By Daniel Meech

When we think of gambling, we think of casinos, poker chips, and slot machines. We picture dinner jackets and cigarettes, card packets and roulette wheels. We don’t think of video games. But maybe we should.

In April 2018, Belgium’s Minister of Justice, Koen Geens, announced that three of the most popular video games of all time (Overwatch, CS: GO, and FIFA 18) were in breach of Belgium’s gambling legislation, as they were encouraging and enabling underaged gambling. Accordingly, the games were temporarily banned from the country until it could be proved that they had removed any gambling elements.

Geens’s decision was monumental. It caused game companies to revaluate how they made their games and, more importantly, brought attention to the often-overlooked issue of gambling in video games. Since his announcement, several countries (including Spain, the Netherlands, the United States, and the United Kingdom) have expressly banned gambling elements in video games, or at least begun efforts to amend gambling legislation. But there’s been no such action in New Zealand. Why not? It’s time New Zealand caught up with the rest of the world. There’s a new breed of gambling game out there, and New Zealand’s gambling legislation needs to be updated if we are to deal with it correctly.

How Does Gambling in Video Games Actually Work?

To understand why our legislation needs updating, we first need to understand how gambling in video games works. There are a variety of different ways in which game developers have worked gambling mechanics into their games, but by far the most common (and pernicious) is the loot box. Loot boxes are a game mechanism wherein players pay money (real or virtual) to receive a randomly selected in-game reward. Different rewards have different values; some are better than others, and some are worse.

The mechanic is perhaps best exemplified by CS:GO, an online multiplayer shooter in which players compete in teams to see who can eliminate the other team the fastest. In CS:GO, loot boxes appear disguised as ‘weapon crates’. Weapon crates, which can be bought with real money, give players a randomly selected ‘skin’ (a cosmetic change which can be applied to a player’s weapons, to differentiate them from others). These skins can then be traded with other players in an online marketplace for in-game items or real world cash. Because different skins are rarer than others, some are worth more than others (it’s not uncommon for rare skins to sell for hundreds of dollars on the marketplace; the most expensive ever sold was for just over USD $61,000).

Geens – and many other legislators – believe this constitutes online gambling. Players are essentially paying money to spin a virtual fruit machine in the hopes they will receive a virtual reward worth thousands of dollars. It’s a not-so-subtle attempt to prey on the player’s psychological desire to seek the thrill of being rewarded from gambling. Want the new, super-cool tiger skin? You can spend $200 buying it off another player, or you can buy a weapon crate for around $5 and try your luck.

In other games, like FIFA, the rewards given by loot boxes can’t be exchanged for real world money. Instead, the rewards only have value within the game itself. But the elements of gambling are still there: players, tired of trying for hours on end to unlock the new weapon or level or playable character, are encouraged to try their hand at a loot box. If they spend enough on loot boxes, they might just unlock that extra-rare item they’ve spent so much time looking for. (They almost certainly won’t. As with any good casino, most games publishers deliberately stack the odds in favour of the house.)

Why Hasn’t it Been Regulated in the Past?

Loot boxes, made popular by games like FIFA and CS:GO, have become increasingly common in video games in the last few years. The mechanism is popular with game developers because it lengthens the revenue earning period of a video game. It used to be that the only time a game publisher made money was when the game was sold. Loot boxes have changed that – now, after a player buys a game, they can be expected to drop a few hundred dollars more on buying these in-game boxes (these after-purchase transactions are commonly referred to as microtransactions).

Loot boxes are a major revenue earner for most companies. In 2019, Electronic Arts – the game publisher behind some of the world’s most played games – made $USD 2.835 billion in revenue from microtransactions in 2019 alone. That’s roughly 60 times what the TAB made in New Zealand in the same year. And that’s just one publisher – there are hundreds of others out there using gambling mechanics to extend the revenue generating life of their game.

And yet, despite the massive amounts of money involved, games with gambling mechanics often aren’t regulated. Until recently, the sudden rise of loot boxes meant legislators weren’t aware that the mechanic even existed. Even where they were, the practice was so widespread within the industry that the mechanic was somewhat normalised. But Geens’s decision has highlighted the need to update gambling legislation internationally.

The Law in New Zealand

Theoretically, all gambling in New Zealand is regulated by the Gambling Act 2003. It sets out how casinos, pubs, and online betting websites have to operate and how pokie machines and bingo games can run; it outlines in excruciating detail what constitutes class 1, 2, 3, and 4 gambling, what book making is, and what counts as private gambling. But it doesn’t cover gambling in video games.

That’s because the Act was made for another time. As noted by the Department of Internal Affairs – one of the bodies empowered to enforce the Act – the current definition of gambling contained within the Act means it actually doesn’t cover video game gambling mechanics like loot boxes, partly because legislators didn’t foresee the practice when the Act was passed. This lack of regulation has allowed loot boxes to continue to be used in New Zealand, even as they have been outlawed in other countries. It has meant that gambling activities in video games have not had to conform with the requirements that casinos and other gambling houses do: game developers can advertise their gambling games to children, they can run gambling games with outlandish odds, and they have no obligation to prevent problem gamblers from spending up large on their game.

According to Maria Bellringer of AUT’s Gambling and Addictions Research Centre, this lack of regulation is a real danger. “If gambling behaviour is normalised, then kids are more likely to be trying it out [later on in life],” she says. “When you’re playing a video game, you think you’re playing a game of skill, but when gambling-type elements are embedded in a video game, that brings in something totally different. That element of skill is gone, and suddenly you’ve got these random chance events in something that is nothing to do with gambling, supposedly. Kids don’t necessarily know that”.[1]

Andree Froude of the Problem Gambling Foundation of New Zealand agrees. “Some of the mechanics of loot boxes are really, really similar to those of pokie machines, and they’ve been designed … for that very reason,” she says, “I think we need to look really, really hard at whether our gambling Act, and whether our regulations around this, are going to protect young people”.[2]

What Can We Do About It?

Based on the approaches adopted in other countries, there are a few basic steps we could take to regulate loot boxes in here New Zealand.

First, the Gambling Act 2003 could be updated to include loot boxes as a recognised form of gambling. This would mean it is held to the same regulatory standards as other forms of gambling – most notably, it would be illegal for game publishers to encourage children to use mechanics like loot boxes. Of course, the Gambling Act would need to clearly define what constitutes gambling in games: do you have to receive items which can be exchanged for real money for it to be gambling (the approach used in Belgium and the Netherlands), or does this extend to items which are not exchangeable for cash (an approach being considered by the United States)? Either way though, recognising loot boxes as a form of gambling would go a long way towards regulating its use.

It would mean that video game developers would have a positive duty to ensure they did not allow underage children to partake in their gambling games.[3] If requested, they would also have a duty to publish reports on how they run their games, how much money they make from them, and what processes they have in place to minimise harm to the community.[4] If the Governor-General is not satisfied with any in the reports, video game developers could be penalised.[5] Developers would have a positive duty to prevent problem gamblers from gambling too much in their games, and to help them if they feel they are in need of help.[6] Finally, they would be subject to the problem gambling levy – a small fee gambling operators pay to government, which is then invested in harm reduction schemes.[7]

None of these regulations would have a particularly large effect on the video game developers  — it would mean they couldn’t allow children to buy loot boxes, but otherwise would not prevent them from selling them to consenting adults — but it would have a large effect on the players being enticed into gambling. Problem gamblers would be encouraged to seek help, and a portion of the revenue generated by developers like Electronic Arts would be put back into the community.

Alongside updating the Gambling Act 2003, “whether or not the video game includes gambling elements” could be included in the list of factors which affect a game’s age rating. Currently, video games entering New Zealand are classified (given a rating between G and R18+) by the Office of Film and Literature Classification. They’re judged on the same five criteria that films, media and books are: the extent to which the publication deals with sex, horror, crime, cruelty and violence.[8] Perhaps we should consider updating this Act. “The presence of gambling mechanics” or “whether the publication encourages or enables gambling” could be added to the list of factors which make a publication “objectionable” (and therefore age-restricted). Effective enforcement of this change would disincentivise game publishers from including gambling mechanics in games designed for children, which could be done even without amending the Gambling Act 2003.

Conclusion

New Zealand’s gambling legislation is desperately out of date. It was written for another time and, as such, allows gambling in video games to go on unregulated in the country. But that doesn’t have to be the case. Countries like Belgium have shown that gambling in video games can be effectively regulated where legislators take a proactive approach to reforming their legislation. New Zealand can follow in their footsteps by updating the law surrounding gambling in New Zealand. By including gambling mechanics like loot boxes as a recognised form of gambling, we can ensure video game developers are prevented from encouraging children to participate in gambling activities. It would also mean that a portion of the revenue these companies generate would be put back into addressing problem gambling in New Zealand.

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Featured image source: Pixabay

[1] Daniel Meech “Gambling in Video Games: All in Good Fun, or Something More Cynical?” Craccum (New Zealand, 2019) at 11.

[2] At 11.

[3] Gambling Act 2003, s 305.

[4] Section 371.

[5] Section 371.

[6] Sections 308 and 309A.

[7] Section 318.

[8] Films, Videos and Publications Classification Act 1993, s 3.