How loot boxes hooked gamers and left regulators spinning

A month ago, a woman known online as CadenceLikesVGs realized she had a gambling problem. She wasn’t playing blackjack or pulling slot machine levers; she was opening video game loot boxes.

“I can’t do this anymore. It is a problem,” Cadence, who wished to remain anonymous, wrote in a Reddit post last month. “But I can’t spend money on PoE, because I know that it’s a slippery slope that won’t stop until I spent everything.”

“Because my brain is fucked up.”

Path of Exile (PoE) is a free-to-play role-playing game that sells loot boxes. It’s developed and published by the New Zealand-based studio Grinding Gear Games, and it was acquired by the Chinese tech company Tencent last May. Despite the acquisition, most players see the devs as a scrappy indie outfit. It’s a stereotypical RPG, borrowing enough from the Diablo series for some players to consider it to be the game’s spiritual successor.

The game operates in seasons, with new items that let users customize their character’s gear arriving in the in-game shop every three months or so. Each loot box costs around $3 USD to open, but it’s rare to pull the item you want on your first, second, or even third purchase.

After the season ends, many of the items in the mystery boxes are placed in the shop so that people can purchase them directly, but those direct transactions are expensive, too. A whole set of armor could cost a player hundreds of dollars to obtain.

“People tend to jump on the lootboxes thinking they’ll get a deal, but that’s not how gambling works,” Cadence said. “The house always wins.”

Cadence told The Verge that out of all of the gear sets she was able to complete, the least amount of money she spent was around $140. The most was $400, and she didn’t receive every available in-game item that season. It was at that point that she decided she’d had enough.

So she emailed the devs asking for help. “Would it be possible to disable my ability to buy Mystery Boxes entirely? I have serious impulse [problems],” Cadence wrote. Quickly, the devs responded, and after a brief email exchange, they disabled her ability to buy the mystery boxes and refused to re-enable it until August 2019, a date she specified herself. It’s similar to the voluntary exclusion policies imposed by many casino control boards, but it’s a new phenomenon in video games.

Grinding Gear Games, the studio behind Path of Exiles, did not respond to repeated requests for comment.

“I am somewhat ashamed to admit, but my attempts at reaching out were an attempt at having my cake, and eating it, too. I wanted to support the game that I love, without supporting their horrible business practices,” Cadence said, referring to the loot boxes. “But honestly, if they were going to say no to my request, I’d have uninstalled the game and quit and never looked back.”

The problem is much bigger than Cadence. Forums are filled with similar stories featuring as much as hundreds to thousands of dollars lost to poor impulse control. Some players have suffered from gambling addictions in the past, and now that disease has manifested itself in randomized online purchases. One Reddit user, who goes by Kensgold online, admitted to spending over $10,000 on loot boxes in a variety of games over the past few years.

Last year, discussions around regulating loot boxes seemed to be coming to a head. Lawmakers in states and at the federal level were proposing bills, seeking research, and prompting regulatory bodies to investigate the practice. But just as discussions were heating up, the government shut down and the agency in charge of the investigation had to hold off as its employees were furloughed. Now, the government has been reopened for over a month, but after nearly a year of inquiry and unsuccessful bills, regulation talks have stalled.

Some countries in the European Union have already begun to act. Last September, the Gambling Regulators European Forum (GREF) put out a statement that was signed by regulators from 15 different EU countries that were concerned about the practice. Last May, the Belgian Gaming Commission decided that loot boxes fell under the jurisdiction of its gambling law, and studios like Blizzard, Valve, and EA all pulled loot boxes from their games in those countries. As the concern spread across Europe, it started to catch fire in the US, but that momentum has stalled, and the video game industry’s lobbying efforts over this $30 billion industry seem to have curbed any tangible progress to regulate the sale of loot boxes.

Waiting for the FTC

Congress’ most outspoken advocate for loot box regulation has been Sen. Maggie Hassan (D-NH). Last year Hassan received a note from a constituent who voiced concern over the video game industry’s marketing of in-game transactions. In November, at a Commerce Committee hearing with Federal Trade Commission officials, Hassan requested that the body open up an investigation into loot boxes.

“It’s time for the FTC to investigate these mechanisms to ensure that children are being adequately protected,” Hassan said last November. “And to educate parents about potential addiction and other negative impacts of these games.” FTC chairman Joe Simons agreed that the practice should be investigated.

In an interview with The Verge, Hassan wouldn’t speak specifically on how she would like to see the multibillion-dollar industry regulated, but she affirmed that consumers, especially children, should be protected. “My particular emphasis right now is that we need to make sure, especially for young gamers, that there are consumer protections in place to provide transparency and awareness. And we need to really look at the way these loot boxes are being designed and marketed to ensure that they are not predatory,” Hassan said.

While the government was shut down, the FTC didn’t have enough funds to support its investigations and was forced to put them on pause. This included any it may have opened into loot boxes. After the agency reopened last month, Hassan sent a letter asking for an update, “I understand that you have begun to take initial steps to begin an investigation,” she said. “With that appreciation in mind, I am requesting an update.”

There’s still no word on when the FTC investigation will conclude, whether the agency will publish a public report on its findings, or if officials are looking into declaring some kind of rule to govern the video game industry and loot boxes. The FTC declined to comment.

If the FTC investigation were to determine that loot boxes are an unfair or deceptive practice, the body could potentially declare a new rule that would affect the entire gaming industry. But it’s been several decades since the body imposed that kind of broad regulation, and many of the agency’s enforcement powers have been significantly weakened since then. Every FTC investigation moves slowly, and the agency has been tasked with more than it currently has enough resources to handle throughout the past few years.

If legislation and regulatory rulemaking pose too large of a challenge, the courts could be forced to determine whether loot boxes fall underneath current gambling regulations. The legal gambling age varies across the country (between 18 and 21), and when it comes to regulating loot boxes, most of the concern lies on whether children should be able to pay for them.

According to Keith Whyte, the executive director of the National Council on Problem Gambling, current US gambling laws originated in the 17th century. And although many of the mechanics used in loot boxes may already be regulated, it may be more efficient to bring gambling laws into the 21st century. “It needs massive updating in this age of new technology and loot boxes are a shining example of why we need to update our gambling law and regulations,” Whyte said.  

However, California state assemblymember Jay Obernolte, a video game studio owner and advocate for loot boxes, believes that most of this outrage could be solved if platform holders like Apple and Google included more parental control settings for microtransactions. “I wish that they had better parental controls on these online microtransactions. To me that fits into a broader question into whether we should have more parental involvement in these purchase decisions,” he said. “I think the answer to this is yes.”

A voluntary feature

Loot boxes have been around in some form since the early 2000s, gradually evolving into a system of never-ending in-app purchases. The model was popularized by Japanese gacha mobile games in the early 2010s. In these games, there are normally a variety of characters that the player can receive and play as in the game by “pulling” or “spinning” the gacha, which oftentimes resembles a slot machine or a roulette wheel.

As Western studios caught on, the model changed into something less explicitly casino-like. A loot box became a randomized item drop, a virtual crate that players pay real-life money to open. These crates can contain a variety of in-game items. Some change the appearance of their characters, like outfits or weapon skins, and, in some cases, they can help someone make faster progress in a game.

Initially, the practice was confined to free-to-play games, which needed the loot box money to fund development. But in recent years, larger studios like Blizzard and Electronic Arts (EA) have begun to attach similar mechanics to popular titles like Overwatch and Battlefront that cost anywhere from $30 to $60 on their own.

The backlash against loot boxes reached its peak when EA released its highly anticipated title Star Wars Battlefront II in November 2017. Even while in beta testing, players were upset with how the game used loot boxes. Not only did the boxes drop unnecessary character skins and accessories, but users were required to spend real-world money in order to make any significant progress in the game. Players used “Star Cards” to level up their basic stats, and without them, they were basically out of luck when it came to winning online matches. At the time, you could purchase the boxes with in-game currency, but EA made it difficult for players to acquire it. Even though the game cost $60, purchasing loot boxes with real-world money was the only real option if players wanted to stay ahead of their online competition.

The outrage lasted for months. “This loot crate system is exactly something that you would find in a free-to-play game that you would pay zero dollars for,” popular YouTuber and video game commentator Angry Joe said in a video. “The shit that you get from the crate is awful. It’s boring. It’s shitty.”

Following the outrage, Hawaii state lawmakers made one of the most prominent change attempts, introducing four bills that would set rules for the gaming industry when it came to loot boxes and microtransactions. One pair would have prohibited anyone under the age of 21 to purchase the crate with real money. The other two would have required video game publishers to publicly disclose the probability rates of receiving rewards. Both sets ultimately failed.

“As someone who has been an avid gamer my entire life, it’s been really frustrating to see the business model for the industry begin to transition from creating and selling great products to creating products that exploit gamers,” said Hawaii state representative Chris Lee, who helped launch this discussion in the legislature.

But soon after the bills were introduced, the industry began to publicly argue that loot box mechanics didn’t resemble gambling at all. Lee was taken aback by the argument. “I grew up playing games my whole life,” he said last year. “I’ve watched firsthand the evolution of the industry from one that seeks to create new things to one that’s begun to exploit people, especially children, to maximize profit.”

It was around this time that the Entertainment Software Association (ESA) began to argue that loot boxes were a “voluntary” feature. “They are not gambling,” the ESA said in response around the same time that the Hawaii legislators began to eye loot boxes. “Depending on the game design, some loot boxes are earned and others can be purchased. In some games, they have elements that help a player progress through the video game. In others, they are optional features and are not required to progress or succeed in the game. In both cases, the gamer makes the decision.”

But the Hawaii legislators didn’t buy the industry’s arguments. “We didn’t allow Joe Camel to encourage our kids to smoke cigarettes, and we shouldn’t allow Star Wars to influence your kids to gamble,” Rep. Sean Quinlan, a sponsor of the Hawaii legislation, responded at a press conference.

Are loot boxes gambling?

The heart of the issue is whether loot boxes should be considered as gambling or a kind of mini-game. Anti-gambling activists argue that loot boxes imitate similar mechanics that you find in casinos, like slot machines and lotteries. At the same time, the gaming industry argues that the virtual and voluntary nature of these transactions means they shouldn’t fall under gambling laws.

“Loot boxes do not constitute gambling because players always receive something of value that enhances their experience,” Stanley Pierre-Louis, acting president and CEO of the ESA told The Verge. “A player can play through an entire video game successfully without buying a single loot box. In many cases, a loot box simply allows a user to collect a cosmetic in-game item. Loot boxes often enhance the experience for those who choose to use them, and are just another part of the many unique experiences that video games offer.”

But if the courts were forced to determine, through something like a class action lawsuit, whether loot boxes fell underneath current gambling law, critics think judges would be hard-pressed to find a reason as to why they shouldn’t be covered.

Ryan Morrison, who is known as the Video Game Attorney online, argued that loot boxes already meet the definition of gambling in every state in the nation. “You’re putting something of value in, your money, and you’re buying something that has odds to it that you are unaware of, that’s chance, and you’re getting something that you value or don’t value,” Morrison said. “Those are the three factors in all 50 states and I would argue that most loot boxes are already defined as gambling, and if push came to shove and a government body wanted to go after them or if someone wanted to bring this to court.”

If critics were to pursue litigation, a recent Justice Department opinion could pose an even more serious threat. In January, the DOJ reevaluated a 2011 opinion of the Wire Act, saying that all online gambling was now unlawful. As of right now, it’s unclear whether the mechanics in loot boxes are similar enough to those in gambling for them to be governed under current US gambling law. Still, if some government body were to determine that they do fall under current regulation, the industry may be forced to make sudden, sweeping changes. If somebody — whether that be the FTC, Congress, or the courts — were to formally consider loot boxes as gambling, the gaming industry could suddenly be out billions in annual revenue, which could spell disaster for the industry’s current business model.

The new opinion still allows carveouts for some online gambling, but it functions primarily to allow for states like New Jersey to craft their own laws to allow online gambling within state borders. Geofenced intrastate online gambling can be legal, but since video game studios operate globally, studios could be forced to only sell loot boxes in states that already allow online casinos. “It would be profoundly threatening to their business model were they to fall under any type of gambling regulation or oversight,” Whyte said. “Because in the regulated gambling space, you cannot do most of the things that they’re doing. Online, it has to be restricted to people in a particular state.”

The industry has begun to self-regulate, but the new rules are fairly weak compared to what some critics are asking. As a response to the outrage that followed Battlefront II, the Entertainment Software Rating Board (ESRB), which was established by the ESA, announced that it would begin to disclose games with microtransactions with a new label. “You may have noticed that we’ve been a little quiet on the topic of in-game purchases and loot boxes,” the ESRB said in a statement last February. “But we’ve been listening.” However, this new label doesn’t just signify that loot boxes are included in the game, but extra downloadable content (DLC) is represented by the exact same label. DLC is the same for everyone, and it isn’t at the subject of chance like loot boxes.

Some studios have adopted more transparent practices on their own, like those at Riot Games, which publishes one of the most streamed games on Twitch, League of Legends (LoL). In LoL, users know how likely it is that they’ll receive a certain kind of item from loot box drops. Still, there are no laws in the US or rules mandated by the video game industry that ensure that all studios disclose drop rates.

It’s unlikely that studios will be required to disclose probability rates or be prohibited from charging minors for loot boxes anytime soon. “A self-regulatory framework already exists,” Pierre-Louis said. “The ESRB has a long history of informing players, parents, and caregivers about content in video games.”

But until some solution is offered, people like Cadence will continue to be sucked into free-to-play games, convincing themselves that one more box will drop the item they’re looking for.

“When your brain works like mine, you can’t stop,” Cadence said. “There is always the little voice of the back of your head that goes ‘Yeah no man, you should’ve quit like 30 boxes ago,’ but even when you’re telling yourself to stop, you’re still clicking buy, and you’re still opening boxes.”