The convergence of interactive entertainment and gambling has resulted in various types of in-game purchases such as game-specific currencies and loot boxes falling under gambling regulatory regimes. The Belgian gambling regulator has recently threatened proceedings in relation to loot boxes which they regard as games of chance. EA, publishers of the FIFA series, has decided to stop selling FIFA points in Belgium as a result, while suggesting that the applicable regulations have been wrongly applied.
Loot boxes are quite appropriately named – it is estimated that the global value of in-game purchases amounts to tens of billions of dollars each year.
Here in the UK, the Gambling Commission has looked at this issue and issued a position paper in 2017 setting out its view that in-game prizes would not be treated as licensable gambling activity where they were ‘successfully restricted for use solely within the game’ – i.e. not tradeable on an external market.
We had looked at this previously. However, this position might be subject to further change in light of recent developments. Firstly, the proliferation of trading facilities for in-game purchases, while unofficial and subject to clampdowns and enforcement action by games publishers, means it is questionable whether in-game prizes are ‘successfully’ confined to the games from which they originate. Secondly, recent research indicates a possible link between problem gambling and loot boxes which has resulted in calls to review the relationship between the two.
The Gambling Act 2005 is the main gambling law in the UK. While a radical update at the time, it largely followed the traditional classification of gambling into betting, gaming and lotteries. Loot boxes display some converging features with gaming in that they are games of chance which are played for a prize. They will not be considered gaming by the Gambling Commission provided that any prizes available are not ‘money or money’s worth’. But loot boxes also share features with lotteries because they involve payment and the allocation of prizes based on a process which is entirely determined by chance. Interestingly, the definition of ‘prize’ in a lottery is not confined to money or money’s worth but can include services being provided (section 14(4)(b)). While this may have been intended to allow for the award of prizes such as the services of a personal chef or attendant in a charity raffle, it arguably could include the provision of otherwise restricted special features in a game.
In practice the treatment of loot boxes as a lottery would be extremely problematic for the games sector because the Gambling Act restricts the operation of lotteries to non-commercial, normally charitable, organisations – not commercial games publishers.
There is, however, a clear overlap between a number of the concerns being voiced among games publishers and the gambling licensing objectives which form the basis of all gambling regulation and the Gambling Commission’s remit. These are: to prevent gambling from being a source of, or associated with crime and disorder; ensuring gambling is conducted in a fair and open way; and protecting children and vulnerable persons from harm or exploitation. In practice gambling operators are subject to stringent social responsibility requirements to enable these objectives to be achieved which are more rigorous than the normal standard expected of consumer-facing media business. These include demonstrating that clear procedures and systems exist to detect problem gambling or spending patterns and measures such as ‘self-exclusion’ schemes which are designed to allow vulnerable people to protect themselves. None of this applies to interactive entertainment businesses which do not operate gambling services.
As we are seeing with the fuss over changes to fixed odds betting terminals and mid-march advertising, gambling regulation is not static and the thinking behind the current legislation is now almost 20 years old. Interestingly, that legislation has in some respects future-proofed itself. Both the definitions of ‘gaming’ and ‘lotteries’ in the Gambling Act 2005 allow for secondary legislation to be passed which would enable certain types of arrangements to be classed as gaming or lotteries. As we know, the Government has quite a lot on at present, but if the games industry falls short in standards of consumer protection or transparency, or if more evidence of serious social harm emerges, it is possible that change could be imposed on it.
Liam McMonagle and Neil Falconer are specialist Intellectual Property and commercial solicitors. We are always delighted to talk without obligation about whether we might meet your needs. Call Liam or Neil on 0131 225 8705.