With just under a month until the Senate inquiry into "gaming microtransactions for chance-based items" - loot boxes and such - reports back, more submissions to the inquiry have been made public. Two of those submissions have come from the Victorian Minister for Gaming and Liquor Regulation, as well as the NSW Government's deputy secretary of Liquor, Gaming and Racing, and both submissions are encouraging an update to the classification guidelines to recognise loot boxes.
The Victorian Government's submission came from Marlene Kairouz, the state minister for Gaming and Liquor Regulation, as well as Local Government and Consumer Affairs. In the submission, Minister Kairouz argues that the Victorian Government "strongly supports action by the Australian Government" to respond to concerns raised around microtransactions "for chance-based items in online and video games, regardless of whether they are gambling or simulated gambling".
The major concern, one echoed in both government submissions and in prior publicised submissions to the inquiry, is the potential for minors to be exposed and encouraged to gamble either directly or through other means, like third-party sites that allow users to trade in-game items.
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.
"This has the potential to normalise gambling as part of the playing of online and video games. In addition, it is becoming increasingly difficult for consumers to appreciate where gambling activity begins and ends," Minister Kairouz's submission says.
"More stringent classification of video games that include loot boxes or similar items would better recognise the potential harm that can arise from the convergence of gaming and gambling and the consequent normalisation of gambling. The Australian Government should consider whether more stringent classification of such games, together with requiring manufacturers to provide information about how they operate, would better educate consumers about the risks associated with them or elements of them."
The NSW Government's submission comes from Liquor, Gaming & Racing deputy secretary Paul Newson. It's a few pages longer, and notes that "loot boxes" and other chance-based items (paid or otherwise) fall under the Classification Enforcement Act, which the Classification Board oversees.
"In particular, Liquor and Gaming NSW would strongly encourage investigating opportunities by the Classification Board to use a more rigorous classifications process to provide stronger safeguards for minors and improve consumer information on the odds associated with loot boxes."
Newson adds that loot boxes and other chance-based items don't legally constitute gambling in NSW, but "where circumstances exist where virtual items (being quite often the contents of any loot box) can be monetised outside the game they are featured in then this is likely to offend NSW gambling laws".
In their submission, the Australian Communications and Media Authority, which enforces and administers the Interactive Gambling Act, said the body had received more than 35 complaints and enquiries about loot boxes since August 2017. The complaints peaked in November last year "following significant media coverage about gambling-like mechanisms in popular games such as Star Wars Battlefront II".
The NSW and Victorian Government's submissions are included below in an abridged form.
Victorian Minister for Gaming and Liquor Regulation, Local Government, Consumer Affairs, Marlene Kairouz MP
The Victorian Government is concerned about the potential for new gambling products, or new types of video or online games that include elements that mimic gambling, to adversely impact children and other vulnerable groups.
The question of whether the purchase of chance-based items, when combined with the ability to monetise the items on third party platforms, constitutes a form of gambling is complex.
Gambling is defined in section 1.3AA(1) of the Gambling Regulation Act 2003 as an activity in which: (a) a prize of money or something else of value is offered or can be won (b) a person pays or stakes money or some other valuable consideration to participate; and (c) the outcome involves, or is presented as involving, an element of chance.
As loot box mechanics can operate in a number of ,different ways, whether the operation of a loot box falls within this definition of gambling needs to be considered on a case by case basis. Items obtained through micro-transactions can be used for gambling via third party sites.
In these instances, these items are being used as a de-facto currency for the purposes of gambling. There is a risk that minors are using items obtained in this way to gamble on illegal gambling sites.
The Victorian Government notes that the growth and popularity of loot boxes and simulated gambling games such as social casino games means that young people are being exposed, at a minimum, to experiences that mimic gambling. This has the potential to normalise gambling as part of the playing of online and video games.
In addition, it is becoming increasingly difficult for consumers to appreciate where gambling activity begins and ends.
Research suggests that simulated gambling games are having a "gateway effect" for some users which may lead to a long-term interest in gambling and the risk of developing problem gambling behaviour, although I note that causality has not been established.
While the Victorian Government is concerned about the consumer protection issues that the convergence between gaming and gambling raises, there is no effective regulatory regime in place to address these concerns.
State and territory governments are limited in their capacity to regulate products that are available exclusively online, are offered from outside their jurisdiction and do not constitute gambling.
The Victorian Government strongly supports action by the Australian Government to address the issues raised by the increasing use of micro-transactions for chance-based items in online and video games, regardless of whether they are gambling or simulated gambling.
More stringent classification of video games that include loot boxes or similar items would better recognise the potential harm that can arise from the convergence of gaming and gambling and the consequent normalisation of gambling.
The Australian Government should consider whether more stringent classification of such games, together with requiring manufacturers to provide information about how they operate, would better educate consumers about the risks associated with them or elements of them.
Liquor Gaming & Racing NSW Deputy Secretary, Paul Newson
The NSW Government is committed to reducing gambling harms in the community, including addressing the potential normalisation of gambling to minors. This submission addresses the Committee’s specific concerns around micro-transactions in video games, in particular, chance-based items such as those commonly referred to as ‘loot boxes’.
Liquor & Gaming NSW does not consider that purchased loot boxes and other chance-based items (which can include a key to unlock a loot box) by themselves constitutes gambling under NSW gambling laws. However, Liquor & Gaming NSW is aware of particular instances where virtual items (being quite often the contents of a loot box) can be monetised outside the game they are featured in. Such instances are likely to offend NSW gambling laws, depending upon the circumstances.
The NSW Government supports additional protections for consumers to reduce the risk of normalisation of gambling to minors, including from the features of some games (such as loot boxes). It also supports increasing awareness in the community of the risks associated with any activities which may normalise gambling, even if they do not constitute gambling under NSW law.
Whether the purchase of chance-based items, combined with the ability to monetise these items on third-party platforms, constitutes a form of gambling
Liquor & Gaming NSW is currently leading an interjurisdictional working group into betting and wagering on esports. This working group is considering a number of video game-related issues, including micro-transactions in video games (such as loot boxes) and other chancebased items.
Loot boxes contain virtual items which are typically randomly generated and “cosmetic” in nature. Conceptually, virtual rewards which are randomly generated have been part of video games for decades. More recently, however, these randomly generated rewards were adapted for use as a form of micro-transaction (in-game purchases) in free-to-play and mobile games as a means of monetising the game.
As free-to-play and mobile games became more popular, so did the concept of a virtual ‘crate’ or ‘box’ that contained a random number of virtual items of randomly determined quality. Contemporary loot boxes can provide the player with cosmetic changes to their character’s avatar or weapons, additional game content, or additional items and weapons which can be utilised in a competitive multiplayer setting.
Loot boxes are invariably chance-based, with players only having control over the ability to access the loot box, either through purchasing the loot box with credits earned via game play or by purchasing a key to open the loot box.
In most instances, these micro-transactions occur in a closed system, which allows an individual to purchase game credits for cash but does not allow the person to “cash out” either their credits or the items that they have received from the loot box.
Liquor and Gaming NSW does not consider that purchased loot boxes and other chancebased items by themselves constitutes gambling under NSW gambling laws, however where circumstances exist where virtual items (being quite often the contents of any loot box) can be monetised outside the game they are featured in then this is likely to offend NSW gambling laws, depending upon the circumstances.
A high-level overview of the relevant legislation is set out below.
The Unlawful Gambling Act 1998 (NSW) (UGA) provides a comprehensive definition of what constitutes an “unlawful game” and also what constitutes “lawful forms of gambling”. Whilst it primarily concerns casino-type games, section 5(1)(h) is potentially relevant in relation to loot boxes and provides that the following constitutes an unlawful game for the purposes of the UGA:
“any game of skill or chance, or of mixed skill and chance, in which any money is staked or risked by a person on an event or contingency specified by the person and in which:
(i) there is a dealer, croupier or banker who is not a participant in the game while acting in such a capacity, or (ii) a person, other than a participant in the game, received a payment or other benefit from the playing of the game, or (iii) a payment or other benefit is given or sought for the right to participate in the game or for the right to enter the land or premises on which the game is played.”
Section 5(1)(h) of the UGA is broadly drafted, however it is important to note by way of background information the Explanatory Notes to the Unlawful Gambling Bill 1998 (NSW) (UGA Bill), which provided that the UGA Bill was part of a legislative package which involved rewriting the Gaming and Betting Act 1912 (NSW).
Moreover, in the outline of provisions, the Explanatory Notes state (in relation to section 5) that the term unlawful game generally covers those types of games that are associated with casino gaming. It is clear that the definition is not limited to casino type games and could apply to other forms of games.
Sections 5(1)(h)(ii) and (iii) of the UGA are particularly relevant to the present analysis under NSW law. These subsections broadly require the following three criteria to be satisfied before unlawful gaming (for the purposes of this sub-section) exists:
1. a payment or other benefit is given to play the game; 2. the game is a game of skill or chance, or of mixed skill and chance; and 3. money is staked or risked on an event or contingency.
The last item (money is staked or risked) covers the “prize element” in a general way. That is, money is staked or risked to win a prize, which we would ordinarily expect would be money but could of course be anything which has monetary value. This interpretation is consistent with the UGA and also the Explanatory Notes that accompanied the UGA Bill.
It is our view that purchased loot boxes and other chance-based items found in video games would satisfy items 1 and 2 above, however item 3 would not be satisfied if a loot box was purchased by a player and there was no ability for the virtual item to either be cashed-out or monetised outside the game (and therefore the micro-transaction has occurred in a closed system with “a prize” being neither money nor having any monetary value)...
Where a game allows a player to purchase loot boxes and other chance-based items found in video games, which then provides a virtual item which can be used by the player as a form of currency outside of the game (thereby having monetary value), Liquor and Gaming NSW would regard this as satisfying the third limb above and this is likely to contravene the UGA. This issue is of particular concern with respect to “skins betting”.
Skins betting involves wagering with virtual items acquired by players either through participation in a game, trading these items with other players, or purchasing these items through secondary markets.
In summary, whether a purchased loot box or other chanced-based item constitutes a form of gambling under NSW gambling laws, will depend on the context in which the transaction has occurred. Purchased loot boxes and other chance-based items by themselves do not constitutes gambling under NSW gambling laws, however where circumstances exist where virtual items (being quite often the contents of any loot box) can be monetised outside the game they are featured in, then this is likely to offend NSW gambling laws, depending upon the circumstances.
The adequacy of the current consumer protection and regulatory framework for ingame micro-transactions for chance-based items, including international comparisons, age requirements and disclosure of odds
The NSW Responsible Gambling Fund is currently considering the risk of gambling related harms associated with in-game micro-transactions and chanced-based items, including loot boxes. The Responsible Gambling Fund will be considering the potential harms and other consequences that may arise, such as normalisation of gambling to minors, particularly where traditional forms of gambling such as electronic gaming machines and casino style games are replicated in games available to players of all ages.
The work of the Responsible Gambling Fund will inform the NSW Government’s approach to whether additional safeguards are required in NSW to address concerns around the risk of normalisation of gambling to minors through loot boxes. Enhancing existing consumer protections around loot boxes would complement this work.
As a feature of video games, ‘loot boxes’ and other chance-based items, regardless of whether they are paid or not, fall under the Classification (Publications, Films and Computer Games) Enforcement Act 1995, for which the Commonwealth Government has responsibility through the Classification Board.
The Classification Board makes classification decisions regarding video games based on three principles found in the Guidelines for the Classification of Computer Games:
- the importance of the context,
- assessing the impact, and
- the six classifiable elements of drug use, language, nudity, themes, sex and violence
Additionally, the National Classification Code provides that – “minors should be protected from material likely to harm or disturb them”. Given consumer concern, higher age classifications for computer games that have gambling-like features in the game, even where the game itself does not constitute gambling, could provide stronger protections for consumers from harm.
Gambling-like features can include, for example, where a game includes a loot box that involves features that mirror or are similar to those included in-game on electronic gaming machines, such as “slot-based” features to award prizes, or features that use sensory effects to encourage participation in the feature, such as flashing lights and reward-based sounds.
Liquor and Gaming NSW is aware of the regulatory action taken by other international jurisdictions regarding in-game chance-based items. For example, China has imposed a requirement that computer games that include loot boxes must disclose the odds for the ingame chance based features of the game.
Liquor and Gaming NSW continues to support efforts that improve consumer understanding of the likelihood of gaining a prize, the relative value of that prize, the risk of loss of control over expenditure, and also that provide the consumer with adequate information to make an informed decision on whether to participate in the game.
Liquor and Gaming NSW also continues to support helping parents to have conversations with their children about how computer games work, and notes that the Commonwealth Government currently provides resources towards this, including through the Office of the eSafety Commissioner.
In conclusion, Liquor and Gaming NSW shares consumer concern regarding in-game chance-based items such as loot boxes and other chanced-based items for their gambling-like elements.
While loot boxes and other chance-based items of and by themselves are unlikely to constitute gambling in NSW, the NSW Government is aware of circumstances that may constitute gambling whereby the rewards attained from chance-based items can be used as a form of currency and monetised outside the game from which they were won.
Liquor and Gaming NSW remains concerned about potential gambling-related harms from chance-based items such as loot boxes, particularly in relation to the normalisation of gambling behaviours among minors.
While Liquor and Gaming NSW is already taking steps to address these issues, including through the work of the Responsible Gambling Fund, Liquor and Gaming NSW supports working with the Commonwealth Government to investigate new ways to combat the potential gambling-related harms caused by computer games, including loot boxes.
In particular, Liquor and Gaming NSW would strongly encourage investigating opportunities by the Classification Board to use a more rigorous classifications process to provide stronger safeguards for minors and improve consumer information on the odds associated with loot boxes.