DCMS set to review $23 Billion esports Loot Box ‘gambling’ loophole

Computer gaming takes one step closer to becoming the world’s most popular sport with likely reclassification of Loot Crates as gambling devices.

To some people of a certain vintage, computer gaming remains the preserve of teens and geeks – a niche hobby to be grown out of when real life kicks in. A world of digital fantasy with multiple sub-genres, terminologies and technologies that you couldn’t care less about. Unless you’ve got teenage kids or one of your clients is an energy drink, why should you be bothering your marketing brain thinking about computer games, right?

Wrong.

This kind of broad-brush assumption may have held water twenty years ago, but research firm Newzoo predicts that by 2021, eSports will generate more than $1.6 billion in total revenue with $1.3 billion coming from brand investments. Additionally, a 2018 research paper by Juniper Research forecast that global spending on Loot Crates and Skin betting would reach $23 Billion this year and $50 billion by 2022.

Big numbers, and for the majority of those reading, likely to raise further questions – like

“What the hell is a Loot Crate?” and “Skin betting? Sounds kinda sordid”.

If you work for a brand that wants to appeal to 12 to 35-year-old men (and a growing number of young women), it’s worth reading on.

Loot Boxes (also known as ‘Loot Crates’) are virtual treasure chests containing undisclosed items that can be used within esports games, often to customise characters or weapons (known as 'skins'). Initially developed in 2007 for the Chinese game Zhengtu, they were sold to ensure a revenue stream for the game developer since most Asian players used internet cafes or downloaded the game illegally. Within a year, Zhengtu Network reported monthly revenues of more than $15 million, leading to the trend for game developers and publishers worldwide to release free-to-play games positively drowning in microtransaction opportunities.

In America and Europe, the video games industry (led by the now omnipotent Valve Corporation with its Team Fortress 2 game) adopted and adapted the huge financial success of social gaming brands like Zynga (creator of mega-hit Facebook games Farmville, Zynga Poker and Words with Friends) which allowed payers to pay in-game to progress through levels faster.

The computer gaming industry is rarely slow to pounce on potential profit so EA rapidly upgraded its hugely popular FIFA game to include ‘FIFA Ultimate Team Mode’, thus paving the way for players to use virtual trading cards to grow their teams with high profile players.

The ethics and mechanics behind this move was questionable, to say the least – it must take some considerable effort to enrage the BBC’s News Round…

In 2013, CS:GO and Battlefield 4 added Weapons Cases and Battle Packs (in which you find in-game weapons Skins), followed rapidly by Call of Duty: Advanced Warfare, Overwatch and latterly Call of Duty, League of Legends and FIFA 17.

Soon enough, everyone was at it and the money started rolling in. Skin aftermarkets sprung up around 2016, including unlicensed third-party trading and casino style betting sites. Being unregulated, these betting sites were open to anyone with a Steam account (another Valve business in which a player’s virtual Skins are stored) – most frighteningly, they were available to kids.

In what is arguably it’s long overdue response to this multi-billion Dollar dark market, the UK’s DCMS Select Committee’s report on Immersive and Addictive Technologies was released in early June 2020. In the report, Minister for Digital and Culture Caroline Dinenage, said:-

“During the coronavirus pandemic, we have seen more people than ever before turn to video games…”

“The government has committed to tackling issues around loot boxes in response to serious concerns about this model for in-game purchasing. A call for evidence on loot boxes will examine links to gambling-like behaviour and excessive spending in games. The findings will provide a solid foundation for future steps and will be considered alongside a review of the Gambling Act”.

This Gambling Act she speaks of? Yes, that’s the 2005 version instigated under Tony Blair’s Labour Government. You’d be right in assuming that an overhaul, especially in relation to esports, is long overdue even before the threat of Loot Boxes and Skin Betting had come to the fore.

The DCMS proposal doesn’t actually mean the Gambling Act will change overnight. Unsurprisingly, being a political decision, the next steps involve a call for evidence, contribution to further investigation, a framework for a research into the impact of gaming on player behaviour and workshops to include representatives from academia and the esports industry.

There’s a 187-year-old giant tortoise called Jonathan living on the island of Saint Helena who, I believe, moves faster than this.

Most professionals I know in the regulated gambling and esports industries are hugely in favour of player protection. As such, we could probably save the DCMS and their political overlords some time:-

· Regulate the sale of in-game Loot Boxes and Skins in all esports games

· Implement ‘problem gaming’ protocols in line with regulated gambling policy

· Educate esports players about the risks of problem gambling and offer the required resources to mitigate such risks

· Require Skin betting sites to be licensed with any of the 200+ non-compliant offshore sites being blocked at an IP level or prosecuted

Most esports businesses are run by pretty savvy folk. They’ve known which way the wind was blowing for some time and have adjusted their sails accordingly. From 2017, publishers started culling Loot Boxes from their games, most notably Epic Games within the world’s most popular game, Fortnite. In 2019, Blizzard Entertainment removed real money Loot Box purchasing from its Heroes of the Storm game.

Research suggests that by 2021 esports will have more regular viewers and fans than all US sports outside the NFL and globally, esports is well on track to overtake football as the most popular sport to watch within the decade.

With this many eyeballs comes billions of Dollars in revenue, often through not entirely holistic means. Its therefore vital that policy makers get up to speed to protect young and impressionable fans before they get in trouble.

Harry is the founder of Brand Architects, a UK based brand and marketing consultancy specialising in online gaming and esports. Currently bunkered down like everyone else, he’s available to take on brand, marketing strategy, copywriting and PR briefs.

To set up a Zoom chat, you can contact him at Harry@BrandArchitects.co.uk or connect on Linked In