Over 90% of apps offered through Google Play (and Android App stores) are free-to-play and over 25% of all apps in the Apple store are games. Developers of free-to-play games thus rely on advertising and crucially on in-app purchases in and around the games to generate revenue. Seeking to encourage players to spend more money in-game, game developers have begun to use "loot crates" as an increasingly standard in-game reward feature. While most loot crates do not feature real-money prizes, the use of "loot crates" has come under the scrutiny of UK authorities. It has been argued that loot crates have a "game of chance" nature and thus could constitute a form of gambling.
Loot crates are an in-app or in-game purchase item where players purchase virtual boxes for a set fee that contain random rewards such as new characters, bonus lives, virtual money or power boosts to progress further in a game. The value of the item inside the loot crate (within the in-game economy) may exceed the price paid for the crate. Equally, the item inside the loot crate may be sold at a lower price (in the in-game shop) than the price paid for the crate. In this way, the player takes the chance that the price he or she pays for the crate will be lower than the price he or she would pay for the item(s) inside the crate if he or she were to buy it/them from the in-game shop. This chance is meant to enhance enjoyment of the game and to incentivise players to stay engaged and spend money in the game.
In 2016 loot crates were identified by the UK Gambling Commission as creating a potential risk to children and young people. That same year the Commission published a position paper which considered whether loot crates fell into UK gambling law or not. "Gambling" is defined as "betting, gaming or participating in a lottery". "Gaming" is defined as playing a "game of chance for a prize" and a "prize" is defined as including "money or money's worth". On considering whether loot crates fell within the definition of Gambling, the Commission concluded that where loot box "game of chance" rewards consist solely of in-game items as prizes, they cannot be characterised as money or money's worth because their value is confined for use within the in-game economy. Moreover, the fact that a player is not able to 'cash them out' means that use of loot crates is unlikely to constitute an activity that will require a gambling license.
However, although the UK Gambling Commission concluded that in such circumstances the activity did not constitute gambling and therefore their legal powers would not allow them to step in, it identified that there is a growing concern amongst members of the public and the Commission that while loot crates may not meet the legal definition, the increase in the number of games which heavily feature such activities is blurring the line between gaming and gambling.
In 2017 the heightened profile of loot crates led Apple to announce in December 2017 that it had updated its guidelines for game developers offering their product through their App store. The guidelines now state that "Apps offering "loot boxes" or other mechanisms that provide randomised virtual items for purchase must disclose the odds of receiving each type of item to customers prior to purchase". But whilst publishing the odds demonstrates an increased transparency between gaming developers and players, and should mean players can make a more informed decision prior to purchase, for younger players caught up in the excitement of winning a 'rare' or 'special' in-game item or feature is this enough to ensure a distinction between gaming and gambling?
The growing sophistication of the games industry and the increasing difficulty for developers to create a game that can crack the Top 200+ gross revenue charts is pushing developers to seek new ways to engage players and capture meaningful revenue over longer periods of time. There is clearly concern over the number of games that leverage analogous behaviour to gambling or include features that simulate gambling mechanics into their games. It has been proposed that should such practices become more excessive there is potential that we will see tighter rules around in-app purchases and increased government regulation in the industry. For instance, games could have increased age restrictions or in-game notice requirements intended to dampen the use of loot crates. It remains to be seen whether the app stores will lead on this (as they may feel more susceptible to public pressure) or whether game developers will seek some middle ground: a balance between extending engagement, enjoyment and revenue from a player (and thus increasing the LTV and ultimately the success of the game) whilst staying on the right side of the line between gambling and gaming.