FTC Announce Investigation into Predatory Loot Boxes in Video Games

FTC Announce Investigation into Predatory Loot Boxes in Video Games

Following years of grassroots consumer backlash to the predatory loot box system, the Federal Trade Commission (FTC) has finally agreed to investigate the online racket allowing adults and children to illegally gamble. 

During a Congressional hearing last week, Sen. Maggie Hassan (D-NH) requested FTC chairman Joseph Simons conduct a formal probe into the link between the video game industry and the effects of loot boxes, the new form of digital purchases that, through completely randomized algorithms, can grant players upgrades, boosts, skins, weapons, armour, outfits and other useless in-game merchandise without knowing what exactly they’ve paid money for beforehand. This what normal people consider gambling.

“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 releases,” said Hassan. “Loot boxes will soon represent a $50 billion industry by the year 2022,” citing another report from Juniper Research.

“Given the seriousness of this issue,” she continued, “I think it is in fact time for the FTC to investigate these mechanisms to ensure that children are being adequately protected and to educate parents about potential addiction or other negative impacts of these games. Would you commit to undertaking this project and keeping this committee informed about it?”

Without hesitation, Simons responded “yes.” No further details were given.

In the past, the FTC appeared somewhat unconvinced by these gambling claims and requested studies undertaken before any form of regulation take place. This is thanks to public lobbying by Electronic Arts (EA) and the Entertainment Software Rating Board (ESRB) who have argued the loot box system isn’t gambling because every trade grants the user a product upon purchase, whether it’s the desired item or not. 

This means that technically, the players never leave empty-handed unlike slot machines and casinos. There just remains the issue of R&G trade where actual currency is traded for a chance to receive the product the user actually wants, assuming the process isn’t rigged from the backend in favour of the house. Does the addictive practice really change if users don’t hit below rock bottom?

Luke Clark, director at the Center for Gambling Research at the University of British Columbia, recently told PC Gamer.com that loot boxes can encourage compulsive behaviour because their unpredictable nature activates the dopamine system, just like drug use. 

“Dopamine cells are most active when there is maximum uncertainty,” Clark explained. “The dopamine system responds more to an uncertain reward than the same reward delivered on a predictable basis,” hence the addiction comparisons with gambling.

“Loot boxes in video games are a dangerous and predatory form of gambling being marketed directly to kids,” said Les Bernal, national director of Stop Predatory Gambling, who spoke with The Intercept earlier this year. “Their sole purpose is to extract more money out of young people’s pockets.” His comments were also agreed upon by psychologists and gambling addiction experts such as David G. Schwartz of the Las Vegas Center for Gaming Research and Dr. Emil Hodzic of the Video Game Addiction Clinic.

Hassan cited a recent U.K. audit from earlier this month which found that over 10% of all 11 to 16-year-old children in Britain have paid for loot boxes with actual real-world currency, meanwhile academic papers have discovered 45% of the most popular games with the loot box system, such as Overwatch and FIFA, meet the psychological criteria to be considered a form of gambling despite being considered age appropriate for minors in their branding.

In response to this investigation, the ESRB announced all newly produced video games with an online feature will be branded with a descriptor of these in-game purchases, though fail to distinguish between unfair loot boxes or fair direct purchases which explicitly give the users what they wanted. The board will also launch an effort to educate parents on the system, though the potential reach of this program seems minimal at best. 

As reported by Rolling Stone, the totality of loot boxes is lost on the nominal parents. In February, 400 parents were asked if they knew what loot boxes were — 69% of parents said they didn’t know, 31% said they had heard of them, while only 28% actually knew what the term meant. While there is a need for better education, the government shouldn’t overcomplicate the practice to cater to the feelings of their regulated corporate subjects. The citizenry should come first.

“While I have appreciated working with the ESRB on this issue,” Hassan told the publication, “I have also said that the Federal Trade Commission has a responsibility to look at this issue. The need for FTC action becomes more apparent given the recent report from the Gambling Commission of Great Britain and the steps other countries have taken to regulate loot boxes. I hope the FTC will move quickly to begin their investigation and look forward to working with all parties on this issue.”

The crackdown from other industrialized nations is no joke. Hassan pointed to the policies of Japan, Belgium and the Netherlands where the practice either discloses what’s inside them before purchase or is outright banned within their national-borders. “Mixing games and gambling, especially at a young age, is dangerous for mental health,” said Belgium’s justice minister, Koen Geens, announcing the law carries a five-year jail sentence. “That is why we must also ensure that children and adults are not confronted with games of chance when they are looking for fun in a video game.”

This was endorsed by the International Game Developers Association (IGDA) who warned companies to remove the process from their games or face potential legal action across the globe. “By not taking significant action as an industry and global game developer community to self-regulate how loot boxes are used,” says Jen Maclean, executive director of the IGDA, who spoke with Polygon, “we run the very real risk that governments around the world will take that action for us, and perhaps create significantly restrictive laws that could impact any random reward elements in games.”

The question remains whether the FTC will take action before deceptive companies face possible damages. Bill Rothbard, a former FTC lawyer who now specializes in FTC-related work, told Polygon “they have a number of different procedures, avenues and remedies to pursue an investigation. If they are looking at a practice that is industry-wide, like loot boxes, they have the statutory authority to initiate a rule-making proceeding. The FTC would determine if loot boxes are unfair or deceptive.”

“If so,” he continued, “that would warrant the promulgation of a regulation that would cover the entire industry. There was a time in the late ’70s and early ’80s when the FTC initiated numerous procedures against entire industries, whether it was Children’s advertising, tobacco, the funeral industry and real estate, [etc]. But I can’t think of one that covers an entire industry in the in the last several years… The best outcome for [these companies] is to engage in a cooperative exchange of information with the FTC and try to get them to see the industry’s point of view, and to determine that there really isn’t a problem here.”

So in other words, enough corporate lobbying could sway the FTC away from the problem. The government should refuse such negotiations with the ESRB, the Entertainment Software Association (ESA) and corporate entities until a fair, unbiased investigation is conducted into the process alongside the counsel of independent bodies. It’s only justice for regulators to refrain from being corrupted by the very people they’re supposed to be regulating.

Consumers have clearly showed hostility to the loot box system in the scandal surrounding Star Wars Battlefront, where it was revealed it would take users over 400 hours to progress within the game. This, effectively, forced users to buy loot boxes through pay-to-win coercion or grind-to-win stubbornness. 

Since this story was published by The Washington Post, the system has been on a noticeable decline among these triple-A studios, though remains an unchallenged reality in the industries’ most successful franchises. Whether or not legislators decide to put the loot box racket to an end once and for all, companies should think again before leaving their profits, as well as their legal freedom, to a simple game of chance.