Culture

Loot boxes are dead. What comes next will be worse

Action is finally being taken on loot boxes, but developers already have other gambling-like mechanics ready to go

James* first began to develop a gambling addiction as a teenager after winning over £50,000 on his dad’s betting account. Years later, while in the midst of recovery during lockdown, he relapsed on an entirely new form of virtual gambling. Instead of poker or real-life sports games, he started betting on the outcomes of computerised matches on Madden, the NFL video game. “Everything you could bet on in a normal American Football game you could do in this one,” James recalls.

He spent weeks gambling on the random outcomes, eventually emptying his entire bank account on the virtual betting site. “I remember going on my daily walks and crying, thinking that I was losing all this money and there was nothing I could do about it,” he says. James is one of tens of thousands of people being swept up in a new wave of gambling in video games, which is helping to drive a surge of underage gambling addiction.

Normally when people discuss gambling in video games, they’re talking about loot boxes, the controversial mechanic where people spend money on the slight chance of winning rewards. While recent research suggests 40 per cent of children who play video games have bought loot boxes, the vast majority of studies on the topic have found “unambiguous” links between the lottery-style mechanic and gambling, which would normally be illegal for under-18s. That addictive impact has led to children regularly losing hundreds or thousands of pounds on loot boxes as they chase losses they’ve already spent.

In response to that, an imminent government review of gambling laws that includes a consultation on loot boxes is expected to recommend legislating against them. That opposition to loot boxes has pushed games like Fortnite to remove the mechanic from play. But even as some pivot away from loot boxes, new forms of gambling are rising up to fill the gap – and they could be even better at converting young gamers into problem gamblers.

First, there is the kind of virtual sports betting James fell prey to, which grew by 88 per cent during the pandemic. The danger here is that normal sports betting comes with a physical ceiling – only a limited number of matches can be played. That ceiling has disappeared for virtual sports betting. In the real world, Manchester United only play Liverpool a few times a season, but in the virtual one, they can face off multiple times every hour of every day.

Then there are mobile games, many of which use gambling mechanics like lotteries, slots and roulette wheels. All of these games are increasingly accessible to the around 90 per cent of 11 year olds who have their own phones. There are also actual gambling facilities where you can lose in-game currency that’s bought with real money, like the casino in GTA Online. While console games with overt gambling like this usually come with an 18+ age rating, they’re often ignored (surveys have found 65 per cent of millennials played an 18+ video game while underage).

Gambling-adjacent mechanics can also make their way into games, like Battle Passes that come with loot box-style reward systems or token wagering in games like Dota 2, where tokens that you gamble for higher XP must be purchased with real money.

“Today’s young people are clearly more exposed to gambling than previous generations,” says Amanda Atkinson, head of the parental engagement programme for the Young Gamblers and Gamers Education Trust (YGAM). “They grow up entwined in the digital world, just clicks away from the online galaxy of gaming and gambling.”

These mechanics are helping fuel a surge in underage gambling addictions. Even the most conservative estimates suggest 1.9 per cent of 11- to-16-year-olds are problem gamblers. That translates to roughly 85,000 people, well up from 50,000 recorded in 2018, which itself was four times the level seen in 2016.

Part of the reason gambling can be an appealing mechanic to developers comes down to business models. Free-to-play games, as well as paid games that receive regular updates like GTA Online (sometimes known as ‘Gaming as a Service’ or GaaS games) can offer revenues incomparable to those made from standalone games. By one 2018 estimate, 80 per cent of all digital games revenue came from free-to-play games. This business model works, not because everyone spends money in-game but because there are huge revenues to be made from a small minority who spend a lot. Roughly half of the over £10 billion spent on loot boxes worldwide each year came from just five per cent of players.

“The industry has seized on these things, but there are clearly ethical considerations here,” says Brian Bagelow, founder of industry body the Scottish Games Network. Simply put, if the mechanics that make that money are gambling, then the profitable, often underage minority repeatedly spending on them are gambling addicts.

For mobile games things can be even worse. Alex Dale, a former vice president of King, which created Candy Crush, has described how companies use data from Facebook and Google to target adverts at those play and spend money in games. Restrictions are also less sturdy for mobile games. Instead of the independent PEGI ratings that console games get, mobile games are policed by the very app stores that host them. That can often lead to inconsistent or lacking oversight. YGAM highlights Pirate Kings, a cartoon-like game with millions of downloads that features ‘spin to win’ slots that can lose you real money. On the Apple App Store it’s rated 17+, on the Google Play Store it’s ‘E for Everyone’.

Most of the gambling laws that would govern all this are outdated. YGAM is keen to point out that the government’s review will be the first large-scale development on the Gambling Act since it was first passed in 2005. “Since then, the rapid innovation of technology has revolutionised gambling,” explains Atkinson. For context, in video game terms 2005 was the year World of Warcraft was first launched in Europe, Mario Kart for the Nintendo DS was the top-grossing game and the first iPhone was still two years away.

And that cuts to the core of the issue – the gaming industry moves fast, far faster than those tasked with regulating it. “The one thing the government and public sector are not good at doing is predicting the future,” says Bagelow. “They are, by their very nature, reactive because they have to be.”

While preemptive regulation can risk stifling innovation, any delays in reacting to changes in these industries can be disastrous. That problem is only worsened by a lack of understanding amongst policymakers. “I am afraid that only a minority of politicians understand the complexities of online video games and their mechanics,” says Alex Sobel, a shadow culture minister and chair of the all-party parliamentary group on video games. One gambling charity official compares the issue to his time working as a car salesman: “Whenever someone asked us about the size of the boot, we always knew they knew nothing else about cars,” he says. In the same way, politicians will mention loot boxes and the dangers they pose, without knowing much else about the industry.

It took a full decade after FIFA introduced Ultimate Team packs, one of the first major loot box mechanics, before they were raised as an issue in parliament in 2019. That delay allowed for years of growth in the free-to-play sector, increasing reliance on gambling-related revenues and a sharp increase in underage gambling addicts.

And despite the time it has taken, it’s still not certain loot boxes will disappear. Despite more and more countries moving to regulate or ban the sector, revenue’s driven by the sector are still predicted to rise 33 per cent by 2025. We don’t yet know what the government review will recommend, options range from a ban on loot boxes like in Belgium to tighter regulation like in Germany. Even if they are banned, there are many ways to evade legislation, from developers being based abroad to narrowing the definition of a loot box. In 2019, an EA official told the House of Commons that its offerings aren’t loot boxes, but “surprise mechanics”.

Just in the last few years, the mechanics, topics and hardware in gaming have shifted so quickly that politicians and regulators simply can’t keep up. And, like other tech industries moving at that breakneck speed, this risks leaving an array of broken things in your wake. “If you look at the games sector, the one constant is change,” explains Bagelow. “And now everyone else is having to run to keep up with that.”

Updated 11.05.21, 08:30 GMT: Comments made by Alex Dale have been clarified

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This article was originally published by WIRED UK