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Can legislation fix gaming's loot box problem?

It's time to decide the difference between loot boxes and gambling, if there is one.
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Last year's gaming controversy has turned into this year's legislative battleground. Fans were outraged when Star Wars: Battlefront II launched with buyable loot boxes that unbalanced multiplayer combat, and other games like Need For Speed: Payback and Destiny 2 had their own pay-to-win controversies. Eventually, loot boxes unsettled enough constituents to rile their representatives. Legislators in Hawaii, Washington and Illinois have introduced bills to either study loot boxes or restrict access to young players, but how effective will they be? What else can lawmakers do?

Hawaii state Rep. Chris Lee, a gamer himself (he favors the Battlefield series and Rockstar Games' oeuvre), believes there's plenty to do. The Democrat introduced four bills last month: Two (one introduced to state House and one to the Senate) would restrict loot boxes in Hawaii to those older than 21, while another pair would force companies to disclose the odds of winning potential game items. It's not the strongest rebuke of the games industry he and his co-authors could have made, Lee told Engadget, but it's a step in the right direction — and it will spur conversation.

The gaming industry has been challenged by legislators before. In the 1980s and '90s, lawmakers panicked that the violence, drugs and sexuality in gaming was affecting youth. To avoid government regulation, the industry formed the Entertainment Software Rating Board (ESRB), which warded off legislative oversight. But this time around, the issue isn't moral corruption -- it's whether these particular reward mechanisms are merely gambling in disguise, and if so, should they be in games kids can play? Bills are very public statements, and those proposed by Lee and other state lawmakers have cast doubt on the future of loot boxes as they exist now.

The ESRB has staunchly maintained that loot boxes aren't gambling:

"While there's an element of chance in these mechanics, the player is always guaranteed to receive in-game content (even if the player unfortunately receives something they don't want). We think of it as a similar principle to collectible card games: Sometimes you'll open a pack and get a brand new holographic card you've had your eye on for a while. But other times you'll end up with a pack of cards you already have," the ESRB told Kotaku late last year. We reached out to the ESRB for comment on the recently-proposed bills and didn't receive a response at the time of writing.

Legislation isn't the only tool lawmakers can use to effect change: Last week, US Sen. Maggie Hassan, a Democrat from New Hampshire, wrote a public letter to the ESRB urging it to take the loot-box issue more seriously, especially because children can easily access games with these mechanisms. Otherwise, as Hawaii's Lee noted, connecting with different groups to raise awareness could provoke a response by, in this case, the gaming industry. His office has started talking with concerned lawmakers, community leaders, medical institutes, schools and other interested parties across the country.

Still, nothing captures America's attention like potential new laws.

Bills proposed by other state lawmakers earlier this year have focused on whether loot-box mechanisms are gambling. Washington state Sen. Kevin Ranker, a Democrat, introduced one last month asking the state's gambling commission to decide whether loot boxes qualify as games of chance. Separately, two Indiana state senators introduced a bill commissioning a study to determine the same, though it was effectively buried when it didn't get a committee hearing.

Given that players often buy loot boxes with real money and receive randomized assortments of in-game items, there's a case for considering this mechanism as gambling. If states decided they were, loot boxes would likely fall within the jurisdiction of statewide gambling commissions and be regulated just like any other pay-to-play game of chance.

The gaming industry has good reason to stamp out any loot box-gambling connection: Once states decide to regulate them as such, game studios will have to comply with each law and statute. They would have to switch off features for players in some regions and ensure compliance lest they run afoul of state authorities. This may be a big issue for titans of the industry like Activision-Blizzard, which has centralized loot boxes in many of its AAA games (Call of Duty: WWII, Destiny 2, Overwatch, Hearthstone) to drive up revenue. Smaller studios that can't afford legal counsel but include loot boxes could suffer more if they violate state laws, according to Marc Whipple, an intellectual-property lawyer who frequently advises video-game companies.

"There's an old saying, 'You may not be interested in politics, but politics are interested in you.' The same thing applies here: You may not be interested in gambling regulation, but gambling regulators are interested in you," Whipple said in an interview with Engadget.

"Because gambling is seen as a privilege, not a right, if the gambling regulators believe that you are in their jurisdiction, if they have jurisdiction over you, they can do a lot of things to you that a lot of people probably don't understand are possible ... up to and including declaring your product an unlawful gambling device and issuing a warrant for your arrest," Whipple said.

He should know -- he worked as legal counsel for Incredible Technologies, the company behind Golden Tee Golf, a popular cabinet game that let players participate in online tournaments for cash prizes. To operate in myriad bars nationwide, the game had to obey each state's gambling laws. In some cases, cabinets would have features removed to comply with particular statutes.

Game studios notoriously hide their loot boxes' odds of winning specific items. (We can guess at Overwatch's loot-drop percentages because Chinese law forced them to be revealed last year, though Blizzard managed to hide them a month later through a loophole).

Without pointing any fingers at anybody in the games industry, Whipple said, if you made a video slot machine and put it in a casino with the same kind of pay table used in most loot-box systems, "you would go to prison." In other words, the odds in Vegas are better -- because state law requires them to be.

It's easy to get sucked into the 'is it gambling?' debate. But instead, Hawaii's Lee aimed his bills at safeguarding kids and ensuring that everyone knows what they're really paying for by requiring transparency in odds. It's where he sees the argument going -- not continuing to debate whether loot boxes are gambling, but asking departments of health and consumer-protection agencies about the consequences and impacts of loot boxes. Because game studios don't release data about loot-box sales and use, we only have anecdotes about when individuals suffer from these mechanisms -- and they are often tragic.

"There's no question that for a portion of the population, there is vulnerability. And for an even larger portion of the population, there is risk of exploitation by algorithms specifically designed with no transparency and, increasingly, to take advantage of players based upon their actions that they're not even aware of. When you think of it like that, it's a very dangerous moment," said Lee.

It's dangerous because it's an industry that knows what it's doing. Lee explains: "It has employed psychologists and mental-health experts to use these mechanisms specifically to exploit human psychology as much as possible. ... If the industry continues to deny or pretend that there's a problem here, it will find itself ultimately in court in the same way that tobacco companies and oil companies denied the information that they knew all along."

Considering the dysfunction in Washington, it's doubtful that legislation on the issue will come from Congress in the near future. To date, the only member who has publicly acted over concern for loot boxes is New Hampshire's Hassan.

"Sen. Hassan has already sent a letter to ESRB raising concerns about the harm loot boxes could have on young gamers and called on nominees to the Federal Trade Commission to commit to looking into the issue of loot boxes, which all four nominees agreed to do," Eric Mee, Hassan's deputy press secretary, told Engadget. "The senator is cautiously encouraged by the ESRB's initial statement, but if the ESRB's response is inadequate, she will work with her colleagues and consumers to consider additional steps."

Mee told Engadget it's too early to speculate whether there will be a congressional push for hearings or legislation. State legislatures are addressing loot boxes ahead of Congress because there are simply more lawmakers across the country than in Washington. They also have more room to tackle issues that hit closer to home, like questionable mechanisms in video games. Given that state lawmakers operate on different timelines for their legislative seasons, Lee believes other states may introduce their own bills later this year. His office has been talking with lawmakers from 30 other states who may be interested in doing so. Some are starting to collect data through their departments of health and other organizations but "because nobody but the industry has the data at this time, it might take a little bit to get there," he said.

The one bright spot? Lee believes loot boxes are one of the rare issues that could inspire bipartisan support because it concerns a broad swath of constituents, from mental-health and education communities to parents and soccer moms. The issue might even expand beyond gaming: Without intervention, what's to stop other industries from adopting their own chance-based content boxes?

Lee elaborates: "Imagine that model without any sort of oversight or regulation move into every aspect not only of gaming but of online services in general. Rather than a subscription to Spotify or buying a song through Apple, you can buy loot boxes full of albums. But you really aren't going to know what you might get."

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