Is there enough research to regulate loot boxes?

As video games’ popularity has grown, turning the pastime into the biggest form of entertainment in the world, there has been a sharp change over recent years in the way games are monetised. Before video games and the internet were so intertwined, you could simply purchase the full game at a shop and that was that. 

However, as mobile gaming and free to play games become more and more prevalent in the industry, video game publishers have turned to new ways to get players to part with their money - loot boxes. A loot box is a digital item that contains a random piece of content, usually cosmetic, that is desirable for players of particular games. 

As these digital rewards have different values in-game, people often buy loot boxes in large numbers, hoping to get that one rare item. For more information, you can read our introduction to loot boxes.

Recently, the House of Lords called for the immediate regulation of loot boxes as a form of gambling in the UK. To reach this conclusion, they relied on the research of Dr David Zendle, a lecturer in computer science at the University of York who has been studying the link between loot boxes and problem gambling.

As a part of safer gambling week 2020, we sat down with Dr Zendle to ask him questions about Loot Boxes, the effects they can have on people’s gambling habits, and how far away we are from regulation. Read the full interview below. 

Are loot boxes gambling?

OB: What are loot boxes a result of?

Dr Zendle: Loot boxes are a result of the shift in video game monetisation. In the past you would purchase a game as a product, a one-off purchase for the game and all its components. Now, there are in-game purchases. So there has been a shift from monetisation as a product to monetisation as a service. The video games are now running like a platform through which you will purchase aspects of the game. 

It is for this reason that I prefer the idea of having a bespoke organisation designed to regulate video games and these novel products, rather than regulating them as gambling, because there is a much broader issue going on here.

OB: What is the link between loot boxes and gambling and how strong is that link?

Dr Zendle: That is the key question, right at the heart of it. There’s a couple of interesting things here but the short answer is we can’t say for sure. I am confident that there is a link but correlation does not mean causation. Loot boxes and problem gambling definitely go hand in hand and there is a trend where the more you spend on loot boxes the more severe your problem gambling is.

We do have a few explanations for this, none of which are particularly positive for society, but it varies on whether this is a potential consumer protection issue or a public health issue. 

One interpretation is that they are linked because loot box spending causes problem gambling. There is the idea of a gateway, where spending money on loot boxes has formal similarities with gambling so problem gambling comes afterwards. 

A competing explanation is that there is the same root cause that drives loot box spending and problem gambling. So when you already have a behavioural or psychological disposition to gambling, the same disposition drives you to spending lots on loot boxes.

Neither of these are overly positive but there is currently not enough evidence to be able to identify which of these is happening. In one, you have this mechanism that is readily available to children and that is causing gambling problems. In the other, there is this really unregulated mechanism that is available to children that is driven by the same root cause as problem gambling. This would be a separate consumer protection issue, where the amount you are spending is problematic in the same way that some gambling spending is problematic but it’s a different question to driving a gambling problem.

Currently, nobody knows which of these things is going on and we need more evidence in order to be able to figure out what is going on. If we keep the status quo because we say that we can’t say what is happening, then you incentivise and encourage industry to continue to keep data private. The reason we are in the situation, where we don’t know what’s going on exactly, is because of poor data sharing.

If we don’t bring in regulation or a change to the industry, at the same time as recognising there is the potential for harm, the harmful mechanism will continue to be readily available. On the other hand, any regulation that could be brought in would have to be brought in using this grey-evidence base which is very challenging.

OB: There are both paid and non-paid loot box mechanics in video games. Is there a difference between them in their link to problem gambling?

Dr Zendle: This comes back to the two potential effects. If you’re not paying any money for loot boxes, then if we go off the basis that the same factor drives loot box spending and problem gambling, the problem disappears because there is no financial precarity when using free loot boxes. 

However, you still have the argument that simulated gambling might lead to gambling and problem gambling later on, but again, at the moment we don’t have enough evidence and we aren’t confident enough in the robustness of this link. All that we can say for certain is that the more you spend on loot boxes the more likely you are to be a problem gambler.

OB: Can free loot boxes introduce children to gambling?

Dr Zendle: You can make a case for that occurring and there is a line of rhetoric where there are gambling-like products which lead to normalisation. You could theoretically say that free loot boxes can introduce children to gambling but I always harken back to the level of empirical evidence, which is lacking.

There’s a report that deals with retrospective data, where participants are asked if they spent money on loot boxes as children and whether they are now a problematic gambler. This is not the cleanest method of data retrieval. What you really want to do is follow someone from early childhood and see whether prolonged exposure to loot boxes and simulated gambling contributes to problem gambling, but this type of study is expensive and there is currently underfunding to these ambitious projects. We don’t have the longitudinal research and experimental research that we actually need.

Can we regulate loot boxes?

OB: If regulation is brought in, what do you imagine it looking like?

Dr Zendle: Loot box regulation could be almost anything. The most severe option would be classifying them as a gambling product and so in the UK context they would become the Gambling Commission’s responsibility, and video game distributors would become gambling service providers meaning they would have to adhere to the very strict restrictions that come with that title. These restrictions would be very difficult for video games companies to adhere to and it is unclear how this regulation would work. I anticipate, if we were to decide loot boxes are gambling we would have to have a vast expansion of the Gambling Commission.

It’s worthwhile not underestimating the number of games with loot boxes in them. More than half of the top grossing mobile games have this mechanic in them so in order to regulate the entire industry you would need huge staff power and that staff would need expertise.

The video game industry could also self regulate, although I don’t know how credible this is anymore. In this solution the industry would identify a potential harm, investigate what is happening and fix the issue before it occurs on a widespread basis. However, the video game industry seems to be keen to keep data private and are not self-regulating. 

I think regulating loot boxes as gambling is too narrow and too specific. Video games and gambling are converging in really interesting and novel ways, but loot boxes are just one of these ways. There is the increase in sports betting, there are social casinos, and simulated gambling in video games. 

OB: How quickly do you think we could we see change?

Dr Zendle: There is the potential for regulation to come in very quickly here because we can clearly see that there is the potential for harm. Regulators are in a tricky place due to the lack of an evidence base, so they have to work with what information they do have.

The conversation would be different if the evidence base was moving at pace but it’s just not. Saying this, even with the limited evidence base we can still see the potential for harm, especially towards children. Regulators are under pressure to protect the young and vulnerable, and they have to make decisions with what information and evidence they have. And this evidence suggests that the way to protect them would be bringing in some form of regulation. So yes, we could see changes implemented really quickly. 

A big thanks to Dr Zendle for speaking with us. His expertise has given us a really good insight into the problem of loot boxes and how they could be regulated. While there currently isn’t enough research and evidence to be able to understand completely how loot boxes and problem gambling are linked, we can see that the two are intrinsically linked. 

As loot boxes have the clear potential to cause harm we can expect some form of regulation coming in soon, though what form this regulation will take remains to be seen. We are sure to find out more once the Department for Digital, Culture, Media & Sport has completed its call for evidence on the matter of loot boxes. 

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