Faculty of Social Sciences and Law Loot boxes in video games Should loot boxes be considered a form of gambling and therefore be subject to gambling laws? B.S. thesis Author: Ingi Hilmar Sigurðsson Supervisor: Unnar Steinn Bjarndal (Autumn – 2020) Confirmation of final project for a B.S. degree in Business Law from Bifröst University Final project: Loot boxes in video games, should loot boxes be considered a form of gambling and therefore be subject to gambling laws? By Ingi Hilmar Sigurðsson The project has been evaluated according to the rules and requirements of Bifröst University and has the final grade:___ ____________________________ Bifröst University, Autumn 2020 ____________________________ Supervisor ____________________________ Head of the Faculty of Social Sciences and Law Faculty of Social Sciences and Law Loot boxes in video games Should loot boxes be considered a form of gambling and therefore be subject to gambling laws? B.S. thesis Author: Ingi Hilmar Sigurðsson Supervisor: Unnar Steinn Bjarndal (Autumn – 2020) Abstract Loot boxes are a form of microtransaction, which is a business model used to generate revenue for video games. The contents of loot boxes are random and based on chance, where loot boxes have a higher chance to contain a variety of lower quality items, and a much smaller chance to contain a selection of higher quality items. The higher quality items tend to be the driving force between loot boxes purchases and participation despite, or maybe due to, their rarity. However, visual appeal tends to play a part as well regarding cosmetic rewards, as such players may desire rewards solely based on their visual appeal, regardless of their rarity. Unique rewards tend to carry more visual appeal, however, as they are not used as excessively as rewards which are not unique or hard to come by. Loot boxes and microtransactions are often predatory and exploitative in nature, whilst being marketed to children, which is one of the key aspects being taken into account as an attempt is made to answer whether loot boxes should be considered a form of gambling and therefore be subject to gambling laws, as such legislation tends to be made in order to protect those in need of protection from such behaviours. The main findings of the thesis are that loot boxes are, by definition, a form of gambling and legislations should be interpreted in a broader sense, benefitting individuals, their safety, and protection. i Preface This final project is a 12 ECTS credit thesis for a B.S. degree in Business Law at Bifröst University’s Faculty of Social Sciences and Law. The tile of the thesis is: Loot boxes in video games, should loot boxes be considered a form of gambling and therefore be subject to gambling laws? This thesis was written under the reliable guidance and helpful assistance of my supervisor, Unnar Steinn Bjarndal, Supreme Court attorney and Assistant Professor of Law. ii Table of Contents 1. Introduction ................................................................................................................... 1 2. Microtransactions .......................................................................................................... 3 3. What constitutes as gambling? ....................................................................................... 3 3.1. United Kingdom’s Gambling Act 2005 ................................................................... 4 3.1.1. Gaming ............................................................................................................ 4 3.1.2. Betting ............................................................................................................. 4 3.1.3. Lottery ............................................................................................................. 5 3.2. Iceland .................................................................................................................... 6 3.2.1. Iceland’s legal definition of gambling .............................................................. 6 3.3. The Netherlands and Belgium ................................................................................. 7 3.4. Japan ....................................................................................................................... 7 3.5. China ...................................................................................................................... 8 3.6. Broad versus narrow judicial interpretations ............................................................ 9 3.7. How developers circumvent gambling definitions ................................................... 9 3.7.1. Monetary value of gambling .......................................................................... 10 4. What are loot boxes? ................................................................................................... 12 4.1. Genres where loot boxes may be present ............................................................... 12 4.1.1. Sports games .................................................................................................. 13 4.1.2. Role playing games ........................................................................................ 13 4.1.3. Action games ................................................................................................. 14 4.2. Mobile games ....................................................................................................... 15 4.3. Functionality of loot boxes .................................................................................... 16 4.4. Different types of loot boxes in video games ......................................................... 17 4.4.1. Overwatch ..................................................................................................... 17 4.4.2. CS:GO ........................................................................................................... 18 4.4.3. The Star Wars controversy ............................................................................. 20 4.5. Target audience of MTX ....................................................................................... 20 5. Unethical and exploitative behaviour? ......................................................................... 22 5.1. Understanding the value of money ........................................................................ 24 5.2. Prevalence of MTX in mobile games .................................................................... 25 5.3. Impressionable minds of children and vulnerable people ....................................... 26 5.3.1. Winning is addictive ...................................................................................... 27 5.3.2. Maslow’s Hierarchy of Needs ........................................................................ 28 6. Gambling laws and protection ..................................................................................... 29 6.1. Gambling Act 2005 ............................................................................................... 29 6.1.1. Final licensing objective................................................................................. 31 iii 7. Conflicts arise as laws and viewpoints on gambling clash between countries ............... 31 7.1. European, American, or Asian companies providing games for a global market .... 31 7.2. Different preferences in major markets .................................................................. 32 7.2.1. Europe ........................................................................................................... 32 7.2.2. America ......................................................................................................... 32 7.2.3. Asia ............................................................................................................... 33 8. Conclusion .................................................................................................................. 33 9. Bibliography ............................................................................................................... 36 9.1. Registry of laws .................................................................................................... 38 iv 1. Introduction This thesis will be exploring the concept of loot boxes, which are a form of microtransaction which in turn is a way for video game companies to monetize their games, and whether loot boxes should be considered a form of gambling based on their functionality as well as their intended target audience. Furthermore, as loot boxes are a prevalent form of microtransaction across the globe, comparisons between countries and even continents will be made. As such, any possible regulations or legislations from these countries will also need to be considered, as they can impact a country’s ability to regulate or set legislations, whether they be in favour of or against loot boxes. Furthermore, the psychological aspect behind loot boxes and their implementation will also be considered, as loot boxes are often targeted at a younger audience who may not fully grasp the relation between making online purchases and money being taken out of a bank account in return, as well as the fact that barriers to entry tend to either be low or non-existent in many cases. The main question the thesis brings forward is whether loot boxes should be considered a form of gambling, which then leads into a multitude of questions regarding regulations, as loot boxes are