Lawsuit against EA brings loot boxes back to the spotlight

The Latest Chapter In ‘Are Loot Boxes A Form Of Online Gambling?’

Are loot boxes gambling? This is a question that gets asked on a regular basis, yet which is usually met with equivocation. Almost no one in a position to give a firm answer seems willing to do so.

The latest person to ask the question is California resident Kevin Ramirez. He is suing the video game company Electronic Arts (EA) for $5 million in damages over loot boxes in its sports titles. These include the video game adaptations of most major league sports, but the suit singles out FIFA and Madden NFL specifically.

Ramirez says he ended up spending $600 on Ultimate Team Packs in Madden. The $5 million sum named in the suit is because he intends to have the case certified as a class action including players of these and other EA titles.

The suit alleges that “The EA Ultimate Team Packs have all the hallmarks of a Las Vegas-style slot machine, including the psychological aspects to encourage and create addiction. Moreover, under California law they constitute illegal ‘slot machines or devices’ when played on a console, computer, mobile phone, tablet or other similar device.”

Ramirez isn’t the first to object to loot boxes, nor will he be the last. Unfortunately, they’re a complicated subject that no one quite knows what to do with. Conversations on the subject are ongoing all around the world.

More than a superficial resemblance to gambling

Loot boxes or equivalent mechanics are extremely common in modern gaming. Development costs for top-tier games have increased continuously over the years. At the same time, the public’s willingness to pay high prices up front has, if anything, declined. The solution has been to sell games cheaply or make them free, but extract additional money from existing players through a variety of types of in-game purchases.

The trouble is that this has led to an imbalance in how much individual users end up paying. Many never end up spending any money on in-game purchases at all, while developers profit of a minority of high spenders. This is particularly the case for free-to-play mobile games, where half of a game’s revenue can come from less than 0.2% of players. At $600 in spending, Ramirez may not even be in that group, many of whom spend in the thousands.

This is very similar to the revenue structure of most gambling businesses. Developers even refer to those big spenders as “whales,” a term they borrow from the casino industry, and there’s evidence that many of these players are also problem gamblers. The video game industry now employs many of the same psychological tricks as manufacturers of casino games to keep those players around and reaching for their wallets.

FTC is ‘monitoring’ the situation

The timing of the lawsuit coincidentally falls just as the Federal Trade Commission (FTC) has released its staff perspective on last year’s Video Game Loot Box Workshop. It is, unfortunately, long on describing the complexities of the problem, and short on solutions.

Panelists at the workshop identified the following key issues with loot boxes and microtransactions in contemporary games:

  • Deceptive and manipulative mechanics
  • Use of social pressure between players to encourage spending
  • Lack of age controls and limited awareness of loot boxes among parents
  • Lack of transparency surrounding loot box odds
  • Third-party “content creators” encouraging in-game spending without disclosing a business relationship to the developer

On most of these fronts, the FTC’s conclusion was simply that more research is needed. To the extent that there’s any concrete action on loot boxes in the US at the moment, it’s taking place in the form of self-regulation by the Entertainment Software Association (ESA).

Following the workshop, the ESA has begun to work at improving the situation on the child safety and transparency fronts. Its rating board introduced a new content category in April, requiring developers to disclose if their product contains in-app purchases with a random element. It is also encouraging developers to make a greater effort to communicate to players how the content of loot boxes is determined, though it hasn’t yet established concrete guidelines.

Loot boxes are hard to pin down

The FTC congratulated the ESA on those efforts, but there’s a limit to how well self-regulation can work. Unfortunately, the odds of successful regulation by the FTC are small. Bureaucracies are slow-moving by their nature, and video game development evolves rapidly.

The target isn’t only moving, it’s also very blurry. Supreme Court Justice Potter Stewart‘s famous description of pornography — “I can’t define it, but I know it when I see it” — applies very much to the concept of loot boxes. Only rarely are loot boxes explicitly labeled as such in a game, and there are many variations on the concept.

If the FTC were to regulate loot boxes very narrowly, the industry would easily skirt the rules. Already, many games have additional layers of abstraction between real-money purchases and randomized rewards. For instance, players might purchase in-game currency with real-world dollars, which can then be spent on any number of things including loot boxes.

Ramirez v. Electronic Arts has the potential to miss the mark in the opposite direction. Chances are that the case will never reach a decision, as EA will attempt to have it dismissed and, failing that, settle out of court in order to avoid the risk of a judgment which would set a precedent for future cases. If that doesn’t happen, however, and if a judge does deem loot boxes to be illegal gambling, it could have a domino effect on similar but less contentious products.

Collateral damage

One might ask, for instance, how loot boxes differ from trading cards and other randomized physical collectibles. There are differences, of course, but they’re largely contextual and hard to pin down.

Perhaps not coincidentally, trading cards are themselves making a comeback at the moment. The industry was struggling in the early 2000s, but has been rescued by digital content creators through the phenomenon of “breaking.”

Internet personalities have begun purchasing boxes of trading cards and streaming themselves opening the packs. Viewers purchase shares of the boxes, for instance all the players on a certain team. It makes the card collection experience more social and interactive, and increases the likelihood of buyers getting the specific cards they’re looking for.

This is already of dubious legality, for similar reasons to loot boxes. However, it’s also rescuing a dying industry that many are nostalgic for and that’s not usually considered to be as problematic.

A more sophisticated definition of gambling is needed

If the Ramirez lawsuit does end in the result that loot boxes are deemed to be illegal gambling, it could create problems for these sorts of related industries. It also might not fix the problem. After all, it’s the psychological manipulation that often accompanies loot boxes that’s the real issue. And that can be almost as harmful even absent the element of chance.

It’s not an issue that’s going away, though. Whatever happens with this lawsuit, similar cases will keep coming up until the problem is addressed. Meanwhile, similar debates about what is and isn’t gambling rage on elsewhere. These include the traditional arguments about the relative importance of skill and chance in things like poker and daily fantasy sports, as well as more recent innovations.

Legal definitions of gambling tend to hinge on the payment and potential receipt of things of value, and the presence of an element of chance. These are appealing in their simplicity, but are quite evidently not sophisticated enough to cover these sorts of edge cases.

A comprehensive solution to such issues would require a change of focus to the most harmful aspects of gambling, rather than the most easily identifiable. That’s a big lift, however, and would be a long time coming if it were to happen at all.

- Alex is a journalist from Dartmouth, Nova Scotia, Canada. Now site runner for Online Poker Report, he has been writing about poker and the online gambling industry in various capacities since 2014.
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