FTC will investigate whether video game loot boxes lead kids to gamble

U.S.
Senator Maggie Hassan New Hampshire expressed her concerns with
video game micro-transactions to the Federal Trade Commission
during an oversight hearing.
U.S.
Senate Commerce, Science, and Transportation
Subcommittee

• The Federal Trade Commission (FTC) will investigate the
  use of loot box micro-transactions in video games at the
  request of U.S. Senator Maggie Hassan of New
  Hampshire.
• Hassan and other critics of the digital goods have
  compared loot-box transactions to gambling and have expressed
  concerns that the business model introduces children to
  addictive behavior.
• The move follows a September statement from European
  regulators promising to explore the connection between loot
  boxes and gambling.

Video game loot boxes are facing a fresh round of scrutiny from
United States officials as the Federal Trade Commission prepares
to launch an investigation into the increasingly popular business
model at the request of Senator Maggie Hassan of New Hampshire.

Loot boxes are virtual packages containing digital items for use
in a specific video game; most games sell loot boxes for real
cash via micro-transactions, but some allow players to earn them
by playing too. The items inside each virtual box are randomized,
with odds of encountering each item set in advance by the
developer. Especially rare items often come with really long
odds. In some cases, the items inside a loot box can enhance the
player’s gameplay, creating an added incentive to spend real
money to acquire a digital item faster.

Give the choice between paying cash for instant
gratification and spending seven hours unlocking a digital item,
many choose the former.
Supercell

Critics of the loot box business model compare the practice to
gambling, because the odds of obtaining specific items are often
unknown to the buyer, and the desire to find the rarest items can
lead some players to continue spending money on a game with
little return on investment. As more video games adopt loot boxes
and micro-transactions as a standard, lawmakers around the world
have expressed concerns that children are being exposed to an
entry-level form of gambling.

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During an oversight hearing for the Federal Trade Commission,
Sen. Hassan asked the commissioners to investigate loot-box
practices to ensure that children are protected from
habit-forming or addictive business models and that parents are
informed about other potential negatives. Earlier this year Sen.
Hassan wrote an open letter to the Entertainment Software Ratings
Board asking the board to collect data on the use and revenue
generated by micro-transactions in video games. 

“Loot boxes are now endemic in the video game industry and are
present in everything from casual smart phone games to the newest
high budget video game releases,” Sen. Hassan said during the
hearing. “Loot boxes represent a $50 billion industry by the year
2022 according to the latest research estimates.”

FTC Chairman Joseph Simons agreed to investigate the loot-box
model and issue a report.

Sen. Hassan’s comments reference an April 2018 report from
UK-based Juniper Research, which predicts that loot box revenue
will grow from $30 billion this year to $50 billion in 2022.
Juniper recommended that regulators step in to stop teenage
gamers from selling items scored in loot boxes or using them to
gamble. Hassan also referenced a survey of 2,865 11- to
16-year-olds from the UK Gambling Commission showing that 31% of
participants had paid for a loot box or had used an in-game item
to open a loot box.

However, in a statement given to
GamesIndustry.biz prior to Monday’s hearing, the UK Gambling
Commission clarified that though 31% of the surveyed teens had
used loot boxes, there was no direct correlation with gambling.

The Entertainment Software Association, which represents the
political interests of American video game companies, issued the
following statement in response to Sen. Hassan’s comments:

“Loot boxes are one way that players can enhance the experience
that video games offer. Contrary to assertions, loot boxes are
not gambling. They have no real-world value, players always
receive something that enhances their experience, and they are
entirely optional to purchase. They can enhance the experience
for those who choose to use them, but have no impact on those who
do not.”

The ESA also said that the ESRB already documents the presence of
loot boxes and other interactive elements in video games. As of
February 2018, games rated by the ESRB now carry an “in-game
purchases” label when micro-transactions are present. Tools for
parents to monitor the contents of their children’s games are
available at parentaltools.org.

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In September, the Gambling Regulators European Forum
released a joint statement signed by officials from 15
European countries and the Washington State Gambling Commission
mirroring concerns about the potential connection between loot
boxes and gambling.

Some European countries have already implemented regulations on
micro-transactions, leading developers to disclose the odds of
winning each item included in loot boxes or discontinue their
sale entirely. A Belgian investigation of popular games like
“Overwatch,” “FIFA 19,” “PlayerUnkown’s Battlegrounds,” and “NBA
2K19” for their implementation of loot boxes ultimately sparked
reform earlier this year.

Despite warnings from politicians and waves of consumer outrage,
gaming companies are seeing larger percentages of their revenue
generated from micro-transactions each year. While some contend
that buying optional loot boxes is ultimately an issue of
player’s choice, the concern from critics is that, like gambling,
the issue is not knowing when to stop.