When Gambling Meets Gaming: The Multifaceted Regulation Of Loot Boxes In Ireland

Joe Kelly, A&L Goodbody

gambling

Gaming regulators European forum declaration on gambling-like products

In September 2018, the Gambling Policy Division of the Irish Department of Justice and Equality, together with the gambling regulatory authorities of 15 other jurisdictions, co-signed a Declaration from the Gaming Regulators European Forum (GREF). GREF is a voluntary association of European gambling regulatory authorities, in which Ireland participates. The purpose of the Declaration was to collectively express unease at the growing “blurring of lines between gambling and gaming”. 

Gambling and gaming

The Declaration was published against the backdrop of concern expressed in international media and by gambling authorities, about the emergence of video game products with characteristics more typically associated with gambling. “We are increasingly concerned with the risks being posed by the blurring of lines between gambling and other forms of digital entertainment such as video gaming,” stated the Declaration. 

Loot boxes

The Declaration specifically highlighted “loot boxes” as an area of concern. Loot boxes are virtual items featured in video games, which players can redeem to receive a randomised selection of in-game items and rewards. Typically, players unlock loot boxes as a reward through normal play. 

However, many high-profile games now also offer the option to purchase loot boxes using real money. In-game items generated by loot boxes include character costumes, known as “skins”, and extra player attributes. These in-game “microtransactions” have become increasingly prevalent in recent years, featuring prominently in popular mainstream titles such as FIFA, Star Wars Battlefront II and Call of Duty.

Skin betting

The Declaration also raised concerns at the rise in popularity of “skin betting” or “skin gambling”. This involves dedicated third-party sites facilitating players to bet, trade or sell the in-game items generated by loot boxes as a currency among each other. Many of these sites enable users to monetise these in-game items into real money. A prominent resale market for such in-game items also exists on platforms such as eBay. 

The Belgian and Dutch approach

A number of EU countries, most notably Belgium and the Netherlands, have already taken a hard line on loot boxes, with Belgium’s justice minister, Koen Geens, calling for an EU-wide ban. In May 2018, the Belgian Gaming Commission published a report which found that loot boxes featuring in popular video games such as Overwatch, Star Wars Battlefront II and FIFA 18 were in breach of Belgium’s gambling laws. In September 2018, it was reported that a video game producer, Electronic Arts, was being investigated by the Belgian Gaming Commission about a refusal to remove loot boxes from its FIFA 18 and FIFA 19 games. 

Risk of future addiction

Critics of loot boxes cite the lack of transparency on how in-game items are generated and distributed. They argue that loot boxes often feature mechanisms to entice repeat use, by making players feel that they have just missed out on sought-after items, akin to slot machines. They also raise concerns about the impact of exposing minors to these gambling-like products, given the associated addiction risks. 

Ireland's approach to loot boxes

Since signing up to the Declaration, the Irish government provided some insight into the likely approach it will adopt on loot boxes. Speaking before Seanad Éireann (the upper house of the Irish legislature) on 27 September 2018, David Stanton, minister of state at the Department of Justice and Equality, stated that while the Declaration “does not have legal effect, it reflects concern among national authorities that online gaming products should be appropriately licensed if they offer gambling possibilities”. 

Minister Stanton stated that “in-game purchases, be they loot boxes, skins, etc, which are promoted to gamers as increasing their chances of success”, are essentially commercial or e-commerce activity. He indicated that concerns regarding the purchase and promotion of such in-game items were, by default, a matter of consumer protection law, falling within the remit of the Irish Competition and Consumer Protection Commission. 

This reflects the Declaration’s stated intention to work in conjunction with consumer protection enforcement authorities in each jurisdiction. Minister Stanton noted that where a video game does not involve invitations to gamble, it is legislated under the Video Recordings Act 1989, which deals with the sale and distribution of video games.

Minister Stanton did however state that where video games involve in-game purchases, which are offers to gamble, these games would fall to be regulated under gambling legislation, requiring a licence issued by the Irish Revenue Commissioners. 

Gambling licences in Ireland

The categories of licences available under the current Irish gambling regulatory framework are limited. Licences are available under the Betting Act 1931, the Gaming and Lotteries Act 1956, and the Totalisator Act 1929. While the Irish betting legislation has recently been amended to reflect certain modern marketplace trends, the legislation applicable to gaming and lotteries, and to tote betting, is generally considered to be out of date. 

The Betting Act 1931 provides for a licensing regime for remote bookmakers and “betting intermediaries” who accept or facilitate bets from Irish customers, regardless of where in the world the remote bookmaker or betting intermediary is located. The Gaming and Lotteries Act 1956 prohibits both gaming and lotteries except in very limited circumstances. Similarly, Tote betting in Ireland is extremely restricted, and cannot be offered directly by operators for profit. There is currently no licensing regime available under the Irish gambling regulatory framework for remote gaming, remote lottery or remote Tote betting providers.

In-game items as “prizes”

In determining whether loot boxes constitute gambling or not, many gambling regulators have focused on whether the in-game item generated by a loot box could be considered as a “prize”. The ability to monetise an in-game item for financial value has been an important consideration in this regard. Regulators in Belgium and the Netherlands have strictly interpreted the ability to monetise in-game items, holding the view that the mere possibility to sell or trade an item on a third-party platform (eg, on eBay or skin-betting platforms) may be sufficient for the item to be considered a prize. 

When discussing in-game purchases involving offers to gamble, Minister Stanton provided the example of a game offering “the possibility of placing a bet or taking a risk for financial reward within the game”. No further guidance was provided on what a “financial reward” may mean in the context of considering whether loot boxes constitute gambling or not. However, given Minister Stanton’s comments that in-game purchases of loot boxes and skins are by default a commercial activity, and his example of offers to gamble, involving the possibility of financial reward “within the game”, it appears that the Department of Justice and Equality may not be minded to include the ability of users to monetise in-game items on third-party platforms in their definition of what constitutes a “financial reward”.

Regulation of in-game purchases

As has been the experience in many jurisdictions, the regulation of loot boxes and other in-game purchases in Ireland falls within the competence of various authorities and regulators, with the Irish Revenue Commissioners, the Department of Justice and Equality, the Competition and Consumer Protection Commission, the Heath Service Executive and the Data Protection Commission all sharing responsibility for various aspects. Minister Stanton’s comments highlight the difficulties inherent in this fractured approach. 

Minister Stanton stated that one of the key purposes of the Declaration was to alert parents to potential issues arising from in-game purchases. He stressed however that it is parents who have the primary responsibility to protect their children from these issues. Minister Stanton further noted that the issue of gambling addiction in Ireland is not a matter for the Department of Justice and Equality, but rather the Health Service Executive.

Following on from his statement that the purchase and promotion of in-game items was a matter of consumer protection law, Minister Stanton went on to state that the Department of Justice and Equality has “no role either in the regulation of game developers as to how their games work or in the offering of in-game purchases”. This will be welcome news for the numerous game developers that have operations located in Ireland.

Reform to the Irish gambling regulatory framework

It should be noted that Minister Stanton’s comments coincide with the significant upcoming reform of the Irish gambling regulatory framework. The Irish government is in the process of updating and modernising aspects of Irish gambling law, to ensure that there is clarity and protection for all those who use gambling services. Draft legislation, currently before Parliament, provides for the creation of 43 new licences, covering a wide range of both land-based and remote gambling activities. It remains to be determined whether loot boxes and skin betting will fall within these new categories of licences. 

The draft legislation also provides for the establishment of a specialised regulatory authority to be responsible for regulating the gambling industry and supervising the complex range of activity to include licensing, regulating, monitoring, inspecting and enforcement, which will need to be undertaken. The government recently indicated that this will be an independent body, sitting outside of the Department of Justice and Equality. It is likely that the new regulator will work in conjunction with the various other governmental authorities that currently regulate the sector.

While GREF’s Declaration was a clear statement of intent to address the issues posed by loot boxes and other in-game products, its non-binding legal effect, and the absence of a collective action plan on the part of the 16 regulatory authorities involved, suggests that this will remain a contentious area of gambling law for some time to come. 

From an Irish perspective, Minister Stanton’s comments suggest that the Irish government and regulatory authorities are unlikely to take immediate action to outlaw loot boxes and other in-game products. Given Irish gambling law’s current state of flux, it remains to be seen what approach will be adopted once the new statutory regime is in place. The Select Committee on Justice, an interdepartmental working group on gambling, is due to publish its recommendations on the draft legislation to go to the government in autumn 2018, with enactment of the new legislation expected during the course of 2019.

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