive elements (bright lights, colours, sounds etc.) be removed, and safety controls be put in place on the number of crates that can be opened in a period of time.
Lastly, amend key legislation to ensure that these mechanics are specifically analysed by the Classification Board and where found to be present, carry a mandatory R18+ classification. These strategic amendments are cheaply and easily implemented and will address most of the issues raised. It also protects the balance of protecting minors and allowing adults to partake in these activities under a regulated system, rather than outright prohibition.
Dr Kym Jenkins, President of The Royal Australian & New Zealand College of Psychiatrists
Addictions, including problem gambling, are widely recognised as health issues. Pathological gambling was first included as a disorder in the International Classification of Diseases (ICD) in 1977 and is included in the ICD-11 under disorders due to substance use or addictive behaviours. The fifth edition of the Diagnostic and Statistical Manual of Mental Disorders (DSM-5) also included gambling disorder as a new category on behavioural addictions, reflecting research to suggest that gambling disorder is similar to substance-related disorders in clinical expression, brain origin, comorbidity, physiology and treatment.
Addictions are also associated with significant morbidity and mortality across both physical and mental health dimensions. Approximately 90% of people diagnosed with problem gambling have at least one other mental health diagnosis and approximately 30% have three or more diagnoses. Psychiatrists have an important role in identifying and diagnosing problem gambling, as well as any other underlying, comorbid mental illness. In some instances these will be a consequence of the gambling behaviour and will improve when gambling is controlled or ceased.
In other cases, gambling may be a way of managing preexisting mental health issues. For instance, research suggests that mood and anxiety disorders may often precede gambling problems for some people, but others may develop depression as a result of the financial and relationship stress arising from gambling.
While further research is required to ascertain whether micro-transactions for chance-based items constitute gambling from a medical perspective, there are a number of similarities which are concerning. It should also be noted from the outset that children and adolescents are likely to be exposed to the risks associated with micro-transactions, considering their increasing presence in a wide range of online and mobile games that appeal to younger audiences. Considering the developmental vulnerabilities of younger people, the following factors may therefore be all the more concerning.
Firstly, the variable ratio reinforcement schedule which underpins many gambling models similarly underpins the model of chance-based items. This involves a reward structure wherein users do not know how many purchases are required to obtain the item sought, leading to the rapid acquisition of repeated behaviours in the search of a reward (Drummond and Sauer, 2018). Concurrent with these behaviours are the adaptation of neural dopamine pathways which further encourage these behaviours (Murch and Clarke, 2015).
While most people who engage in gambling activities with a variable ratio reinforcement schedule do not develop problem gambling, many do, and these are likely to be people with pre-existing vulnerabilities. This risk is likely to be similar with games which involve micro-transactions for chance-based items, as both are based on a similar reinforcement schedule.
Secondly, micro-transactions can reinforce and perpetuate continued play thus sustaining ongoing spending by way of 'entrapment'; that is, when an individual believes that they have invested too much to quit (King and Delfabbro, 2018). This is similar to 'chasing losses' in traditional gambling and people who engage in micro-transactions often report their primary motivation as a desire to extend play, as well as an aim to chase lost credits and to speed up play (Kim, Holling$head and Wohl, 2017). The risk of 'entrapment' occurring may even be more likely with micro-transactions as the virtual nature of the transactions may be such that costs do not appear as immediate or salient as in traditional gambling (King and Delfabbro, 2018).
Thirdly, some of the mechanisms used in electronic gaming machines (EGMs) are being increasingly used in games which involve micro-transactions for chance-based items. Like EGMs, micro-transactions often encompass rapid playing speeds combined with rapid (or in the case of micro-transactions, immediate) payouts, the potential to quickly and easily multiply bets/transactions, and audiovisual effects to enhance the gambling experience. Although further research is required to gauge the level at which these properties may encourage addictive behaviours in micro-transactions, there is some evidence to suggest that these properties may be associated with addictive behaviours in EGMs (Gambling Research Australia, 2014).
Fourthly, the ease with which gaming platforms utilising micro-transaction business models can be accessed bears similarities with the rise of interactive and online forms of gambling. New gamblers are more easily recruited online, especially young people who are highly involved in web-based activities and who already have particular vulnerabilities with regard to problem gambling. In addition, online gambling sites are accessible 24 hours a day and do not require the person to leave their home. Mobile and internet games which involve microtransactions for chance-based items carry many of these same risks.
Finally, it is important to note that gaming disorder has recently been recognised in the ICD11. Individuals with gaming disorder are likely to be vulnerable to associated behavioural addictions including problem gambling with potential overlap between gambling and gaming disorders. As such, people with gaming and/or gambling disorder may be particularly vulnerable to developing addictive behaviours towards micro-transactions involving chance-based items available within the games they play. This is particularly, though not exclusively, so when those rewards are important for gameplay, especially when the importance of those rewards render the game 'pay-to-win'.
The RANZCP recognises that there may be significant jurisdictional issues with regulating games which offer chance-based items. As such, the RANZCP would defer to relevant legal experts in determining the most appropriate regulatory framework for in-game microtransactions for chance-based items. However, further information about the RANZCP's views with regard to regulating more traditional gambling products may be found in our recently updated Position Statement 45: Problem gambling.
Interactive Games & Entertainment Association
• Loot boxes are simply one form of optional micro-transaction that will always provide players with in-game items. They are not necessary or required to enjoy, progress in or complete a video game.
• Loot boxes do not constitute a form of gambling under current Australian law. Virtual items obtained in loot boxes are not money or considered “other consideration of value” because they are only useable in-game and can’t be cashed-out or exchanged for real-world money. They do not have value outside of the video game in the real-world.
• Video game publishers, developers and platforms typically do not allow loot boxes, virtual items or game points to be traded, exchanged, sold or gambled on external websites and services. Secondary markets that attempt to allow players to sell and gamble their virtual items are entirely unauthorised and potentially illegal external operations that are not involved with, or approved by, game publishers, developers or platforms. Where a party, other than the video game publisher, developer or platform, offers a mechanism to “cash out”, purchase or gamble virtual items, they are also likely acting in violation of Terms of Service and End-User License Agreements. Accordingly, game companies actively try to prevent these practices. If external websites and services are operating in such a manner without the authority of the game publisher, developer or platform, the legal responsibility to comply with Australian legislation, including gambling legislation, falls solely on the external websites and services.
• Loot boxes utilise the same “surprise and delight” mechanics that trading cards, Kinder Surprises and many other consumer products have been using for years. All these products, including loot boxes, are subject to a vast range of consumer protections and regulations and it would not be appropriate to impose a special regulation on the video game industry.
• The video game industry takes its responsibility to its players, parents and guardians very seriously. As such, video game consoles and platforms provide parents and guardians with extensive and robust tools that they can use to ensure that children and younger users are not allowed to make any in-game purchases without obtaining approval first. These tools extend to the purchase of any game content and micro-transactions, including loot boxes.
Dr Marcus Carter, University of Sydney, former Digital Games Research Association
Games are extremely engaging, immersive and compelling. That the third [type] does not offer the opportunity to monetise the rewards does not mean they are not a predatory form of gambling. This is reflected by the Belgian Gaming Commission’s recent decision that lootboxes are a form of gambling, even if players can’t trade or sell the options they are rewarded, noting that:
“What is important is that players attach value to it and that this value is also emphasised by the game developers themselves” (p.10)
I note here that it may be the case that children – who do not place the same value on ‘real’ money as adults – are more vulnerable to the configuration of economically isolated rewards that have significant social and cultural value to players (such as being able to play with Cristiano Ronaldo in FIFA) or advantages in competitive games (such as in Angry Birds 2).
Many freemium games employ highly strategic, manipulative and predatory practices to ensure players attach maximum value to the chance-based rewards. In my own research into Candy Crush Saga4, I found that the pressure from social competition was very persuasive in getting players to pay money to remain competitive against their friends. ‘Loot-boxes’ similarly employ similar persuasive and manipulative mechanics to encourage players to make micro-transactions. The recent controversy around Star Wars: Battlefront II was exacerbated by the way rewards gave in-game advantage, a very persuasive configuration in a competitive game.
I note here that the focus of the inquiry on or as gambling may give the impression that ‘lootboxes’ are configured like traditional gambling games, which have fixed (consistent) odds and rewards that are knowable. This is potentially not the case with loot-boxes, which do not disclose the odds. It is possible that some loot-boxes are configured with variable odds, which change based on factors such as player profile (e.g. less likely to reward wealthier players) or behaviour (e.g. more likely to reward players the more they spend). This latter example of predatory and manipulative practice exploits the ‘Gamblers Fallacy’ - “the expectation that the probability of winning increases with the length of an ongoing run of losses”.
In their recent article, Rune Nielsen and Pawel Grabarczyk note several other characteristics of gambling that are likely to be manipulated by the way that loot-boxes are configured. For example, players of ‘Marvel Strike Force’ recently identified that different players of the game are given different odds in the game’s chance-based micro-transactions. This is easily implemented when reward cannot be traded for real-money, potentially making them more harmful than rewards that can subsequently be traded for money.
It is very likely that many large freemium games, which can draw millions of dollars a day in revenue, employ similar strategies to maximise their income. This is almost impossible for research to investigate, as such practices are kept strictly confidential. The potential impact of this on player’s attitudes towards real-world gambling are also potentially problematic, and may be contributing to the explosive growth of problem gambling in 18-25 year old Australian men.
Compounding these manipulative practices is the pervasive and everyday nature of mobile game play, where the majority of revenue comes from in-app purchases. Players are heavily incentivised to permit mobile games to send them push notifications, for example to remind them when they can play again. These appear like text messages on a players’ phone. Some games send push-notifications about limited-time offers, such as a discount on purchasing ingame currency, or for a free ‘loot-box’ for logging in every day.
Large companies likely spend considerable resources on identifying the most effective way to send these messages to encourage players to engage in in-app purchases, many of which (as discussed) heavily resemble gambling. For some players (many of whom are children), this would be like having slot machine in your pocket that actively encourages you to gamble at your most vulnerable moment. The senate inquiry should therefore also consider broadening its scope to consider non-gambling, but still predatory, monetisation strategies in mobile games.
Esports Games Association Australia Ltd
The Esports Games Association Australia Limited ACN 624 508 845 (EGAA) is a newly incorporated body working with members from all stakeholders in the Australian esports industry on issues of mutual interest and importance. Our mission is to act for members to further professionalise and better self-regulate esports in Australia.
One key area of interest for our members is the approach to gambling on esports and any related impacts to integrity. In that regard, we have established a dedicated panel, the ‘EGAA Gambling and Integrity Panel’. This panel is headed up by our Board Member, David Harris and co-led by gambling and entertainment law expert, Julian Hoskins, and sports integrity expert, Iain Roy.
Broadly, the EGAA works closely with and supports the overall mission of the IGEA, with a specific example being the involvement of the EGAA Gambling and Integrity Panel's review of and minor assistance with the IGEA's submission to the Senate Committee in relation to its inquiry (noted above). By way of submission, the EGAA is, in principle, supportive of the IGEA's submission. Further, we would be happy to work with and assist the IGEA on the provision of any further information in support of its submission, including attending any Senate hearing, so as to better assist your Committee in its inquiry.
Association of Heads of Independent Schools of Australia
The rapid evolution of the digital environment and online gaming, including online gambling, suggests that constant vigilance is required to ensure the risk of harm to children and young people is minimised and that information and education programs are fit for purpose.
It is AHISA’s view that the sheer scale of the potential for children to be exposed to online gambling, either through simulated gambling games or in-game gambling features such as loot boxes warrants ongoing review of federal online gambling legislation and regulation with a specific focus on children and young people.
With particular regard to chance-based micro-transactions in digital games, it is AHISA’s view that there is sufficient research evidence to indicate a substantial risk of harm and therefore a case for governments to consider strategies for protection and harm minimisation.
AHISA therefore recommends:
• That the Australian Government makes a determination that chance-based microtransactions in digital games are a form of online gambling. As a consequence of this determination, the Government should consider whether existing legislation needs strengthening, or whether further industry regulation is required, such that game producers and distributors are to advise whether digital games include options for ingame purchases or simulated gambling play such as loot boxes.
• That an advisory group to the federal Minister for Social Services be established to monitor developments relating to risk of harm to children and young people from online gambling, including from simulated games and in-game gambling, with a view to recommending national research projects, pinpointing new information of relevance to government-supported education programs and websites and suggesting amendments to existing legislation or other government regulatory measures such as industry use of product classifications and warnings when warranted.
Australian Institute of Family Studies
Note: The Institute of Family Studies is a statutory research agency within the federal Department of Social Services. This submission was filed by Rebecca Jenkinson, Megan Carroll and Julie Deblaquiere from the Australian Gambling Research Centre, which was established within the department in 2012 and produces research and publications centred on gambling and the gambling sector.
In weighing up these possibilities, and considering recent steps being taken in countries such as Belgium and the Netherlands, we recommend prohibiting micro-transactions for chance-based items in online games available in Australia. This will alleviate the public health risks and associated costs with further normalising gambling in the Australian community through the provision of these items in video games.
It is also possible that, for example, banning ‘loot boxes’, together with introducing alternatives such as the provision of in-game items through non-randomised mechanics, may provide many players with a preferable way of obtaining desired in-game items.
If ‘loot boxes’ were to be retained, harm minimisation measures could be considered but this would be a weaker option for preventing the potential for gambling harm. A suite of options could include:
• Games should be clearly labelled that gambling with real money is a game feature.
• Make it mandatory that players are provided with the odds of selecting each possible ingame item in an easily accessible and understandable way. The variable odds of achieving low value versus highly desired in-game items, and the cost in actual dollar terms of each ‘loot box’ item, should be clearly shown.
• Introduce tighter restrictions on micro-transactions for chance-based items, either through the gaming classification system or another regulatory mechanism. Restrict access to gambling aspects of video games for underage players, including through third-party sites.
• Consider introducing other harm reduction measures (such as gambling messaging and mandatory spending limits) similar to those applied to more traditional gambling activities.
• Conduct public education campaigns to better inform gamers, parents and the general public of the harms associated with micro-transactions, and gambling more generally, in online video games.