Gambling or Gaming? Australia's regulatory position on loot boxes in video games
6 min to read

Gambling or Gaming? Australia’s regulatory position on loot boxes in video games

Date
24 February 2020

Anyone familiar with the video game industry will be familiar with ‘loot boxes’. For gamers, loot boxes can give them a competitive edge over other gamers. According to the UK Children’s Commissioner, ‘[t]he current loot box market is estimated to be worth £20 billion worldwide’.[1] Australia has also conducted its own first government inquiry into the provision of loot boxes here.

What is a ‘Loot Box’

Loot boxes are essentially described as virtual boxes, crates or chests that contain randomly allocated virtual items that can be used in-game.[2] Some of these virtual items will be relatively common, whereas some will be rare and highly sought after, often conferring significant in-game advantages for players in an online multiplayer setting.

Loot boxes are sometimes made available for free.  In most cases, loot boxes can be purchased using in game credits. Generally, game credits are obtained by earning them in-game or by purchasing them with real world money. Some games also allow players to sell items gained through loot boxes for real world money in the form of a ‘cash out’ feature. In some instances, third party platforms (which are not authorised or endorsed by the game’s publisher) are developed solely for this purpose (also potentially raising other concerns in breach of a games’ EULAs). Although this kind of ‘cash out’ feature remains unavailable for most games, in conjunction with the development of blockchain based software, this feature could become increasingly more prevalent in video gaming in the near future.[3]

Loot boxes under current Australian law

Gambling in Australia is largely regulated by the states, which each have their own set of gambling laws. For example, in New South Wales, s 5(1)(d) of the Unlawful Gambling Act 1998 (NSW) (“UGA“) provides that ‘any game that involves the disposal of money by lottery or by chance is an unlawful game’. According to Liquor and Gaming NSW, loot boxes which provide items that can only be used within the game itself, or can only be traded amongst players within the game, should not be considered gambling (and therefore not an ‘unlawful game’) pursuant to the UGA.[4] However, if items gained from loot boxes can be traded or sold outside of the game for real world value (e.g. by way of a ‘cash out’ feature) then the game may be considered to be gambling, and therefore an ‘unlawful game’, under the UGA, depending on the individual circumstances.[5]  

The finding of an ‘unlawful game’ under the UGA has potential, wide ranging consequences for both gaming providers and players. For example, anyone who has assisted in organising or conducting an unlawful game may be liable for a fine or a term of imprisonment.[6] Additionally, it is also an offence to participate in an unlawful game.[7]

In addition to each individual state’s gaming legislation, the provision of loot boxes may also be regulated by Commonwealth legislation in Australia, under the Interactive Gambling Act 1998 (Cth) (“IGA“).  Again, whether loot boxes are considered gambling under the IGA is likely to depend on whether a loot box constitutes a game ‘played for money, or anything else of value’.[8] In the opinion of the Australian Communications and Media Association (“ACMA“), loot boxes which do not have a ‘cash out’ feature are unlikely to be considered gambling in breach of the IGA.[9]

Australia’s first government inquiry

The Senate Standing Committee on Environment and Communications (“SSCEC“) recently undertook its own inquiry into ‘Gaming micro-transactions for chance-based items’ (i.e. loot boxes) in Australia. The final report was released in November 2018, recommending that the Australian Government undertake a comprehensive review of loot boxes in video games.[10]

The report included evidence submitted by university academics drawing psychological links between loot boxes and gambling and highlighting the capacity of loot boxes to normalise gambling amongst children.[11] An alternate argument against classifying loot boxes as gambling draws parallels between loot boxes operating in ways not dissimilar to collecting baseball cards, which traditionally have not been considered, or found to be associated with, gambling. The Australian government’s response in March 2019 was that more research is required before it would take any further action.[13]

Similar inquiries conducted in relation to loot boxes in other jurisdictions have resulted in regulatory reform. In Belgium, loot boxes were declared to constitute gambling by the Belgian Gaming Commission, resulting in some developers deciding to pull their video games from the market.[14] In China, video games containing loot boxes need to disclose the odds of success.[15] More recently, the UK’s Children’s Commissioner has released a report on loot boxes called ‘Gaming the System’, which sets out a number of policy recommendations aimed at regulating the use of loot boxes in games, including proposed amendments to the UK’s gambling legislation.[16] The UK NHS’s Mental Health Director has also called for loot boxes encouraging gambling to be banned, citing the links between loot boxes and gambling, and the potential negative mental health effects which loot boxes can have upon children in particular.[17]

Conclusion

Given the Australian government’s response to the SSCEC’s  inquiry last year, it is unlikely that there will be any substantial regulatory reform relating to loot boxes in Australia in the immediate future.


[1] https://www.childrenscommissioner.gov.uk/wp-content/uploads/2019/10/CCO-Gaming-the-System-2019.pdf

[2] https://www.mediawrites.law/loot-boxes-whats-all-the-fuss-about/ 

[3] https://www.afr.com/technology/brothers-james-and-robbie-ferguson-launch-gods-unchained-on-ethereum-20180703-h12605

[4]https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Environment_and_Communications/Gamingmicro-transactions/Report, Paragraph [2.11]

[5] Ibid.

[6] S 12, Unlawful Gambling Act 1998 (NSW)

[7] S 14, Unlawful Gambling Act 1998 (NSW)

[8]  S 4, Interactive Gambling Act 2001 (Cth).

[9]https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Environment_and_Communications/Gamingmicro-transactions/Submissions

[10]https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Environment_and_Communications/Gamingmicro-transactions/Report

[11]https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Environment_and_Communications/Gamingmicro-transactions/Submissions

[12]https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Environment_and_Communications/Gamingmicro-transactions/Report, Paragraph [3.54]

[13]https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Environment_and_Communications/Gamingmicro-transactions/Government_Response

[14] https://www.engadget.com/2018/11/21/square-enix-belgium-loot-boxes-final-fantasy-kingdom-hearts/

[15]https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Environment_and_Communications/Gamingmicro-transactions/Report, Paragraph [1.65]

[16] https://www.childrenscommissioner.gov.uk/wp-content/uploads/2019/10/CCO-Gaming-the-System-2019.pdf

[17] https://www.england.nhs.uk/2020/01/countrys-top-mental-health-nurse-warns-video-games-pushing-young-people-into-under-the-radar-gambling/

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Joel Di Qual
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